File Attachment

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Procurement Systems

Procurement has long been and remains one of the most complex businessprocesses It can be approached in many different ways Characterised by itsnovel cross-disciplinary project management approach this new book coversmore than the conventional themes of project solicitation and proposalevaluation It builds on Procurement Systems A Guide to Best Practice inConstruction edited by Peter McDermott and Steve Rowlinson and extendsits content to make it relevant to the wider project management community

Coverage includes general historical context issues moving on to apractical discussion of different types of project and their procurementneeds This book focuses upon value generation through helping readers todesign project procurement implementation paths that deliver sustainablevalue It does this by showing readers how to facilitate project stakeholdersto identify and articulate both explicit tangible and implicit intangibleproject outcomes The book also discusses and provides cutting-edgeresearch and thought leadership on issues such as

stakeholder management ethics and corporate governance issues business strategy implications on procurement e-business innovation and organisational learning cultural dimensions and trust development human resource development

These issues are focused upon how procurement delivers value ndash a perspectiveof procurement that has been of increasing interest

Derek H T Walker is Professor of Project Management at RMITUniversity Australia

Steve Rowlinson is Professor in the Department of Real Estate andConstruction at the University of Hong Kong

Also available from Taylor amp Francis

Construction Safety Management SystemsS Rowlinson ISBN 978ndash0ndash415ndash30063ndash6 (hb)

Occupational Health and Safety in Construction Project ManagementH Lingard and S Rowlinson ISBN 978ndash0ndash419ndash26210ndash7 (hb)

Procurement Systems A Guide to BestPractice in ConstructionP McDermott and S Rowlinson ISBN 978ndash0ndash419ndash24100ndash3 (hb)

An Introduction to Building Procurement SystemsJ Masterman ISBN 978ndash0ndash415ndash24641ndash5 (hb)

ISBN 978ndash0ndash415ndash24642ndash2 (pb)

Procurement in the Construction IndustryW Hughes et al ISBN 978ndash0ndash415ndash39560ndash1 (hb)

Profitable Partnering in ConstructionProcurementS Ogunlana ISBN 978ndash0ndash419ndash24760ndash9 (hb)

Information and ordering details

For price availability and ordering visit our website wwwtandfbuiltenvironmentcom

Alternatively our books are available from all good bookshops

Procurement Systems

A cross-industry project managementperspective

Edited byDerek H T Walker and Steve Rowlinson

First published 2008 by Taylor amp Francis2 Park Square Milton Park Abingdon Oxon OX14 4RN

Simultaneously published in the USA and Canadaby Taylor amp Francis270 Madison Ave New York NY 10016

Taylor amp Francis is an imprint of the Taylor amp Francis Groupan informa business

copy 2008 Derek H T Walker and Steve Rowlinson selection andeditorial matter individual chapters the contributors

All rights reserved No part of this book may be reprinted orreproduced or utilised in any form or by any electronicmechanical or other means now known or hereafter inventedincluding photocopying and recording or in any information storage or retrieval system without permission in writing fromthe publishers

The publisher makes no representation express or impliedwith regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any efforts or omissions that may be made

British Library Cataloguing in Publication DataA catalogue record for this book is available fromthe British Library

Library of Congress Cataloging in Publication DataWalker Derek H T

Procurement systems a cross-industry project management perspective Derek Walker and Steve Rowlinson

pcmIncludes bibliographical references and index1 Industrial procurement 2 Project management

I Rowlinson Stephen M II Title

T568W365 200765872ndashdc22 2007008896

ISBN10 0ndash415ndash41605ndash1 (hbk)ISBN10 0ndash415ndash41606ndashX (pbk)ISBN10 0ndash203ndash93969ndash7 (ebk)

ISBN13 978ndash0ndash415ndash41605ndash4 (hbk)ISBN13 978ndash0ndash415ndash41606ndash1 (pbk)ISBN13 978ndash0ndash203ndash93969ndash7 (ebk)

This edition published in the Taylor amp Francis e-Library 2007

ldquoTo purchase your own copy of this or any of Taylor amp Francis or Routledgersquoscollection of thousands of eBooks please go to wwweBookstoretandfcoukrdquo

ISBN 0-203-93969-7 Master e-book ISBN

Contents

Notes on contributors viiPreface xiiiAcknowledgements xxiv

1 Introduction and procurement fundamentals 1DEREK H T WALKER JUSTIN STARK MARIO ARLT AND

STEVE ROWLINSON

2 Project types and their procurement needs 32DEREK H T WALKER AND STEVE ROWLINSON

3 Stakeholders and the supply chain 70DEREK H T WALKER LYNDA BOURNE AND

STEVE ROWLINSON

4 Business ethics and corporate citizenship 101DEREK H T WALKER MICHAEL SEGON AND

STEVE ROWLINSON

5 The role of business strategy in PM procurement 140DEREK H T WALKER MARIO ARLT AND JAMES NORRIE

6 Performance measures and project procurement 177DEREK H T WALKER AND KERSTI NOGESTE

7 E-business and project procurement 211DEREK H T WALKER GUILLERMO ARANDA-MENA

MARIO ARLT AND JUSTIN STARK

8 Procurement innovation and organisational learning 246DEREK H T WALKER AND TAYYAB MAQSOOD

9 Culture and its impact upon project procurement 277STEVE ROWLINSON DEREK H T WALKER AND

FIONA Y K CHEUNG

10 Project procurement and the quest for talent 311BEVERLEY-LLOYD-WALKER HELEN LINGARD AND

DEREK H T WALKER

11 Case study ndash developing a centre of excellence (CoE) 358CHRIS CARTWRIGHT AND DEREK H T WALKER

12 Trust commitment and mutual goals in Australian construction industry project alliances 378PETER REX DAVIS AND DEREK H T WALKER

13 Innovation management in project alliances 400STEVE ROWLINSON AND DEREK H T WALKER

14 Business transformation through an innovative alliance 423ALEJANDRO C ARROYO AND DEREK H T WALKER

Index 445

vi Contents

Contributors

Co-editors and chapter co-authors

Derek H T Walker (co-author of the Preface and Chapters 1 through 14) isProfessor of Project Management at the School of Property Constructionand Project Management at RMIT University Melbourne VictoriaAustralia He is Director of the Doctor of Project Management (DPM)programme httpdhtwtcermiteduaupmgt His PhD thesis is related toconstruction time performance management and this led him into furtherinvestigation of a range of project procurement organisational learningand innovation aspects of PM He has successfully supervised numerousPhD candidates in this area as well as having written several books over 30book chapters and in excess of 150 peer reviewed papers Further detailscan be found on httpdhtwtcermiteduau He is also editor of EmeraldInsightrsquos International Journal of Managing Projects in Business His indus-try experience includes 16 years in the construction industry in the UKCanada and Australia (including a two year period with a project planningsoftware support and development organisation) with 20 years as an acad-emic also providing consulting services to the construction and IT industry

Steve Rowlinson (co-author of the Preface and Chapters 1 2 3 4 9 and13) is a Professor in the Department of Real Estate and Construction atHong Kong University and is involved actively in research and Doctoralsupervision in the areas of procurement systems construction manage-ment occupational health and safety and ICT He has been coordinatorof the CIBW 092 working commission on Procurement Systems for overten years now and has co-organised numerous conferences and symposiain this capacity Steve has authored and co-authored more than 10 booksand over 100 peer reviewed papers He is an Adjunct Professor atQueensland University of Technology where he has a particular interest ininternational project management and construction innovation Stevehas acted as a consultant to inter alia Hong Kong Works Bureau HongKong Housing Authority and Queensland Department of Main Roads andas well as numerous consultancy reports has produced over 100 expert

reports in relation to construction site accidents and constructiondisputes over the past 20 years in Hong Kong He is a member of theInstitution of Engineers (HK) the Institution of Civil Engineers (UK) anda Fellow of the Royal Institution of Chartered Surveyors and is a keengolfer skier and snowboarder For more details see httprechkuhksteve

Chapter co-authors

Mario Arlt (co-author of Chapters 1 5 and 7) is a Senior Manager withSIEMENS Corporate Research Inc Princeton NJ USA and also aDoctor of Project Management (DPM) Candidate at RMIT UniversityMelbourne Australia Over the past 15 years he has actively managedand provided consulting services on small- to large-scale projects inFinancial Services Banking Automotive Pharmaceutical and High Techindustries During the last four years he has established and managed aproject management consulting group within the SIEMENS USA He isa PMI Project Management Professional Certified OPM3reg ProductSuiteConsultant and Assessor His areas of expertise include project portfoliomanagement project recovery and PMO management

Justin Stark (co-author of the Preface and Chapters 1 and 7) is a SeniorProgram Manager at TerraFirma Pty Ltd and was previously a ProgramManager at Hewlett Packard Ltd Melbourne Australia He is also aDoctor of Project Management (DPM) Candidate at RMIT UniversityMelbourne Australia He has extensive experience in managing a widerange of varied projects including infrastructure role outs and design(architecture) transition and transformation programmes national andinternational data centre and office relocations as well as global SDLCprogrammes and pursuit management He is PMP certified and has pub-lished a number of academic papers on subjects including ICT andOutsourcing Services as well as being an invited speaker on AssetManagement throughout the Asia Pacific region His areas of expertiseare project recovery offshore relocations global programmes and PMOmanagement his thesis area is on Portfolio Optimisation within anEnterprise setting

Lynda Bourne (co-author of Chapter 3) received her Doctor of ProjectManagement degree at RMIT University where her research on definingand managing stakeholder relationships led to the development of a newproject management tool the Stakeholder CircleTM (see URL httpwwwstakeholder-managementcom for more details) She has authorednumerous papers and is a recognised international speaker on the topicof stakeholder management project communications and other relatedsubjects Professionally she is the Managing Director of StakeholderManagement Pty Ltd and is responsible for the development and delivery

viii Contributors

of a range of advanced project and stakeholder management trainingcourses including courses for PMP CAPM PgMP and OPM3 ProductSuiteaccreditation She was the first accredited OPM3 ProductSuite Assessorand Consultant in Australia chaired the OPM3 ProductSuite Examinationcommittee and was the inaugural winner of PMIrsquos lsquoProject Manager ofthe Yearrsquo award (2003 Australia) and has contributed to a number ofPMI standard development teams including the OPM3 and ProgramPortfolio Management Standards

Michael Segon (co-author of Chapter 4) teaches at the Graduate School ofBusiness at RMIT University Melbourne Victoria Australia He receivedhis PhD focusing on Creating and Implementing Ethics Systems in largeorganisations from the Queensland University of Technology in 2006From 2003 to 2006 he was retained by KPMG Australia (MelbourneOffice) to provide professional advice and consulting services in ethicsand integrity

James Norrie (co-author of Chapter 5) received his Doctor of ProjectManagement degree at RMIT University and is currently the Director ofand a Professor in the School of Information Technology Management(ITM) at Ryerson University in Toronto Canada (wwwryersonca)where he teaches both graduate and undergraduate courses in projectmanagement and business strategy He is the author of two booksseveral articles and speaks frequently around the world on topics relatedto project management with particular interest and expertise in enterpriseproject management (EPM) project portfolio management (PPM)strategic project selection and the use of the balanced scorecard as aproject management tool

Kersti Nogeste (co-author of Chapter 6) is Director and PrincipalConsultant of Project Expertise Pty Ltd (wwwprojectexpertisecomau)received her Doctor of Project Management (DPM) degree from RMITUniversity Melbourne Australia has managed successful projects andprogrammes of work in Australia and North America is a doctoralsupervisor guest university lecturer and a board member of a regionalhospital and health service Using this combination of qualificationsand experience she applies a unique balance of rigour and relevance tohelping her clients implement their organisational strategy via projectsensuring alignment of organisational strategy programmes of work andindividual projects through to the level of project outcomes and outputsKerstirsquos most recent roles have involved managing product developmentITampT infrastructure and company merger and acquisition (MampAs)projects and programmes of work In addition Kersti is the author ofa number of peer-reviewed journal articles and a regular speaker atnational and international conferences

Contributors ix

Guillermo Aranda-Mena (co-author of Chapter 7) is currently a Lecturer inProperty Construction and Project Management at RMIT UniversityMelbourne Australia He holds a PhD in Construction Management andEngineering from the University of Reading and a Masters of Science inEuropean Construction Engineering from Loughborough University ofTechnology both in the United Kingdom In 2003 Guillermo wasappointed Post Doctoral Research Fellow at the University of NewcastleAustralia working on a Cooperative Research Centre for ConstructionInnovation (CRC-CI) research project in Building InformationModelling (BIM) in collaboration with the Common Wealth Scientificand Industrial Research Organisation (CSIRO) Ove Arup and WoodsBagot Architects He is currently RMIT principal investigator of fourCRC-CI research projects including lsquoBusiness Drivers for BIMrsquo lsquoMobileTelcom in Constructionrsquo lsquoeBusiness Adoption in Constructionrsquo andlsquoAutomated BIM Estimatorrsquo He is currently supervising various MastersTheses and two PhDs He is a Conjoint Academic to the SingaporeInstitute of Management Singapore and the University of NewcastleAustralia Publications and further details can be found on wwwrmiteduaustaffguillermo

Tayyab Maqsood (co-author of Chapter 8) is a Lecturer in Construction andProject Management in School of Property Construction and ProjectManagement at RMIT University Melbourne Victoria Australia He is aCivil Engineer and has worked in Australia Hong Kong the UK Thailandand Pakistan in various capacities as lecturer project engineer and researchassociate over the last 11 years His PhD investigated the role of knowledgemanagement in facilitating innovation and learning in the constructionindustry His PhD work is published in 22 refereed articles

Fiona Y K Cheung (co-author of Chapter 9) recently completed her Masterof Applied Science at Queensland University of Technology on thetopic of Determinants of Effectiveness in Relational Contracting She hasalso been working as research assistant with the CRC in ConstructionInnovation in Brisbane on a number of research projects associated withrelational contracting and has co-authored a number of conferenceand journal papers She is currently a PhD candidate at QUT focusing onrelational contracting and sustainability in the construction industry

Beverley-Lloyd-Walker (co-author of Chapter 10) undertakes teaching andresearch in the School of Management Faculty of Business and LawVictoria University Melbourne Victoria Australia Her PhD focused onIT-supported change in the Australian banking industry and its impacton bank performance Her more recent research and teaching has main-tained a strong interest and emphasis on strategic human resource man-agement issues and she has co-authored with John Griffiths and Gary

x Contributors

Dessler Human Resource Management published by Pearson EducationAustralia the third edition of which is due for release in mid-2007 Shehas also contributed several book chapters on construction procurementand the role of IT in human resource management

Helen Lingard (co-author of Chapter 10) completed a PhD in the field ofoccupational health and safety in the construction industry and workedas Area Safety Advisor for Costain Building and Civil Engineering (HongKong) She has lectured in occupational health and safety and humanresource management at RMIT and Melbourne universities and pro-vided consultancy services to corporate clients in the mining construc-tion and telecommunications sectors Dr Lingard has researched andpublished extensively in the areas of occupational health and safetywork-life balance and human resource management She has co-authored two books on Human Resource Management in ConstructionProjects and Occupational Health and Safety in Construction ProjectManagement She is writing a third book on the subject of ManagingWork-Life Balance in the Construction Industry to be released in 2007She is Associate Professor (Construction Management) in the School ofProperty Construction and Project Management RMIT University

Chris Cartwright (co-author of Chapter 11) has recently retired fromEricsson Australia after 35 stimulating years the final 10 years takingresponsibility for project management methods and competence Drivingthe process improvement activities for the Ericsson Project Officethe team was rewarded in October 2005 when the organisation wasrecognised lsquobest in classrsquo globally within the group He is currentlycompleting his Masters Degree in Project management at RMITAn active member of the Melbourne chapter of PMI he has spenttime as a director and is currently managing a global team of450 PMI members writing the second edition of the Project ManagerCompetency Development Framework an ANSI standard due forrelease in Q3 of 2007

Peter Rex Davis (co-author of Chapter 12) is an Associate Professor inConstruction and Project Management He commenced teaching andresearch at Curtin in 1994 Prior to entering academia Peter amassedmany yearsrsquo experience in commercial construction with both Governmentand corporate clients Projects undertaken varied and encompassedschools hospitals local government buildings and major developmentsof significant complexity and scope He has professional experience inconstruction management in both the UK and Australia He has a PhDthat investigates the impact of relationship-based procurement Thedoctoral programme was carried out at Royal Melbourne Institute ofTechnology (RMIT) Melbourne Apart from his research into

Contributors xi

Construction Procurement he actively researches teaching and wasawarded a Curtin University Excellence and Innovation in TeachingAwards (EIT) in 2003

Alejandro C Arroyo (co-author of Chapter 14) has an MBA in MarineResource Management an MSc in Shipping and Ports and is also aDoctor of Project Management (DPM) Candidate at RMIT UniversityMelbourne Australia He is focusing his thesis on an integrative projectat transnational scale that is taking place today in South America byinvolving knowledge management and communities of practice conceptswithin an ever-changing political and business environment He is CEOand Consultancy Director of Buenos Aires-based Southmark LogisticsSA (wwwsouthlogcom) ndash a company focusing on project logistics acrossthe Americas in the segments of mining oil and gas hydropower infra-structure transportation marine environment and project sustainabledevelopment He works at present on a number of large projects in thenatural resources and infrastructure areas in the logistic and environmentfunction across the vast and complex geography of Latin America theCaribbean and Alaska

xii Contributors

Preface

Derek HTWalker Steve Rowlinson and Justin Stark

Chapter introduction

Project management (PM) theory and practice have undergone atransformation ndash from studying and understanding projects with tangibleoutcomes that are of finite-duration [such as delivery of constructedinfrastructure or information technology (IT) products] to radicallyreflecting upon whether some types of project really exist at all in anyconcrete or conceptual sense (Hodgson and Cicmil 2006) PM theory nowextends to a broad range of project types from the highly concrete defined-time lsquotraditionalrsquo projects to projects that are completely ephemeral andintangible (eg events and change management initiatives) This book ismainly focused upon the nature of PM from a practical perspectiveDefinition of projects and project types are discussed in Chapter 2 and inChapter 5 we discuss strategy as it is applied to projects and how projectsintegrate into the general management of an organisation However werefer to intangible projects throughout this book and recognise theexistence and validity of less tangible projects

Traditionally PM theory and practice have poorly addressed the widerissues of procurement as being a key activity to achieve value for moneyThe USA-based Project Management Institute (PMI) has close to 250000members and for many decades has invested much effort in developingcompetency standards however it only recently expanded its focus onprocurement as an important PM process Indeed the latest version of thePMI body of knowledge (PMI 2004 Chapter 12) devotes less than 30pages to the process with much of the chapterrsquos content being focusedupon transactional issues such as letting contracts contracts managementand administrative aspects of contract closure In research [using a surveyof members from the UK Association for Project Management (APA) onits body of knowledge] procurement was seen as a commercial area and nota strategic one (Morris et al 2000) The APA is linked to the umbrellaorganisation the International Project Management Association (IPMA)with over 40 PM associations as members (see wwwipmachasp) that helpalign and coordinate international PM standards The evidence from the

various associationsrsquo project management body of knowledge (PMBOK)reflects the tendency for project procurement thinking to be dominated bytraditional PM experience gained over the past half century fromconstruction heavy engineering aerospace ship building and otherindustries sectors Recent work criticises PM professional bodies as notfully considering the complexity indeed the reality of projects as conceivedby many PM practitioners (Cicmil 1999 2006)

Most PM practitionersrsquo conception of PM is predominantly based uponan assumption of project delivery being an outsourced activity undertakenby the client (or clientrsquos agent) with a delivery chain comprising a designteam a main contractor who sub-contracted and supervised much of thedetailed operational work and input resources (people equipment and mate-rials) This rigid and highly segregated form of procurement has attractedmuch criticism centred on a failure of the prevailing system to capture valuethroughout the supply chain There has been a series of UK governmentreports for example investigating the construction industry and findingsfrom these indicate that the traditional construction procurement system isa root problem driving fragmentation and an adversarial project culturethat fails to deliver best value (Murray and Langford 2003) Several reports(Latham 1994 DETR 1998) that are particularly critical of the culture pre-vailing in the construction industry in the latter decades of the twentiethcentury illustrate a situation that is currently poor in numerous other PMsectors The Standish group (1994) paints a similar picture of ITrsquos and PMrsquosfailure to provide value despite suggesting a more recent 50 improvementin the situation In their 2003 report they state that

Project success rates have increased to just over a third or 34 ofall projects This is a 100 plus improvement over the 16 rate in1994 Project failures have declined to 15 of all projects which ismore than half the 31 in 1994 Challenged projects account for theremaining 51

(Standish 2003)

In terms of procurement Rooks and Snijder (2001) undertook a survey of1252 IT purchasing transactions of Dutch small- and medium-sized enter-prises (SMEs) and found that only 28 of transactions for software hard-ware and systems between IT providers and customers do not have someproblems associated with them Their findings show that 45 of transac-tions had inadequate documentation supplied and 25 of transactions hadlsquoincompatibilityrsquo or lsquobudgetrsquo issues Although this was associated with thedelivery of projects we can (provided we have the linkage) relate the processof procurement (understanding deliverables managing relationships defin-ing service levels and expectations penalty clauses liquidated damages etc)to the success rates Thus while project success or failure is caused by a vari-ety of factors clearly selecting a procurement process that improves the like-lihood of project success and value creation is an important goal that crosses

xiv Preface

many PM sectors Strategising the procurement choice to fit the valuepropositions of stakeholders who can contribute to project success can be avitally important element leading to improved PM processes

Projects start with a procurement process that defines outcomes expectedand the project scope commissions the design to achieve identifiedoutcomes and assembles the means to deliver those project outcomes Toooften we see adoption of a default or one-size-fits-all procurement processWe attempt in this book to trigger a re-evaluation of the lsquonormsrsquo becausewe believe that project procurement is ripe for reflection and adjustment toreflect the plethora of project types being undertaken and contexts in whichthe procurement process lsquonormsrsquo are either inadequate or are simplycounter productive This short preface chapter introduces the bookrsquospurpose aim some founding definitions and the bookrsquos structure

The value proposition for this book ndash its purpose and aims

The core issues identified by critics of the traditional procurement system(Kelly et al 2002 Langford et al 2003 Dalrymple et al 2006) recognisethe need for value-for-money and improved relationship quality betweenteam members in the project delivery system (Walker and Hampson 2003)An emerging core interest in project procurement is supported andenhanced by the formation of the International Council for BuildingResearch and Innovation in Construction (CIB) working commission W092 ndashProcurement Systems W092 developed a focus on contracts managementand forms of tendering for construction projects during the early 1990sOver the past decade however it has embraced investigating the nature ofhow procurement choices affect organisational culture and workingrelationships (McDermott 1999) This contextual discussion will bebroadened later in this chapter We will draw upon the constructionindustry as it is a reasonably mature PM environment or field of interesthowever we also draw upon many other PM industry sectors

This book is primarily focused upon how project leaders can make andinfluence procurement decisions so as to realise a project that truly deliversvalue to the project stakeholders for project and organisational successParticular attention is paid to the nature of lsquovaluersquo in this process in doingso we introduce a range of intangible project outcomes including ethicalconcepts to help project managers consider and address relative identifiedethics issues when realising a project

You will have mastered concepts discussed in this book when you canarticulate how to improve the project procurement processes to capturevalue and be capable of doing so by understanding the following

the fundamental meaning of delivering lsquobest valuersquo for projects andprogrammes

Preface xv

the range of procurement options open to project managers and theinterface between matching the strategy for value creation with anappropriate procurement delivery choice

cultural dimensions that show how project leaders can develop supplychain and competitor alliances and joint venture arrangements tosynergise each partnerrsquos capacity to deliver project outcome value

how stakeholders can influence the value that a project can generate andhow they can influence its realisation through a project by designing aprocurement process that recognises their input and influence

how innovation and organisational learning can be incorporated intoprocurement processes to generate value

how value from e-business can be harnessed to effectively andefficiently procure projects

how PM leaders can balance cooperation and competition in procuringprojects or being part of a group offering PM services

the impact that attracting the best talent to work on projects can beachieved through procurement choices that encourage and rewardperformance

how to use value measurement tools that provide better leadingindicators of value generation and

how to develop an appreciation for and an awareness of the role ofethics and being a good corporate citizen in delivering PM value

The focus of the book is illustrated in Figure P1 The key theme is procuringproject value Organisations tend not to want to merely source productsequipment people or systems rather they have a complex (often implicit)

xvi Preface

Figure P1 Focus of the book

Shapes valuedelivery

Procuringprojectvalue

Affects +is affected by

Affects + isaffected by

Shapes procurementchoices

Understandingprojectment

options Understandingethics and corporate

governance

Understandingthe nature of value and

the value chain

Balancingcompetition with

cooperationdelivers the rightkind of value ndash rules

norms conduct

Defining orredefining

the tenderingprocess

Affectseffectivenes ofmaking choices

need for a bundle of resources that help them generate and deliver somethingthat will be valued by those receiving the projectrsquos productservice Value canbe explicitly and implicitly expressed Understanding procurement optionsallows us to manage procurement choices and subsequent outcomes

We can effectively define and redefine the procurement process to matchthe way that we and critical stakeholders perceive value so that we canfocus on efficiency to reduce coststime (doing the thing right) andeffectiveness by focusing on value-based differentiation (doing the rightthing) Our understanding of the value chain and the nature of value affectsour perception of value We also find the need to balance cooperation andcompetition across project phases Understanding ethics and corporategovernance issues to ensure probity in project delivery is not only essentialbut it also affects our perception of project value

The context of project procurement systems

This section provides an example of how the concept of procurement hasbeen developing in a PM environment When reviewing the PM literaturesuch as the PMBOK (PMI 2004) or the Morris and Pinto book (2004) forexample we see procurement viewed predominantly with a supply-chainmanagement focus Many IT or business process PM project managersmainly perceive procurement as a make-or-buy decision from a choice ofin-house sourcing or from an outsourcing perspective Some of the richerand more fine-grained research work into project procurement can befound in the construction management literature It is for this reason thatwe will now summarise highlights from that wide body of work

Jack Masterman produced one of the first texts in building procurementsystems (Masterman 1992 2002) and Rowlinson in Rowlinson andMcDermott (1999) developed the work further and provided a definition ofprocurement systems based on nine years of the work of the CIB1 WorkingCommission 092 (W092) Walker and Hampson (2003) among otherscited in this text brought relationship-based procurement systems morefully to the attention of the construction and PM fraternity The evolutionof this project procurement definition is repeated below and discussed inthe subsequent sections of this chapter W092 members and otheracademics in this field view a construction procurement system choice as astrategic decision that subsequently affects the whole construction processand that the procurement concept is a very broad issue However theyrecognised the need for appropriate procurement PM and administrationprocesses to be followed regardless of which procurement strategy may bechosen They describe the aims and objectives of CIB Working CommissionW092 Procurement Systems (established in 1989) as follows

to research the social economic and legal aspects of contractual arrange-ments that are deployed in the procurement of construction projects

Preface xvii

to establish the practical aims and objectives of contractualarrangements within the context of procurement

to report on and to evaluate areas of commonality and difference to formulate recommendations for the selection and effective

implementation of project procurement systems and to recommend standard conventions

This working group aimed to serve the needs of the international constructionresearch community in times of change as the 1980s had brought signifi-cant changes in the legal economic and social structures of states in bothDeveloping and Developed Countries Privatisation in its many guises wason the political agenda not only in Western Europe and North America butalso in Eastern Europe (through the transitions from socialist to capitalistsystems) and in Africa and Asia (through Structural Adjustment Programs)W092 has achieved a broadening of the procurement agenda which isaccepting a diversity of viewpoints the recognition of the impact of cultureand overall a contingency viewpoint

The construction procurement concept had been poorly defined prior toCIB W092rsquos formation and this is also reflected in other PM-related busi-ness activities It is worth exploring the development of the procurementconcept by this construction group as it is likely to be applicable to otherPM situations The CIB commission initially adopted a general definition ofthe procurement term as lsquothe act of obtaining by care or effort acquiring orbringing aboutrsquo from the standpoint that such a conceptualisation ofprocurement would raise awareness of the issues involved both in challeng-ing generally accepted practices and in establishing new strategies Mohsiniand Davidson (1989 86) attempted a more sophisticated definition ndash lsquotheacquisition of new buildings or space within buildings either by directlybuying renting or leasing from the open market or by designing andbuilding the facility to meet a specific needrsquo This led to a debate amongstcommission members in Montreal in 1997 over the proposed definitionlsquoProcurement is a strategy to satisfy clientrsquos development andor operationalneeds with respect to the provision of constructed facilities for a discretelife-cyclersquo (Lenard and Mohsini 1998 79) Thus the commissionrsquos viewwas that the procurement strategy must cover all of the processes in whichthe client has an interest indeed the whole lifespan of the building

However the usefulness of such definitions has been questionedMcDermott (1999) noted that existing definitions (at that time) whilebeing useful for making comparisons of projects or project performanceacross national boundaries were limited to developed market economies ndasha conclusion supported by Sharif and Morledge (1994) who have drawnattention to the inadequacy of the common classification criteria describingprocurement systems (such as those discussed in Chapter 2 of this book)in enabling useful global comparisons This criticism is exacerbated by

xviii Preface

procurement choice descriptions being used differently by different PMsectors for example in IT or product development ndash lsquodesign and buildrsquo inconstruction terms is a valid and meaningful choice yet in many other PMsettings a component is often specified in broad performance terms by amain contractor the supplier designs manufactures and installs thatelement as being part of a supply chain This is simply part of the make-or-buy decision discussed in Chapter 1 Thus the whole procurement typol-ogy debate has been broadened in the construction industry context intoone which covered a whole-of-life cycle to also include economic politicaland cultural issues Evidence of this appeared in Latham (1994 5) whostated that lsquosome international comparisons reflect differences of culture or ofdomestic legislative structures which cannot easily be transplanted to the UKrsquo

McDermott further points out that key assumptions contained within thedefinitions client choice and the availability of a range of procurementoptions are irrelevant to Third World countries (McDermott et al 1994)Following intensive debate a working definition of procurement wasdeveloped by CIB W092 at its meeting in 1991 defining it as lsquothe frameworkwithin which construction is brought about acquired or obtainedrsquo(unpublished document) McDermott argues that this definition serves auseful purpose as it is both broad encouraging a strategic interpretationand neutral being applicable to developed and market economies

W092 has a number of focus areas that are current and internationallyrelevant Amongst these are development and privatisation these are issueswhich although having developed in the Western economies have a highdegree of relevance to Asia where the rapidly developing economies ofChina and India have looked towards the private sector to meet some oftheir burgeoning infrastructure needs Most countries in the world havemoved towards privatisation and publicndashprivate partnerships (PPPs)

A commonly occurring project procurement theme is that of the roleof culture in the shaping of procurement systems In particular the roles oftrust and institutions are increasingly important These issues will bediscussed later in this book these issues have arisen in both the West andthe Asian economies for separate reasons Of course the nature of culturedetermines the nature of trust just as history as well as culture determinethe nature of the institutions within which procurement systems operateThis is a fruitful and an exceedingly interesting area of research

Along with culture and institutions comes conflict The move away fromadversarial approaches to procurement and contracts and a move towardscollaboration and relationship management can be seen to have permeatedthe systems in Europe North America and Australia However such changesare also taking place in Asia particularly in China and the Japanese systemhas also embodied relationship management in its Kaizen approach system-atic incremental improvement (Imai 1986) for many decades now Thus thework of W092 on an international basis has great relevance for research and

Preface xix

dissemination and along with procurement must come considerations ofsustainability Sustainability a quadruple bottom-line view in terms of socialeconomic environmental and safety and health issues is an essential prereq-uisite for the continuance of development Indeed sustainability is embeddedin procurement systems in the UK through the concepts of communitybenefit (Donnaly 1999) In this section we have tried to introduce the readerto the broad field of project procurement that unfolds in this book

Structure of the book

The book is presented in two main sections The first section presentsfundamentals of procurement Each chapter in that section contains a shortvignette together with questions raised and links to useful resources toaddress those questions

Chapter 1 provides a discourse on the nature of value PM andprocurement and defines terms and the historical journey that has led froma lowest-cost tender to the sophisticated view expressed in this book andthe literature that has supported the development of this book It discussesthe lsquomake-or-buyrsquo decision and the rationale for outsourcing and also thevarious outsourcing types

Chapter 2 addresses the issue of the context of different types of project andhow that impacts upon a choice of procurement methods to use A discussionof relevant contract administration issues is also presented as they relate togenerating and maintaining value within the context of procurement choices

Chapter 3 views procurement from the stakeholder perspectiveStakeholders can add considerable value to projects as well as negativelythreaten projects draining management energy and causing disruption

Chapter 4 includes important discussion of ethical issues relating toprocurement This chapter also discusses project and corporate governanceand the impact of brand image upon those associated with a project

Chapter 5 is important because it discusses the strategic decisions thatanchor a project in a particular trajectory the initial approval to proceedand the strategies that may govern the project throughout its life cycle

Chapter 6 logically discusses performance measures and ways of valuebeing perceived and how to assess the effectiveness of project teams ina holistic manner This chapter indicates how recent research has shownhow hidden intangible value can be identified and linked to more tangibleproject outputs so that the true value of a project can be better articulatedand monitored

Chapter 7 investigates how e-business has affected project procurementchoices and procedures This chapter also discusses important facets of howinformation communication technology (ICT) is supporting projectprocurement and delivery processes and how it should be factored into aproject procurement and delivery strategy

xx Preface

Chapter 8 addresses the important and often neglected aspect ofinnovation organisation learning and knowledge management (KM) thatcan add value to project procurement processes

Chapter 9 brings forward critically important issues relating to culturaldimensions of procuring and delivering projects These include the culturalenvironment of a project and how a procurement design can set it on amore positive trajectory Project teams these days comprise cross-culturalgroups whether cross-national or cross-disciplinary These issues arerelevant to considering and designing an effective procurement and projectdelivery strategy

Chapter 10 addresses a key issue relating to project delivery Projects donot deliver themselves people deliver them Therefore effective procurementchoices should build in value that tempts the project organisations to attractthe best available talent to deliver value This is as relevant to bothin-sourced and out-sourced projects

In the second section four chapters are presented which provide researchresults and case studies of organisations some of whom have had theiridentities disguised These are taken from the Construction Industry the ITIndustry and the Logistics Industry They develop ideas on PM procurementpractice through case studies involving alliancing business transformationprocess improvement and the establishment of a centre of excellence projectEach case study provides a description of the project context to helpreaders understand the issues challenges and quandaries facing theseprojects in their procurement choices Responses andor solutions to thesequandaries are then provided Each aspect of the lsquowhatrsquo issues are given andexplained in Chapters 2ndash5 Additionally the lsquohowrsquo and lsquowhyrsquo issues areaddressed in Chapters 6ndash10

We thank the generosity of those who assisted us in producing this bookthe contributing authors those who supported us while writing it thosewho undertook the valuable editorial checking and administrative dutiesand those who provided information Finally we thank those authorswhose work we cite All value generated in any book or project such as thisis developed from the baseline of previous literature developed by ouracademic and practitioner colleagues

Chapter summary

This chapter introduced the book Figure P1 illustrates the focus of thebook being firmly on delivering value through a procurement system thatbuilds in and designs in value as a fundamental proactive process Weintroduced procurement in the context of PM and also traced the recenthistory of the evolving procurement field of study We stress that we haveto strategically design processes that drive a value agenda to effectivelyachieve value delivery in PM We expect that this book will break new

Preface xxi

ground triggering people to re-think procurement and how it can be usedas a change-management agent This can be achieved by introducinginnovation ensuring an ethical process with due justice being a core valueso that value is generated for as many players as possible in the supplychain We indicate how strategy and e-business trends can influence projectprocurement and we also highlight new performance measurement toolsthat can address the needs of a range of stakeholders on a range of projecttypes Importantly we address the issue of how to attract and retain thebest talent to implement projects be that from in-house or out-sourcedteams We believe that this book provides a fresh engaging and strategicapproach to the field of procurement that has for too long been viewed asbeing only transactional lsquopurchasingrsquo and lsquocontracts administrationrsquofunctions We provide four stimulating case study examples of leading-edgeprocurement application where tools transformation and relationalengagement are key drivers of this fresh approach

Note

1 CIB is the acronym of the abbreviated French (former) name lsquoConseil Internationaldu Bacirctimentrsquo (in English this is International Council for Building) In the courseof 1998 the abbreviation was kept but the full name changed to InternationalCouncil For Research And Innovation In Building And Construction The CIB wasestablished in 1953 URL is httpwwwcibworldnlwebsite

References

Cicmil S (1999) lsquoImplementing Organizational Change Projects Impediments andGapsrsquo Strategic Change 8(2) 119ndash129

Cicmil S (2006) lsquoUnderstanding Project Management Practice throughInterpretative and Critical Research Perspectivesrsquo Project Management Journal37(2) 27ndash37

Dalrymple J Boxer L and Staples W (2006) Cost of Tendering Adding CostWithout Value Clients Driving Innovation Moving Ideas into Practice SurfersParadise Queensland 12ndash14 March Hampson K CRC CI

DETR (1998) Rethinking Construction Report London Department of theEnvironment Transport and the Regions

Donnaly M (1999) lsquoMaking the Difference Quality Strategy in the Public SectorrsquoManaging Service Quality 9(1) 47ndash52

Hodgson D and Cicmil S (2006) Making Projects Critical Basingstoke UKPalgrave MacMillan

Imai M (1986) Kaizen The Key to Japanrsquos Competitive Success New YorkMcGraw-Hill

Kelly J Morledge R and Wilkinson S (2002) Best Value in ConstructionOxford Blackwell Publishing

Langford D A Martinez V and Bititici U (2003) lsquoBest Value in Construction ndashTowards an Interpretation of Value from the Client and ConstructionPerspectivesrsquo Construction Procurement 9(1) 56ndash67

xxii Preface

Latham M (1994) Constructing the Team Final Report of the GovernmentIndustry Review of Procurement and Contractual Arrangements in the UKConstruction Industry London HMSO

Lenard D and Mohsini R (1998) Recommendations from the OrganisationalWorkshop CIB W-92 Procurement ndash The Way Forward The University ofMontreal 18ndash22 May Davidson C H and T A Meguid CIB 1 79ndash81

Masterman J W E (1992) An Introduction to Building Procurement Systems2nd edn London E amp FN Spon

Masterman J W E (2002) An Introduction to Building Procurement Systems2nd edn London E amp FN Spon

McDermott P (1999) Strategic Issues in Construction Procurement InProcurement Systems A Guide to Best Practice in Construction Rowlinson S andP McDermott (Eds) London E amp FN Spon 3ndash26

McDermott P Melaine Y and Sheath D (1994) Construction ProcurementSystems ndash What Choice for the Third World East Meets West Proceedings ofCIB W92 Procurement Systems Symposium Hong Kong 4ndash7 DecemberRowlinson S University of Hong Kong 1 203ndash211

Mohsini R and Davidson C H (1989) Building Procurement ndash Key to ImprovedPerformance Contractual Procedures for Building Proceedings of theInternational Workshop Liverpool UK 6ndash7 April D Cheetham D C T Lewisand D M Jaggar CIB 1 83ndash86

Morris P W G and Pinto J K Eds (2004) The Wiley Guide to ManagingProjects Series The Wiley Guide to Managing Projects New York Wiley

Morris P W G Patel M B and Wearne S H (2000) lsquoResearch into Revising theAPM Project Management Body of Knowledgersquo International Journal of ProjectManagement 18(3) 155ndash164

Murray M and Langford D A (2003) Construction Reports 1944ndash98 OxfordBlackwell Science Ltd

PMI (2004) A Guide to the Project Management Body of Knowledge 3rd ednSylva NC USA Project Management Institute

Rooks G and Snijders C (2001) lsquoThe Purchase of Information TechnologyProducts by Dutch SMEs Problem Resolutionrsquo Journal of Supply ChainManagement 37(4) 34ndash43

Rowlinson S (1999) Selection Criteria In Procurement Systems A Guide to BestPractice in Construction Rowlinson S and P McDermott Eds London E amp FNSpon 276ndash299

Sharif A and Morledge R (1994) A Functional Approach to ModellingProcurement Systems Internationally and the Identification of Necessary SupportFrameworks East Meets West Proceedings of CIB W92 Procurement SystemsSymposium Hong Kong 4ndash7 December Rowlinson S University of Hong Kong1 295ndash305

Standish (1994) The Chaos Report (1994) Company research report DennisMA 14

Standish (2003) Latest Standish Group CHAOS Report Shows Project SuccessRates Have Improved by 50 at httpwwwstandishgroupcompressarticlephpid2 25 March

Walker D H T and Hampson K D (2003) Procurement StrategiesA Relationship Based Approach Oxford Blackwell Publishing

Preface xxiii

A book such as this does not just happen Our co-authors for exampledirectly make a valuable contribution through their expertise and generouslygiving their time and effort to draft re-draft and polish the chapters ndash wedeeply thank them for that devotion and commitment Behind the scenesare the reviewers the copy editors and those in the publication chain thathelped us by producing this tangible version of the book Without their vitalinputs of expertise and energy the quality of this book would be compro-mised Authors need to discuss their work so we acknowledge and heartilythank our colleagues and friends who have provided moral supporttangible advice and valuable feedback throughout the writing phase Ouruniversities helped us by providing hardware and software and access to thelibrary as well as moral support

Finally and with great gratitude we all acknowledge and thank oursocial support structure our family and friends who provided theencouragement and support in so many ways to help make time by carry-ing out our share of the family work to allow us the time to think and writeSpecifically I (Derek) would like to deeply thank my partner BeverleyLloyd-Walker and my family including Georgina David Ruby ourwonderful grandchild and Tony and Lee

This book has been produced with the cooperation of CIB WorkingCommission 092 and is a CIB endorsed publication

Derek H T WalkerSteve RowlinsonSeptember 2007

Acknowledgements

Chapter 1

Introduction and procurementfundamentals

Derek HT Walker Justin StarkMario Arlt and Steve Rowlinson

Chapter introduction

This chapter discusses procurement fundamentals from a PM context thatsets the scene for the rest of the book We argue that delivering value is themain purpose of PM and that value is generated by PM teams for customersand stakeholders including organisations involved in the PM process Weassert that a sustainable procurement process provides a way that value isgenerated for all parties concerned because envisioned value generation is astrong motivator of the required level of commitment and enthusiasmnecessary to generate winndashwin rather than winndashlose outcomes

At the heart of value generation is the issue of who participates in thisprocess This brings to the surface the primary make-or-buy decision thatinvolves determining which parties are best prepared suited and equippedto undertake specific parts of a project That leads to determining how tobest procure the required resources whether they be internally or externallysourced While a portion of the project will be inevitably undertaken bythose in the lead or PM role position (even if that contribution is solely tocoordinate activities) much of the project work will be outsourced Thischapter will focus upon the procurement fundamentals of the outsourcingrationale It is often assumed as a lsquogivenrsquo without looking at this decisionfrom a value generation and maximisation point of view

This chapter starts by discussing the concept of lsquovaluersquo and moves on toquestion and discuss what an organisation actually is and how it can delivervalue The next section focuses upon the nature of outsourcing and itsderivatives That leads into the issue of transfer pricing and how valuegeneration is treated in a global context because the trend towards globaloutsourcing has led to often complicated taxation and value recognitionissues Privatisation is also discussed in this chapter because many of themajor projects being undertaken by the private sector have been shiftedthrough government policy in all market economies from the public sectorto the private sector or through a partnership of public and privateenterprises

The nature of value

Value is in the eye of the beholder Because the appreciation of value isgoverned by perception we must start with the stakeholders who have aneed that requires satisfying or addressing Chapter 3 will explore thestakeholder dimension of defining and contributing to value RobertJohnston (2004) argues that customer delight lies at the top end of acontinuum This ranges from dissatisfaction where fitness for purpose ismanifestly absent through compliance with minimum expected deliveryperformance to that higher level where exceptional value is deliveredDelight is therefore the result of (excellent) service that exceedsexpectations However this may come at an excessive cost to either theprovider or recipient His study was based on gathering over 400 statementsof excellent and poor service gathered from around 150 respondentsParticipantsrsquo phrases about excellent service provided by the respondentsfell into four relationship-based categories

1 delivering the promise2 providing a personal touch3 going the extra mile and4 dealing well with problems and queries

Characteristics of poor service were essentially the converse of excellence(Johnston 2004 132) The interesting part of this study which related tocustomer service in general rather than procurement process in particularwas that while category one is transactional and satisfaction of the statedstandard appears to suffice the other three categories are about intangibleand often poorly explicated standards We could recognise value thereforeas being not simply fitness for purpose at an agreed price in a timely mannerbut also as providing intangible deliverables for organisations that mayinclude excellence in quality of relationships leadership learning cultureand values reputation and trust It is not easy to identify and prepare PMprocesses that have well-operationalised and developed measures to monitorand ensure effective delivery However Nogeste (2004) and Nogeste andWalker (2005) identify how this can be achieved This aspect will be dis-cussed later in more detail in Chapter 6 The point made here is that valueis an amalgam of the lsquoiron trianglersquo of performance measures of time costand quality together with expectations and anticipated delivery of lsquosofterrsquooften unstated needs Traditional project delivery procurement systems maybe adequate in defining tangible and defined outputs but they fall short infacilitating delivery of expected intangible and unstated outcomes Thisbrings in issues of expectations management as a valid aspect of project pro-curement processes The extent to which these intangible outcomes are deliv-ered is often associated with the level of customer delight and value

2 Walker et al

Returning to the more tangible and defined elements of value anotherway of viewing value for money is receiving a project or product at areasonable price that reflects input costs and is delivered within a reasonabletimeframe at the specified quality level This concept of value relates toethical and governance issues Taking an extreme example slave labour orusing stolen materials could arguably deliver lower costs however thiswould be unfair and unethical Issues relating to ethics and governance willbe discussed in more detail in Chapter 4 Similarly a process that ensuresopen and transparent availability of cost and scheduling information forexample can provide a set of project governance property arrangements tosatisfy fairness criteria Thus provisions for demonstrating value can bestructured into procurement processes Further as will be discussed inChapter 8 procurement options can be designed to facilitate innovationandor organisational learning Similarly a focus on talent both from thepoint of view of attracting talented project team members and developingcapacity in teams and stakeholders can also be designed into procurementchoices This is discussed in more detail in Chapter 10

Another way of looking at value is to ensure that delivered projectsmeet strategic needs of stakeholders An inexpensively delivered factory(strategically) located in the wrong place will not deliver competitiveadvantage and hence will have sub-optimal or negative value For manychange management or product development projects making the correctstrategic choice is part of the project procurement process ndash especially asmany of these projects use organisation-internal markets to resource theseprojects This aspect will be further discussed in Chapter 5

New technology particularly an e-business and information andcommunication technology (ICT) infrastructure can offer new ways ofconfiguring procurement options and can impact new processes and waysof both procuring and delivering projects These innovative approaches canenhance value to be delivered and this aspect is presented in more detail inChapter 7

Much of the focus of this book particularly Chapter 2 lies withexploring the range of procurement options open to deliver value inprojects by matching these against the context of the projectrsquos need to besatisfied The cultural dimension of both generating trust and commitmentfrom all parties is explored in Chapter 9 and this is particularly importantfor relationship-based procurement options (Walker 2003)

The nature of projects and project management

The PMBOK provides a useful definition of a project and projectmanagement A project is defined lsquoas a temporary endeavour undertaken tocreate a unique product service or resultrsquo (PMI 2004 5) Project managementis said to be the application of knowledge skills tools and techniques to

Introduction and procurement fundamentals 3

project activities to meet project requirements Four main processes arelisted identifying requirements establishing clear and achievableobjectives balancing competing demands for quality scope time and costand adapting the specifications plans and approach to the differentconcerns and expectations of various stakeholders (PMI 2004 8)

Turner and Muumlller (2003) remind us that a project uses a temporaryorganisation to deliver its outcome and that there are transaction costsinherent in a project that do not appear in established ongoing productionorganisations They also stress that much of the project managerrsquos role ismotivating team members stakeholders and shaping agendas Theydescribe features of a project as follows (Turner and Muumlller 2003 2)

The project aim is to deliver beneficial change Features includeuniqueness novelty and transience Pressures typically encountered arein managing to cope with uncertainty integration and transienceProcesses need to be flexible goal oriented and staged

Value in terms of projects is apparently more complex an issue than stan-dard factory production of lsquowidgetsrsquo because the management and leader-ship intensity involves mobilising transient groups of people broughttogether for a limited time to work on specific projects people within thesegroups often exit part way through the realisation of these projects for onereason or another That is why this book includes aspects of stakeholderidentification and management (Chapter 3) organisational learning andknowledge management (KM) (Chapter 8) talent management (Chapter10) and cultural dimensions (Chapter 9) that make establishing an optimalframework for delivering value so important As the collection ofgovernment reports reviewed and commented upon by Murray andLangford (2003) clearly indicate the procurement systems traditionallyused in the UK construction industry fail to address the complex reality ofhow projects can best deliver the more holistic concept of value notedearlier in this chapter

The phases of a project need to be considered so that optimum value isdelivered because a project often takes a long time (many years) to deliverA typical project can be seen to comprise of four principal often overlappingphases These are illustrated in Figure 11

At the initiation phase the project needs are identified clarified and pri-oritised along with expected benefits the strategic impetus for the projectand developing and challenging the business case for the project This iswhere stakeholder input can provide significant project potential valueThe appropriate involvement of stakeholders and the management of thisprocess are discussed in Chapter 3 in more depth The need foridentifying stakeholder potential impact can be of crucial importance andadd value by identifying often hidden opportunities for planning input

4 Walker et al

and knowledge and can unearth hidden risks and threats (Bourne andWalker 2005ab) Also intangible value and benefits can be identifiedanalysed and linked to the tangible project deliverables (Nogeste andWalker 2005) The design phase involves matching needs with proposals todeliver the required value to meet the identified needs Stakeholderinvolvement particularly in respect of prioritising needs and using valueengineering techniques to optimise value (eg see Green 1999) can deliverunexpected value The design phase is usually followed by a process wherethe successfully selected project team is mobilised and resources procuredto deliver the project This is where sub-optimal procurement choices canhave a profound impact upon project delivery value The final phase notedabove is de-commissioning and often a different set of additional stake-holders may be involved at this stage

Figure 11 illustrates two trajectories of project value generation through-out the project phases At the initiation and design stages stakeholder input(including not only supply chain stakeholders but project end-users andothers affected by the projectrsquos existence) can provide critical definition andperceptions of value that may shape the evolving design details High-levelperformance at this leading edge of the project time span is indicated byidentification of misunderstandings of value perceptions at as early a stageas possible These can include fully understanding the true needs driving thefeasibility of the project contextual knowledge and matters relating toplanning and logistics Without this kind of input from stakeholders it is

Introduction and procurement fundamentals 5

High

Stakeholder inputPlanning input

Innovation + knowledge Intangibles

Low Initiation Design

Procurement

High performancelevels

High performance levels

High performance levels

Low performance levels

Co-operationcollaborationLow transaction costs

Low performance levels

Delivery De-commissioning

Val

ue g

ener

ated

Figure 11 Project phases and performance

common for project designs to start sub-optimally with high expense andrework being required to remedy this if discovered later Worse still thisinput may be realised too late to effectively incorporate ideas that couldoptimally realise project value This is why the chosen procurement processcan have such a significant impact upon the stage before committing theproject to detailed design and tender As illustrated above the gap betweenpoor and good performance at this stage can be significant

The second part of the trajectories illustrated in Figure 11 relates to thedelivery phase spilling over to de-commissioning The point made here isthat even if a poorly initiated and designed project has a top-level projectteam carrying out the project it is unlikely to yield as much value as amediocre or poor project team delivering a project where there was highperformance initiation and design established For example Bartheacutelemy(2001) identified a proportion of the hidden costs associated with outsourcingcontracts and their management and maintenance which include

searching for and identification of a suitable vendor transitioning services to the external service provider managing the day-to-day contract and its service deliverables and the effort required once the outsourcing contract agreement has been

completed or terminated

Figure 11 clearly demonstrates that the value contribution lies not only inthe way that stakeholders and project team initiators behave andcontribute but also in the timing of their contribution It shows how theprocurement phase which often spans the design and delivery phases ispivotal in generating project value

Procurement choices should be geared towards maximising value Thisinvolves not only considering which type of contract to use but how toengage stakeholders how to link business strategy to select the projectinitially how to define value both in its more tangible and easily explicatedform and the hidden tacit aspirations of those who are meant to benefitfrom the project Procurement choices should be about balancing demandsand responsibilities protecting reputations of those involved in the projectagainst using unethical practices encouraging innovation best practice andknowledge transfer where it can reap value developing project governanceand reporting criteria that highlight protect and generate value and theyshould aim to attract the level of talent that can deliver stakeholder delightClearly this vision of procurement positions itself far from the traditionallowest-cost strategy It requires a more intelligent treatment of how best tofacilitate the project to generate sustainable value If the word lsquovaluersquoappears overused in this chapter it is because it has been largely absent frommuch of the project management and procurement literature This bookseeks to redress this situation

6 Walker et al

The make-or-buy decision

At the heart of procurement is a fundamental make-or-buy decision ChrisFill and Elke Visser (2000) argue that essentially projects are triggered by adecision to realise a change within the organisation (a make decision) or tooutsource this (a buy decision) Most projects have both make and buyelements to them The interesting thing about the emerging and growingtrend of organisations managing by projects is that we can look atoutsourcing as being purely external (a buy decision) or we can choose tolook at a project justification proposal to internally produce goods ordeliver a service (a make decision) Also each of these has an importantimpact upon management issues associated with the project lifecycle Eitherway these decisions essentially follow a similar process

Calculation of costs relating to the delivery of transaction-based serviceshas been the subject of extensive research Transaction-cost economicspractices (TCE) (Williamson 1975 Chiles and McMackin 1996 Robbinsand Finlay 1997) enable an organisation to quantify the costs associatedwith transaction-based services Transaction-based services are defined asthose services that can be quantified in a manner that allows them to be sep-arated as individual items within a service delivery framework This makesidentification and cost analysis considerably easier than non-quantifiableservices Transaction-based costs are defined as the delivery of services thatcan be measured against a specified service level agreement These activitiesare a significant contributor when measuring the total costs associated withoutsourcing deals TCE assumes that the costs are selective those differingmanagement choices will see a differing value for the costs of transactionsand that the governance structure and organisationsrsquo interactions can affectcosts This may not be as relevant in outsourced deals as the structure ofthe outsourced provider and the methodology used for management maynot be within the direct control of the customer There may be situations inwhich the customer has an expectation of specific interactions with theappropriate levels of the project management team for the type of contractor service level agreements that are in place Although the governancestructure of the delivery organisation will affect the relationship it is thegovernance structure of the customer that can ultimately influence the ongoingservice relationship If organisations have the same governance structurethen costs will be reduced and cost management could be minimisedalthough both organisations may vary their governance structures to helpreduce transaction costs

The resource-based view (RBV) of the organisation assumes that organisa-tions are a collection of people processes technologies competencies (skillsand knowledge) money and physical assets that together provide the meansfor firms to conduct business Barney (1991) argues that for firms to gainand maintain sustainable competitive advantage these resources must be

Introduction and procurement fundamentals 7

(compared to competitors) rare valuable and inimitable They must bedeployed strategically in order to lsquostay aheadrsquo of competitors Others suchas Conner and Prahalad (1996) argue that knowledge is a crucial resourceand indeed Prahalad and Hamel (1990) were early theorists who argued thata firmrsquos core competencies lay at the heart of its value as a company A fur-ther elaboration on this view includes the way that firms respond toturbulence and dynamic change in the market and these competencies(dynamic capabilities) are central to a firmrsquos sustainability (Teece Pisano andShuen 1997 Eisenhardt and Martin 2000) Firms can (internally) view valueas being their capacity to maintain or increase the most valuable of their stockof resources Ideally this manifests itself in increasing revenues physical orintellectual property organisation competence or skills and knowledge thatits people deploy in their daily job performance Their attractiveness to clientsand the market is partially determined by their choice of strategy to use theirresources to generate value for their customers or clients

Many managers and business leaders translate this strategic choice whendelivering projects as a combination of undertaking parts of the project atleast cost or arranging for others who can do so at lower overall cost Anoften hidden cost that needs to be also considered is the transaction cost ofarranging to sub-contract out part of a project This can include themanagement energy (and opportunity cost of making more productive useof their time) in developing a tender brief tendering evaluating andawarding a contract and then administrating and ensuring that requiredquality is delivered This lsquotransaction costrsquo as described by Williamson(1991) can be significant and the scale overlooked by those eager tooutsource and subcontract parts of their project Further parts of a projectwill require resources of skill competencies and capitalintellectual assetsthat the firm may not possess and so the obvious solution is to outsourcethese parts Finally there are contextual issues that inform a buy-make decisionAn organisation may have all the required resources to not only undertakea project by themselves but may also wish to share risk share resourcedemands or develop collaborative relationships with other firms Fill andVisser (2000) identify reducing hassle as an outsourcing driver Hassle mayrepresent an element of risk management or binding up resources that couldbe more productively used elsewhere They present a process of the make-or-buy decision as being determined by the inputs of

1 the firmrsquos strategy and cost and business structures2 the transaction costs associated with a lsquobuyrsquo rather than lsquomakersquo decision

and3 contextual factors that can include risks and future opportunities

When a lsquomakersquo decision is made based on the above to undertake a part ofa project in-house then not only should budgets and plans be presented to

8 Walker et al

plan how to undertake the work and what resources are required at whattimes but a business case should also be made to justify that lsquomakersquodecision The business case should address risk elements opportunities andprovide contextual information for example there may be strategicpolitical or historical reasons why apparently non-cost-effective decisionsmay be made

The make or buy decision therefore generally results in at least somepart of a project being outsourced as no firm has all the requisite resourcesand skills to undertake an entire project under its own steam Thus the nextrelevant aspect to discuss is the rationale and forms of outsourcing In thischapter we discuss the concept of outsourcing before entering into detailsof the various procurement options that will be dealt with in Chapter 2

The nature of outsourcing and its derivatives

Gay and Essinger (2000) see outsourcing as a process of transferring servicedelivery management responsibility to a third party for providing servicesthat are governed by service-level agreements This recognises the fact thatthe customer must take responsibility for the delivery of services to itsorganisation Jacobides and Croson (2001) argue that effective service-level-agreement monitoring encourages the vendor to ensure that the deliv-ery of service meets the contractual requirements This implies that themanagement responsibility for the monitoring of services governed by theservice-level agreement remains with the customer especially when consid-ering the successful delivery of services The customer in such situationswill need to rely on information provided both by reporting communica-tions from the service provider and feedback from internal customers to beable to judge vendor service-level delivery and to prompt any subsequentadherence action to ensure contractual service-level agreement perfor-mance This information will then have to be compared to the contractbetween the service provider and the customer Management reportingneeds to be included in all outsourcing contracts and should reflect theservice-level agreements and expectations that have been agreed uponMeasurement or reporting systems should be able to reflect the value asso-ciated with services rather than lsquomanagement noisersquo

Outsourcing can be thought of in one sense as sub-contracting activitieswhen the firm has a contract for a project but is unable to internally absorball the required work In another sense it can be considered as undertakingpart of a firm-internal activity or process This may include IT support oran element of production (perhaps manufacturing components or servicedelivery element such as logistics support) Outsourcing has becomeincreasingly prevalent in facilities management (FM) for a more detailedtreatment of that aspect (see Broumlchner 2006) A further subset ofoutsourcing discussed in this section includes out-tasking and privatisation

Introduction and procurement fundamentals 9

Outsourcing and out-tasking

Project outsourcing naturally requires project management capabilitieswhilst outsourcing of operational activities often involves a portfolio ofcascading projects to deliver the outsourcing model Some of these projectsare directly related to the outsourcing act such as shifting an operation orprocess from being internal to external delivery Others are indirect such asthe development of an effective oversight or governance capacity formanaging an outsourced venture or may include change managementactivities that are nested inside or surround the actual outsourcing project

Recent surveys in CIO Magazine (Bendor-Samual 2002) and DeloitteConsulting (Landis Mishra and Porrello 2005) analysed the reason whylarge organisations outsource activities In both studies about two thirds ofthe respondents named cost savings as the primary driver for their movetowards outsourcing However as Deloittersquos recent survey points out 38of the respondents which engaged in outsourcing ventures to save costexperienced unexpected additional costs Many outsourcing ventures didnot deliver on other promises the expected increased focus on core businesswas not achieved critical processes were mislabelled as non-strategic andhad to be in-sourced again vendor risks had been underestimated andbetter access to quality resources were often overestimated

While this by no means establishes that outsourcing is an unsuccessfulmodel it suggests that a solid business case is essential to the success ofoutsourcing activities Such a business case should state the expectedquantitative and qualitative benefits both from a tactical and strategicperspective as well as identify and estimate all related risks in addition toestablishing suitable metrics to measure the value-add of the outsourcingventure on an ongoing basis A comprehensive business case should includeall direct costs for the services being provided as well as the indirect costsassociated with managing the supplierndashcustomer relationships and thoseincurred from risk management activities

Outsourcing should not be the strategic objective but an option toachieve a strategic objective defined by management Currently manyvariations of outsourcing can be observed The following classification ofoutsourcing variations based on six dimensions are presented in Table 11(Stark Arlt and Walker 2006)

The Activity Dimension describes what organisational activity is to beoutsourced and distinguishes between short- and long-term endeavourssuch as projects and programs on one hand and open-ended activities likethe permanent execution of processes on the other hand The GeographicDimension relates to the locations included in an outsourcing scenarioand captures the geographic distance of the outsourcing partnerFurthermore the Legal Entity Dimension defines the legal relationship ofthe partners of an outsourcing agreement which can reside either within

10 Walker et al

(shared services model) or outside a corporation The DistributionDimension captures the degree that an activity is outsourced which for adefined activity can range between co-location (0) and full outsourcing(100) The Engagement-Temporal Dimension classifies the partneringapproach from the kick-off of an outsourcing relationship and will mainlyimpact procurement considerations for the outsourcing contract Some ofthe successful outsourcing partnerships have moved through someexperimental stages to a more hands-off model Lastly the MobilisationndashDemobilisation Dimension captures the impact of outsourcing an activityand may imply significant efforts depending on the implied re-entryoption a full divesture with no plans for taking back the outsourcedactivity in the foreseeable future (simple) demobilisation of resources withpossible re-entry (moderate) or probable re-entry (intense) which requireslegacy capacity to do so

As can be seen in Table 11 the six dimensions allow numerous strategicor tactical permutations of outsourcing scenarios As an example for themix of these dimensions an organisation could decide to outsource aproject component such as the generic code development for a definedcomponent of a software product to a third party in an offshore locationwith little need for developing any long-term relationships or embeddedlearning product enhancement nor any need for complicated re-deploymentor redundancy of existing staff

Introduction and procurement fundamentals 11

Table 11 Outsourcing dimensions

Activity dimension Geographic dimension Projects LocalRegionalNational (on-shore) Programmes InternationalGlobal activities (near-shore Portfolios containing projects or or offshore)

programmes Operations or business processes

Legal entity dimension Within one legal entity In a different legal entity but

within a corporation Outside the corporation

Engagement-temporal dimension Hands-off divesture Experimental ndash spin-off Experimental ndash growing

partnerships to divest Experimental ndash growing

partnerships to potentially absorb the outsourced entity

Distribution dimension All activities are performed within the

organisation (collocated execution) Activities are distributed across multiple

locations and partially executed in-houseand outside (out-tasking)

All activities are performed outside the organisation (full outsourcing)

Mobilisationndashdemobilisation dimension Simple (no re-entry expected) Moderate (re-entry possible) Intense (re-entry probable)

Although outsourcing of services has been implemented by a number ofgovernment agencies for example there are other procurement strategiesthat can be employed to meet the needs of large organisations Out-taskingselective delivery of expert services (often complete business processes) byan external party can be used without committing excessive overheads andmanagement Recruitment agencies payroll service providers and cleaningservices are all prime examples of this style of procurement strategy In thesesituations a services contract is drawn up between the customer and thesupplier for the delivery of specified services It is then up to the serviceprovider to ensure that the service is delivered to the contractualagreements In these out-task scenarios non-technical or specified skill setservices are provided and economies of scale for the delivery organisationshould provide cheaper services to the customer (Domberg and Hall 1995)

Out-tasking is a short-term operational decision that can be used toprovide a service needed to continue operations or provide specialist skillsthat would not be required for long-term operations or can be completelydivorced from day-to-day deliverables The risk of this procurementstrategy is less than with outsourcing as there are lower switching costsand often the skills provided are available freely within the market placeOut-tasking requires that a level of trust be established between the twoorganisations but the level of relationship management and ongoing sup-port is considerably less than with the outsourcing of services Procurementis achieved by defining the service level required for specific tasks andsourcing them within the market place For additional services theincumbent may provide a more cost-effective service but the customer isable to freely negotiate within the market place

At first glance such a procurement strategy has the look and feel of anoutsourced service and the classification between outsourcing andout-tasking is a grey line However out-tasking is a specified deliverable sointellectual property would not change hands and the customer is more ableto switch vendors in an easy and timely manner With outsourcing the costof the service needs to consider the long-term implications of switchingcosts because when these contracts are terminated it often occurs in anacrimonious manner

Such an out-tasking scenario to a third party may yield certain benefitsalthough there is much literature to refute this as an activity that savesmoney and delivers (Treacy and Wiersema 1993) unless there is an ongoingrelationship with the supplier It would be particularly suitable for a one-timeshort-term outsourcing need for a clearly defined and potentially rathercommodified service which requires specialist skills or could be providedby a third party at a substantially lower cost in a shorter period of timeandor of higher quality The risk of this out-tasking strategy is lower thana full outsourcing scenario due to lower switching costs associated withmobilisation and demobilisation of key resources and the likely wide

12 Walker et al

availability of qualified resources in the market place to provide such(commodified) services Out-tasking as described in the above examplerequires that a certain level of trust is established between the two organi-sations but the level of relationship management and ongoing support isconsiderably less than with the outsourcing of an operation or process Thecustomer may procure additional services from the same provider or fromwithin the market place due to the commodified nature of the underlyingdelivery models Risks relating to the retention of intellectual property andthe build-up of a potential competitor are limited as the conscious decisionis made to only out-task a part of the development effort and to focus oncommodified activities Outsourcing the development of further softwarecomponents to other partners may increase the leverage while maintainingownership of the overall design and architecture and securing theintellectual property of the overall product

We suggest that outsourcing decisions should be a truly strategy-drivenprocess which could be executed as follows in Figure 12

The stages can be summarised as follows

1 Define strategic objectives The clear definition of the objective andtarget variables which will be used to measure the success of the takenaction is most critical for the success of an outsourcing venture Therelevance of this first step is often underestimated and will be furtherelaborated in this section

2 Define a suitable outsourcing model Based on strategic objectives thesix dimensions can be used for defining a suitable outsourcing modelMetrics defined in the prior step will help estimate the business benefitsand set target values Chapter 2 will explain this in greater depth

3 Validate the outsourcing model This validation step may include anumber of stakeholders which will be involved in the outsourcingprojects within the organisation It will further solidify the benefits andrisks and could take into consideration benchmarking data for similarventures within or outside the organisation

4 Define requirements and partner selection criteria As a result of theprior steps parameters for a proposal request can be identified as wellas vendor selection criteria

5 Select vendor Based on Stage 4 a vendor selection can be performedand negotiations will be initiated

Introduction and procurement fundamentals 13

Define strategicobjective(s)

Define a suitableoutsourcing

model

Validate the outsourcing

model

Definerequirements andpartner selection

criteria

Select vendor

Figure 12 Outsourcing strategy

Thus the decision whether to use internal or external resources for executingan activity or service is strategic in nature and not merely a price-drivenmake-or-buy decision as long as services are typically not standardised tothe extent where they are purchased and delivered like a commodity

To successfully outsource activities executive management needs todefine the underlying drivers for such an action To the extent thatmanagement can qualify and quantify the strategic objectives associatedwith the outsourcing activity it should be possible to establish a solidbusiness case and execute it Such strategic objectives could be articulatedas follows

being focused upon core business activities (metric volume and supportcost for activities) that are neither considered core competencies nordirectly responsible for the organisationrsquos competitive advantage

leveraging external subject matter expertise for example for non-coreproduct components or one-time development or integration efforts(metric in-house development staff hired or retained for non-coredevelopment)

reducing labour-intensive processes and increase of cutting edgecustomer-centric activities in locations which exhibit high labour cost and

understanding the exit criteria for outsourced activities which will leadto a relocation of outsourced activities back to the parent organisationor reassignment

However when considering the outsourcing of services a series of additionalrisks should be taken into account For example successful outsourcingrequires that the organisation ensures that not only the deliverables meetthe specifications but also the relationships and contractual requirementsare to be measured and maintained (Cooke-Davies 2002) which involveadditional efforts and costs on both sides The outsourcing contract needsto define a reporting and control mechanism with agreed upon metrics andaudit capabilities such that delivery risk can be managed by the customerOutsourcing activities often lead to a shift of primary skills sets from thecustomer organisation to the supplier which may reduce an organisationrsquosability to manage the delivery from requirements definition to executionFor example the outsourcing of a manufacturing activity will impact on theresident skill set for production engineering the outsourcing of engineeringcapabilities may diminish the organisationrsquos ability to develop newproducts The outsourcing of a complete process is likely to impact on thedetailed understanding of the process and hence the ability to managemonitor and audit process compliance with the intended purpose and soon This risk of losing relevant skill sets requires mitigation and will lead tocost which will impact on the business case and most likely the procurementscenario

14 Walker et al

Outsourcing often involves moving a defined set of skills from the existingorganisation to an external party ndash for an example see Willcocks and Choi(1995) Although this can be managed within the transition processconsideration must also be given to the management of the transition froma staffing perspective Often government staff have been in roles forconsiderable lengths of time and the migration to a commercial operatingenvironment is not successful Staff benefits expectations and organisa-tional culture would need to be considered as part of the integrationactivities while regulations such as union agreements and governmentcontracts and employment law can impact on the process (Lobez 1999)

The procurement process for outsourced services needs to take intoaccount the complete life cycle of the engagement A number of largeorganisations often experience euphoric expectations at the inception ofoutsourcing agreements without fully understanding and managing therisks within this new approach to business Organisations have to consideroutsourcing agreements ndash as with any venture ndash as a temporary endeavourthat whether long-term or short-term follows a life cycle includingcontractual agreements and managerial contingency plans for the event ofcontract termination As a part of such contingency plans an organisationwhich has completely outsourced an activity will need to understand howit would proceed to provide that function either internally or through analternative party if the contract was terminated

Any termination clauses should ensure the least possible disruption ofthe activity the protection of the intellectual capital required to continue theactivity and the re-transfer (or in case of software and data assets the deletion)of proprietary assets which were provided to the outsourcer under the agree-ment A number of companies experienced difficulties in enforcing intellectualproperty rights in markets like China Thus a potential risk managementstrategy that can be employed (besides the decisive pursuit of legal options)may include the aggressive hiring of key players of a former outsourcingpartner the protection of intellectual property (IP) or theft through selectiveout-tasking of only some or commodified components Although it is notpossible to include a re-allocation of key staff in case of a termination of out-sourcing agreements there is a need to define the intellectual property thatwould be provided in the event of any dissolution of the service delivered Inthis context intellectual property should include any hardware softwarecustomised processes and procedures that have been specifically funded by thecustomer and integrated into the operations of the services It should notinclude any intellectual property that is used for other customers or would becommercially sensitive to the supplier This definition especially whenconsidering the transfer of tangible assets needs to be contractually definedwith great care prior to the delivery of services if not the customer can be atthe mercy of the supplying body especially when considering mission-criticalservices or functions that support the core business of the customer

Introduction and procurement fundamentals 15

Within this framework the cost of maintaining a skeleton staff that isable to maintain the customerrsquos IP and ensure that the services beingdelivered are appropriate and fit for their intended purpose is a procure-ment transaction cost expense that is often overlooked Adding to the levelof complexity of this procurement life cycle is the need to manage both thedelivery of services and the relationships with the outsourced serviceprovider

For an operation an outsourcing contract defines the services beingdelivered functional and non-functional requirements covered as part ofthe service-level agreement related cost and other terms and conditionsHowever delivery of core services is not the only service required by thecustomer The procurement life cycle within the outsourced contract needsto include facilities for delivery of additional projects and functions thatmay be required by the customer as requirements change over timeTherefore the customer organisation needs to understand its directrelationship with the service provider and how to engage when additionalwork is required The internal customer management team needs to manageinternal relationships so that service delivery is consistent and that shadowservices are not provided by other non-authorised external parties Thisimposes an additional burden on the customer account team but it alsogives them an understanding of all the functions delivered within theirorganisation and a process that allows the customer to manage costs

Government bodies however may not be at the size required to successfullyobtain economies of scale by outsourcing service functions Within theAustralian market place for example the federal government attempted toovercome this limitation by clustering smaller government bodies toprovide a larger lsquocarrotrsquo for the outsourced providers Although this wasconceptually a good idea it did not take into account the differingrequirements of the previously independent government departments Asone of the drivers was cost reduction this in turn led to lower service levelsdelivered to a number of the agencies and drastically decreased customersatisfaction In addition the ongoing management of the relationship anddelivery of services required that both the outsourced service provider and theclustered agency worked as partners to meet all partiesrsquo needs and expecta-tions From a procurement life cycle perspective this is a complex task dueto the differing requirements for each party

Transfer pricing issues impacting on outsourcing decisions

The issues of taxation implications for outsourcing and transfer paymentsfor sections of a project undertaken offshore have some compleximplications that affect outsourcing decisions particularly where these mayinvolve service delivery like decisions being made about where a global

16 Walker et al

organisationrsquos head office may be located to benefit from corporatetaxation rates or deciding where to place a production facility This is awide area that cannot be dealt with in depth in this book however somediscussion and consideration of project management procurement implicationis needed

Multinationals have the ability to deliver and produce services and productsthat span national boundaries and jurisdictions When a multinationaltransfers goods and services within its subsidiaries located in differentcountries where are its profits taxed Government authorities such as theUS Internal Revenue Service or Australian Tax office regularly challengeprices for transferring products and services across boundaries and underthe banner of the same parent company The OECD Transfer PricingGuidelines which were published in 1995 with subsequent updates everyyear up to 1999 were released1 to assist corporations and governments indefining transfer pricing calculations (OECD 2001)

Defined guidelines maintain the armrsquos length principle of treating relatedenterprises within a multinational group and affirm traditional transactionmethods as the preferred way of implementing the principle Corporate taxadministrations taxpayers and enterprise organisations all have a share inavoiding conflicting tax rules which may impact on the development ofworld trade

Multinationals have the ability to utilise their size and influence to ensurethat the most cost-effective procurement strategies are available this maybe based on differing procurement strategies or utilisation of offshoreservices and manufacturing to maximise profitability for the parentcompany For transnational organisations this may include the provision ofservices procurement of materials or staffing needs from the most cost-effective locations In Australia for example state governments often com-pete with each other when dealing with transnational corporations byproviding incentives to these bodies Such incentives may include taxationbreaks (especially with regard to state levies such as payroll tax) orincentives to maintain facilities such as supportinvestments withinfactories settings (Mitsubishi Australia received substantial funding supportto enable the manufacturing facility to remain open in South Australia) asreported by Kohler (2004) Obviously government bodies believe that thereis a positive financial outcome in providing incentives to enterprises to setup services within their states and corporations and organisations wouldbe remiss not to take advantage of such offers Organisations utilise theirpurchasing power to generate the offers made by government organisationsto maximise their return on investments and meet transnational stakeholderexpectations

Consider the implication of cost-of-living calculations Organisationsmoved from the provision of repeatable services from areas with high costof living requirements (eg London Sydney) to lower-cost locations within

Introduction and procurement fundamentals 17

the same country (Kent Newcastle NSW) This re-allocation of deliveryresources to lower-cost locations started the trend towards outsourcing butwas done on a location basis rather than an external task-orientated focusHence transnational organisations are able to utilise their market influenceand purchasing power to drive down the costs of procuring services whilstobtaining grants or incentives from governments to locate their serviceswithin a specific location or environment

The next stage of procurement management is the multinationalcorporation Such companies are able to use their market influence topurchase the same goods and services from the most cost-effective locationregardless of where it is located in the world Governments can countersuch action by restricting imports via regulation (restricting certain importstariffs import duties) but such practices are decreasing as the globaleconomy moves towards a free trade environment2 In addition countrieswith larger gross domestic products are able to influence global trade bythe manner in which their currencies are managed The US Dollar providesa staple yardstick for inter-country transactions and some countries areable to support their exports by artificially undervalueing their currencieswhen compared to the US Dollar which increases the quantity of exports(Ong 2004)

Procurement however requires that there is a transaction in placeGoods or a service must be provided from the supplier to the consumer Notunlike a customer purchasing a car the multinational corporation is able toshop around and explore the market place A consumer is able to obtainquotes and minimise the price that they would pay for the goods or serviceCorporations take the same action in order to maximise their profitabilityand return on investments for their stakeholders This includes but is notlimited to purchasing in on-shore near-shore and off-shore locations Eachof these locations has its own advantages and disadvantages

On-shore locations are those in the same region or country as the parentorganisation This may be a conscience decision or a mandatory requirementFor example the US Government would not allow for the delivery ofsensitive (or any) services to support its deliverables from locations notdefined as USA locations Near-shore locations are becoming more popularas they have the advantage of being more cost effective (cheaper) butmaintain a proximity to the home country Examples are generally based onthe location of the home country but may also include Mexico or PuertoRico when servicing the United States or Malaysia when supportingSingapore Near-shore locations may have the advantages of lesser prob-lems with transportation costs language requirements and time zones butare not the cheapest alternative for an organisation to pursue Off-shorelocations (off-shoring) have become a buzz word with the services industryThis entails the delivery of services from locations remote from the homecountry Languages issues time zones and distance may be negatives to such

18 Walker et al

strategies but these are offset by the reduction in cost associated with suchactivities

Each of these strategies can be addressed in two distinct ways Anorganisation may purchase services from a specialist provider and thenincorporate their deliverables into their value chain This is a practice thatSmall and Medium Enterprises as well as Multinationals can utilise Such apractice would not generally undergo any legal requirements or impinge onany legislative requirements However multinational corporations are in aposition to either own off-shore delivery centres or purchase them if it suitstheir financial goals

In such instances there is a need to maintain a level of distance betweenthe corporations working together Jeffrey Owens from the OECD Centrefor Tax Policy and Administration states the following in his on-line article3

(Owens 2006)

Globalisation brings costs and benefits even for the tax professionalThe move towards a borderless world has opened up new opportunitiesfor taxpayers to minimise their overall tax liabilities Much of this taxplanning is legitimate

However he adds the following cautionary note lsquoAnother all-too-commonpractice is for some large corporations to manipulate transfer pricesbetween subsidiaries to artificially shift income into low tax jurisdictionsand expenses into high tax jurisdictionsrsquo (Owens 2006)

Transfer pricing plans and processes have changed considerably over thepast 30 years and the economic realities for dealing with differingjurisdictions with differing legalisation require careful planning andevaluation of the lsquorulesrsquo within areas where the multinational may operateFor example in the 1970s the management of transfer pricing was basedon behavioural theorists This required negotiated pricing plans and wasdone between companies without external interference

As governments understood that management of multinationalcorporations required a more hands-on approach to transfer pricingmanagement a different process for setting prices was utilised Pricingmanagement was defined on the basis of either perfect market conditions orimperfect market conditions (Ho and Lau 2005) For perfect marketconditions the pricing is based on market price In simple terms this isdefined as either the lsquoas isrsquo or lsquoadjustedrsquo market prices The lsquoas isrsquo pricerelates to that in which the commodity is available within the market placeFor example if the product needed is available at $100 within the marketplace that is the internal transfer price which is used The lsquoadjustedrsquo marketprice needs to take into account economies of scale profit margins andother internal costs that should not have to be double-counted whendealing with services available from within an organisation Economically

Introduction and procurement fundamentals 19

it would make little or no sense to have overhead costs that are generallyattributed to headquarters counted in two locations hence the lsquoadjustedmarket pricersquo may be less than that available within the market place andneeds to take into account all costs associated with the delivery andproduction of services

There are a number of associated costs that are identified as relating tothe practice and process of outsourcing or out-tasking and therefore relatedto the management of transfer pricing As provision of services from off-shore near-shore or on-shore locations must be managed and maintainedin regards to whether the services are delivered internally via a subsidiarycompany or from an external source the structure and expectationsrequirement in management of relationships is similar to outsourcingcontract management These factors are not generally included in thestandard delivery costs invoiced for service rendered as they are known ashidden costs As stated earlier Bartheacutelemy (2001) identified a proportion ofthe hidden costs associated with outsourcing contracts and theirmanagement and maintenance which is worth repeating here

1 searching for and identifying a suitable vendor2 moving services to the external service provider3 managing the day-to-day contract and its service delivery and4 the effort required once the outsourcing contract agreement has been

completed or terminated

Any provider be it internal or external can help reduce costs that areidentifiable and quantifiable This can be by the manner in which servicesare offered and delivered or by working closely with the parentorganisation to determine needs specific requirements and service-levelagreement definitions that are suitable for the delivery of goods or servicesrequired by the organisation It is not cost effective to deliver servicesbeyond the needs or requirements of the customer as these will generallyincur additional costs and may not be beneficial to the customerrsquos valuechain and will reduce profitability for the total organisation when consid-ering the delivery as a component of the total value chain Efficient deliveryof service should be the aim of both parties to an external supports goodsor services contract

The list of identified hidden costs does not include all of the costs involvedin managing external delivery The costs involved in the management of theservice contract should include both the costs incurred in externalmanagement (eg vendorndashcustomer relationship management) but also theinternal management costs Within a large-scale enterprise the financedepartmentrsquos role should include liaison with the other internal departmentsor business units with a goal of ensuring that the profitability of theorganisation is maximised this leads directly to the management and

20 Walker et al

definition of transfer pricing As enterprises can consist of a substantialnumber of departments this internal function could involve considerabletime effort and expense Although not as pronounced in the smaller-sizedmedium enterprises ($100M contracts) internal management costs stillneed to be considered

As IT management can be a highly complex process it is important tohave an internal liaison team that is able to determine what IT needs can bemet externally and those services that should remain within the organisationThe liaison team also needs to be able to look at IT objectively anddetermine if vendor proposals are effective and if the organisation has theability to utilise economies of scale to minimise additional IT costs Thisbecomes especially apparent when considering sharing resources within andoutside the sponsoring organisation and in highly integrated value chains

The ability to define where and when overhead costs are leveragedagainst any organisation tends to require careful corporate planning espe-cially when dealing with differing corporate tax rates across the worldFigure 13 depicts global corporate tax rates for 30 OECD countries(Warburton and Hendy 2006 xxiv) and show both weighted by GDP atpurchasing power parity in 2003 and unweighted averages for 2005Warburton and Hendy (2006 32) state that

Unweighted averages are the simple average of a range of observationsOnly unweighted averages are reported in the OECDrsquos RevenueStatistics ndash the source of most of the data used in this report This

Introduction and procurement fundamentals 21

50

40

30

20

10

0

50

40

30

20

10

0

Per cent Per cent

Irel

and

Hun

gary

Icel

and

Pola

ndSl

ovak

Rep

Sw

itzer

land

Cze

ch R

ep

Aus

tina

Finl

and

Kor

eaPo

rtug

alD

enm

ark

Nor

way

Swed

enG

reec

eM

exic

oN

ethe

rlan

dsA

ustr

alia

Tur

key

UK

NZ

Fran

ce

Luxe

mbo

urg

Belg

ium

Can

ada

Ital

y

Spai

n

Ger

man

yU

S(b)

Japa

n

Weighted average

Unweighted average

Figure 13 Statutory corporate tax rates OECD-30 2006

Source Warburtun and Hendy 2006 See httpcomparativetaxationtreasurygovaucontentreportdownloadsCTRfullpdf

means that each countryrsquos tax burden is given an equal weight in theaverage of all OECD countriesrsquo tax burden regardless of whether thatcountry is Australia which in 2003 contributed 19 per cent of the totalGDP of all OECD countries or the United States which contributed363 per cent of total GDP In comparison weighted averages scale thetax burden of each country by that countryrsquos contribution to total GDPUnweighted averages best reflect the diversity of experience in theOECD In contrast weighted averages may be useful if the observerwants to understand the proportion of economic activity relevant to aparticular issue ndash for example the rate of growth of OECD GDP is aweighted average

Multinational corporations that have the ability to measure profitabilityin differing parts of the world would obviously prefer to register profits inthe most economically suitable location An example of such would be acorporation having its head offices in Ireland rather then the UnitedKingdom so as to minimise taxation costs

To counteract this process governments define their transfer pricing rulesas requiring a number of tests in order to be approved In Australia forexample transfer pricing requires that each transaction be considered asan arms-length process That is to say that there are two independentparties involved and the negotiated price is one agreed to between theparties This agreement is then verified by following a four-step process(Bowman 2006)

1 A functional analysis of the business is undertaken2 Publicly available data is used to determine an arms-length transfer

price3 A comparison is then made to the materials lodged by the organisation4 An Year-on-year review of the process is undertaken

The aim of this process is to ensure that commercial realistic prices are setand used for transfer pricing requirements Although initially onerous onceset an organisation need not undertake every step in this process butmerely update any changes as defined The issue with such a process is thatit is self-regulating and the information is required only when a company isasked for the data to validate a claim or report The primary requirementfor organisations is to document the process and ensure that the data ismaintained and validated on a regular basis

Organisations do have a number of methods available to them whendetermining how to calculate the costs of goods and services and thesubsequent transfer price used between organisations These are based not

22 Walker et al

only on the method of production but also on the risk and rewards for eachcompany (Aaron Ackermann Schuhmacher and Triplett 1998) Arms-lengthpricing is generally used for manufacturing or non-routine deliverables Anexample would be car engines built in one country but installed in a secondby the same umbrella company Non-routine deliverables would beactivities such as business processing for sales and marketing or businessprocess management supporting multi-divisions within an organisation butwhich are delivered from an off-shore location This may also includehelpdesks application support and other intangible deliverables thatgenerally require an interaction between two individuals to resolve ratherthan a face-to-face meeting

For organisations that are tightly integrated within their value chainthe methods of determination for transfer pricing become more difficultArms-length pricing models are not suitable when the determination of whois responsible for specific components of the delivery is not clearly identifi-able (Aaron et al 1998) In such instances a profit-split process can beemployed however this requires an understanding (and subsequentdocumentation) of the risk each party is taking This can be calculated asthe value of each organisationrsquos investment in the project or the actualdollars placed at risk Such calculations are more interesting as the risk andreward should be calculated in constant currency Constant currency is anexchange rate that eliminates the effects of exchange-rate fluctuations andthat is used when calculating financial performance numbers Companieswith major foreign operations often use constant currencies whencalculating their yearly performance measures4 Although not immediatelyapparent this provides for a baseline cost measurement that is consistentyear over year and is well documented throughout the accounting profession

As an example the following statement is added to IBM results asreported to the Exchange and Securities commission and included within theirpress releases available from wwwibmcominvestor2q062q06earningsphtml

In an effort to provide investors with additional information regardingthe companyrsquos results as determined by generally accepted accountingprinciples (GAAP) the company has also disclosed in this press releasethe following non-GAAP information which management believesprovides useful information to investors

IBM results

without non-recurring items without divested PC business and adjusting for currency (ie at constant currency)

Introduction and procurement fundamentals 23

Arms-length transactions are the preferred method of calculation fortransfer pricing but they are not the only method available As we haveseen the processesrsquo needed to calculate transfer pricing for tightly inte-grated value chains becomes more difficult as the risk and rewardmeasurements and the level of investment should be taken into account Formore complex transactions organisations also have the option ofpurchasing a supplier and using them as an external supplier and to man-age the taxation and profitability issues needed to maximise profitabilityfor the parent organisation

Transfer pricing requirements and profitability within each country doaffect the financial impact and tax rates associated when making economicdecisions with respect to how organisations structure their businessesService-based functions such as call centres are delivered remotely andwould not be subject to transfer pricing requirements Rather the deliveryof the service and the subsequent profitability can be based around thepricing requirements Does an organisation price its services based on wherethe service is delivered or on where it is provided Is the profitability basedon where the service is delivered from or where it is used

Production costs are not the only consideration when dealing withproduction environments such as lsquowidget manufacturersquo For exampledifferential tax rates such as corporate taxations import duties withholdingtax and tax credits will affect the overall costs associated with manufacturingHowever taxation issues can influence procurement choices andapproaches for projects using a global supply chain

Privatisation

Privatisation of government-owned organisations is a different strategy tooutsourcing For many government agencies the possibility of privatisation isnot available It would not be possible to successfully privatise the total oper-ations of the Australian Tax Office or the Public Heath system as these aregovernment services needed to successfully run the country These agencies arecandidates for outsourcing of services to support delivery requirementsPrivatisation is a strategy that can be used to transfer publicly owned organi-sations into private hands (who are alleged to be better placed to effectivelymanage business activities) This includes functions such as utility companies ndashpower light and water ndash which are not only able to be regulated by thegovernments but also provide an opportunity for private organisations to reapbenefits from technology upgrades and economies of scale

Privatisation provides the government with the opportunity to focus onthe core deliverables required to support the population but also to ensure thatthe essential but not life-threatening services are still provided althoughrecent experience in Australia has shown that governments have privatisedfunctions that should be managed as non-profit organisations ndash for example

24 Walker et al

transport services and emergency assistance (Police Ambulance andFire-response numbers)

When considering privatisation the sponsoring body must not onlyconsider the immediate impacts of the move such as reduction in publicdeficit but also the long-term implications (Walker and Walker 2000) Therehas been much debate within Australia over the sale of Telstra (Australiarsquosgovernment-owned Telecom provider) to private hands see Daniel (2002)or wwwcitizensagainstsellingtelstracom The debate should consider thelong-term economic effect of selling one of the countryrsquos most profitablecompanies but the majority of discussion is on the upgrading of services torural and disadvantaged areas Although such debate is fruitful for thoseaffected it does not consider the reasons why the government-ownedagency did not provide services to these areas despite being a wholly ownedgovernment agency Such actions must be justifiable and it has now becomea political debate as to how to require a private company to deliver servicesto a non-profitable area By funding such activities the government isreducing the net present value of the sale of Telstra and showing theinadequacies within the strategy

Privatisation of service provision could be considered an effective strategyfor the management of currently managed government services providedthat the long-term effects of such behaviours are considered and any risksmitigated Although most of us live in a capitalist society the wholesaleprivatisation of utility government services needs to be considered in termsof the overall economic effect This must include the immediate benefits ofdebt reduction end-of-life maintenance and replacement costs being borneby non-public funding and improvement in services as well as the long-term effects of having a guaranteed revenue stream removed from govern-ment hands and the longer-term effect of not having overall control overthe staffing and delivery of these services Private companiesrsquo goals arecentred upon maximising profitability for stakeholders as a governmentagency its goals are where to provide a basic level of service for allconsumers Although these goals are not mutually exclusive the provisionof services for non-profitable areas and groups would not be maintained bythe private operators unless government regulation andor funding isprovided In this situation what is the benefit to the private operator if theyare still bound by management decisions beyond their control and are notable to work to maximise the profitability for their stakeholders

Outsourcing and privatisation are two strategies that have beenemployed by governments to attempt to maximise the levels of serviceprovided to the public Outsourcing requires a long-term commitment to theprovision of services by an external party If the contractual details aremanaged from a strategic standpoint and consideration given for thelonger-term requirements such as additional service provision and termi-nation clauses then outsourcing can be used successfully by a government

Introduction and procurement fundamentals 25

agency to provide a range of services needed so that the agency canconcentrate on its core business Care must be taken when drawing up suchcontracts as the management costs form a part of the overall cost ofownership Consideration must also be given to switching cost relationshipmanagement within and outside the agreements as well as the cost ofproviding additional service For example what are the costs associatedwith having a third party provider deliver services to the agency that willthen need to be managed by the outsourcer What is the cost of transitionFinally in a delivery model where multiple outsource providers are workingtogether to deliver services such as infrastructure network and applicationsupport who is responsible for the overall service delivery

Governments may start the privatisation process by separate legalentities such as crown corporations that generate profit and operate on afully commercial basis prior to being sold as an entity or floated on themarket as is the case with Telstra in Australia or happened with BritishAirways in the UK A non-government version of privatisation can be seenas the encouragement and development of spin-off companies or use oflsquoskunk-worksrsquo entities These are purposeful and strategic decisions toencourage development through outsourcing experimental high-riskventures to parts of an organisation that can be later divested orincorporated within the host organisation in a way that matches its cultureand governance structures Privatisation and developing spin-off companiescan be seen as a high-level strategic outsourcing economic response

Chapter summary

In this chapter we focused on value generation to stakeholders and how thismay be achieved by organisations in a way that cascades value through thesupply chain The discussion in this chapter acknowledges that much ofthe PM work will be outsourced to a project supply chain and so the valuegeneration propositions for these groups involved in a project needs tobe understood so that a winndashwin outcome can be not only achieved butalso through understanding value triggers throughout the PM supply chainthe generation of value can be designed into the procurement process Laterchapters in this book elaborate on a range of aspects of how value can bedesigned into the PM procurement process

Vignette

26 Walker et al

OmniTrip is the organisation that won the tender for logisticssupport and management of the privatised integrated publictransport system for Southland a major city of 4 million people thatuntil 10 years ago had owned and operated a State-owned bus

Introduction and procurement fundamentals 27

tram and train (both above and underground) public transportsystem OmniTriprsquos contract was to provide services andmaintenance of legacy transport assets and gradually replace thesewith new assets as part of Southlandrsquos government renewal andimprovement policy OmniTrip is a global organisation withexperience in delivering similar services in 15 other cities in NorthAmerica Asia Northern Europe and South America SouthlandrsquosEnergy Efficiency Legislation requires phasing out hydrocarbondependency and moving from the mix of current hydrocarbondiesel-fuelled 100-bus fleet to a hybrid hydrocarbon-electric fuelledfleet moving towards sourcing of green-energy-rated electricityfor the train system and phasing in in-ground power for the tramsystem removing of overhead power cables for its 200-kilometretram network over the next 20-year period and replacing the 600existing trams with state-of-the-art energy-efficient trams It also willreplace the 150 trains with more energy-efficient and high-securityand high-comfort trains

Its coordination activities include managing the procurement andmaintenance of transport assets staffing of all operations including facil-ities management of stations (owned by Southland) and developing anew generation of stored value smart card ticketing systems Clearlythese complex operations represent a series of projects and programmesof projects in portfolios In the interests of Southlandrsquos mandatedbest-value legislation OmniTrip has decided that open or even selectivetenders present best value alternatives Provision of in-ground power forthe tram system and removal of overhead power cables provide anillustration of the procurement choices facing OmniTrip

The engineering for undertaking this task involves integration ofmany complex engineering groups civil engineering track engineeringsignalling environmental and safety engineering to name but a fewWhile OmniTriprsquos joint venture (JV) partner ComfortZone has under-taken similar work in three similar-sized cities in the world each cityhas experienced different geological and social challenges so thatscoping this phase of the overall programme for the tram network hasproved difficult ComfortZone could use its in-house skills gatheredfrom its experience in the three cities or it could choose to outsourceparts of the task to up to 10 of its overseas supply chain partnersLegal advice suggests that this type of project could benefit from theformation of a separate entity or use out-tasking because of thepotential intellectual property (IP) to be gained in learning animproved way of delivering this kind of service and facility on manyother similar projects It also needs to consider capitalising onpotential revenue from cross-business entities that can realise income

Useful web resources

The following web sites accessed during 2006 should be of value to readersThese are only a few samples of interesting procurement-related web sitesthat illustrate procurement policies or strategies and tools and relatedinformation

Commonwealth Procurement Guidelines January 2005 for theAustralian Commonwealth Government Department of Finance andAdministration wwwfinancegovauctccommonwealth_procurement_guidehtml

28 Walker et al

from carbon-trading (see Chapter 4 triple bottom-line aspects) asmore of its supply chain has recently joint ventured with legal entitiesthat can maximise revenue from these carbon trade activities Furtherthe business world has significantly changed over recent years and theuncertainty associated with carbon-tax liabilities and trading incarbon credit off-sets has radically changed the notion of lsquolowest costrsquobecause costs and revenues associated with sustainability legislation(currently in place and anticipated) has radically affected procurementpolicies and structuring outsourcing agreements The tram trackworks that OmniTrip and ComfortZone are currently grappling withrepresent a small part of the procurement decision-making policy thatthis JV is experiencing

Issues to ponder

1 Describe three key aspects of value that you believe thatOmniTrip offers Southland that its JV with ComfortZoneenhances

2 What top three issues relating to the make-or-buy decision do yousee relevant to this case

3 Discuss three main justifications that you would expect could beargued for and against the privatisation of the services originallyoffered by Southland to its citizens

4 How does the uncertainty indicated above relating to sustainabilitypotentially affect the concept of an organisation delivering bestvalue

5 Using Table 11 as a template select three of the six outsourcingdimensions of procurement issues raised in this vignette and notewhat additional information should be provided to make areasonable procurement decision about outsourcing

The Australian Procurement and Construction Council which is the peakcouncil of departments responsible for procurement and constructionpolicy of the Australian Commonwealth State and TerritoryGovernments wwwapccgovau

Directory link to e-procurement tools can be found at wwwbuilderspacecomdivisionsprocurement-softwarehtml

The CIB web site provides references to many related conferenceproceedings there are a number of related commissions follow linksURL is wwwcibworldnlwebsite

Notes

1 See URL wwwoecdorgdocument3402340en_2649_33753_1915490_1_1_1_100html to link to the OECD bookshop

2 See wwwftagovau for more details and current updates on trends3 See URL wwwoecdobserverorgnewsfullstoryphpaid1945Tax_in_a_border-

less_worldhtml4 See the web site wwwinvestopediacomtermscconstantcurrenciesasp for this

and other explanation of other financial terms

References

Aaron D M Ackermann R E Schuhmacher C W and Triplett C S (1998)lsquoProposed IRS Regulations on Global Dealing Ignoring Capital and Taxing ittoorsquo Ax Management Memorandum 39(22) S322ndash335

Barney J (1991) lsquoFirm Resources and Sustained Competitive Advantagersquo Journalof Management 17(1) 99

Bartheacutelemy J (2001) lsquoThe Hidden Cost of IT Outsourcingrsquo Sloan ManagementReview 42(3) 60ndash69

Bendor-Samual P (2002) lsquoOutsourcing Directions and Decisions for 2003rsquo CIOMagazine ndash Advertising Supplement

Bourne L and Walker D H T (2005a) Stakeholder Chameleon ndash Ignore at YourPeril PMI Global Congress 2005 ndash Asia Pacific Singapore 21ndash23 FebruaryNewtown Square PA Project Management Institute 8 pp

Bourne L and Walker D H T (2005b) lsquoVisualising and Mapping StakeholderInfluencersquo Management Decision 43(5) 649ndash660

Bowman C (2006) lsquoA Mystery No Morersquo Charter 77(9) 56ndash58Broumlchner J (2006) Outsourcing Commercial Management of Projects Defining the

Discipline Leiringer D L R Abingdon Oxon Blackwell Publishing 193ndash206Chiles T H and McMackin J F (1996) lsquoIntegrating Variable Risk Preferences

Trust and Transaction Cost Economicsrsquo The Academy of Management Review21(1) 73ndash99

Conner K R and Prahalad C K (1996) lsquoA Resource-based Theory of the FirmKnowledge Versus Opportunismrsquo Organization Science A Journal of theInstitute of Management Sciences 7(5) 477ndash501

Cooke-Davies T (2002) lsquoThe ldquoRealrdquo Success Factors on Projectsrsquo InternationalJournal of Project Management 20(3) 185ndash190

Introduction and procurement fundamentals 29

Daniel Z (2002) lsquoAre There Benefits to Privatising Medibank Privatersquo TheBusiness Report Australia Australian Broadcasting Corporation RadioNational Saturday 4 May 2002 Available at httpwwwabcnetaurntalks830busrptstoriess550924htm (accessed on 28 July 2007)

Domberg S and Hall C (Eds) (1995) The Contracting Casebook ndash CompetitiveTendering in Action Series The Contracting Casebook ndash Competitive Tenderingin Action Canberra Australian Government Publishing Service

Eisenhardt K M and Martin J A (2000) lsquoDynamic Capabilities What are TheyrsquoStrategic Management Journal 21(1011) 1105ndash1121

Fill C and Visser E (2000) lsquoThe Outsourcing Dilemma a Composite Approachto the Make or Buyrsquo Management Decision 38(1) 43ndash50

Gay C L and Essinger J (2000) Inside Outsourcing The Insiderrsquos Guide toManaging Strategic Sourcing London Nicholas Brealey Publishing

Green S D (1999) lsquoA Participative Research Strategy for Propagating SoftMethodologies in Value Management Practicersquo Construction Management andEconomics 17(3) 329ndash340

Ho H K D and Lau T Y P (2005) lsquoAn Exploratory Study of Transfer PricingPractices by Multinationals with International Affiliatesrsquo International TaxJournal 31(4) 37ndash54

Jacobides M G and Croson D C (2001) lsquoInformation Policy Shaping the Valueof Agency Relationshipsrsquo Academy of Management Review 26(2) 202ndash224

Johnston R (2004) lsquoTowards a Better Understanding of Service ExcellencersquoManaging Service Quality 14(23) 129ndash133

Kohler A (2004) lsquoMitsubishi Here to Stay Phillipsrsquo Australia AustralianBroadcasting Corporation (ABC) 24 May httpwwwabcnetauinsidebusinesscontent2004s1113947htm (accessed on 7 January 2007)

Landis K M Mishra S and Porrello K (2005) Calling a Changing in theOutsourcing Market The Realities for the Worldrsquos Largest OrganizationsOutsourcing Study New York Deloitte Consulting

Lobez S (1999) lsquoThe Brave New World of Contracting Out Privatisation andOutsourcingrsquo The Law Report ndash Radio National ABC Transcripts RadioNational ABC Radio 28 September wwwabcnetaurntranlisthtmLaw(accessed on 7 January 2007)

Murray M and Langford D A (2003) Construction Reports 1944ndash98 OxfordBlackwell Science Ltd

Nogeste K (2004) lsquoIncrease the Likelihood of Project Success by Using a ProvenMethod to Identify and Define Intangible Project Outcomesrsquo InternationalJournal of Knowledge Culture and Change Management 4 915ndash926

Nogeste K and Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Makingthe Intangible Tangiblersquo Measuring Business Excellence 9(4) 55ndash68

OECD (2001) Transfer Pricing Guidelines for Multinational Enterprises and TaxAdministrations Geneva Organisation for Economic Co-operation andDevelopment

Ong L (2004) lsquoIs Chinarsquos Currency Peg the Culprit behind US Economic WoesrsquohttpwwwaseanfocuscomasiananalysisarticlecfmarticleID 711 7 January

Owens J (2006) lsquoTax in a Borderless World Achieving Tax Compliance is aChallenge Facing Governments the World over Action can be Takenrsquo OECDObserver October

30 Walker et al

PMI (2004) A Guide to the Project Management Body of Knowledge 3rd ednSylva NC USA Project Management Institute

Prahalad C K and Hamel G (1990) lsquoThe Core Competence of the CorporationrsquoHarvard Business Review 68(3) 79ndash91

Robbins H and Finlay M (1997) Why Teams Donrsquot Work ndash What Went Wrongand How to Make it Right London Orion Publishing Group Ltd

Stark J Arlt M and Walker D H T (2006) Outsourcing Decisions amp Models ndashSome Practical Considerations for Large Organizations International Conferenceon Global Software Engineering ICGSE 2006 Costatildeo do Santinho FlorianoacutepolisBrazil 16ndash19 October IEEE CD-Rom Sessions Research Papers I GSEManagement ndash 6 pp

Teece D Pisano G and Shuen A (1997) lsquoDynamic Capabilities and StrategicManagementrsquo Strategic Management Journal 18(7) 509ndash533

Treacy M and Wiersema F (1993) lsquoCustomer Intimacy and Other ValueDisciplinesrsquo Harvard Business Review 71(1) 84ndash93

Turner J R and Muumlller R (2003) lsquoOn the Nature of the Project as a TemporaryOrganizationrsquo International Journal of Project Management 21(3) 1ndash8

Walker B and Walker B C (2000) Privatisation Sell off or Sell out The AustralianExperience Sydney Australian Broadcasting Corporation

Walker D H T (2003) lsquoImplications of Human Capital Issuesrsquo In ProcurementStrategies A Relationship Based Approach Walker D H T and K D Hampson(Eds) Oxford Blackwell Publishing 258ndash295

Warburton R F E and Hendy P (2006) International Comparison of AustraliarsquosTaxes Benchmarking Report Canberra Australia Government Treasury ISBN 0642 74339 8 449

Willcocks L and Choi C J (1995) lsquoCo-operative Partnership and ldquoTotalrdquo ITOutsourcing From Contractual Obligation to Strategic Alliancersquo EuropeanManagement Journal 13(1) 67ndash78

Williamson O E (1975) Markets and Hierarchies Analysis and AntitrustImplications A Study in the Economics of Internal Organization New YorkFree Press

Williamson O E (1991) lsquoStrategizing Economizing and Economic OrganizationrsquoStrategic Management Journal 12(Special Issue) 75ndash94

Introduction and procurement fundamentals 31

Chapter 2

Project types and theirprocurement needs

Derek HT Walker and Steve Rowlinson

Chapter introduction

Early project management texts tended to assume that projects weresubstantially tangible and flowed along a well-trodden path The early textssuch as that edited by David Cleland and William King (1988) have verystructured and traditional content that stresses techniques examples fromsolid tangible projects such as those found in construction advancedmanufacturing aerospace with some minor attention directed towards ITprojects from a programming and development perspective The promise ofbusiness-development-type projects and intangible projects such as changemanagement and process re-engineering has been acknowledged but therewas little written about these That situation has been more recentlyremedied and there is a rapidly growing interest in these less-tangible-projects and new texts have been written to reflect this for example theone edited by Peter Morris and Jeffrey Pinto (2004) That book which willprobably remain a lsquomustrsquo for most project managers in the future has forexample sections devoted to strategic portfolio programme managementand supply chain management That particular text clearly demonstratesthe flowering of PM attention to being not only a part of general managementtheory but also of leading the way Most management theory particularlystrategy development have stressed the need for better implementation(Mintzberg et al 1998) but mainstream management texts generally fail toadequately grasp the PM nettle We suspect and suggest that is becausemainstream management literature has viewed implementation and lsquoopera-tionsrsquo as a lesser form of intellectual pursuit than strategy and planning andso has generally overlooked the PM literature We do not wish to appear ascomplaining about this perceived shortcoming we observe this as a theorygap worth filling We also assert that this gap can only be effectively filledby absorbing and reframing mainstream management theory to a project pro-gramme and portfolio context By doing so we attempt to expand the inter-est in PM theory and practice One inevitable outcome of this changing focusis that we must recognise the range of types of project and the managementapproaches that necessarily flow from that realisation This chapter adds to

that emerging perspective as well as providing a hindsight perspective on theforms of procurement options that have evolved over the decades to cope witha diverse range of project types and their realisation needs

This chapter is thus presented in three broad sections and a vignette atthe end of the chapter presents a scenario and prompts relevant questionsflowing from that scenario The first section deals with a discussion onproject types and their needs The next section logically follows by outliningthe various procurement options and how they may best fit the project typeand need requirements The third section focuses on writing and evaluatingproject proposals and also contains a brief description of where contractadministration fits into this picture The chapter ends with a vignette andsuggested activities and questions that readers can tackle to better frametheir learning from this chapter

Project types forms and phases ndash influencingprocurement choice

The PMBOK stresses the need for deciding what a project should deliverand how to plan to deliver that objective (PMI 2004) There remainshowever a tension between taking a top-down and bottom-up approach todefining the scope of a project The bottom-up approach essentially relieson a large number of well-understood and well-identified components thatcan be grouped into assemblies and these configured into subsystems andthence into systems A project becomes the summation of these systems thatdelivers a need That need can have quite different systems that whenbrought together satisfy that need Moreover systems can include tangibleparts such as a building or a weapon such as a shipplane or missile deliveryplatform as well as intangible systems such as training in the correct use ofthe weapon system or commissioning a building including training inmaintenance and facilities management for example Even these lsquohardrsquo ortangible projects have some lsquosoftrsquo deliverables Crawford and Pollack(2004) provide a useful discussion on this topic and link the concept oflsquohardrsquo projects or project objectives with objectivist scientific paradigmsthat believe that the truth lies lsquoout therersquo as a fixed reality This approachled to a predominant systems view while lsquosoftrsquo projects relate more tosubjective concerns and is interpretive in nature seeing sub-text andinexplicit needs as being highly important This is a view that will be discussedfurther in this book particularly in Chapter 3 relating to stakeholdermanagement and in Chapter 6 relating to project performance measures

The dichotomy is not complete as there has been an emerging use of amodified systems thinking approach (soft systems methodology or SSM) inproject management first developed by Checkland (1999) and used morerecently to investigate project learning from experience and project learninghistories (Maqsood et al 2006) Further Crawford and Pollack (2004)

Project types and their procurement needs 33

identify a framework of seven dimensions that form the basis for a frameworkof understanding both hard and soft issues in analysing both hard and softsides of the project These are (Crawford and Pollack 2004 646) as follows

1 the clarity of goalsobjectives ndash how clearly these have been expressed2 the tangibility of goalsobjectives ndash how well these can be defined

visualised or otherwise expressed3 success measures ndash the kinds of measures used to describe project

success4 project permeability ndash the extent to which the project is subject to

external risk and uncertainty influences5 number of solution options ndash the approach to exploring and refining

goals6 degree of participation and practitioner role ndash the roles that team

members adopt when managing a project and7 stakeholder expectations ndash the view held of what is a valid expectation

for the project that influential stakeholders believe to be reasonable

They argue that this framework can be adopted by project managers whendeveloping a strategy for delivering a project and mapping issues againstthe seven dimensions so that they can avoid having a poorly balancedimplementation and project definition strategy If the expectation for theproject is substantially lsquohardrsquo then there will be a clearly different PMapproach to be appropriately adopted than for a lsquosoftrsquo project In theirpaper they illustrate their framework with three different case studies frompublic sector organisations and conclude that the framework was useful inproviding a structure to better analyse what went on in those projects togenerate lessons learned This kind of framework based on experience andproject histories gathered using the framework to provide a consistent wayof making sense of project delivery performance can be helpful at theproject procurement design stage For example by improving understandingof hard and soft issues relevant to a particular project a better fit for adelivery model coordination of team members and communication mediacan be established

During the beginning of the final decade of the twentieth century therewas a vigorous debate about the value of and optimal form of developing awork breakdown structure (WBS) for a project in order that effective plansmonitoring coordination and control could take place Bachy and Hameri(1997) discuss the planning approach undertaken in a highly complex10-year lsquoordealrsquo as they call it to develop a large expensive piece ofscientific equipment ndash a Large Hydron Collider (LHC) ndash which allowsscientists to look into the structure of matter Their paper clearly favoursthe positivist paradigm They advocated first developing a detailed andhighly explicit product breakdown structure (PBS) or parts-list that defines

34 Walker and Rowlinson

the minutiae in an intensely bottom-up fashion They then detailed anassembly breakdown structure (ABS) that describes how the parts should beassembled and incorporated logistics and material availability and otherrelevant production and manufacturing data and information They usedthe ABS detail information to develop a top-down approach tree-likerepresentation of the project as a series of connected sub-systems or workbreakdown structures (WBS) organised by function and component Thehead of the WBS was the lsquotangible project outcomersquo and a series of high-level components cascaded down into a breakdown of the work to be doneDetailed WBS work packages define suitable lsquochunksrsquo that they couldprovide a clear and simple description of what was to be done (objectives)An organisation breakdown structure (OBS) followed the WBS to defineresponsibilities and accountabilities and this linked with the WBSinformed the way that resources would be consumed to deliver the projectThe WBS and OBS formed the basis of the plan and in many ways is similar(but less detailed) to that used in the construction industry and otherengineering applications often referred to as a global method statement anddetailed method statement (Walker Lingard and Shen 1998) Thisapproach is useful for integrating a range of plans such as a risk manage-ment plan an occupational health and safely plan and an environmentalplan (Shen and Walker 2001) that can provide the basis for the projectteam to be sufficiently prepared for identified risks and have sufficientlymodelled scenarios to be able to be in a position to cope with unexpectedcircumstances that distort the validity of planning assumptions (Walker andShen 2002) Lammers (2002) points out how complex the WBS on manyprojects can become and argues that the PBS also has a function of allowingtags or attributes to be linked to the WBS through the PBS so that a rangeof attributes can be stored in a data base that fully describes and defines thework packages Turner (2000) recommends that work packages on aproject of 1 year could have about 20 or so packages of work eachdelivering a project milestone with about 5ndash10 activities of work (each withresources and accountabilities clearly stated) within each work package thatwould take about 2 months to complete

It is interesting to contrast the above with how PM and planning for con-trol is handled in other industries where different paradigms prevail Thearts provide such a contrast as the view that prevails amongst creative PMteams is one of emergence rather than complete and rigid specification Forexample in sculpting an outcome such as the famous statue of David theview allegedly expressed by Michelangelo was that he knew that the statuewas inside the block of stone he just had to liberate it (Briner Hastings andGeddes 1996) The live entertainment industry also provides another usefulexample Hartman Ashrafi and Jergeas (1998) provide an account of 14entertainment project events in Alberta ranging from sports to musicprojects It is clear from their account that while each event demands that

Project types and their procurement needs 35

they are completed on time the mindset of the PM teams is quite differentto the more traditional projects discussed in the preceding part of thisdiscussion They identify important major differences in PM practices thatsuggest different paradigm and value systems from construction of ITprojects for example (Hartman et al 1998 270) Artistic creativity is highlyvalued so that ephemeral and intangible tacitly lsquounderstoodrsquo performanceexpectations are real outputs as well as outcomes that are expected ndash failureto deliver on expectations results in shame and loss of face The way thatwork is defined and undertaken is fluid and undefined as may be seen bythe common saying about such projects lsquoIt will be OK on the nightrsquo mean-ing that the culture forces people involved in project delivery at a range oflevels in a lsquohierarchyrsquo to lsquomuck inrsquo when required to ensure delivery on timeThe authors (Hartman et al 1998) and others (DeFillippi and Arthur1998) stress that we have much to learn from such projects It is interest-ing from a procurement point of view that many of these projects usevolunteer labour or those who expect to sacrifice their present immediatepotential return to gain lsquoexperiencersquo for expected future benefit not onlyfrom knowledge gained but also social capital such as trust and respectfrom those involved in the projects

This leads us to pondering if there is a useful typology of projects thathelps us to (1) identify different types of projects that would need a differentdelivery approach and (2) provide some guidance on how to design aprocurement choice that best fits the need for the type of project From theabove discussion it seems obvious that a micro-management approach aprocurement choice with its inherent contract requirement and behaviourexpectation inherent in the scientific project example (Bachy and Hameri1997) would be unenthusiastically embraced and delivered for the projectsdescribed by Hartman et al (1998) Two sets of authors provide us withsome guidance Turner and Cochrane (1993) developed a goals andmethods matrix that is useful in understanding the needs of different projecttypes that can lead us to develop appropriate procurement strategies tomeet the needs of these projects Another way of looking at project typeswas presented by Shenhar and Dvir (2004) Both of these views shed lighton our understanding of the impact that project type can have on procurementchoice that encompasses contractual requirements which in turn mayimpose obligations that affect PM behaviour and culture

Turner (1999) in his text book identifies a number of project types andPM styles that relate to these In Turnerrsquos paper with Cochrane (1993) theyidentify four types of project based upon a 4-quadrant model of methodsbeing well defined and goals being well defined (yes-no) Their typologiesare as follows

1 Engineering projects or lsquoearthrsquo projects have both goals and methodssolidly defined Early published project case studies typically cite

36 Walker and Rowlinson

construction shipbuilding aerospace and manufacturing projects asexamples because they attract a lsquoscientificrsquo view of operationsmanagement influence The example presented by Bachy and Hameri(1997) typify this kind of project

2 Project development projects or lsquowaterrsquo projects have poorly developedmethods but well-developed goals These are characterised as beingsomewhat fluid but structured in the way that a river stream lake orocean naturally creates a boundary The Bachy and Hameri (1997) casecould have been looked at this way if the positivist paradigm oflsquocertainty of solutionrsquo (the research equipment design) was questionedas being merely lsquothe optionrsquo However it can be useful to view this kindof project this way if the procurement aim is to specify a fixed outcome(or set of outcomes) while leaving delivery methods flexible ndash ratherthan demanding any particular process of micro-management

3 Applications software development or lsquofirersquo projects have a well-definedmethodology but poorly defined goals The procurement emphasis maybe directed towards requiring a particular methodological approachthat is known (or reasonably assumed) to be successful while holdingthe end goal more fluid The lsquofirersquo could be seen as air that is focusedsomewhat like a flame generated by concentrating the rays of the sunthrough a lens

4 Research and organisational change projects or lsquoairrsquo projects havepoorly defined methods and poorly defined specific goals These arecharacterised as being illusive and generally invisible though theseprojects can be redefined ndash by including intangible goal elementsthrough a process of linking intangible to tangible outcomes ndash seeChapter 6 and recent research in this area (Nogeste 2004 2006 Nogesteand Walker 2005) The key to making these projects less difficult todeal with is to either separate the outcomes into several phasedprojects or to fully link the tangible and intangible outcomes

The key to success in using this typology is to recognise the realities of thetype of project and to intelligently design a project governance structureand through the procurement strategy require that this governancestructure acknowledges the project type and ensures that an appropriateprocurement choice delivers the appropriate project controls andgoalsobjectivesvision to match the type Where necessary projects may besegregated into several linked projects such as one to deliver the output andanother to deliver the outcome if a radically different paradigm means thatone PM group is ill equipped to deliver both outcomes and that radicallydifferent styles and types of PM team are required

Aaron Shenhar has devoted a considerable amount of energy in thinkingabout types of project and appropriate management styles His co-authoredbook chapter (Shenhar and Dvir 2004) builds upon a number of previous

Project types and their procurement needs 37

papers (Shenhar Dvir and Shulman 1995 Shenhar and Dvir 1996Shenhar 1998 2001 Shenhar Dvir Levy and Maltz 2001) in which heextends the ideas identified above by (Turner and Cochrane 1993) One ofthe extending features that Shenhar and Dvir identify is how pace as partof pace complexity and uncertainty intervenes between the project producttask and environment and appropriate project management style Theydevelop what they call the Uncertainty Complexity Pace (UCP) Model(Shenhar and Dvir 2004 1267) where the Uncertainty dimension can beseen as a combination of novelty and technology Their NoveltyComplexity Technology and Pace (NCTP) framework was developed toguide project management style The PM style can of course be influencedby procurement choices that favour an appropriate PM style The frameworkhas four dimensions

Novelty is measured as derivative platform or breakthrough Thesedescribe the extent to which methods are well-defined Derivatives areextensions of existing products or methods Platforms are new generationsand refinements in existing families of products or methods Breakthroughsare paradigm shifts going beyond innovation to invention or significantreframing that develops a totally new way of looking at a problem

Complexity is measured as assembly system and array Complexity refersto moving from an assembly to a system and array An assembly involvescreating a collective of elements into a component A system by contrastinvolves a complex collective of entities into a new form a re-configurationor re-framing of parts into a new whole with different characteristics tothe pre-existing system An array-type project radically shifts the paradigmAn array defence project may turn a set of physical network relationshipsinto virtual ones where a radical new technology is introduced as thechange agent

Technology is classified as low tech that relies on well-establishedtechnologies medium tech that uses an existing technology base andincrementally extends it high tech involves new technologies that may havebeen experimented with and tested in other contexts and so is lsquonewrsquo in theapplied context but at least there is a reasonable body of knowledge of itsimpact and influences in other contexts super high-tech projects are basedupon new paradigms when the project was initiated

Pace is perhaps the new concept in project types Regular refers to anevolution as it happens with little sense of forced urgency Fastcompetitiveprojects are motivated by a sense of urgency so they do not follow a naturalrhythm but are accelerated by force Blitzcritical as the tag implies isdriven by an acute sense of urgency and turbulence The implication thatthese typologies present revolves in procurement terms around how tobest encourage performance accepting and trading risks and developing arewards and penalty structure that matches a project type to what can beotherwise developed by other PM teams The image of flogging a dead

38 Walker and Rowlinson

horse may be crude but it is relevant in this context Project sponsors needto recognise the project context and match a risk and reward strategy aswell as recognising the value generated by intellectual input of teams indifferent types of projects

Selecting an appropriate management style involves assessing the natureof the project-external environment including available resources stakeholderexpectations and so on deciding upon the nature and characteristics of theend-product (deliverable) and the details of the task to be accomplishedThese are represented by the lsquoshapersquo of the UCP model emerging from theseinfluences The response to the identified UCP risk profile should informthe project management style The style involves how interactions between theproject management team and its supporting supply chain will take placethe structure of the PM team and the way that they are integrated andcoordinated the tools that can be used to manage the project the PMprocesses adopted and the type of people and the competencies skills andmotivations that they will bring to the project

A badly structured risk acceptance provision in a procurement strategycan easily deter the lsquobestrsquo potential project teams clearly risk and rewardsare linked Even if a project sponsor relies heavily on the perceivedmotivation of the project team responding to an intriguing and engagingchallenge this may not prove effective in the presence of competingchallenges The degree of formality and micro-managing the opportunitiesfor divergent thinking and the trust that this requires and the reliance on astock of well-practised skills versus dynamic and emergent-experimentalskills should frame the procurement choice dependent upon the need of theproject and the capacity of the PM team This is an area of procurementand PM theory that is continually developing where case studies contributeheavily to our understanding of a preferred way forward When we look atjust these two examples of ways of looking at project types (and therewould be many others) we can see that project choice and appropriate PMapproach is a complex and messy area where simple surveys of lsquobestpracticersquo could be highly misleading

We need to remember that projects are procured both internally (within anorganisation) as well as externally (to an outsourced entity) The main driversthat influence procurement choice that we have seen in this chapter arerelated to the project characteristics (type of project) the project sponsorsrsquoexpectations and their perceptions of what constitutes value and the extentto which the rules and methods to deliver the project may be known or know-able Project deliverables will generally have some mix of lsquohardrsquo and lsquosoftrsquodeliverable elements and characteristics These will link together with theenvironmental context that surrounds the project and shapes the projectcharacteristics which will also be affected by the complexity uncertainty anddelivery pace expected An environmental factor affecting how a project maybe characterised is the sponsorrsquos expectations and value proposition because

Project types and their procurement needs 39

this will affect the expected role that governance degree of formality andprocurement and delivery processes expected to be used The state of knowl-edge about governance rules and project delivery methods also influence theprocurement choice Further in a paper by Shenhar and Wideman (2002)they construct a two-by-two matrix based upon a Y-axis of type of projectwork split into lsquocraftrsquo or skillstraining-based work and lsquointellectrsquo or educa-tion-creativity cells Their X-axis cells relate to lsquotangiblersquo and lsquointangiblersquotypes of product from the project They cite traditional projects (constructionaerospace shipbuilding automotive) for example as lsquocraft-tangiblersquo andlsquointellect-tangiblersquo as a new mousetrap or development of a hybrid petro-leumndashhydrogen powered car Examples of lsquocraft-intangiblersquo projects couldinclude updating procedures and processes while lsquointellect-intangiblersquoprojects could include producing a movie This view is somewhat similar tothe earlier hard and soft project idea

Figure 21 illustrates the precursors to making a procurement choicebased upon the literature in particular ideas presented by (Turner andCochrane 1993 Shenhar and Dvir 1996 2004 Shenhar and Wideman2002) This not only moves beyond viewing project types simply as forexample lsquomajor expansion projects development projects and operationsand maintenance projectsrsquo but also includes the important projectcharacteristic of the projectrsquos strategic purpose (Crawford et al 2005) ndashbecause this factor may influence the extent to which it may be undertakenin-house as opposed to being outsourced

40 Walker and Rowlinson

lsquoTangiblersquo

lsquoHardrsquo elements

Environmentalcontext

Valueperceptions

Procurementchoice ndash PM

styleorganisational

form

Experience +method known

Rules + governance

Strategic purpose

Required skill types

lsquocraftrsquo skills

lsquointellectrsquo skills

Pace

UncertaintyComplexity

lsquoIntangiblersquo

lsquoSoftrsquo elements

Projectcharacteristics

Sponsorrsquosgoals

Figure 21 Project influences upon procurement choice

In this book we focus upon project classifications as being important tounderstand what a project may require for it to be delivered and from thatthe appropriate delivery procurement process that should be adopted InCrawford et al (2005 Appendix H) study report they present a model ofclassification that links project classification purposes (for researcherslibraries professional associations and organisations undertaking projects)with project attributes Table 21 tabulates their 14 elements that they detailas project attribute categories

While not all of these have been explained here they do provide anindication of the diversity of project types and their demands in terms offinding an optimum solution to the procurement design and execution of theirdelivery Clearly a lsquoone-size-fits-allrsquo approach to procurement is unwiseProcurement systems should be designed to achieve the project objectivesand deliver both tangible and intangible elements of perceived success ndash thevalue proposition perceptions indicated in Figure 21

Having now set the scene for us to better understand what influences aproject procurement choice and the preferred style and form of organisationthat should deliver it we now present a description of the types of pro-curement choices available In this section we will confine our discussionto forms of outsourced procurement choices We discussed the make-or-buydecision in Chapter 1 so it is appropriate that we now discuss outsourcingprocurement choices

When making a procurement choice we need to be clear about the projectphase being considered The PMIrsquos PMBOK defines project phases or stagesas an initiation phase several intermediate phases and a final phase (PMI2004 21) Projects begin with a concept definition phase A business orimprovement need (concept) is identified ideas are generated and justifiedThis phase involves developing the project idea based on satisfying someneed undertaking preliminary research into its likely scope scale andviability (from a technical point of view) developing a business plan thattests its strategic and commercial viability and sets the framework forfurther development Successful passage through that gate permits a projectdefinition stage to take place In this phase the project vision explaining itsraison drsquoecirctre and describing the preferred future that it will deliver will be

Project types and their procurement needs 41

Table 21 Project categorisation attribute

1 Application areaproduct of project 8 Project timing2 Stage of life cycle 9 Uncertainty ambiguity familiarity3 Stand-alone or grouped 10 Risk4 Strategic importance 11 Complexity5 Strategic driver 12 Customersupplier relationship6 Geography 13 Ownershipfunding7 Project scope 14 Contractual issues

articulated and the design parameters will be established to create a clearboundary around the problem to be resolved so that it is achievable andunderstood Project design may span several sub-phases such as a high-orderconceptual design followed by (usually overlapping) a detailed designphase There are often reality checks (stage gates) undertaken to test thevalidity of the project concept before the execution begins Execution ispreceded by a tendering or procurement phase where the team that willexecute the project is selected commissioned and mobilised The executionphase often on longer projects where the project deliverable is more than ahighly tangible lsquothingrsquo that is simply designed and delivered involves someelement of design refinement and tuning coupled to the production processThe project is closed out when the deliverable is approved for acceptanceand there may be a further decommissioning phase considered where thelsquospentrsquo project need is dispensed with Project phases and the processeswhereby they are delivered are described in detail in methodologies such asPRINCE 2 For more detail refer to Bentley (1997)

Figure 22 illustrates the extremes of one way of looking at the choicesavailable for project-outsourced procurement One dimension indicates thedegree of relationship between the outsourced entity and the projectinitiator This relates to the closeness of the delivery team with the initiationgroup across the early phases of the project With high-relationshipsituations the delivery team will be intimately involved from the initiationstage in a joint problem-solving and advice-giving role This may bechannelled through a joint venture alliance or other form of joint benefit-harvesting arrangement At the other extreme the relationship may behighly transactional with the project initiators simply buying in expertise todeliver the project with no joint benefit-sharing arrangements Closelylinked to the relational characteristics are those of culture discussed inmore depth in Chapter 9 most particularly the degree to which trust

42 Walker and Rowlinson

High

Rel

atio

nal (

R) Q3 - High R

amp low IDD

Q2 - High IDDamp low R

Q1 - Low IDDamp low R

Q4 - High Ramp high IDD

Integrated designdelivery (IDD)

Low High

High

Design gt Tender gt Deliver

Design gt Deliver gt JVAlliance Design + Deliver + Operate

Design + Deliver

Figure 22 Broad procurement choices

commitment and risk management strategies are interwoven Eachprocurement choice carries with it different types of risk The relational riskpresents another consideration particularly with alliances and jointventures this is where understanding trust and culture implicationsbecome especially pertinent

The design and delivery dimension refers to the degree of collaborationthat occurs from the start of the initiation phase between the designers ofthe solutions and those who deliver it In the construction industry andmany other manufacturing-type industries the design group is quiteseparate from the delivering group and the deliverer is selected on an open-tender method The builder often tenders on a given design and builds strictlyaccording to the specifications Another transactional but more integratedform of this is where the project initiator develops performance specificationsand the builder designs and constructs to that performance specification Ina more highly relational basis the entity that designs and builds also workswith the project initiator to operate the facility and then hands that back tothe initiator at some specified future time in an agreed manner (eg inperfect working order or completely dismantled and removed) In this lattercase the relationship is long term and ongoing due to governanceprovisions to ensure that when the close-out date for handover occurs theexpectations of the project conditions are ensured A project sponsor withconcerns about internal project delivery competence risk for example candeal with this by outsourcing ndash as discussed in Chapter 1 however thereneeds to be a competence in the outsourcing process to do this This risk canbe managed by retaining the design processes or both design and productioncan be outsourced or even the entire operational management as happensin the case of Build Own Operate and Transfer (BOOT) projects

Procurement choices

Having broadly sketched out the options we will now discuss procurementchoices in more detail

Procurement is about the acquisition of project resources for the realisationof a constructed facility This is illustrated conceptually in Figure 23 whichhas been adapted from that produced by Austen and Neale (1995) anddiscussed by Rowlinson in Rowlinson and McDermott (1999) The figureclearly illustrates the facility as the focal point around which a whole seriesof resources players and institutions coalesce Central to this model is theclientrsquos own resources that are supplemented by the project participants ndashin the example of the construction industry the consultants and thecontractors delivering the project along with the suppliers and subcontractorsHowever these players are partially constrained by the lsquoinstitutional sidersquoThe model clearly illustrates the need for the acquisition of resources inorder to realise the project and turn it into a facility This acquisition of

Project types and their procurement needs 43

resources is part (and only a part) of the procurement system This part ofthe system can be referred to as the contract strategy ndash that is the processof combining these necessary resources together The contract strategy isnot the procurement system but only a part of it the rationale behind thisview is that the procurement system involves other features ndash such asculture leadership management economics environmental ethical andpolitical issues ndash which are all dealt with in this book

In reviewing this model it can be seen that there are institutionsstakeholders and players and all of these entities interact in order to bothdevelop the delivered facility and also to constrain the decision-makingprocess within bounds set by each element of the system These bounds canbe brought about by institutional or regulatory constraints or by the limi-tations inherent in the clientrsquos own human resources or the consultantsrsquo skilland experience levels for example for construction projects The project ismetamorphosed into the constructed facility Thus one can see the contin-uous process of development from an idea or a need to create a facility andwhich essentially encompasses and is constrained and at the same timefacilitated by the client organisation its mission and its values Hence inprocurement terms when one looks at client resources one is in fact not justassessing the clientrsquos experience and knowledge but also its mission valuesand organisational culture Thus the simple schematic model belies thecomplex managerial cultural and organisational systems underpinning thewhole of the process

44 Walker and Rowlinson

RegulatorsApprovalagencies

Governmentinfluence

Influentialassociations

TradeassociationsLabourSafetyassociations

Institutional playersinfluencing the facility Institutional players

influencing the project

Stakeholders

The client

The supply chain

Contractors

Consultants

Suppliers

Sub-contractors

Players

Institutions

The Facility(product or

service)

The Project(product or

service)

Figure 23 Procurement choices

Source Adapted from Austen and Neale (1995)

In addressing the contract strategy issue the majority of writers havesometimes inadvertently reverted to systems and contingency theoryviewpoints and emphasised the importance of integration throughout thewhole project process and within the project participants as keys to successHence one is drawn back to Irelandrsquos view (1983) on the almost insignificantdifferences between nominally different contract strategies The issue thatneeds to be addressed in determining the crucial issue of contract strategy isthe mechanism for ensuring integration coordination and active collaborationbetween the project participants This is achieved by not only devising anappropriate organisational form and set of conditions of contract but also byfocusing on the soft infrastructure which underpins these notionally hardconcepts of structure and contracts Thus the need to develop a team spiritappropriate organisation culture and a lsquobest-for-projectrsquo attitude are all partand parcel of this human relations infrastructure which ensures that theadopted strategy has a reasonable chance of success Cheung et al (2005) indi-cate how such an approach can be developed and implemented in a widerange of contract strategies with success

Figure 24 illustrates examples drawn from the construction industry andwe use the quadrants referred to in Figure 22 ndash more detail about thedefinition of the types of contract can be found in Walker and Hampson(2003b) However we briefly describe these for the benefit of readersunfamiliar with the construction industry terms

The traditional approach (Q1) to procuring projects involves discretedesign development tender contract award and construction deliveryphases Each phase is in theory separate and distinct A client beginsthe process by approaching the principal design consultant ndash generally thearchitect for building projects or a design engineer for engineering projects ndashwho then develops the design to as close to 100 complete as possiblebefore inviting tenders Often refinement and amendment of design detailsare undertaken during the project delivery phase to resolve many designissues left incomplete and unresolved Tenders may be invited on an open-tendering basis that allows anyone to tender for the project or on a closed-or pre-qualified-tendering basis ndash restricted to those who have metpre-tender qualification criteria such as demonstrated financial soundnessand relevant project experience

Project types and their procurement needs 45

ndash Traditional approachndash Accelerated traditionalndash Management contractingndash Construction managementndash Project managementndash Design and BuildTurnkeyndash BOT lsquofamilyrsquoPPP

Q1 Delivery

Q4 Delivery

Increasing integrationof design andconstructiondelivery

Figure 24 Contract strategy

The main criticism of the traditional approach has been that it invites aconfrontational approach over disputes arising out of contract variationsthe unresolved design issues and an entire claims industry has developed outof this to advise contractors on how to claim for extra work and client rep-resentatives on how to counter such claims (NBCC 1989) The traditionalapproach imposes role-rigidity upon all parties It remains mainly becausemost contractors and clients are familiar with it and so it often becomes adefault approach However it removes the contractor from the designdevelopment phase and thus much management and constructabilityinformation and knowledge is lost with serious cost and relationship riskconsequences (Francis and Sidwell 1996 McGeorge and Palmer 1997)The contractor is closest to the workface with intimate knowledge of theproduction process and supply chain delivery players and so has much tech-nical and relational knowledge about how best to meet design specificationsin a cost- and time-effective manner (Francis and Sidwell 1996) This canreduce or obviate contract claims that have been highlighted as resultingfrom the impact of poor design coordination and subsequent designchanges to make design details workable (Choy and Sidwell 1991Yogeswaran and Kumaraswamy 1997) Relationship aspects are impairedunder the traditional procurement system because the contractor is answer-able to the principal design consultant with no formal direct access to theclient to suggest improved design for constructability

Early contractor involvement in the design development process can befacilitated using non-traditional procurement methods that allow contractorexpertise to be made readily available to the design team This lsquobuildabilityrsquo orlsquoconstructabilityrsquo advice is crucial to the development of design solutions thatmaintain value in terms of the quality of product as well as providing elegantsolutions to production problems (Francis and Sidwell 1996 McGeorge andPalmer 1997) Under Construction Management (CM) (a term synonymouswith lsquomanagement contractingrsquo) the contractor acts as consultant builder pro-viding significant advice on the practicality of the design and expected con-struction methods (Sidwell and Ireland 1989) The CM also provides servicesfor construction planning cost control coordination and supervision of thosewho have direct contracts with the owner to carry out operational work usu-ally for a negotiated fee as an agent or directly take responsibility for a guar-anteed maximum price ndash this is similar to a traditional approach but with thebenefit of interacting closely with the client and design team Under the agencyCM model trade or work package specialists physically undertaking the workwould do so under separate contracts with the client being coordinatedsupervised and managed by the CM team

Advantages of using the CM approach are as follows

reduced confrontation between the design teams and the team responsiblefor supervising construction

46 Walker and Rowlinson

early involvement of construction management expertise overlap of design and construction increased competition for construction work on large projects due to

work packaging and splitting the construction activities into moredigestible lsquochunksrsquo

more even development of documentation fewer contract variations no need to use nominated trade contractors (those specifically

demanded to be used by the client) and public accountability

The project management (PM) procurement delivery approach emergedduring the 1960s and 1970s arising out a move towards multidisciplinarydesign practices and in-house project teams undertaking governmentprojects The traditional client representative generally an architect led thedesign team with the major role of coordinating the design activities andoverseeing the construction operations as a non-executive project manager(Walker 1993) Variations in responsibility and remuneration formsvarying from a fee for non-executive PM services to a guaranteed fixedprice with contractual relationships between PM and contractor teams(Barnett 19989) have added to the complexity of this approach with thePMrsquos role ranging from lsquoadviserrsquo to lsquoexecutorrsquo

The main difference between CM and PM approaches is that the PMteam generally takes responsibility for design coordination as well assupervision of those responsible for delivering the work packages If theseresponsibilities are not supported by a contractual arrangement or wherethe PM team advises a client willing to take a more active management rolethe PM will take an agency position using a power base of persuasion andexpert knowledge to influence others Major decisions are directlypresented to the client if an executive or addressed to a project board ofdirectors for formal approval if this group is charged to represent a clientrsquosinterests The PM team has a contractual arms-length relationship withboth the design teams and the construction team in lsquopurersquo PM arrangementsIf the lsquoadviserrsquo role is adopted then the PM managerial influence will takethe form of persuasion rather than authoritative direction

A design and construct (DC) approach allows a client to contract theDC organisation to manage both the design and construction processes asa single point of contact This takes the traditional approach furtherupstream by contracting out the design and construction (delivery) to a setrequirement specification There may have been preliminary designinformation developed to indicate a generalised design solution or thedesign brief may be left fairly for the DC contractor to offer proposals Incombined project management and construction management (PMCM)procurement options an organisation undertakes to represent the client in

Project types and their procurement needs 47

leading the design team and undertakes the management of the constructionprocess including providing construction advice during design develop-ment The PMCM entity may act as adviser (in which case the manageriallinks are persuasive rather than directive) or may undertake the work undera contractual arrangement in which it carries financial risk In a DCarrangement this team will hire both the design team members and theconstruction management team members either within the design andconstruction company entity or as sub-contractors The design team may besourced from in-house staff or as more frequently sourced from the poolof design consultants undertaking a variety of procurement forms (Walker1993) In many cases the design and construction contractor subcontractsor forms a joint venture with design firms It can be appreciated thatPMCM and DC blur quite substantially as procurement process optionsso that a PMCM entity that carries financial risk is really a DC contractor

The client will often commission a design consultant to develop a brieffor a DC approach that will have a range of possible conceptualdesign-stage information to move forward from Thus the client has theopportunity to work with the design team to develop a brief to a stage inwhich it can test the market for proposals that will develop a projectsolution based upon the concept design A selection procedure is then putin place to evaluate DC proposals However designers from DC groupssubmitting ideas and developed plans have the opportunity to provideinnovative solutions and to take the concept and provide their ownfootprint on the result This has several potential advantages it

provides for innovative solutions to be tested by the market often results in a cost-effective solution combines the expertise of both design and construction professionals

and allows the client to have a single point of contact with whoever

manages the project if it wishes or in the case of PMCM can maintaincontractual control and essentially use this group as its internal designand construction group

The relationship experience for project teams moves towards treatingdesign and construction supervision entities as being contributing partnersin an enterprise to deliver a project solution that combines the skills of bothdesign and construction groups Dulami and Dalziel (1994) undertook astudy of 37 managers of the construction team of whom 22 were involvedon traditionally procured projects and 15 on DC projects They suggestthat DC improves project team integration through better cooperationand communication between the design and construction teams than is thecase under traditional procurement approaches As design and constructioncontractors are primarily builders they have constructability input that can

48 Walker and Rowlinson

be of significant value in much the same way that CM consultants can offerthis advantage This is just one example of many research studies across theglobe into the effectiveness of moving from a traditional approach to aDC approach

Gunning and McDermott (1997 221) provide insights into how DCoperates in Northern Ireland through interviewing 20 client organisationsand 30 contractors They found that

competitive tendering is often based on minimal design work or siteinvestigation but with estimates inflated to cover consequent risks

life-cycle costing receives limited consideration by contractors inpricing particularly with poor client briefs

the quality of design and construction is related to the adequacy of theclient brief and the professionalism of the project team Thisprofessionalism can be strongly challenged by commercial pressuresand poor communication and

clients are often ill-informed about the implications of the design andbuild approach and about the importance of a comprehensive brief forthe designer and contractor

A variant of DC is Novation in design and construction DC responsi-bility is undertaken by one legal entity responsible for project executionThe client starts along a traditional route by commissioning designconsultants to develop a design concept or advanced concept solutions(perhaps up to 25 of design finalisation) to enable DC tenderers to bidfor the project These design solutions though substantially complete at thepoint of novation are then improved upon by absorbing constructabilityadvice while maintaining design intent and integrity The intellectualproperty of the design team as well as the design team themselves thentakes on a new form (novating) into a DC contractorrsquos organisation tofurther develop the design solution initially developed by the client anddesign team This provides the design solution to be novated and open tocontestability by the construction teamrsquos expertise and buildability advice interms of systems or more specific detailed design information This canhowever pose serious problems for clients who have a more advanceddesign concept in mind than might be the case for the design andconstruction option however The means to meet the spirit and essentialcontent of the design solution can be addressed by the entity thatsuccessfully takes over a DC role to novate the design solution and takeresponsibility for the CM role in realising the project This can represent auseful option enabling clients to influence the project design to a greaterextent than is possible in the standard DC option

The clientrsquos risk can be reduced because the contractor takes over designdevelopment after novation while accepting pre-novation design assumptions

Project types and their procurement needs 49

This arrangement allows the contractor to substantially fine-tune the designto take account of its competitive advantage including constructabilityissues For example in the A$200 million-plus Melbourne Cricket Ground(MCG) Great Southern Stand project in Australia the structural design waschanged from cast-in-place to precast concrete in response to an overheatedcast-in-place concrete market and advantages inherent in an off-site fabri-cation structural design solution Additionally novation allows fast track-ing and a fixed price however the client forgoes some flexibility of makingdesign changes without incurring potential cost penalties The contractorby embracing the pre-novation design cannot claim against design omis-sions or errors thus accepting contractual risk for the design The designteam who frequently risk being simply lsquopassedrsquo onto the contractor maysee their lsquobabyrsquo amended to a level felt unacceptable by them For somedesign professionals this may pose important issues of design integrity andownership that may be difficult to accept

Generally novation is seen as a DC variant The client commissions adesign team to undertake a partially complete design instead of each DCcompany separately developing a design to a proposal stage Uponsuccessful negotiation of the construction contract the design team and itsdesign is passed to the successful bidder The difference between novationand DC is principally one of client control and influence The client hasmore influence and control to shape the desired outcome in novation thanwith traditional DC

Turnkey procurement systems provide for the company supplying DCservices to also finance the project The client makes staged or periodicpayments towards the value of work completed for PM CM and DCwork In turnkey projects however the company is generally paid uponcompletion of the commissioning and testing Literally the client pays forthe project and gets the key to gain access to the project While this sharessome similarities with lsquoBOT familyrsquo projects (described next) the contractordoes not undertake to operate the constructed facility The turnkeyapproach suits many clients who wish for tax or other financial purposesto make a payment only upon delivery of an acceptable product

The BOT family of total package procurement options allow a clientrsquosproject need to be met by an entity that contracts to design build operateown for some period of time and transfer the facility back to the owner Inthe BOO BOT BOOT the lsquoBrsquo represents the word lsquobuildrsquo the first lsquoOrsquo aslsquooperatersquo and the second lsquoOrsquo as lsquoownrsquo and the lsquoTrsquo as lsquotransferrsquo This optionhas been in operation for decades with many examples of these projects inmost countries of the world Readers can refer to texts (Walker and Smith1995 Smith 1999) for more details on this approach BOT requires thatlsquocontracted parties must accept the conventional wisdom that risk shouldbe assumed by the party within whose control the risk most lies A majorfunction of the BOT arrangement is therefore to recognise and provide a

50 Walker and Rowlinson

mechanism for the assignment and management of those risksrsquo (Walker andSmith 1995)

With the BOT lsquofamilyrsquo of procurement options an alliance or jointventure group forms to provide a facility for a client for which the clientmakes a concession agreement to fund the facility until that facilityrsquosownership is transferred to the client This arrangement is more commonfor infrastructure projects than buildings because the concession allows fortolls or other payments to be made by end-users to cover the cost of bothprocuring the facility and its operation Extensions of this idea have beencited in which buildings have been renovated and leased back on this basisand others where the facility is required to be removed and the site returnedto an acceptable environmental standard One advantage of this arrange-ment is that it extends the ideas of constructability further to embrace lifecycle cost effectiveness If the entity proposing the design solution isresponsible for maintaining and operating the facility then they will havethe incentive to reduce long-term costs and thus develop a highly cost-effective product over the product life cycle (Smith 1999)

The BOT entity undertakes financing design and construction as well asoperation and so the client is taking no direct cost risk other than thepossibility that the facility does not meet its needs or that the concessionagreement is unsatisfactory (Smith Merna and Grimsey 1994) Legal andfinancing costs ndash establishment costs ndash can be considerable for the BOTentity and should be compared with the clientrsquos legal and finance costs inundertaking the project in other forms or options This option is unlikely tobe viable for small-scope projects however Governments are increasinglyusing this option for hospitals prisons and other projects previouslyundertaken through other procurement scenarios outlined in this section(Grimsey and Graham 1997) A new variant of this form is where agovernment will joint the partnership by injecting equity or in-kindresources (perhaps land or an existing facility that needs upgrading) in apublicprivate partnership or PPP (Akintoye Beck and Hardcastle 2003)

There has been recent criticism of these (and by inference other BOTfamily delivery systems ndash for further details readers can refer to (Fitzgeraldand January 2004 Hodge 2004) Experience with BOTBOOBOOTschemes reveals some notable failures Generally these have been based onfailures of trust andor communication One of the most prominent failureshas been the Bangkok Second Stage Expressway The competitive tenderphase took two years to find a successful bidder Part of the complexityderived from the land-procurement process to allow the project to proceedAt the date when the work was supposed to start only 1 of the landrequired was available That problem was overcome but as the completionof the construction phase neared other fundamental problems regardingthe operation emerged Toll rates were decreased instead of being increasedto fund the project This led to loans being frozen in response to financiersrsquo

Project types and their procurement needs 51

concerns about the financial sustainability and then arguments broke outover the right to operate the expressway The project environmentsubsequently dissolved into acrimony amongst accusations of corruptionand widespread political interference Thus both relationship and cost riskswere severely affected by the Thai government changing its mind(Ogunlana 1997 Smith 1999) Clients and stakeholders involved in suchprojects can at times be severely affected by the integrated nature of financedesign and construction Other PPP and BOOT projects with questionableoutcomes are discussed in this book in Chapter 4 under procurement andthe financial bottom line and dealt with in depth by FlyvbjergRothengatter and Bruzelius (2003 14)

Why has this range of contract strategies historically developed withinfor example the construction industry One of the reasons is that eachparticipant wishes to obtain as much financial advantage and other valueas possible from the project procurement process Because the process takesplace in a competitive market there is a cycle of fluctuating pressure onprices at all times and commensurate downgrading in the priority ofrelationship and occupational health and safety (OHS) issues If the clientforces (through the market or design requirements) a lower-cost solutionthen this downward pressure on costs often forces the contractingparticipant to look to alternative means to recoup profit This often leadsto a claims-conscious behaviour and can also stimulate reductions in qual-ity functionality and OHS performance Consequently the client and itsadvisers are forced to exert greater surveillance over the contractor in orderto minimise the effects of this behaviour This results in a vicious cycle ofnegative behaviour as well as increasing project transactions costs Theresult may be poor relationships on the project poor OHS performancepoor quality and lsquoclaimsmanshiprsquo

One way of avoiding this problem which is based around a traditionalprocurement contract strategy is to adopt alternative contract strategies asindicated in Figure 24 Other forces are at work in bringing new contractstrategies to the market place The competitive nature of the market forcesorganisations to innovate if they wish to grow and secure market shareHence as the construction industry typically has been a conservative andtraditional industry there has been in the past ample scope for theintroduction of new and innovative strategies However until the late 1960ssuch attempts at innovation were quite rare especially in the UK constructionindustry With the advent of more experienced and sophisticated clientsthere has been an opportunity for leading contractors of the industry toexplore new routes Also as buildings have become technically morecomplex and clients managerially more sophisticated there has been anincreasing recognition that the conventional (traditional) approach toprocurement is inadequate Recently modern management concepts thatis business process re-engineering and partnering have taken root in clientorganisations The construction industry has experienced these concepts at

52 Walker and Rowlinson

second-hand when working with a major client and first-hand in the rushto reorganise in the face of declining markets Consequently factors havecombined to force the construction industry into the position where ithas to change to survive and the trends indicated in Figure 24 have been aconsequence

Much of the literature in this area uses terminology such as the traditionalapproach design and build build-operate-transfer management contract-ing and so on In order to clearly define the types of arrangements in whichthe trust ethical relationship management and OHS issues and strategiesdescribed in this book arise and are implemented a generic taxonomy oforganisational forms is required as described in Rowlinson and McDermott(1999) The function of this taxonomy is to provide a clear and simpledescription of construction project organisation forms which when takenwith other contract strategy variables uniquely define a strategy that is fur-ther clarified when put in the context of the overall procurement system

On top of all of this structure are the concepts of relationshipmanagement and the development of collaborative and cooperativeworking relationships (Walker and Hampson 2003a) Rowlinson CheungSimons and Rafferty (2006 77) describe these concepts as followsRelationship management is lsquoa system that provides a collaborative envi-ronment and which provides a framework for them to adapt their behaviourto project objectives It is about sharing resources and experiences expos-ing the ldquohiddenrdquo risksrsquo Like all relationship approaches trust betweenalliance partners is important because it creates an opportunity and will-ingness for further alignment reduces the need for partners to continuallymonitor one anotherrsquos behaviour reduces the need for formal controls andreduces the tensions created by short-term inequities Thus the modern viewof the procurement system is one predicated on issues of trust collaborationand ethical behaviour rather than the traditional view of structure and legalframeworks This paradigm shift in how procurement is viewed has laid thefoundation for an alternate client and stakeholder-focused approach whichis the essence of the ideas presented in this book

A more recent development in the construction industry has emerged fora number of sophisticated (ie construction-procurement-experienced)clients where they have experimented with relational-based procurementapproaches Several definitions and ways of looking at partnering andalliancing are shown below these have been developed to view partneringand alliancing as defined by Rowlinson Cheung and Jefferies (2006 6ndash7)from a research study into this aspect working closely with two majorAustralian Government Construction clients

Traditional contracts operate under AS2124 or similar and areadversarial in nature the contractors having been selected mainly onthe basis of lowest price in a competitive bid and the superintendentssee their role as gatekeepers safeguarding the clientrsquos interest

Project types and their procurement needs 53

Partnering has been implemented by putting a partnering agreement ontop of the traditional contract and encouraging contractor consultantand client to proactively address project risks identifying them beforethey affect the project and take action jointly agreeing to manage therisk The problem with this approach is that superintendents have con-tinued to see their role as gatekeepers rather than as team membersand contractors have kept one eye on the conditions of contract andclaims whilst going through the partnering process

Alliancing has been implemented in the main through a management orcost plus contract where pain and gain are shared between the parties tothe contract and a team approach is engendered in many instances bylocating all team members in the same office Thus the traditionaladversarial roles have been removed by adopting a different form ofcontract and way of working out issues particularly in the area of RFIs1

Relational contracting embraces and underpins various approaches suchas partnering alliancing joint venturing and other collaborative workingarrangements and better risk sharing mechanisms Relational contractsare usually long-term develop and change over time and involvesubstantial relations between the parties The characteristics of relationalcontracts and construction contracts are summarized in the report

For readers who are interested in partnering in construction there is a widerange of papers and academic literature on this topic (eg see Matthewset al 1996 Smyth 1999 Uher 1999 Akintoye et al 2000 Bresnen andMarshall 2000 Walker and Hampson 2003a) For those interested in thedifference between partnering and alliances a pertinent comment was madeby Walker that project alliances ensure that partners in an alliance sink orswim together that is benefits or penalties are shared using an agreedarrangement based upon project performance rather than individual play-ersrsquo performance This ensures that alliance participants have the incentiveto focus their efforts upon helping each other to make the project a successrather than their own involvement being a success (Walker and Hampson2003a) This whole issue of alliancing and relationship-based procurementwill be dealt with in Chapter 9 on culture and in the two case studychapters Chapters 12 and 13

Writing and evaluating procurement proposals

The aim of writing a good project proposal that has the best chance of gen-erating value is one that clearly states the scope scale quality expected andrelational aspirations that will govern the manner in which the project willbe delivered It is also important that the project be linked to the strategicneeds of the organisation (Archer and Ghasemzadeh 1999 Artto et al

54 Walker and Rowlinson

2001 Morris and Jamieson 2004) Disappointment generally flows fromunrealised expectations Yet if these expectations are not well expressed andformalised in some way acceptable to the parties engaged then the gulfbetween what was delivered and what was expected can lead to litigationbad feelings and adverse impacts upon reputations

Working out what is expected to be done

Each project should have a clear vision The dictionary definition of visionis lsquothe ability to think about or plan the future with imagination or wisdomrsquo(Oxford 2001 2066) Kotter (1995) describes vision in terms of somethingthat helps clarify the direction in which to proceed ndash this makes sense as theword has implications of the sense of sight Christenson and Walker (2003)argue that a project vision is complex because projects use multipletemporary organisations each with its own cultures and subcultures Theyargue that a project vision should have the following characteristics

1 It must be understood It must capture the core purpose preferredfuture state and essence of the project objectives its raison drsquoecirctre

2 It must be motivational It must make a convincing case for followingthe project vision concept that can be internalised by projectstakeholders and that provides a compelling value proposition

3 It must be credible It must be consistent with stakeholder cultures orsub-cultures to appeal at the assumptions and values level so that thevision statement cultural artefact resonates with them

4 It must be demanding and challenging It should be proactive tofacilitate teams to work smarter and more effectively perhapsidentifying stretch goals

Lynn and Akguumln (2001) in a paper on project vision deploying varioustypes of innovation demonstrate the value for vision support and stabilityand argue that a true vision should be a beacon on the hill that guides pro-ject teams delivering the vision Where clear and stable vision is importantand different from specification is that vision articulates the preferredfuture state rather than expected delivered object Many projects involvingrapidly changing technologies or which experience other kinds of unsettlingturbulence (such as dynamic influence of stakeholders on complex inter-linked sets of projects) are forced to make changes in design that would sug-gest instability In such circumstances a strong vision can prevail overdetailed project design (Christenson and Walker 2004) The envisioningprocess is an evolving one as it moves from a highly tacit knowledge objectinto a more explicit form before being internalised as a cultural artefact

The starting point for a project should be a compelling vision that arisesout of the identified project need Once that has been established by a

Project types and their procurement needs 55

project sponsor and is tested by being approved in principle by anorganisationrsquos senior management then more detailed needs and require-ments analysis can take place This would involve close interaction withinfluential and knowledgeable stakeholders (as is described in more detailin Chapter 3) and a combination of performance measures that reflect bothtangible and intangible needs (see Chapter 6 for more details) The processis one of bubbling up as well as cascading down Ideas for projects with asomewhat hazy vision will bubble upwards as needs are pragmaticallyidentified These are then tested and validated by higher levels of organisa-tional authority for strategic fit and made to show how the projectrsquos visioncan enhance value for the organisation This gestation period variesdepending upon the urgency of the need and the processes available toencourage and test these ideas Many projects are currently viewed as partsof programs or portfolios of logically linked change initiatives (see forexample Section II of [Morris and Pinto 2004] for 12 chapters that discussthis aspect of managing projects in more detail than can be dealt with here)

The project initiation process will involve a project sponsor who mostlikely will shepherd the initial steps and depending upon the project scopeand scale may have a dedicated person or team to drive the feasibility stageAt the early stage a feasibility study is undertaken that should outline thepurpose (vision) of the project its strategic business and technical case thatwill be tested at the conceptual and functional level For many large-scaleprojects such as a petrochemical facility or advanced weapons systems thisprocess becomes a complex and intensive project in its own right When thefeasibility is established and approved more detailed plans for procurementcan take shape This triggers the mandate to proceed with the procurementprocess for appointments that include a project manager designer advisers(even if this may be to provide a schematic design rather than a moredeveloped design to be used for tendering on) and a host of other vital advi-sory roles that will develop the detailed project brief It is at this stage thatprocurement-form choices are made A project governance board (ProjectExecutive Board) will be developed as more work towards undertaking theproject proceeds This board will include key stakeholder representativesand senior organisational management representatives whose rolesresponsibilities and accountabilities should be well defined by this stageThis board will often expand as the project develops and may appointadvisers at various stages to assist them

Strategic needs analysis generally provides the basis for a project brief tobe developed (Barrett and Stanley 1999 Smith and Jackson 2000) It isbeyond the scope of this book to delve in detail into the briefing processthat will generate the terms of reference for the project but only tohighlight that this occurs well before project concept material is developedinto a project specification that may form the basis of tender documents

56 Walker and Rowlinson

Suffice it to say that in line with the bubbling up of ideas as part of the briefdevelopment process that concerned and closely impacted stakeholders canbest be marshalled to develop the needs analysis part of a project briefStuart Green and various colleagues (Green 1996 1999 Green and Simister1999) have developed approaches to group decision making evolving adesign brief including their involvement in value analysis and brainstorm-ing design ideas One approach is the use of metaphors which allows tacitinformation and knowledge to bubble up into a more recognisable and tan-gible form Many great design ideas started out as a metaphor the SydneyOpera House as sails on the harbour for example Another approach is theuse of Soft Systems Methodology (Checkland 1999) which uses lsquorich pic-turesrsquo as cartoon-like images to help unearth emotions about what is takingplace in messy complex situations (such as developing a design briefthrough brainstorming) For a more detailed description of some case stud-ies of how the briefing process has been organised for some constructionand projects readers can refer to (Green and Lenard 1999) The outcomefrom this process should be a Project Initiation Document Bentley (199727) PRINCE 2 states that lsquoa Project Initiation Document (PID) is an exten-sion of the Project Brief to include details of the Project Management Teamand risk analysis plus a refinement of the Business Case and the ProjectPlanrsquo

This chapter is concerned with choices that can be made to procureresources This section relates in general terms to the process of how toframe proposals and to evaluate them To procure project resources thefollowing need to be established

1 The scope and scale of the project so that boundaries between it andother projects or parts of a program are clear ndash this helps to limit oreliminate scope creep

2 The composition of the project components specified in a way so thatquantity quality and performance measurement is clear ndash this helps thedeliverer to understand what is to be delivered and how to scale andscope the deliverable so that it functionally and aesthetically meetsstated objectives without either providing what may be viewed assub-standard or super-standard (excessive)

3 What constitutes value for money ndash with the value proposition knowna more intelligent deliverer may be able to offer insights into how todeliver the expected need using less resources with derived benefitsamicably shared

4 What the lsquorules of the gamersquo are procurements and practices thatgovern the way that the work is measured valued paid for howchanges to contractual conditions are handled behavioural expecta-tions (ethical standards etc) constraints imposed by both external and

Project types and their procurement needs 57

internal conditions (perhaps workflow considerations) and a range ofissues relating to contracts administration these issues may be thecause of cultural clashes between parties if not clarified at the outset

5 Who takes responsibility for various risks ndash the guiding principle foreffective risk management that delivers value is that those who can bestmanage a particular risk should take responsibility for it and berecompensed accordingly

6 How disputes may be resolved processes and escalation plans ndash theserecognise the limits of authorisation at various levels in both teams andseek to design a speedy and effective dispute-resolution system and

7 The incentives and penalties that may apply

Procurement choices will in essence provide a range of templates andoptions that define the Figure 22 dimensions of the nature and closeness ofthe relationship the degree of separation or the integration of design anddelivery as well as how perceived risks are managed

As we aim in this chapter to present a guide to the sorts of things thatshould be present in a project brief we do not intend to provide eithercontract templates proposal writing shells or specific tips and hints onwriting a request for a tender or a proposal response There are a number ofbooks on the market that concentrate on that aspect (Bartlett 1997 Freedet al 2003 Nickson 2003 Blackwell 2004 Sant 2004 Frey 2005)

Working out how to do it

If the issues discussed in the section above have been adequately thoughtout and carefully considered the project scope scale and preferred lsquorules ofthe gamersquo can be established We also discussed and presented in thischapter a number of outsourced project procurement approaches and someof these can be adapted for insourcing (ie competitively seeking withinorganisation groups to be chosen to realise the project) So we have a situ-ation where a choice now has to be made between the various availableoptions In fact there are two types of choice first the choice of procure-ment form and second the choice of which tenderer should undertake theprojects Both choices can be reduced to achieving best value Best value forthe approach so that it meets the needs with the minimum negative impactof compromises about the inevitable conflicting demands of attributes thatcan not be always simultaneously achieved while managing complementar-ities to maximise synergies Best value in selecting a PM team to deliver aproject may also involve similar dynamics

The literature reviews a number of ways of approaching how thischoice can be made ndash based upon multiple-factor analysis (Kumaraswamy1996 Hatush and Skitmore 1997 Kumaraswamy and Walker 1999)Palaneeswaran et al (2003) for example identify five specific and one

58 Walker and Rowlinson

general potential value vectors that influence best value These are statedand expanded upon as follows

1 Time is similar to pace as described earlier by Shenhar and Dvir (20041267) that is time to deliver a project so that it is usable

2 Budget naturally is important and relates to the funding required thatis money but also can relate to cash-flow (pace of expenditure) as wellas resource categories (may be a consideration of recurrent and capitalor lsquobucket Arsquo and lsquobucket Brsquo which is linked to political as well aspractical constraints)

3 Life cycle considerations move beyond the current capital outlay issueto the timing of commitment and availability (eg assuming the intro-duction of technology improvement at some future time in the project)

4 Environment both from an impact and cost perspective though this canbe expanded to aspects of the social as well as environment parts of thetriple bottom line (3BL) as will be further discussed in Chapter 4

5 Image and esteem ndash this consideration brings in important intangibleaspects that will be discussed further in Chapter 6 and

6 Other factors ndash these are highlighted by Palaneeswaran et al (2003) asincluding some of the social 3BL elements as well as quality issues andhealth and safety obligations with an lsquoupgradeabilityrsquo issue added thatcan be generalised to being lsquomore strategically-tactically optimisedrsquo sothat it leaves future options and flexibility open

These value vectors are useful to helping us visualise how complicated thedecision process actually is It becomes clear that what is required is not anA or B choice on some kind of net present worth as advocated by purelyeconomic considerations but a carefully considered matrix of needs thathave metrics built to allow comparisons to be made Palaneeswaran et al(2003) advocate a four-stage framework that is relevant to choosing aprocurement method as well as choosing a successful proposal In stage 1lsquovitalrsquo mandatory aspects are filtered based upon set established bench-marks options can be filtered on a simple gono-go basis using questionsdesigned for simple yesno answers One useful example of a filteringsystem that narrows the field is the Performance Assessment System PASSthat has been successfully used in Hong Kong construction (Kumaraswamy1996) In stage 2 the essential best-value parameters are assessed across theoptions to produce a set of parameters and their relative score contributionTaking an lsquoall are equally weightedrsquo easy decision is avoided as well astuning these to options presented The weighting matrix should berigorously linked to the project context to provide a model that describesthe lsquoidealrsquo situation If for example time-to-market is a key driver and thistakes up 50 of the score weighting and cost only represents half of thetime consideration then it should attract only 25 of the weighting It is

Project types and their procurement needs 59

advisable that the weighting regime is agreed by a representative group ofstakeholders so that it matches and is in harmony with the project visionCare must be taken to ensure that the weighted attributes are independentso that the causendasheffect relationship intended between the choice ofweighted attributes reflects reality rather than being a poor proxy that isonly an indicator rather than a driver (Chang and Ive 2002) In stage 3with the evaluation criteria fixed each option can then be scored for eachattribute that has been weighted This should take cognisance of the incre-mental value-adding of these attribute scores for each choice Stage 4involves undertaking sensitivity analysis This should reveal how (theprecise circumstances) one option could be better than others and this canbe tested and explored and form the basis of developing tie-breaking (ornear ties) to ensure that the decision-making process is coherent and thatin the case of choosing between proposals any basis for negotiationsbetween close proposals is based on a defendable and logical basis This laststage demands transparency and a credible and contestable approach beingmade to retain the confidence of all that it is a real rather than a shamprocess

Finally consideration needs to be made about the actual cost of tenderingif a poorly or suboptimal tender call and submission process is adopted (asis widely the case currently) in terms of what does the value of the tenderingprocess add to the organisation tendering those tendering and society thatultimately pays the cost in a variety of direct and indirect ways as indicatedby Dalrymple et al (2006) Making these kinds of decisions can beexpensive and resource hungry and it is both unfair and unwise to imposea system in place where inappropriate costs and resources are expended inmaking the choice

Working out how to administer it

Contract administration is an important lsquodetailedrsquo part of the processBecause it is less glamorous than lsquodecision makingrsquo it tends to get poorlyattended to in projects Contract administration can generally be seen asbeing part of the PM monitoring and control coordination and governanceprocesses

Monitoring and control revolves around the lsquoiron trianglersquo of cost timeand quality Administration relies on standards being clearly statedmeasures being practical and applicable and processes being in place thatallow the information and knowledge generated to be used effectivelyThese days this means that there needs to be an interface betweeninformation communication technologies (ICT) that support gatheringtransfer analysis and reporting of information All this can and should beused in a knowledge management (KM) context that leverages experienceto lead to continuous improvement It would make sense if procurement

60 Walker and Rowlinson

systems required ICT advantages to be taken advantage of so thatorganisational learning can take place (Walker and Lloyd-Walker 1999) Insome contexts an Enterprise Resource Program (ERP) approach links andforces a supply chain to share information through the ERP (Akkermans et al 2003) One way of advancing current procurement administrationpractices would be to extend value in terms of control and coordination sothat the project brief and tender documentation require the recognition ofinformation and knowledge as a valuable resource this can be built inthrough the procurement system if it is indeed recognised as a valuableattribute

Contract administration can also be seen to influence the way thatnegotiation takes place While this is closely linked with cultural aspectsrelating to alliance-type projects in particular discussed in Chapter 9 it isworth flagging here This can result in the procurement process stipulatingfor example how dispute resolution can painlessly take place in acooperative rather than an adversarial manner as often happens inpartnering and alliancing procurement forms

Chapter 6 Project Performance Measures and Procurement will dealwith performance measures and the administration of projects to highlightand properly record achievements in satisfying often intangible or poorlyexpressed needs

Chapter summary

In this chapter we discussed different ways of understanding how a projectcan be viewed so that a project procurement choice can be guided by aproject typology We then discussed a range of options that presentthemselves based on the degree of collaboration and integration betweensupply chain parties and their relationship We highlighted some importantthemes including understanding the role of project vision and objectives aswell as understanding the nature and characteristics of project deliverymethods and how project context richly influences the setting that demandsan intelligent project procurement choice These themes are developedfurther in this book Our point of departure from many available books andtexts relating to project procurement and contract administration is ourfocus on the context of project type and its influence upon procurementchoice ndash we argue that this gap needed to be addressed

We also discussed how project procurement proposals could be writtenevaluated and how contract agreements can be administered Detaileddiscussion of those project procurement aspects from this chapter is limitedand intended to be of secondary focus to us because project proposalwriting and evaluation as well as project contract administration are topicsthat have been widely addressed in the construction management literature(Hughes et al 1998 Murdoch and Hughes 2000 Hughes 2006 Lowe

Project types and their procurement needs 61

and Leiringer 2006) and general business literature (Bartlett 1997 Freedet al 2003 Nickson 2003 Blackwell 2004 Lewis 2005)

Vignette

62 Walker and Rowlinson

OmniTrip is the organisation that won the tender for logistics supportand management of the privatised integrated public-transport systemfor Southland a major city of 4 million people that until 10 years agohad a public sector owned and operated bus tram and train (bothabove and underground) public-transport system described in thevignette in Chapter 1 OmniTriprsquos contract was to provide servicesand maintenance of legacy-transport assets and gradually replacethese with new assets as part of a Southlandrsquos renewal and improve-ment government policy Its coordination activities include managingthe procurement and maintenance of transport assets staffing of alloperations including facilities management of stations (owned bySouthland) and developing a new-generation stored-value smartcardticketing system

OmniTrip clearly has a portfolio of projects ranging from highlytangible ones such as taking down tram power lines and replacingthem with an in-ground third rail power access that is still in a stageof improvement from existing systems in place2 of those designed bythe French firm Alstrom3 This project falls within the tram hardwaredelivery programme in the tramways portfolio Although it representsa construction element (physically building the new tram lines andde-commissioning overhead power lines) it also has a large systems-engineering component because the third rail idea requires a lot ofservices of engineering integration including a WiFi network to allowcommuters to have full broadband internet access for an additionalcharge on their smartcard ticketing system The stored-value smartcarddevelopment system is another project within the tram hardware andsoftware program Training development stakeholder managementand other peoplendashsystems integration and engagement projects fallwithin the organware program

Each project and programme within the tramways portfolio hasdifferent characteristics that demand different procurement decisionsand solutions Some aspects such as the civil-engineering works can bescoped to be tendered either to a range of local small-scale constructioncontractors or to one of the several global facilities management andmaintenance contractors such as Transfield4 or Thiess5 Other aspectsof the service projects that is developing customised stored-valuesmartcards software that links to customer relationship management

Notes1 Request for information (RFI)2 See the Bordeaux tram system for example httpenwikipediaorgwikiGround_

level_power_supply3 See httpenwikipediaorgwikiAlstom4 See wwwtransfieldservicescomindexhtm5 See wwwthiess-servicescomauhomeindexhtm

References

Akintoye A Beck M and Hardcastle C (2003) Public-Private PartnershipsManaging Risks and Opportunities Oxford Blackwell Science Ltd

Akintoye A McIntosh G and Fitzgerald E (2000) lsquoA Survey of Supply ChainCollaboration and Management in the UK Construction Industryrsquo EuropeanJournal of Purchasing amp Supply Management 6(3ndash4) 159ndash168

Project types and their procurement needs 63

(CRM) application that has vast data-mining potential (subject todata privacy legislation and ethical considerations) may lead to JValliance or other IP-sharing procurement approaches OmniTrip aimsto maximise its value generation and business development potentialthrough its procurement choices and interaction with its upstreamand downstream supply chain OmniTrip also has been considering aBOOT-type scheme for acquiring the trams based upon fares gathered

Issues to ponder

1 Considering only the tram-track refurbishment project selectthree key aspects of value that you believe that OmniTrip couldidentify to make a procurement choice that maximises its valuedelivered by its downstream supply chain

2 What procurement options do you think best suit the valuepropositions identified by you under point 1 above Whatjustification can you make for your choice

3 Discuss three types of difficulty that you think OmniTrip mayencounter in using a BOOT-type option for acquiring the tramcomponent

4 How might the identified difficulty be different if an alliance orJV arrangement were used instead of a BOOT-type procurementoption

5 From the above and Chapter 1 vignette information what wouldyou say is OmniTriprsquos vision for this portfolio of projects Whattop-five ranked selection criteria may be used when assessing pro-curement submissions from its downstream supply chain partners

Akkermans H A Bogerd P Yucesan E and van Wassenhove L N (2003) lsquoTheImpact of ERP on Supply Chain Management Exploratory Findings from aEuropean Delphi Studyrsquo European Journal of Operational Research 146(2)284ndash301

Archer N P and Ghasemzadeh F (1999) lsquoAn Integrated Framework for ProjectPortfolio Selectionrsquo International Journal of Project Management 17(4) 207ndash216

Artto K A Lehtonen J-M and Saranen J (2001) lsquoManaging Projects Front-End Incorporating a Strategic Early View to Project Management withSimulationrsquo International Journal of Project Management 19(5) 255ndash264

Austen A D and Neale R H (Eds) (1995) Managing Construction Projects ndash AGuide to Proceses and Procedures Series Managing Construction Projects ndash AGuide to Proceses and Procedures Geneva International Labour Office

Bachy G and Hameri A P (1997) lsquoWhat has to be Implemented at the EarlyStages of a Large-Scale Projectrsquo International Journal of Project Management15(4) 211ndash218

Barnett A M (19989) lsquoThe Many Guises of a Project Managerrsquo The AustralianInstitute of Building Papers 3(1) 119ndash134

Barrett P and Stanley C (1999) Better Construction Briefing Oxford UKBlackwell Science Ltd

Bartlett R E (1997) Preparing International Proposals London Telford Bentley C (1997) PRINCE 2 A Practical Handbook Oxford UK Butterworth-

HeinemannBlackwell E (2004) How to Prepare a Business Plan London Kogan PageBresnen M and Marshall N (2000) lsquoBuilding Partnerships Case Studies of

Client-Contractor Collaboration in the UK in Construction IndustryrsquoConstruction Management and Economics 18(7) 819ndash832

Briner W Hastings C and Geddes M (1996) Project Leadership Aldershot UKGower

Chang C-Y and Ive G (2002) lsquoRethinking the Multi-Attribute Utility ApproachBased Procurement Route Selection Techniquersquo Construction Management andEconomics 20(3) 275ndash284

Checkland P (1999) Systems Thinking Systems Practice Chichester UK JohnWiley amp Sons Ltd

Cheung F Y K Rowlinson S Jefferies M and Lau E (2005) lsquoRelationshipContracting in Australiarsquo Journal of Construction Procurement 11(2) 123ndash135Special Issue on lsquoTrust in Constructionrsquo

Choy W K and Sidwell A C (1991) lsquoSources of Variations in AustralianConstruction Contractsrsquo The Building Economist December 24ndash29

Christenson D and Walker D H T (2003) Vision as a Critical Success Factor toProject Outcomes 17th World Congress on Project Management MoscowRussia 3ndash6 June On CD-ROM

Christenson D and Walker D H T (2004) lsquoUnderstanding the Role of ldquoVisionrdquoin Project Successrsquo Project Management Journal 35(3) 39ndash52

Cleland D I and King W R (1988) Project Management Handbook New YorkVan Nostrand Reinhold

Crawford L and Pollack J (2004) lsquoHard and Soft Projects A Framework forAnalysisrsquo International Journal of Project Management 22(8) 645ndash653

64 Walker and Rowlinson

Crawford L Hobbs J B and Turner J R (2005) Project Categorization SystemsNewtown PA Project Management Institute

Dalrymple J Boxer L and Staples W (2006) Cost of Tendering Adding CostWithout Value Clients Driving Innovation Moving Ideas into Practice SurfersParadise Queensland 12ndash14 March Hampson K CRC CI

DeFillippi R J and Arthur M B (1998) lsquoParadox in Project-Based Enterprise TheCase of Film Makingrsquo California Management Review 40(2) 125ndash139

Dulaimi M F and Dalziel R C (1994) The Effects of the Procurement Methodon the Level of Management Synergy in Construction Projects East meets West ndashCIBW92 Symposium Hong Kong University 4ndash7 December 1994 Rowlinson SR University of Hong Kong 53ndash59

Fitzgerald P (2004 January) Review of Partnerships Victoria ProvidedInfrastructure Final Report to the Treasurer Melbourne Growth SolutionsGroup 42

Flyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and RiskAn Anatomy of Ambition New York Cambridge University Press

Francis V E and Sidwell A C (1996) The Development of ConstructabilityPrinciples for the Australian Construction Industry Adelaide ConstructionIndustry Institute

Freed R C Freed S and Romano J D (2003) Writing Winning BusinessProposals Your Guide to Landing the Client Making the Sale Persuading theBoss New York [Maidenhead] McGraw-Hill

Frey R S (2005) Successful Proposal Strategies for Small Businesses UsingKnowledge Management to Win Government Private Sector and InternationalContracts Boston MA Artech House

Green S D (1996) lsquoA Metaphorical Analysis of Client Organizations and theBriefing Processrsquo Construction Management and Economics 14(2) 155ndash164

Green S D (1999) lsquoA Participative Research Strategy for Propagating SoftMethodologies in Value Management Practicrsquo Construction Management andEconomics 17(3) 329ndash340

Green S D and Lenard D (1999) lsquoOrganising the Project Procurement ProcessrsquoIn Procurement Systems A Guide to Best Practice in Construction Rowlinson Sand P McDermott (Eds) London E amp FN Spon 57ndash82

Green S D and Simister S J (1999) lsquoModelling Client Business Processes as anAid to Strategic Briefingrsquo Construction Management and Economics 17(1)63ndash76

Grimsey D and Graham R (1997) lsquoPFI in the NHSrsquo Engineering Constructionand Architectural Management 4(3) 215ndash231

Gunning J G and McDermott M A (1997) Developments in Design amp BuildContract Practice in Northern Ireland CIB W-92 Procurement SystemsSymposium 1997 Procurement ndash A Key To Innovation The University ofMontreal 18ndash22 May 1997 Davidson C H and T A Meguid CIB 1 213ndash222

Hartman F Ashrafi R and Jergeas G (1998) lsquoProject Management in the LiveEntertainment Industry What Is Differentrsquo International Journal of ProjectManagement 16(5) 269ndash281

Hatush Z and Skitmore M (1997) lsquoCriteria for Contractor SelectionrsquoConstruction Management and Economics 15(1) 19ndash38

Project types and their procurement needs 65

Hodge G A (2004) lsquoThe Risky Business of Public-Private PartnershipsrsquoAustralian Journal of Public Administration 63(4) 37ndash49

Hughes W (2006) lsquoContract Managementrsquo In Commercial Management ofProjects Defining the Discipline David Lowe and Roine Leiringer (Eds)Abingdon Oxon Blackwell Publishing 344ndash355

Hughes W Hillebrandt P M and Murdoch J R (1998) Financial Protection inthe UK Building Industry Bonds Retentions and Guarantees London NewYork E amp FN Spon

Ireland V (1983) The Role of Managerial Actions in the Cost Time and QualityPerformance of High Rise Commercial Building Projects PhD thesis SydneyUniversity of Sydney

Kotter J P (1995) lsquoLeading Change ndash Why Transformation Efforts Failrsquo HarvardBusiness Review 73(2) 59ndash67

Kumaraswamy M M (1996) lsquoContractor Evaluation and Selection A Hong KongPerspectiversquo Building and Environment 31(3) 273ndash282

Kumaraswamy M M and Walker D H T (1999) lsquoMultiple Performance Criteriafor Evaluating Construction Contractorsrsquo In Procurement Systems A Guide toBest Practice in Construction Rowlinson S and P McDermott (Eds) LondonE amp FN Spon 228ndash251

Lammers M (2002) lsquoDo You Manage a Project or What A Reply to ldquoDo YouManage Work Deliverables or Resourcesrdquorsquo International Journal of ProjectManagement 20(4) 325ndash329

Lewis H (2005) Bids Tenders and Proposals Winning Business Through BestPractice Sterling VA Kogan Page

Lowe D and Leiringer R (Eds) (2006) Commercial Management of ProjectsDefining the Discipline Series Commercial Management of Projects Defining theDiscipline Abingdon Oxon Blackwell Publishing

Lynn G S and Akguumln A E (2001) lsquoProject Visioning Its Components and Impacton New Product Successrsquo The Journal of Product Innovation Management18(6) 374ndash387

McGeorge W D and Palmer A (1997) Construction Management NewDirections London Blackwell Science

Maqsood T Finegan A and Walker D H T (2006) lsquoApplying Project Historiesand Project Learning Through Knowledge Management in an AustralianConstruction Companyrsquo The Learning Organization 13(1) 80ndash95

Matthews J Tyler A and Thorpe A (1996) lsquoPre-construction Project PartneringDeveloping the Processrsquo Engineering Construction and ArchitecturalManagement Blackwell Science 3(1ndash2) 117ndash131

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Morris P W G and Jamieson A (2004) Translating Corporate Strategy intoProject Strategy Newtown Square PA PMI

Morris P W G and Pinto J K (Eds) (2004) The Wiley Guide to ManagingProjects Series The Wiley Guide to Managing Projects New York Wiley

Murdoch J R and Hughes W (2000) Construction Contracts Law andManagement London New York E amp FN Spon

66 Walker and Rowlinson

NBCC (1989) Strategies for the Reduction of Claims and Disputes in theConstruction Industry ndash No Dispute Canberra National Building andConstruction Council

Nickson D (2003) The Bid Managerrsquos Handbook Aldershot GowerNogeste K (2004) lsquoIncrease the Likelihood of Project Success by Using a Proven

Method to Identify and Define Intangible Project Outcomesrsquo InternationalJournal of Knowledge Culture and Change Management 4 915ndash926

Nogeste K (2006) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project OutputsDoctor of Project Management DPM Graduate School of Business MelbourneRMIT

Nogeste K and Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Makingthe Intangible Tangiblersquo Measuring Business Excellence 9(4) 55ndash68

Ogunlana S O (1997) Build Operate Transfer Procurement Traps Examplesfrom Transportation Projects in Thailand CIB W-92 Procurement SystemsSymposium 1997 Procurement ndash A Key To Innovation The University ofMontreal 18ndash22 May 1997 Davidson C H and T A Meguid CIB 1 585ndash593

Oxford (2001) The New Oxford Dictionary of English Oxford UK OxfordUniversity Press

Palaneeswaran E Kumaraswamy M and Ng T (2003) lsquoTargeting OptimumValue in Public Sector Projects Through ldquoBest Valuerdquo-Focused ContractorSelectionrsquo Engineering Construction and Architectural Management 10(6)418ndash431

PMI (2004) A Guide to the Project Management Body of Knowledge Sylva NCProject Management Institute

Rowlinson S and McDermott P (1999) Procurement Systems A Guide to BestPractice in Construction London E amp FN Spon

Rowlinson S Cheung F Y K and Jefferies M (2006) A Review of the Conceptsand Definitions of the Various Forms of Relational Contracting Brisbane CRCin Construction Innovation httpwwwconstruction-innovationinfoimagespdfs2001ndash004-A_Industry_Bookletpdf2002-022-2A-01 (accessed on 7 January2007)

Rowlinson S Cheung F Y K Simons R and Rafferty A (2006) lsquoAlliancing inAustralia ndash No Litigation Contracts A Tautologyrsquo ASCE Journal of ProfessionalIssues in Engineering Education and Practice Special Issue on lsquoLegal Aspects ofRelational Contractingrsquo 132(1) 77ndash81

Sant T (2004) Persuasive Business Proposals Writing to Win More CustomersClients and Contracts New York Amacom

Shen Y J and Walker D H T (2001) lsquoIntegrating OHS EMS and QM withConstructability Principles when Construction Planning ndash A Design and ConstructProject Case Studyrsquo TQM MCB University Press UK 13(4) 247ndash259

Shenhar A J (1998) lsquoFrom Theory to Practice Toward a Typology of Project-Management Stylesrsquo Engineering Management IEEE Transactions on 45(1)33ndash48

Shenhar A J (2001) lsquoContingent Management in Temporary DynamicOrganizations The Comparative Analysis of Projectsrsquo The Journal of HighTechnology Management Research 12(2) 239ndash271

Project types and their procurement needs 67

Shenhar A J and Dvir D (1996) lsquoToward a Typological Theory of ProjectManagementrsquo Research Policy 25(4) 607ndash632

Shenhar A J and Dvir D (2004) lsquoHow Projects Differ and What to Do About ItrsquoIn The Wiley Guide to Managing Projects Morris P W G and J K Pinto (Eds)New York Wiley 1265ndash1286

Shenhar A J and Wideman R M (2002) Toward a Fundamental DifferentiationBetween Project Types httpwwwmaxwidemancompapersdifferentiationdifferentiationpdf (accessed on 27 July 2006)

Shenhar A J Dvir D and Shulman Y (1995) lsquoA Two-Dimensional Taxonomy ofPoducts and Inovationsrsquo Journal of Engineering and Technology Management12(3) 175ndash200

Shenhar A J Dvir D Levy O and Maltz A C (2001) lsquoProject Success AMultidimensional Strategic Conceptrsquo Long Range Planning 34(6) 699ndash725

Sidwell A C and Ireland V (1989) lsquoAn International Comparison ofConstruction Managementrsquo The Australian Institute of Building Papers 2(1)3ndash12

Smith A J (1999) Privatized Infrastructure ndash The Role of Government LondonThomas Telford

Smith J and Jackson N (2000) lsquoStrategic Needs Analysis Its Role in BriefDevelopmentrsquo Facilities 18(1314) 502ndash512

Smith N J Merna A and Grimsey D (1994) The Management of Risk in BOTProjects Internet 94 12th World Congress on Project Management OsloNorway 9ndash11 July Lereim J International Project Management Association 2173ndash179

Smyth H J (1999) lsquoPartnering Practical Problems and Conceptual Limits toRelationship Marketingrsquo International Journal of Construction Marketing 1(2)1ndash14 online version httpwwwbrookesacukotherconmarkIJCMissue_02010202pdf

Turner J R (1999) The Handbook of Project-based Management Improving theProcesses for Achieving Strategic Objectives London McGraw-Hill

Turner J R (2000) lsquoDo You Manage Work Deliverables or ResourcesrsquoInternational Journal of Project Management 18(2) 83ndash84

Turner J R and Cochrane R A (1993) lsquoThe Goals and Methods Matrix Copingwith Projects With Ill-defined Goals andor Methods of Achieving ThemrsquoInternational Journal of Project Management 11(2) 93ndash102

Uher T (1999) lsquoPartnering Performance in Australiarsquo Journal of ConstructionProcurement 5(2) 163ndash176

Walker A (1993) Project Management in Construction London BlackwellScience

Walker C and Smith A J (1995) Privatised Infrastructure ndash the BOT ApproachLondon Thomas Telford

Walker D H T and Hampson K D (2003a) lsquoEnterprise Networks Partneringand Alliancingrsquo In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishing 30ndash73

Walker D H T and Hampson K D (2003b) lsquoProcurement Choicesrsquo InProcurement Strategies A Relationship Based Approach Walker D H T andK D Hampson (Eds) Oxford Blackwell Publishing 13ndash29

68 Walker and Rowlinson

Walker D H T and Lloyd-Walker B M (1999) lsquoOrganisational Learning as aVehicle for Improved Building Procurementrsquo In Procurement Systems A Guideto Best Practice in Construction Rowlinson S and P McDermott (Eds) LondonE amp FN Spon 119ndash137

Walker D H T and Shen Y J (2002) lsquoProject Understanding PlanningFlexibility of Management Action and Construction Time Performance ndash TwoAustralian Case Studiesrsquo Construction Management and Economics 20(1)31ndash44

Walker D H T Lingard H and Shen Y J (1998) The Nature and Use of GlobalMethod Statements in Planning Research Report Melbourne The Departmentof Building and Construction Economics RMIT University

Yogeswaran K and Kumaraswamy M M (1997) lsquoPerceived Sources and Causesof Construction Claimsrsquo Journal of Construction Procurement 3(3) 3ndash26

Project types and their procurement needs 69

Chapter 3

Stakeholders and the supply chain

Derek HTWalker Lynda Bourne and Steve Rowlinson

Chapter introduction

Projects serve the needs of stakeholders by ensuring that their expectationsand needs are realised Project management does not occur in a vacuum butrequires an infusion of enthusiasm and commitment powered by the fullrange of project stakeholder energy sources in an energy grid that candevelop a positive or negative trajectory The key to effectively harnessingthis force is for project managers to know how to connect into thisorganisational grid and how to identify tipping-point key stakeholders andtheir value propositions Project managers are unlikely to deliver projectsuccess without paying attention to the expectations and needs of keyinfluence drivers and the diverse range of project stakeholders that maycumulatively exert a significant impact on the perception of project successA project that does not meet the expectations of influential stakeholders isnot likely to be regarded as successful even if it remains within the originaltime budget and scope

Effective project managers require keen analytical and intuitive skills toidentify high-impact and cumulative-impact stakeholders and work withthem to understand their expectations to influence project success Thisfacilitates managing a process that maximises stakeholder-positive inputand minimises any potential detrimental impact The authors argue thatproject managers need to be able to engage more effectively with the hiddenreservoirs of power that are exercised by project stakeholders in theinteraction between individuals in their social networks

In Chapter 4 we discuss business ethics as well as how considering thetriple bottom line (3BL) can help us identify a broader set of stakeholderswho may be otherwise left out of the project development process resultingin valuable perspectives insights and support being ignored Chapter 4 alsodiscusses project governance and the importance of an active and supportiveproject sponsor ndash a key and influential stakeholder Chapter 5 in discussingstrategy explores elements of the lsquopoliticsrsquo of decision making surroundingthe initiation and development of projects and in particular how thechoice of projects to be realised should be determined Whenever terms

such as lsquopoliticsrsquo or lsquostrategyrsquo are used there is an implicit recognition that afundamental issue to be first resolved is identifying stakeholders andinfluence-shapers by assessing their potential impact upon the way that theproject could proceed This chapter links with Chapter 6 because effectiveperformance measurement systems can only be developed by understandingthe project purpose and what benefits are expected to be delivered to whom ndashthat is stakeholders Chapter 8 discusses innovation and learning andhow the upstream supply chain (clients) as well as the downstream supplychain (suppliers and sub-contractors) have wisdom and knowledge to offerso identifying them and their potential impact is also of vital importanceChapter 9 explores the cultural dimension of project procurement and this ishighly relevant to stakeholder management Chapter 10 concerns attractingand retaining the most talented teams to help deliver project success againthis is relevant to managing project team stakeholders

This chapter is presented in three broad sections with a vignette at the endof the chapter that prompts relevant questions The first section deals withstakeholder theory because this forms the basis of our understanding of whichstakeholders should be focussed upon to fairly and effectively apportionattention and consideration of their issues needs and potential contributionThe section that follows discusses types and sources of power influence andconcepts of trust and distrust and from this describes how stakeholdermanagement links into these concepts with an upstream focus The ability tounderstand the often hidden power and influence of various stakeholdersis a critical skill for successful project managers Stakeholders can be aconsiderable asset contributing knowledge insights and support in shaping aproject brief as well as supporting its execution Project managers welcomeany tools that can help them identify and visualise stakeholdersrsquo likely impactand advances their ability to address the often-thorny problem of stakeholderrelationship management The third section then places the first two sections incontext with management of the downstream supply chain with a value focus

Stakeholder theory

Successful completion of project deliverables is critically dependent uponrelationship management skills amongst these the need to achieve projectobjectives that fully address stakeholder expectations throughout theproject life cycle (Cleland 1999 chapter 6) However one major task thatneeds to be undertaken in developing a projectrsquos strategic aims is to identifystakeholders in order to develop a project brief that best addresses theiroften-conflicting range of needs and wishes

Identifying stakeholders

Stakeholder theory offers a number of perspectives and expectations thatstakeholders may hold Social science stakeholder theory tends to focus

Stakeholders and the supply chain 71

around concepts of justice equity and social rights having a major impacton the way that stakeholders exert moral suasion over project developmentor change initiatives (Gibson 2000) Readers may wish to reflect upon theChapter 4 ethics section as being relevant here Thus one prevailing view isthat a stakeholder is someone affected by a project and having a moral (andperhaps a non-negotiable) right to influence its outcome This view is verybroad and its consequences unmanageable because there are so many waysin which a project can impact on a very wide range of people ndash fromaffecting a business environment through to other more physical or socialdimensions that relate to quality-of-life issues

Instrumental stakeholder theory holds that stakeholders and managersinteract and their relationship is contingent upon the nature quality andcharacteristics of their interaction (Donaldson and Preston 1995) In thisview the identification of stakeholders is more concerned with theirinstrumentality agency capacity or being vectors of influence This impliesa need for negotiation and expected reactions ranging from standoff tomutual adjustment depending on such intermediate variables such as trustand commitment and motivational forces (being harmonised or in conflict)

Jones and Wicksrsquo (1999) convergent stakeholder theory holds thatstakeholder actions and reaction to change leads to project managersneeding to develop mutual trusting and cooperative relationships with theirstakeholders Consequently their actions should be based on ethicalstandards ndash see Chapter 4 By meeting both objectives organisations can gaincompetitive advantage This accords with 3BL principles where performancesuccess is defined as meeting financial bottom-line performance measures aswell as environmental and social responsibility performance measures(Elkington 1997)

What becomes clear is that lsquolegitimate and validrsquo stakeholders need to beidentified and their power and influence mapped so that their potentialimpact on projects can be better understood Appropriate strategies canthen be formulated and enacted to maximise a stakeholderrsquos positive influenceand minimise any negative influence This becomes a key risk-managementissue for project managers to avoid many of the project failures detailed inthe literature for example by Morris and Hough (1993)

Briner et al (1996) identified four sets of stakeholders client projectleaderrsquos organisation outside services and invisible team members Cleland(1995 151) recognised the need to develop an organisational structure ofstakeholders through understanding each stakeholderrsquos interests andnegotiating both individually and collectively to define the best way tomanage stakeholder needs and wants He identifies several clusters ofstakeholders from the supply chain Stakeholders have also been describedas The ones who hold the beef (Dinsmore 1999) or those who have aninterest Effectively managing these stakeholders is essential at all phases ofthe project from lsquoinitiationrsquo to lsquocloseoutrsquo (Cleland 1995)

72 Walker et al

It becomes necessary to consider what a stakeholderrsquos stake actually iswhen trying to define what hisher needs or requirements are or how heshecould impact the project A stake could be an Interest a Right orOwnership An Interest is a circumstance in which lsquoa person or group willbe affected by a decision having an interest in that decisionrsquo A Right iseither a lsquolegal right when a person or group has a legal claim to be treatedin a certain way or to have a particular right protected rsquo or a lsquomoral rightrsquoOwnership occurs lsquowhen a person or group has a legal title to an asset or apropertyrsquo (Carroll and Buchholtz 2000 65) Most project stakeholders willhave an Interest many will have a Right ndash people with a disability orcitizens with a right to privacy and some will have Ownership ndash as inworkersrsquo right to earn their living from their knowledge or shareholders inan organisation

The definition of stakeholder that will be used in this chapter isStakeholders are individuals or groups who have an interest or some aspectof rights or ownership in the project and can contribute to or be impactedby either the work or the outcomes of the project

Figure 31 illustrates stakeholders in four groups upstream stakeholderscomprising the paying customer and end users of the productservice down-stream stakeholders who include suppliers and sub-contractors externalstakeholders are often ignored and comprise the general community andindependent concerned individuals or groups who feel that they will beimpacted by the project and its outcomes invisible stakeholders who engagewith the project team in delivering the ultimate project benefit but whose

Stakeholders and the supply chain 73

End users

External stakeholders

Project leader (PM)core team members

Projectsponsor

Champion

Upstream stakeholders Paying clientorganisation Downstream

supply chain

Participatingknowledgenetworks

Invisible teammemberspeople

Community+ external

independentconcerned groups

Figure 31 Stakeholder types

Source Adapted from Walker 2003 261

cooperation and support is vital for project success and also the knowledgenetwork that interacts with the project delivery team in a variety of waysand finally there is the highly visible project stakeholder group comprisingthe project sponsor or champion as well as the project delivery team

People naturally tend to form knowledge networks to share and re-frameknowledge that they routinely or occasionally use History provides manysuch examples of learning communities for example the medieval guilds ofEurope and more recently clusters of people in knowledge-sharing networkscentred around a particular skill forming lsquotech clubsrsquo or communities ofpractice (COPs) (Wenger et al 2002) A COP shares knowledge and skillsand sustains its members through obligations to exchange knowledgeproviding access and accessibility to shared insights and knowledge aboutwork practices (Wenger et al 2002 4) This hidden stakeholder group isoften ignored and yet COPs provide a significant source of influence andreferential support that project managers can tap into

Apart from the stakeholder groups identifiable by their more obviousconnection with projects there are clear and major groups that are invisiblebut whose cooperation and support is vital for project success Thesegroups would include familyndashsupport networks ndash this has family-friendliness(workndashlife balance) and workplace implications discussed in greater depthin Chapter 10 ndash but it also includes communities of practice and other socialnetworks People naturally tend to form knowledge networks to share andre-frame knowledge that they routinely or occasionally use

Identifying stakeholders influence

Cleland (1999 151) offers a process for managing stakeholders identifyingappropriate stakeholders specifying the nature of the stakeholderrsquos interestmeasuring the stakeholderrsquos interest predicting what the stakeholderrsquosfuture behaviour will be to satisfy himher or hisher stake and evaluatingthe impact of the stakeholderrsquos behaviour on the project teamrsquos latitude inmanaging the project He also provides practical advice on how to do thisMost stakeholder groups and individuals however are external and hencemany project management sub-processes are impossible to achieve for thesestakeholders Many organisationally internal individuals lie outside theboundaries of authority available to project managers Cleland (1999 175)offers after the first step of identifying stakeholders has been achieved asimple way to visualise stakeholders and their likely impact and influenceThe approach is simply to list stakeholders along one axis of a table list thesignificant stakeholder interest along another axis of the table and to thenindicate the perceived magnitude of their interest This simple idea isillustrated in Table 31

This idea can be expanded using concepts derived from risk managementRisk assessment can be undertaken using a probability-impact analysis

74 Walker et al

however we need to distinguish between not only the size of impacts and theirprobability of occurring but also the nature and timing of feasible responses tosuch risks (Ward 1999) Ward and Chapman (2003) later argued that risk isperhaps a misleading term and that uncertainty would be a better term to use

As a first step in assessing the potential impact of a stakeholder interest interms of contributing to project success the product of an interest-strengthand its influence-impact potential may provide a useful form of visualisingthese two dimensions of stakeholder interest From the stakeholderperspective they have a vested interest in the projectrsquos success that varies inintensity from very low to very high Also the impact of that interest can beassessed in terms ranging from very high to very low This provides a meansby which a stakeholder interest intensity map can be developed It can alsobe segmented as seen above and can be applied to a sub-set of stakeholdersIn this illustration we are illustrating collegial and COP interest This couldbe useful in designing strategies for maximising collegial support andcommitment to project success and developing success criteria measuresThe lsquoimpactrsquo part of the index relates to the power that these individuals mayhave to exert influence Their influence is bounded by their source of power

Figure 32 illustrates the process of influence shaping through socialnetworks With an organisation or entity is a number of opinion-shapersand they tend to belong to several social groups For example Group 1 mayhave affiliates through university classmates and alumni and Group 2 mayrepresent members belonging to a professional association (or indeed anytype of lsquoclubrsquo) Mentoring and seeking validation from reference groups canlead for example a sponsor to refer to a key network link who then seeksinformation knowledge and advice from network colleagues This helps toexplain how opinion-shapers outside any organisation can exert a hidden(though not necessarily sinister) force that contributes to or results in firm

Stakeholders and the supply chain 75

Table 31 Stakeholder interest intensity index (VIII)

Stakeholder interest Stakeholders vested interest intensity index (VIII) value

For colleaques and COP 1 2 3 4 5 6 7 8 9 10Develop teamrsquos skill base VH H N N L VL H VH L NEnhance workplace environmentFamily-friendly policyDemonstrated lessons learnedExemplar of better practiceHigh-profilestrategic project

NotesVested Interest (v) levels 5 Very high 4 High 3 Neutral 2 Low 1 Very lowInfluence impact levels (i) 5 Very high 4 High 3 Neutral 2 Low 1 Very lowVested interest-Impact Index (ViII) radic(vi25) eg if Vested Interest (v) level 4 (high) andInfluence impact levels (i) then ViII radic(4425) radic(1625) 080 high

impressions and perceptions being formed about issues In this way we cansee that tools that help us visualise influence and impact are pivotal in anystakeholder management approach

Supply chain members as stakeholders

Figure 31 illustrates upstream and downstream stakeholders in a supplychain Supply chain management will be discussed in more detail later inthis chapter but here we are merely establishing the theoretical justificationof viewing both upstream and downstream supply chain partners as validstakeholders Supply chain members working in well-integrated projectsshare access to systems knowledge and motivation to cooperate as seam-lessly as possible to the extent that they appear to be one organisationrather than an integrated flow of separate organisations

In Chapter 7 we discuss IT tools used by supply chains such asEnterprise Resource Planning (ERP) and other e-business programsincluding web portals and customer relationship management (CRM)systems These systems are intended to connect organisations seamlessly interms of data and information flows to facilitate efficiencies Bessant et al(2003) argue that supply chains should be viewed as mechanisms forupgrading and transferring appropriate practice and they explain this termto include experimentation to improve and fine-tune processes and waysthat they cooperate to deliver projects They also mean appropriate practiceto include joint learning as experimental improvement initiatives as well aseffective joint problem-solving activities In Chapter 8 we highlighted and

76 Walker et al

External opinionshapers

Opinionson lsquoYrsquo gt lsquoXrsquo

Universitycluster A

Professionalassociation

B

Group 1Affiliates to

lsquoArsquoGroup 2

Affiliates tolsquoBrsquo

Key personK1 belongs to

Opinionson lsquoXrsquo

Shapesinterest in lsquoZrsquo

VH Influenceon policy for

Internal opinionshapers

Project sponsor

Contributes to

Influences

Network connection

Informal mentor+ past colleague of

Figure 32 Influence mapping

discussed the implication of users clientscustomers as well as supply chainmembers being generators of practical knowledge and sources of innovativeimprovement ideas (Von Hippel 1988 Leonard-Barton 1992 1995Cavaleri 2004 Cavaleri and Seivert 2005)

Bessant et al (2003) undertook a series of interviews in six detailedsupply chain case studies in the semiconductor industry equipmentproduction of tubular structures for the oil and gas industry the computingequipment industry two different chains in the chemicals industry and theaerospace industry Their findings have particular relevance to stakeholdermanagement First they found that one leading partner in the supply chainneeds to take on the role of coordinator This is a traditional role of theproject management team However in the construction industry there hasa been long-term criticism about the way that smaller sub-contractors andsuppliers have been treated being often left to pick up any time slack lostthrough poor scheduling or consideration of production and deliverylogistics (Latham 1994 DETR 1998) While upstream supply chainpartners are often well considered and their reaction and impact is wellthought through small downstream supply chain partners are frequentlypoorly consulted and engaged with for joint problem solving so thatavoidable delays and costs are incurred because of problems with planninglogistics and production

Bessant et al (2003 182) highlight four supply chain learning (SCL)themes from the six case studies that they consider require more detailedanalysis and development

1 the importance of implementing SCL on a platform of lsquogood practicersquosupplier management (and the need to review such programmes to addthe SCL dimension)

2 the concept of supply chain coordination or lsquogovernancersquo and the roleswhich can be played by different actors in the SCL network

3 the role of facilitation and the skill sets and enabling toolkit which permiteffective learning networks of the kind reported here to evolve and

4 the processes through which a shared learning agenda (and relatedlsquocurriculumrsquo assessment frameworks etc) can be developed Earlyevidence suggests this needs to take place at a sector or supply chainlevel ndash for example via business associations

The above themes are consistent with the general literature for example ndashSpekman et al 2002 Sherer 2005 and Maqsood et al 2007 To achievethis kind of improvement these stakeholders need to be carefully consid-ered as part of a broad stakeholder engagement approach to procurement

A stakeholder management system example

This section will focus on explaining the process and antecedents to astakeholder engagement and a management tool developed by one of the

Stakeholders and the supply chain 77

authors for her doctoral thesis (Bourne 2005) The basis of stakeholderidentification impact assessment and engagement strategy planning relatesto how the stakeholder relationship with the PM team will be managed

Underlying concepts

Three underlying concepts govern this relationship ndash trust power andcommitment French and Granrose (1995) define relationships in thefollowing way

lsquoExploitationrsquo ndash one person uses another to achieve hisher own selfishobjectives without considering any benefit to the other

lsquoReciprocityrsquo ndash two persons are each using the other in a way thatensures each partner benefits In this type of relationship there is a senseof stability and balance absent from exploitation relationships Theserelationships are based on rewards and lsquogive and takersquo and

lsquoMutualityrsquo ndash this relationship is beyond exploitation and reciprocityThe two parties treat each other not as means but as themselves bytaking an interest in the otherrsquos goals and needs

lsquoMutualityrsquo is the superior of these three relationships Whether they areorganisations working to form partnerships or organisations dealing withemployees each party must have lsquomutualityrsquo as their goal The concept oforganisations working with their employees or with other organisations inless than superior exploitative relationships is one where it will be morelikely to breach ethical bounds because the idea of mutual benefit is ignoredor not understood The minimum that any stakeholder engagement strategymust aim for is lsquoreciprocityrsquo but by definition lsquomutualityrsquo will ensure thebuilding and maintenance of robust and successful project relationships(French and Granrose 1995)

Trust commitment power and stakeholder management

A special edition on trust in the 1998 lsquoSpecial Edition Issue of the Academyof Management Review volume 23 number 3rsquo provides some usefulliterature to understand the concept McAllister (1995) reported on resultsfrom a quantitative study of 194 managers that provides empirical evidenceto support the model developed as proposed by Mayer et al (1995) andRousseau et al (1998)

Figure 33 illustrates the model developed by Mayer et al (1995) Theyidentify three factors that support trustworthiness ability benevolence andintegrity Ability means the capacity to do something benevolence refers tointentions and integrity refers to coherence between what is promisedand what is delivered These factors are in turn modulated by the trustorrsquos

78 Walker et al

(ie the person who provides property and creates a trust) propensity toplace trust in the entity to be trusted There must be a perceived risk thatthe trustor may be taken advantage of so that a sense of vulnerability isinstilled in the trustor This risk test will have an outcome in the view of thetrustor that either validates trusting or indicates that the trust wasmisplaced This becomes a cycle in which the assessment continues until thetrustor feels that the experienced perceived vulnerability is unbearable Thisrepresents a kind of trust bank process described by Walker and Hampson(2003a 199)

Inkpen and Beamish (1997) introduce the idea that stability of therelationship also has some impact and this makes sense in a PM contextwith changes in trust strength occurring during different project phaseswhen parties have shifting ability to perform various trust tasks as theirinfluence changes with the importance of their involvement Rousseau et al(1998) note that there are different types of trust Institutional trust remainsfairly constant as it is perception of the institutionrsquos record of trustworthinessand as discussed in Chapter 4 this is often wrapped up in perceptionsbased upon ethics and governance They also describe calculative trust thatmerges into relational trust as tests of trust yield results to which the trustorand trustee adjust their perceptions

Figure 34 illustrates a model modifying ideas put forward by Rousseauet al (1998) combined with Mayer et al (1995) and Inkpen and Beamish(1997) adapted to a project phase continuum The interesting point fromthis is that research by Rousseau et al (1998) indicates that integrity was

Stakeholders and the supply chain 79

Factors ofperceived

trustworthiness

Ability

Benevolence

Integrity

Trust Outcome

Trustorrsquospropensity

Perceivedrisk

Risk taking inrelationship

Figure 33 A model of trust building

Source Mayer et al 1995 715

the prime factor initially determining trust but as testing continuesbenevolence takes over followed by ability being the dominant driver alloccurring as a project moves through its initial often chaotic initiationphase through more stable times as design leads to production andrealisation of the project objectives

The final modifier of trust that we wish to discuss is the presence of bothtrust and distrust simultaneously Lewicki et al (1998 445) developed amodel that combines trust with distrust in a two-by-two matrix illustratedin Figure 35

The range of trust and distrust helps explain motivations and perceptionsthat govern views about trustworthiness of partners in an alliance ahands-off contract or in a well-integrated supply chain

Figures 33ndash36 help explain some of the underlying forces that helpshape trust Figure 36 combines Meyer and Allenrsquos (1991) commitmenttheory with Maslowrsquos (1943) motivation theory The lowest form ofcommitment is compliance where the minimum possible standard isvolunteered often related to legal or rule-based requirements Continuancecommitment shares similarities with compliance in that the motivation is tosatisfy basic needs such as an individualrsquos need to make a living a firmrsquosneed to make a profit or provide a service that is its raison drsquoecirctre and soon Once that need is substantially met the commitment will dissipate andthere may also be easily available substitutes that can replace the object ofthat need so in this sense that lsquocanrsquo of commitment is weak or transitoryNormative commitment is more reciprocal (ought to) and is motivated bysocial needs and obligations This kind of commitment is wrapped up in

80 Walker et al

Relational trust

High

Low

AbilityIntegrity Tested by risk

Benevolence

Calculative trust

Institutional trust

EarlyInitiation Middledesign LateRealisation

Figure 34 Trust in phases

loyalty and emotional facets of culture that are stronger can be extremelystrong and are much harder to displace The strongest form of commitmentis affective because it is lsquowant-torsquo commitment based on a motivation ofself-actualisation andor ego needs The desire of course can be illusionaryand fade and in that sense we could argue that normative commitment isstronger However affective commitment can move people to contributebeyond expectations

Commitment levels can also relate to the sources of power deployedduring the relationship Greene and Elfrers (1999 178) outline seven formsof power that follow from the power literature reported in a number ofleadership texts (Hersey et al 1996 Yukl 2002)

1 Coercive ndash based on fear Failure to comply results in punishment(position power)

Stakeholders and the supply chain 81

High Trust

Characterised byHope

High-value congruence

Interdependence promoted

Opportunities pursued

New initiatives

Casual acquaintances

Limited interdependece

Bounded arms-lengthtransactions

Professional courtesy

Undesirable eventualitiesexpected and feared

Harmful motives assumed

Interdependence managed

Paranoia

Pre-emption best offensiveis a good defence

Trust but verify

Relationship highlysegmented and bounded

Opportunities pursued anddown-siderisksvulnerabilitiescontinually monitored

Faith

Confidence

AssuranceInitiative

Low Trust

Characterised byNo hope

No faith

No confidence

PassivityHesitance

Low distrust

Characterised byNo fear

Absence of scepticism

Absence of cynicism

Low monitoringNo vigilance

High distrust

Characterised byFear

Scepticism

Cynicism

Warineess and watchfulnessVigilance

2

1

4

3

Figure 35 Trust and distrust

Source Lewicki et al 1998 445

2 Connection ndash based on lsquoconnectionsrsquo to networks or people withinfluential or important persons inside or outside organisations(personal political power)

3 Reward ndash based on ability to provide rewards through incentives tocomply It is expected that suggestions be followed (position power)

4 Legitimate ndash based on organisational or hierarchical position (position political power)

5 Referent ndash based on personality traits such as being likeable admiredand thus able to influence (personal power)

6 Information ndash based on possession of or access to informationperceived as valuable (position personal political power) and

7 Expert ndash based on expertise skill and knowledge which throughrespect influences others (personal power)

The nature of power and influence the sources of this power and the wayin which it is used to contribute to or manipulate cooperative relationshipsunderpin all procurement strategies and the relationships that develop fromthese It is interesting that a number of books have appeared providingadvice on the use of power to undermine the competitor and to win againsta perceived enemy The works of Machiavelli and Sun-Tzu are among themost prominent A recent book on power and its use ndash which features ideas

82 Walker et al

Meyer and Allen (model)

Social needsCommitmentMotivations

Perceived self-worth(Affective-want to)

Self-actualisationego needs

Maslow (model)

Safetyphysiological

needs

Perceived need toreciprocate

(Normative-ought to)

Perceived cost of loss(Continuance-need to)

Perceived punishment(Compliance-have to)

Figure 36 Compliance and commitment

Source Adapted from Meyer and Allen 1991 and Maslow 1943

from the Machiavelli Sun-Tzu and others ndash relates to winning power andholding power for personal gain and not to achieve a goal that is shared byothers (Greene and Elfrers 1999) Positional power however is the leasteffective of the three outlined in building commitment to shared objectiveswinndashwin outcomes and constructive dialogue whether in resolvingdifferences or building shared understanding Project managers need to beaware of the types of power that people can wield to influence the opinionsand actions of others Power trustdistrust and commitment are closelylinked with project phases that impact on this project delivery dynamic asthe criticality of supply chain partners shifts with their contribution level

Stakeholder management ndash the Stakeholder CircleTM tool

While Table 31 provides a useful visual representation of stakeholderinterest intensity it can be made more informative by employing a greaterdegree of graphical imagery such as an influence map or social network mapbased on an organisationrsquos formal structure and showing who has strong orweak influence in the project environment Project stakeholders may havedeep (extensive) or shallow (limited) influence in terms of their network ofothers that may be proxies for their interest For example an individual withweak influence on the project driving power force may have very deepand strong influence on another individual or group that may in turn havea very strong influence on the project power source Information aboutrelationships may come through interviews formal and informal documen-tation or the lsquograpevinersquo Astute project managers keep their antennae activeconstantly and know when and how to use such influence maps to achievesuccess through others who may be able to influence the outcomes

Figure 37 illustrates how project managers view various stakeholders thosethey deal with through looking upwards downwards sideways and inwardsThis model was developed to describe the skills set needed by a project man-ager (Bourne and Walker 2004) Dimension 1 relates to knowledge of how tolook forwards and backwards to apply correct PM techniques ndash in the caseof this chapter this would include the appropriate strategy to draw uponwhen making decisions with stakeholders Dimension 2 relates to the knowl-edge of relationships of how to look inwards outwards and downwardswhich is also relevant to the power school of strategy as it includes the abil-ity to manage relationships with key influencing stakeholders Dimension 3skills relate to considering and ensuring that political influence and lobbyingis addressed by looking sideways and upwards This is what Bourne (Bourne2005) and Bourne and Walker (2004 228) refer to as lsquotapping into the powerlinesrsquo of project stakeholder influence

Following from techniques previously discussed that map stakeholdersand their influence patterns a visualisation of stakeholder power and impactcan now be constructed

Stakeholders and the supply chain 83

The Stakeholder CircleTM is both a methodology for stakeholdermanagement and a software tool The methodology will be described indetail later in this section The software tool is a relational database thatguides the team through steps for data input and prioritisation assessmentand then calculates each stakeholderrsquos relative importance The StakeholderCircleTM tool develops a lsquomaprsquo of the projectrsquos stakeholder community tofacilitate decisions about the amount of effort the project team should allocateto managing the relationship with any given stakeholder (see Figure 38)

Figure 38 illustrates the concept (referred to as the Stakeholder CircleTM)that one of the authors developed based on the idea that a project canreally only exist with the full consent of its stakeholders (Weaver andBourne 2002) The methodology and tool were developed as part of adoctoral thesis (Bourne 2005) and recently outlined in the PMI journal(Bourne and Walker 2006) The tool has since become commercialised (seeURL wwwstakeholder-managementcom for more details) Key elements ofthe Stakeholder CircleTM are concentric circle lines that indicate distance ofstakeholders from the project or project delivery entity the size of theblock its relative area indicates the scale and scope of influence and theradial depth can indicate the degree of impact (Bourne 2005 Bourne andWalker 2005)

Patterns and colours of stakeholder entities indicate their influence on theproject ndash for example orange indicates an upwards direction ndash these stake-holders are senior managers within the performing organisation that are

84 Walker et al

Outwardsclientsupplychain

Backwardsmonitoring

Downwardsteam

Upwardssponsor

Forwardsstrategy

Sidewayscolleagues

lsquospecial skillsrsquo tolsquotap into the power

linesrsquo

Dimension 3 BeyondLeading and Managing

ndash lsquoTapping the powerlinesrsquo

Dimension 1lsquoSciencersquondashApplying

techniques

Dimension 2Art ndashlsquoRelationshipsrsquo

How toInwards

Self

Figure 37 Tapping into the power lines

necessary for ongoing organisational commitment to the project greenindicates a downwards direction ndash these stakeholders are members of theproject team purple indicates a sidewards direction ndash peers of the projectmanager essential as collaborators or competitors and blue indicatesoutwards ndash these stakeholders represent those outside the project such asend users government lsquothe publicrsquo shareholders The final colour codingis dark hues and patterns for stakeholders internal to the organisation andlight hues and patterns for those external to the organisation

This depiction of the stakeholder community represents the projectrsquos keystakeholders as assessed by the project team In the Stakeholder CircleTM forthe Asset Management Project below the most important stakeholder hasbeen assessed as the Sponsor this stakeholder appears at the 12 Orsquoclockposition followed by the project team as the second most important andthe CEO as third most important

This tool can be very useful for project managers trying to understandand remain alert to the nature of stakeholder impact The model hasbeen tested through research conducted by one of the authors andpresented at Project Management Institute (PMI) chapter meetingsand conferences on several continents ndash in each case the feedbackindicated its resonance with practising project managers as a useful toolso we illustrate it here

The Stakeholder CircleTM methodology consists of five parts step1ndash identify step2ndashprioritise step3ndashvisualise step4ndashengage step5ndashmonitor

Stakeholders and the supply chain 85

Sponsor

Project team

CEO

Senior leadership team

Core team for stage 1

Functional manager 1

IT specialist assigned to project

Information management group

Contractors from supplier

Asset specialists stage 1

Asset specialists stage 2 34 amp 5

Auditors

SAM supplier

Functional manager 2

Councillors

Orange

Blue

Theproject

Purple

Green

Figure 38 The Stakeholder CircleTM tool

Step 1 ndash identify stakeholders

First the project stakeholders are identified and then categorised intogroups indicating how they may influence the outcomes of the projectupwards for senior managers downwards for members of the project teamsideways for peers of the project manager and outwards for otherstakeholders outside the project ndash such as government users unions Thedefinition of what each individual or group requires from the project as wellas a definition of the significance to the project of these individuals orgroups must be agreed and documented at this stage This concept is basedon the idea of mutuality as discussed earlier in this chapter This exercise isconducted by workshops with individuals who are familiar with the projectdeliverables and constraints and with the organisational structure (and theorganisational politics) It may be useful to use a metaphor to visualisestakeholder characteristics Shelly (2007) uses the concept of anorganisational zoo in which individuals are described in terms of a series ofattributes that links them to particular animal behaviours ndash this can be bothan amusing and highly enlightening exercise in considering not onlystakeholder characteristics but their influences power bases and habits andbehaviours

Step 2 ndash prioritise stakeholders

Next prioritisation of these stakeholders is undertaken by consideringthree factors that can assess the relative importance of stakeholders

Power ndash is their power to influence significant or relatively limited Proximity ndash are they closely associated or relatively remote from the

project Urgency ndash what is their stake Are they prepared to go to any lengths

to achieve their outcomes

A simple definition of power used in the prioritisation workshops it isbased on the stakeholderrsquos relative power to terminate the project It is ratedby the workshop participants on a scale of 1ndash4 where 4 is lsquohigh capacity toformally instruct change (can have the project stopped)rsquo and 1 is lsquorelativelylow levels of power (cannot generally cause much change)rsquo

Proximity as used in this methodology is self-explanatory The teammust rate the stakeholders on a scale of 1ndash4 where 4 is lsquodirectly workingin the project (team members working on the project most of the time)rsquoand 1 is lsquorelatively remote from the project (does not have directinvolvement with the project processes)rsquo

Urgency can be viewed as having two attributes time sensitivity andcriticality Based on these conditions the methodology requires workshopparticipants to rate stakeholders on a scale of 1ndash5 where 5 is lsquoimmediate

86 Walker et al

action is warranted irrespective of other work commitmentsrsquo and 1 is lsquothereis little need for action outside of routine communicationsrsquo (Mitchell et al1997 867) In projects where these ratings cannot be simply applied themethodology supports a breakdown of the process into two subsidiary setslsquovested stakersquo (how much lsquostakersquo does the person have in the projectrsquosoutcome) and lsquoperceived importancersquo (likelihood to take action positiveor negative to influence the outcome of the project) The ratings can thenbe combined in the software to give the overall urgency rating

Step 3 ndash visualise stakeholders

The data from the previous steps is transformed into the Stakeholder Circleone example has been described in Figure 38 The Stakeholder CircleTM

will be different for each project and for each phase of the project ndash therelationships that visualisation shows will reflect the projectrsquos uniquerelationships

Step 4 ndash engage stakeholders

The fourth part of the Stakeholder CircleTM tool methodology is centred onidentifying engagement approaches tailored to the expectations and needsof these individuals or groups The top-15 stakeholders defined as beingthe most important and influential for the project should receive specialattention but engagement strategies for all stakeholders must be developedTheir value proposition (what they require from the project) will ofteninclude intangible outcomes such as enhancement of personal ororganisational reputation and satisfaction of a measure in an individualrsquoskey performance indicator (KPI) set that is for delivery of project benefits

The first set of this analysis involves identifying the level of interest of thestakeholder(s) at five levels from committed (5) through ambivalent (3) toantagonistic (1) Next step is to analyse the receptiveness of each stakeholderto messages about the project on a scale of 1ndash5 where 5 is ndash direct personalcontacts encouraged through 3 ndash ambivalent to 1 ndash completely uninterested Ifan important stakeholder is both actively opposed and will not receivemessages about the project he or she will need to have a differentengagement approach from stakeholder(s) who are highly supportive andencourage personal delivery of messages The 5 by 5 matrix (see Figure 39)thus developed will become the engagement baseline that is the startingpoint for measuring the effectiveness of the communication activities ofthe project

Based on each stakeholderrsquos engagement strategy a communication planwill be developed consisting of specific messages or message forms(reports) how messages will be delivered by whom whether formal orinformal written or oral at what frequency The frequency and regularity

Stakeholders and the supply chain 87

of delivery of these messages will vary with the level of support andreceptiveness of the stakeholder as well as the stage of the project Themessenger need not just be the project manager other members of theproject team may be more appropriate to deliver the message

Step 5 ndash monitor effectiveness of communication

Once the Communication Plan has been developed and team communicationresponsibilities allocated the principal communication points must beincluded in the project schedule Including communication in the projectschedule means that team communication activities will be reportedregularly at project team meetings Regular Stakeholder Review meetingssimilar to Risk Review meetings will maintain the currency of the projectrsquosstakeholder community or provide information about changes in thatcommunity that will cause the projectrsquos stakeholders to be re-assessedre-prioritised and re-developed as a new Stakeholder CircleTM (community)

Re-assessment of the engagement matrix of project stakeholders is anessential part of the project-review processes whether by regular teammeetings reviews or in response to other unplanned events around theproject In the case of a stakeholder that was first assessed as activelyopposed and uninterested in receiving project messages an engagement strat-egy and communication plan should be developed to change the engage-ment matrix to (say) neutral for both support and receptiveness If onre-assessment the engagement profile has not improved this lack of changewill provide the evidence that the current communication is not effective adifferent approach must be taken This is illustrated in Figure 310 On theother hand achievement of the expected improvement as shown on the newmatrix is evidence that the engagement strategy is effective and thecommunication is achieving its intended objectives

Figure 39 shows the levels of support and receptiveness of twostakeholders The engagement strategy must adapt to this profile and be

88 Walker et al

Sup

port

Sup

port

Receptiveness Receptiveness

Stakeholder 1 Stakeholder 2

Figure 39 Stakeholder engagement profiles

reflected in the communication plan If at a later re-assessment the profileshave not changed as expected a new communication plan must bedeveloped and implemented

Figure 310 shows the effects of comparing a stakeholderrsquos engagementprofile over time The comparison of the new profile with the baselineshows that while the stakeholder is more receptive to messages about theproject the level of support for the project is unchanged This result shouldtrigger a re-assessment of the communication plan for this stakeholder

For further details of two case studies on the use of the tool refer to(Bourne and Walker 2006) and for substantial detail refer to Dr Bournersquosdoctoral thesis (2005)

Maintenance of the stakeholder community

The process of identifying prioritising and engaging project stakeholderscannot be a once-only event Stakeholders change as they move within theorganisation or leave it or as their relative importance to the project andtheir power and influence within the organisation changes As the projectmoves through the project life-cycle or implementation stages differentstakeholders may have more or less impact on the project The process mayhave to be repeated in whole or in part many times An essential part of themethodology is the repetition of the process of the methodology andbuilding of the Stakeholder CircleTM when any of these events occur

Strategy relating to the lsquowho what when and howrsquo of delivering thetailored messages defined for the important stakeholders must be convertedinto action The communication plan should be part of the project scheduleand thus reported on through team meetings and regular reports

Value of the methodology

The benefit of this methodology and tool is derived from the analysisprocess itself as participants of the workshops discuss potential project

Stakeholders and the supply chain 89

Sup

port

Sup

port

Receptiveness Receptiveness

Stakeholder 1 3 months later

Figure 310 Monitoring communication effectiveness

stakeholders and their needs and potential contributions These discussionsand related negotiations about agreements on ratings of stakeholders enablesall project team members to share their knowledge of the individuals andgroups being assessed as well as knowledge of the organisation and itspolitics Additional benefits come from the ease with which key stakeholdersrsquoinfluence on the project can be judged once the diagram is complete To bemost effective the assessment should be updated regularly as the projectprogresses through the phases of the life cycle or as the stakeholdercommunity changes to reflect the dynamic nature of project relationships

A methodology that provides a simple relatively time-efficient process forthe identification of key stakeholders is a useful adjunct to the project-planning processes The methodology also supports a logical process toallow the project manager to decide which of the projectrsquos stakeholders tofocus effort on since it would be impossible to attend to the needs andexpectations of all stakeholders The use of a process that steps the projectteam through analysis of the expectations of the project stakeholders andthe best means to ensure their support of the project provides another benefitto the project manager Managing the perceptions and understanding theexceptions of key stakeholders build robust project relationships and improvesthe chances of project success application of a methodology and visualisationtool such as the Stakeholder CircleTM will contribute to the perception of thesekey stakeholders that the project is being well-managed Finally because asystem such as this gathers data relating to stakeholder characteristics beliefsand behaviours it becomes a very valuable information-mining source to beused in ways similar to that of a CRM system

Downstream stakeholder supply chain management value

We have discussed how project and (whole of project) team stakeholderscan define and articulate their perception of what value the project representsto them and how they can contribute to that value generation We alsodiscussed how stakeholders can be engaged and their influence sought andmanaged as part of the procurement process We also indicated that valuepropositions vary between stakeholders and as is elaborated further inChapters 4 and 6 project outcomes that lead to a sustainable economy addsocial value as well as potential economic advantage This section focusesupon the downstream supply chain comprising sub-contractors andsuppliers that are often small- or medium-sized enterprises (SMEs) thatform a vital part of any economy

A most interesting recent development in the management of procurementsystems is the attempt to incorporate the supply chain into the system in orderto ensure sustainability In general worldwide this approach has beenchampioned and led by the public sector As indicated by Cheung (2006) public

90 Walker et al

sector clients have the opportunity to create managerial organisational andstructural improvements and develop economic social and environmentalsustainability in various market sectors which support their asset portfolioSupply chain sustainability (SCS) also supports the public sectorrsquos organisa-tional political industry development objectives through proactive supplychain management This section reviews recent initiatives in both Australiaand the United Kingdom

Recent work in Australia by Rowlinson and Cheung in the pre-castconcrete and recycling sectors and reported in (London 2005 Cheung2006) has investigated SCS in SMEs and (inter alia) sought to

improve economic sustainability stabilise employment levels and reduce high staff turnover improve skill levels occupational health and safety (OHS) performance

and thus productivity as a result of a state-wide smoothing of marketinvestment strategies

improve product quality reduce remedial work and reduce waste in government resources in having to monitor poor

performing sectors

These issues have also been addressed in the UK through frameworkagreements and other mechanisms and this will be discussed later As ageneral rule the long-term goals of all such approaches is to improvecompetitive behaviour improve market sector performance and thusimprove both business-process efficiency and effectiveness of public sectorprocurement systems This is undertaken by influencing policy developmentchanging organisational behaviour and culture and by implementing onlythose developments which lead to sustainability in the economic socialand environmental markets of the region In order for such approachesto be successful a strategy is needed whereby regional and countrywidesmoothing of demand in the various markets takes place throughdeliberate planned government policy Thus investment strategy is drivenwith a view to long-term benefits accruing through stabilisation ofemployment levels a commensurate reduction in employee turnover and thedevelopment and improvement of the industry-wide skills base This willalso have a knock-on effect in terms of OHS performance and the expectationis that there will be improved product quality as well as reductions in reworkAll of these objectives if achieved should lead to a reduction in the resourcesneeded by government to monitor performance in that an assurance systemis in place Although improvements in OHS performance might be seenas something of a by-product of SCS such improvements do add tocompetitiveness in an increasingly global market

Stakeholders and the supply chain 91

Competitiveness

Attitudes to OHS quality and human resource development play a majorpart in how an organisation is judged by its shareholders stakeholders andhosts Whilst maintaining high levels of OHS performance companies maybear heavy transaction costs in order to maintain this standard Thus thereis a conflict between competitiveness and safety performance Howevergiven the global nature of the markets and the need to be seen to be actingresponsibly in terms of corporate governance safety and health should beseen as essential elements in the goals and policies of companies Thus it isbecoming increasingly difficult to separate the approach to safety andhealth and human resource development from other technical and financialissues without jeopardising a companyrsquos competitiveness A strong safetyand health management system and a clear policy on maintaining the high-est standards of OHS is essential nowadays for the companyrsquos continuedexistence Indeed many companies derive competitive advantage from theirimpeccable safety and health records and this is an issue which can beenhanced through proactive supply chain management

Key issues in SCS

A major issue to be addressed in maintaining a sustainable supply chain isthe move towards more direct and long-term employment with commensu-rate skills and educational improvements within the work forceOutsourcing has been seen to attract substantial transaction costs in termsof setting up maintaining and auditing the outsourcing system It is alsoseen to be a social cost in the way that its implementation often leads to adowngrading in training and skill development and so impoverishes thework force and puts at risk OHS performance The objectives of SCSrequire some degree of stability of market demand and so itsimplementation is an area on which the public sector client has theopportunity through management of demand to have a significant impactThere are various mechanisms used to develop such an approach and twonovel methods were reported by Khalfan and McDermott (2006) andKhalfan et al (2006) in respect of framework agreements and a novelpartnership undertaken in England

Aggregation

They report that in the northwest of England a group of local authoritiesand as described in English legislation Registered Social Landlords (RSLs)formed an alliance to manage procurement for those involved in socialhousing renewal in their region The innovative element of this approachwas to bundle or aggregate present and future demand of different client

92 Walker et al

organisations and put this bundle into the market to ensure a balancedpattern of demand and also to negotiate with subcontractors and suppliersin return for resulting workflow certainty This alliance undertook separateagreements with the contractors and installers to supply labour only andinitiated another agreement with suppliers and manufacturers to supplyproducts and materials only In addition the social agenda was addressedby ensuring skill development amongst the local labour force in order toimprove economic and social sustainability as well as achieving hardenvironmental targets

Benefits of aggregation

In discussing the benefits of aggregation the authors indicate that bundlingof demand by local governments social landlords and facilitation byinitiatives of central government departments has enabled more companiesparticularly SMEs to collaborate and offer their own services as a packageto these alliances Thus there are both economic and social benefitsaccruing in the region from this particular type of initiative Indeed theauthors go on to highlight some of the benefits of aggregation which are

direct and continuous employment and subcontracting opportunitiesoffered by the contractors to the local labour because of continuouswork load for both their own employees and other subcontractors

skills development within the local community through apprenticeshipand training schemes Contractors have to take on board trainees andgive them both on-the-job training and flexibility for attending trainingand education courses

Community benefit

Platten et al (2006) discuss the concept of community benefit in relation toregional alliances and procurement and elaborate community benefit asincluding

local employment training provision a commitment to diversity and representation in the workforce a commitment to using the local supply chain health and safety sustainable construction and community awareness consultation and profiling

These are seen as being delivered through a project alliance which isencouraged to address these issues in the pre-qualification questionnaire (PQQ)

Stakeholders and the supply chain 93

and invitation to negotiate (ITN) thus indicating a shift in bothprocurement practice and key performance indicators This change has toa large extent been facilitated by the Office of the Deputy Prime ministerbut implemented autonomously in the regions These principles areincorporated in Framework Agreements and these are described as havingcore values which are based on the partneringalliancing concept which isagreed by the client body and all other participants including the supplychain These core values include trust honesty openness commitmentcooperation and respect In their case study Khalfan et al (2006) describethe Councilrsquos vision as a framework agreement that will deliver good-quality school buildings which will give

better educational results greater inclusion within the community better safety and environmental performance and reduced demand on future school budgets by addressing whole life-

cycle costing at the inception of the projects

Benefits of framework agreements

The major benefits that the researchers found to be achieved by suchagreements in general were

improved design less waste and duplication improved delivery greater quality greater certainty of cost better whole life-cycle costing building of trusting relationships and bringing of all lsquoproject knowledgersquo together at the inception of a project

Thus it can be seen that society-based agreements for construction worksare both possible and beneficial This sea change in the paradigm ofprocurement systems in the UK has led to a situation where bothcommunity benefits and SCS go hand in hand It shared some similaritieswith the concept of on-call contracting described in Walker and Hampson(2003b 21ndash22) and by Jensen and Hall (1995) in relation to medicalpractitioners and others undertaking locum work in the medical systemChan and Ibbs (1998) describe its use in a PM context where projects aresplit into a series of main contracts with the use of small-enterprisepractitioners undertaking phased small chunks of work under workpackages as min-contracts on an on-call basis They tender on a services-agreement basis for an overall bulk of likely work with the on-call contracts

94 Walker et al

providing the mechanism to formalise the contractual arrangements foreach individual package

Currently the UK is probably the most advanced in adopting suchapproaches to new procurement paradigms but it should be borne in mindthat this has been a politically driven agenda which has been in many waysforced upon the construction industry as a mechanism for restructuring anddeveloping both communities and supply chains Indeed benefits as gleanedfrom the case studies for the supply chain can be enumerated as follows

1 Benefits are derived even for subcontractors (self-employed peoplehired for labour-only by main contractor)

2 Continuity of work is given with additional attractions that includeprompt payment (one week)

3 Pay as You Earn (PAYE) paper work is done by the contractors4 Participating organisations do not have to incur tender costs because

they get to know upcoming work around 12 months in advance5 People working on site (both direct employees and subcontractors) are

trained in the underpinning concepts of the working arrangementsThis includes the understanding about the partnership among the localauthorities and RSLs and their initiatives to encourage apprenticeshipsOne of the supply chain partners describes the relationship in thefollowing terms ndash lsquoThe relationship of suppliers and contractors ischanged because there is no money involved between themrsquo This isbecause the whole procurement is an open book Another supply chainpartner sheds light on the benefits as lsquoSince RSLs are working togetherin one area therefore there are no conflicts and no problems in gettingthe material If they were working against each other then contractorswould be fighting among and with suppliers for material suppliesrsquo

6 Workforce smoothing is facilitated ndash a simple management concept isnow being practised within the supply chains associated with theframework for upcoming years

7 The power to select the product and allocate the profit margin is shiftedfrom contractors and moved to clients But on the other hand there isalso a guaranteed profit to all the involved supply chain partners for alonger period of time

Chapter summary

In this chapter we have used the stakeholder theory and applied it to con-cepts of trust and commitment to describe and illustrate the vital role thatstakeholders can take in making a contribution to adding value to theprocurement process This is dependent upon the views and perceptions ofvalue gained from stakeholders and how their potential contribution can berecognised We described how a recent cutting-edge tool the Stakeholder

Stakeholders and the supply chain 95

CircleTM can be applied and used to engage key identified stakeholders Thisled us to one of the often-neglected stakeholder groups the downstreamsupply chain We discussed how their contribution to value adding could bebuilt into a procurement process We also introduced an emerging approachwhich has benefits that include developing the potential for local industrySMEs to participate in an alliance-type arrangement (FrameworkAgreement) that allows them to more fully participate in projects ratherthan being closed out of a relationship-based procurement system Thislatter aspect not only potentially provides cost benefits but also facilitatesbuilding social capital and delivering value through other social benefits

Vignette

96 Walker et al

ChangeByDesign Plc is a consultancy that specialises in helpingorganisations to restructure their organisations in a holistic way thatincorporates brand and image changes together with cultural changeprograms and training and development It has been contracted toassist AutoCustomeyes a company that has grown to 500 employeesoperating through its Oakville Ontario North America Regionalcentre its European-based centre at Stuttgart as well as its MelbourneAustralia Asia-Pacific centre to change focus from customising auto-motive cars to a new range of leisure water craft and light aircraft Italso has recently had a growing business (from a small base) with theUS Australian and NATO military commands for their lsquobadgingrsquo andidentification tracking lsquocradle-to-graversquo system ChangeByDesign Plcsees its automotive market sector in terminal decline whereas theleisure water craft sector is showing strong growth particularly in theAsia-Pacific area Its identification tracking systems that it developedas an lsquoexpensive hobbyrsquo of one of the directors has been targeted as akey future market segment for strong future sales growth RecentEuropean legislation requires originators of consumer goods such asboats marine leisure water craft and light aircraft for example totrace and demonstrate a recycling of at least 80 of the productrsquoscontents Additionally as valuable military assets are being seen toneed unique identification embedded technologies that allow thesegoods to be tracked by location and ownership military facilitiesmanagement groups have been searching for systems that track theirassets on a 247 basis

AutoCustomeyes realised after undertaking a set of soul-searchingstrategic workshops that it needs to transform its business from anauto-centric organisation to one that focuses on the dual businessopportunities of the marine and air leisure craft business and being

Web resources

See URL wwwstakeholder-managementcom for more details about theStakeholder CircleTM tool

References

Bessant J Kaplinski R and Lamming R (2003) lsquoPutting Supply Chain Learninginto Practicersquo International Journal of Operations and Production Management23(2) 167ndash184

Bourne L (2005) Project Relationship Management and the Stakeholder CircleDoctoral thesis Doctor of Project Management Graduate School of BusinessMelbourne RMIT University

Bourne L and Walker D H T (2004) lsquoAdvancing Project Management inLearning Organizationsrsquo The Learning Organization MCB University Press11(3) 226ndash243

Stakeholders and the supply chain 97

part of the military supply chain for its badging and identificationdevice business ChangeByDesign Plc has the task of preparing aproject plan for a five-year organisational transformation that willinclude shifting and consolidating its regional headquarters Themilitary business will be located closer to its military client base inWashington DC and the Supreme Headquarters Allied PowersEurope (SHAPE) at Casteau north of the Belgian city of Mons Itsconsumer-badging business will be based in Chicago and Londonwith the Asia-Pacific offices in Brisbane The first deliverable for thetransformation plan is the stakeholder management plan

Issues to ponder

1 What are the five key elements of this plan would you expect to see2 Identify five key stakeholder groups and explain some of the

issues that they would be concerned about3 This business strategy envisages two quite separate business

streams that could spawn a spin-off if that were true identify fivestakeholder issues that this could introduce

4 To what extent do you think that existing supply chain partnersshould be involved in the planning process

5 With new market segments and each segmentrsquos supply chainstakeholder group being largely unidentified at present how doyou think that ChangeByDesign Plc and AutoCustomeyes mightidentify and persuade these groups to gain their trust support andcommitment to engage with them ndash what might be their valueproposition

Bourne L and Walker D H T (2005) lsquoVisualising and Mapping StakeholderInfluencersquo Management Decision 43(5) 649ndash660

Bourne L and Walker D H T (2006) lsquoUsing a Visualising Tool to StudyStakeholder Influence ndash Two Australian Examplesrsquo Journal of ProjectManagement 37(1) 5ndash21

Briner W Hastings C and Geddes M (1996) Project Leadership 2nd ednAldershot UK Gower

Carroll A B and Buchholtz A K (2000) Business and Society Ethics andStakeholder Management Cincinnati OH South-Western College Publishing

Cavaleri S (2004) lsquoPrinciples for Designing Pragmatic Knowledge ManagementSystemsrsquo The Learning Organization MCB University Press 11(45) 312ndash321

Cavaleri S and Seivert S (2005) Knowledge Leadership The Art and Science ofthe Knowledge-Based Organization Oxford Elsevier Butterworth Heinemann

Chan S-T A and Ibbs C W (1998) lsquoOn-call Contracting Strategy andManagementrsquo Journal of Management in Engineering ASCE 14(4) 35ndash44

Cheung F Y K (2006) Supply Chain Sustainability The Role of Trust andRelationship CIBW112 Sustainable Development Through Innovation andCulture Dubai UAE 26ndash29 November Dulaimi M

Cleland D I (1995) lsquoLeadership and the Project Management Body ofKnowledgersquo International Journal of Project Management 13(2) 82ndash88

Cleland D I (1999) Project Management Strategic Design and Implementation3rd edn Singapore McGraw-Hill

DETR (1998) Rethinking Construction Report London Department of theEnvironment Transport and the Regions

Dinsmore P C (1999) Winning in Business with Enterprise Project ManagementNew York American Management Association

Donaldson T and Preston L E (1995) lsquoThe Stakeholder Theory of theCorporation Concepts Evidence and Implicationsrsquo Academy of ManagementReview 20(1) 65ndash91

Elkington J (1997) Cannibals with Forks London Capstone PublishingFrench W A and Granrose J (1995) Practical Business Ethics Englewood Cliffs

NJ Prentice HallGibson K (2000) lsquoThe Moral Basis of Stakeholder Theoryrsquo Journal of Business

Ethics 26 245ndash257Greene R and Elfrers J (1999) Power the 48 Laws London Profile BooksHersey P Blanchard K and Johnson D E (1996) Management of

Organizational Behaviour 7th edn London Prentice Hall InternationalInkpen A C and Beamish P W (1997) lsquoKnowledge Bargaining Power and the

Instability of International Joint Venturesrsquo The Academy of Management Review22(1) 177ndash203

Jensen P and Hall C (1995) lsquoNew Arrangements for Radiology at Sydney HospitalrsquoIn The Contracting Casebook ndash Competitive Tendering in Action Domberger Sand C Hall (Eds) Canberra Australian Government Publishing Service 87ndash97

Jones T M and Wicks A C (1999) lsquoConvergent Stakeholder Theoryrsquo Academyof Management Review 24(2) 206ndash221

Khalfan M M A and McDermott P (2006) lsquoInnovating for Supply ChainIntegration within Constructionrsquo Construction Innovation Information ProcessManagement 6(3) 143ndash157

98 Walker et al

Khalfan M M A McDermott P and Kyng E (2006) Procurement Impactson Construction Supply Chains UK Experiences Symposium on Sustainabilityand Value Through Construction Procurement CIB W092 ndash ProcurementSystems CIB Revaluing Construction Theme The Digital World Centre SalfordUK 29 Novemberndash2 December Peter McDermott P and M M A Khalfan449ndash458

Latham M (1994) Constructing the Team Final Report of the GovernmentIndustry Review of Procurement and Contractual Arrangements in the UKConstruction Industry London HMSO

Leonard-Barton D (1992) lsquoThe Factory as a Learning Laboratoryrsquo SloanManagement Review 34(1) 23ndash38

Leonard-Barton D (1995) Wellsprings of Knowledge ndash Building and Sustainingthe Sources of Innovation Boston MA Harvard Business School Press

Lewicki R J McAllister D J and Bies R J (1998) lsquoTrust and Distrust NewRelationships and Realitiesrsquo Academy of Management Review 23(3) 438ndash459

London K (2005) Supply Chain Sustainability CRC CI Report Brisbane2004-016-A 33

Maqsood T Walker D H T and Finegan A D (2007) lsquoFacilitating KnowledgePull to Deliver Innovation through Knowledge Management A Case StudyrsquoEngineering Construction and Architectural Management 14(1) 94ndash109

Maslow A H (1943) lsquoA Theory of Human Motivationrsquo Psychology Review50 370ndash396

Mayer R C Davis J H and Schoorman F D (1995) lsquoAn Integrated Model ofOrganizational Trustrsquo Academy of Management Review 20(3) 709ndash735

McAllister D J (1995) lsquoAffect- and Cognition-based Trust as Foundations forInterpersonal Cooperation in Organizationsrsquo Academy of Management Journal38(1) 24ndash59

Meyer J P and Allen N J (1991) lsquoA Three-Component Conceptualizationof Organizational Commitmentrsquo Human Resource Management Review1(1) 61ndash89

Mitchell R K Agle B R and Wood D J (1997) lsquoToward a Theory ofStakeholder Identification and Salience Defining the Principle of Who and WhatReally Countsrsquo Academy of Management Review 22(4) 853ndash886

Morris P W G and Hough G H (1993) The Anatomy of Major Projects ndash A Studyof the Reality of Project Management London Wiley

Platten A Dobrashian T and Dickenson M (2006) Innovative Approaches toDeveloper Selection and Procurement for Housing Market RenewalSymposium on Sustainability and Value Through Construction ProcurementCIB W092 ndash Procurement Systems CIB Revaluing Construction Theme TheDigital World Centre Salford UK 29 Novemberndash2 December PeterMcDermott and M M A Khalfan 449ndash458

Rousseau D M Sitkin S B Burt R S and Camerer C (1998) lsquoNot So DifferentAfter All A Cross-Discipline View of Trustrsquo Academy of Management Review23(3) 393ndash405

Shelley A (2007) The Organizational Zoo A Survival Guide to Work PlaceFairfield CT Aslan Publishing

Sherer S A (2005) lsquoFrom Supply-chain Management to Value Network AdvocacyImplications for e-Supply Chainsrsquo Supply Chain Management 10(2) 77ndash83

Stakeholders and the supply chain 99

Spekman R E Spear J and Kamauff J (2002) lsquoSupply Chain CompetencyLearning as a Key Componentrsquo Supply Chain Management 7(1) 41ndash55

Von Hippel E (1988) The Sources of Innovation New York Oxford UniversityPress

Walker D H T (2003) lsquoImplications of Human Capital Issuesrsquo In ProcurementStrategies A Relationship Based Approach Walker D H T and K D Hampson(Eds) Oxford Blackwell Publishing 258ndash295

Walker D H T and Hampson K D (2003a) lsquoDeveloping Cross-TeamRelationshipsrsquo In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Oxford Blackwell Publishing chapter 7169ndash203

Walker D H T and Hampson K D (2003b) lsquoProcurement Choicesrsquo InProcurement Strategies A Relationship Based Approach Walker D H T andK D Hampson (Eds) Oxford Blackwell Publishing chapter 2 13ndash29

Ward S C (1999) lsquoAssessing and Managing Important Risksrsquo InternationalJournal of Project Management 17(6) 331ndash336

Ward S C and Chapman C (2003) lsquoTransforming Project Risk Management intoProject Uncertainty Managementrsquo International Journal of Project Management21(2) 97ndash105

Weaver P and Bourne L (2002) Project Fact or Fiction ndash Will the Real ProjectPlease Stand Up Maximising Project Value Melbourne 21 October PMIMelbourne Chapter On CD-Rom 234

Wenger E C McDermott R and Snyder W M (2002) Cultivating Communitiesof Practice Boston MA Harvard Business School Press

Yukl G A (2002) Leadership in Organizations 5th edn International edn UpperSaddle River NJ Prentice Hall

100 Walker et al

Chapter 4

Business ethics and corporatecitizenship

Derek HTWalker Michael Segon and Steve Rowlinson

Chapter introduction

Some aspects of business ethics and corporate citizenship have an obviousrelationship to project procurement From an ethical point of view the needto banish corruption and expunge exploitation is a given ndash or at least theespoused position of all reasonable people is that there is no place for thesebehaviours in a civilised world So there must be rules standards andprovisions that safeguard us from these extreme and unconscionablebehaviours This is where governance and cultural pressures from withinorganisations and society impose a way in which procurement of projectshappens such that it does not solely satisfy the need for one particulargroup organisation or individual to benefit unsustainably at the expense ofothers The ontological perspective that we adopt in this chapter andindeed in this book is that the outcome of projects is a beneficial changethat adds value and that this value should be sustainable and meets theneeds of genuine project stakeholders In this respect this chapter links veryclosely with Chapter 3 Chapter 6 and Chapter 9 and somewhat to Chapter 8and Chapter 10

Sustainability has an important link to procurement People influence anddrive the process of initiating designing and delivering the mechanisms thatresult in completed projects People who influence that PM process have arange of motivations and needs and different perceptions of what successand the project outcome should look like This is why this chapter links toChapter 3 People (the market) determine what they demand and if businessdestroys their capacity to procure projects then the reason for these projectsis removed The definition of project success and what constitutes value (asdiscussed in Chapter 6) directly relates to ethics corporate citizenship andgovernance issues that view value with a focus on sustainability in itsbroader sense Much of ethics and the governance issues associated with cor-porate citizenship relate directly to culture both organisationally andsocially This is closely anchored in notions of trust and commitment as dis-cussed in Chapter 9 Projects require talented people to deliver projects andthe expected benefits from those projects so attracting talented people is a

vital sustainability issue Determining procurement governance structuresand processes links with a projectrsquos capacity to deliver innovation and learn-ing (discussed in Chapter 8) because rules procedures and reward systemscan be used to encourage and facilitate innovation Similarly ethics andgovernance are linked to providing an environment where supply chainpartners and project team members choose organisations that they considerto be partners of choice (discussed in Chapter 10)

This chapter is presented in three broad sections with a vignette at the endof the chapter which prompts relevant questions The first section deals withtheoretical underpinning relating to business and social ethics because thisalso forms the basis for corporate citizenship and corporate responsibility Itis relevant to project procurement choices because it helps us to understandthe perspective of any given set of procurement arrangements that the pro-ject appears to endorse or be guided by This section also explains theunderpinning of what can be seen as a particular style of professional behav-iour Behaviour of course is cultural value-laden and thus contestable so itmakes an interesting point of debate and strategic advantage differentiation

The second section relates to explaining and exploring the triple-bottomline (3BL) concept and its impact upon project procurement decisionsbecause it considers the financial perspective as well as social and environ-mental dimensions This has informed decisions about how to structure aprocurement process for some industries most notably the oil and gasindustry An interesting recent development is the increasing use of instru-ments that can be used for capitalising on green credits and this is an areathat most texts on procurement have failed to recognise or discuss Theemerging nature of this aspect means that it will receive an exploratory andsomewhat cursory treatment that hopefully will develop in future editions

The third section relates to the impact of governance on procurementoptions This section briefly discusses corporate governance becauseprojects fit into programs that are managed within portfolios to achievecorporate strategic goals ndash these days the strategic advantage is stronglyinfluenced by competitive advantage based upon differentiation as well ascost efficiencies Governance is both fundamental and practical forprocurement because it is about the rules regulations and measures thatprotect integrity and fair play as well as protect project investors againstmuddled and mishandled approaches to managing projects In someindustries where the project outcome is highly tangible such as buildingsplanes ships etc there is a special focus on health safety and the environmentand so we will devote a sub-section of governance to that which impactupon procurement choice and governance requirements

Fundamental theoretical underpinnings of ethics

As managers we are expected to make decisions that advance the interestsof the organisation In fact we become agents of an organisation and in

102 Walker et al

effect are legally bound to advance the interests of the organisation and itsshareholders Decision making is the essence of a managerrsquos job and yet asdiscussed in Chapter 5 Mintzberg (1990) identified most managers asbeing reactive decisions makers Child (1986) also identified that managerstend to look to the first solution that appears to satisfy minimum criteriarather than the best option Such decision-making practice often leads topoor-quality outcomes which may expose organisations and managers torisk This chapter is concerned with improving decision making by addressingthe ethical dimensions Including an ethics filter as part of the processes thatenhances decision making by identifying the degree of risk associated withdecisions and the filter assists managers to develop defensible positions fortheir decisions and actions

What is ethics

In general ethics is concerned with what is right fair just or good aboutwhat we ought to do not just what is the case or what is most acceptable orexpedient (Preston 1996 16) Ethics is a multifaceted concept that includesthe study of morality the legitimacy of moral claims and the basis ofjustification of decisions As we will see organisations develop policies andprocedures as part of corporate governance for individuals to follow ndash thisis an example of normative ethics or the clarification of behaviour standardsabout what we ought to do As ethics is directly concerned with behaviourit therefore has relevance to the way people behave in organisations

Ethics can best be understood by considering a number of perspectives

philosophy and philosophical thinking about morality moral problemsand moral judgment (Beauchamp and Bowie 1997)

defined as a study of what is good or right for people what goals theyought to pursue and what actions they ought to perform (Velasquez1998)

concerning itself with human conduct or activity that is doneknowingly and consciously (Robbins and Mukerji 1990) and

actions and practices directed towards improving the welfare of peopleand attaining a good life (Buchholz 1989)

An important question to answer is why should we consider ethics at all inbusiness There are some who argue that business transactions and businessactivity are limited activities and as such managers are constrained to onlyconsider actions that advance the interests of the organisation Thisposition advocates that managers are constrained in their decision makingto only consider decisions that advance shareholder interests and it is wrongfor them to engage in socially responsible activity other than obeying thelaw ndash a view of the classical approach to socially responsible practice whichwas popularised by economist Milton Friedman in his significant article

Business ethics and corporate citizenship 103

lsquoThe social responsibility of business is to increase its profitsrsquo published in1970 (Donaldson and Werhane 1999)

However Allinson (1998) has argued that ethics is fundamental tobusiness conduct He contends that a moral relationship lies at the basis ofagreements and contracts between two people or two organisations andthat unless there is a basis of trust business cannot proceed This viewsuggests that the organisation is a moral player in society with duties andresponsibilities and in order to advance its interests it must engage in behav-iour that is acknowledged to be at least the minimum moral standard Morerecently business ethics literature has focused on the business case for organ-isations developing ethical cultures Related to the issue of trust betweenbusinesses and stakeholders as identified by Allinson (1998) the develop-ment of ethical cultures and business practices as evidenced by the existenceof codes of ethics integrity systems and socially responsible strategiesstrengthens the relationship between the organisation and the key stake-holders such as consumers (Freeman 1999) This suggests that there is adirect relationship to business profitability as evidenced by improved salesand sustained growth or a negative relationship to costs This can be seen asanother argument in support of organisational ethical frameworks

Whilst research is clearly emerging that supports the long-held view thatethics is good for business (Carroll and Meeks 1999) there is anotherreason why we should consider ethics at the micro level of managerialdecision making We all have slightly different understandings about whatis ethical Our moral values are shaped over time influenced by a range offactors including our parents and upbringing religion formal and informaleducation and our cultural identity among other experiences (Buchholz1989) We should not presume that our understanding and application ofethics is necessarily correct or that others will agree with our interpretationWhat is required is a considered and informed approach rather than anintuitive or gut feel to ethical decision making We should incorporate a sys-tematic approach to defining the ethical dimensions to our decisions andensure that our business practices are ethical because itrsquos the right andprofitable thing to do The study of business ethics does not just meanmoralising about what should or should not be done in a particularsituation Rather it systematically links the concepts of morality responsibilityand decision making in organisations (Ferrell and Fraedrich 1997)

What is an ethical issue

An ethical issue can be seen as a problem situation or opportunity whichhas several possible options and where each must be evaluated as right orwrong ethical or unethical Aguilar (1994 33) states lsquoManagers who aresensitive to the ethical content of business decisions and operational

104 Walker et al

activities who agree to behave ethically and who hold compatible views onhow to analyse ethical situations still must confront the inherently perplexingnature of many ethical problemsrsquo Managers talking about workplaceethical problems often describe dilemmas situations in which they werefaced with a difficult choice and where no clear-cut right answers existed

Managers face ethical issues on a daily basis issues such as dealing withclients marketing and advertising product liability and safety privacy ofemployee records employee discipline and relations with competitors thetricky topic of gifts invitations from suppliers ndash all have ethical dimensionFerrell Fraedrich and Ferrell (2002) classified the ethical issues relevant tomost organisations into four key areas First conflicts of interest secondhonesty and fairness third communications and fourth relationshipswithin the organisation

A conflict of interest exists when an individual has the opportunity totake a decision which advances his or her own interest rather than that ofthe organisation It is important to acknowledge that people often willmake judgements about perceived rather than actual conflicts of interestSeparating private interests from business dealing helps employees avoidconflicts of interest In project procurement terms accepting bribespersonal payments and gifts are considered conflicts of interest in mostlsquoWesternrsquo countries However in some countries gift giving is commonlyaccepted as part of relationship building to establish trust and rapport withbusiness partners This concept is referred to in China as lsquoguanxirsquo (Low andLeong 2000) and should not be confused with bribery We discuss thisaspect in more detail in Chapter 9 Maintaining transparency is an effectivestrategy in minimising conflicts of interest

Honesty and fairness can be seen as principles that most people wouldacknowledge as typifying ethical behaviour As Ferrell et al (2002) suggestthese relate to a decision makerrsquos general characteristics or traits It isexpected that people at the least follow all applicable laws and regulationsand should not knowingly harm customers employees clients orcompetitors through deception misrepresentation or coercion

Fraudulent behaviour1 and corruption can be seen as a subset of conflictof interest however it can also be systemic and involve many individualsand groups Ferrell et al (2002 33) define fraud as lsquoany purposefulcommunication that deceives manipulates or conceals facts in order tocreate a false impressionrsquo This would include financial records advertisingmessages tender selection etc where the organisationrsquos message tocustomers and stakeholders needs to be truthful

This last focus looks at areas such as relations with colleagues meetingobligations and responsibilities and not placing pressure on others toencourage them to take unethical actions We should recognise that manylaws exist that directly deal with interpersonal relationships and their

Business ethics and corporate citizenship 105

ethical dimension Anti-bribery anti-collusive tendering practices equalemployment opportunity and anti-discrimination legislation are examplesof laws which seek to ensure that people are not related unethically

Explaining ethical behaviour

Behaviour is a function of many variables We cannot simply say thatpeople are born good or bad and thus their actions are always predictableWhat we can do is examine how people make decisions and the factorswhich seem to impact on or influence their decision-making process

One of the best explanations for how people make ethical decisions isprobably that developed by Lawrence Kohlberg He found that in order forpeople to behave morally they must among other things decide whatcourse of action is morally right and then they must choose the morallyright path over others Kohlbergrsquos theory primarily focuses on the firstprocess the process by which people decide what is morally right (Frenchand Granrose 1995)

Kohlberg proposed that individuals arrive at differing moral judgmentsabout the same issues because they possess differing stages of cognitivemoral development He proposed a six-stage model of cognitive moraldevelopment with each stage representing progressively more sophisticatedmoral evolution These six stages can be grouped together in pairs to formthree levels pre-conventional conventional and post-conventional Byimplication persons at higher stages of moral development tend to considerfactors other then their own benefit when identifying and resolving moralor ethical issues however they can comprehend all reasoning at stagesbelow them but cannot comprehend the reasoning of stages any more thanone above there own (French and Granrose 1995) This suggests thatwithin organisations individuals may reach different decisions concerningthe same action or circumstances if not governed by specific guidelines ordecision criteria Kohlberg suggests that when a dilemma presents itselfwhich cannot be resolved explained or seems to contradict our own currentlevel of reasoning we gain maturity and move through these stages Thiscan occur through general interaction with others peers colleagues orthrough more formal methods such as education and training (French andGranrose 1995)

Level 1 ndash pre-conventional level

The pre-conventional level is characterised by people making decisionswhich are based on self-interest mitigated by rewards and punishment andexternally imposed rules such as law or organisational policies

In stage one how people decide whether an action is right is largelydetermined by the rewards punishments and favours associated with theaction This suggests people follow laws and rules automatically because

106 Walker et al

they do not want the negative consequences for example reprimandsfines etc or because they are rewarded through prizes salaries etc

At stage two people begin to recognise that they need to work with othersso that they can attain their goals ndash they acknowledge others and a duty tothem however they are still motivated largely by self-interest This conceptis known as reciprocity The lsquoscratch my back and Irsquoll scratch yoursrsquoapproach People engage in behaviour that they know will yield possiblefavours in return or feel obliged to repay a debt

Level 2 ndash conventional level

At this level people have recognised the importance of a group in societyusually family or some important clangrouping Generally living up to theroles and expectations of others and fulfilling duties and obligations andfollowing rules and laws within that group is determined as doing the lsquorightthingrsquo This is highly relevant to organisations as it highlights the importanceof leaders and supervisors in influencing the behaviour of employeesAccording to business research most people operate at this level withinorganisations highlighting the importance of leadership and culture and atthe following stage where the importance of organisational policies and pro-cedures act as guiding principles rendered as distinct from strict compliance(Ferrell et al 2002)

At stage three people value their belonging to a group and value theimportance of group interaction They tend to judge actions as right basedon the norms and standards of the group or based on the belief that theaction or outcome will be favoured by the group or the leader of the groupThe important concepts are those of trust and loyalty So people may dowhat is asked of them by a boss or managers because they want to pleasethem or because others whom they respect say itrsquos important to follow thedirections of the bosses

At stage four peoplersquos perspective broadens to consider the wider societalgroup People tend to make decisions based on the agreed duties andfollowing rules which are designed to promote the common good Whilstpeople have a broader perspective than that described at stage three thereis still a boundary that people use to define the wider societal group to theexclusion of others This might be at a state or national level or some otherbasis of categorising the group This could be used to explain why somestate governments will take a decision that advances their own state but isto the detriment of another

Level 3 ndash post-conventional or principled level

At this level people have gone beyond notions of self-interest or referentgroups rather they make their own decisions based on more principlednotions consistent with justice and rights This tends to be of greatest

Business ethics and corporate citizenship 107

relevance to organisations when engaged in lsquosocially responsiblersquo orcorporate citizenship activities

At stage five people still regard rules and laws are important because theymaintain social cohesion (known as the concept of social contract)however people are prepared to change laws for usual social purposes Inaddition people consider the concept of moral law that which existsbeyond the written law as contributing toward societal well being

At stage six people have moved to a higher level in which the notion ofuniversal laws and principles are applied

Kohlbergrsquos approach is not about understanding the action In factpeople operating at different levels may make the same decision or take thesame action but for different reasons This concept explains how they cameto make their decision and helps explain how they see the world and criti-cal factors influencing their decisions (French and Granrose 1995)

An ethics bank

Recent research suggests that some peoplersquos approach to ethical decisionmaking is not necessarily determined by levels of moral maturity rather itis a conscious decision to follow an action which they know to be wrongbut argue that it is mitigated by other good deeds they have done inthe past This has been referred to as an lsquoethics bankrsquo in which an ethicsbalance is established where good behaviour is deposited so as to allow theoccasional withdrawal via bad behaviour

This suggests that people generally follow a path which results inaccepted morally right actions Either consciously or unconsciously theykeep track of the lsquovaluersquo of these actions in effect building up credits oflsquogoodrsquo Then when confronted by a decision which they know to beethically unacceptable but which may be of sufficient importance or valueto them they may engage in a conscious and rational process ofdetermining how many ethically right actions they could trade off in orderto pursue the action

Perhaps this type of decision making is most evident at an organisationallevel where companies engage in actions which have a real or perceiveddetrimental impact on society or pursue actions which are knowinglywrong for example pollution or use or sell unsafe products etc Theorganisation then does something which society will recognise as beneficialin order to restore balance For example a mining company may buildroads schools or hospitals for a community in compensation for ecologicaldamage which they may not redress for economic reasons

Ethical reasoning

There are many ways of studying and analysing management decision makingand action Ethical theories describe general approaches to thinking that

108 Walker et al

allows ethical principles to be drawn and applied to concrete actions andmanagement practices

What questions should we ask What factors should we considerVelasquez (1998) suggests that the first step in analysing moral issues isobvious but not always easy get the facts ndash something we know fromMintzbergrsquos (1975) study of what managers do and seem reluctant to doSome decisions result in ethical controversies simply because we havenrsquotcollected enough information about the decision and its consequencesHowever having the facts is not enough to ensure that the decision is notjust profitable but also ethical As Preston (1996) suggests facts can beverified but they do not tell us what to do We need to use facts as part ofthe decision-making process but according to Velasquez (1998) we alsoneed to resolve the ethical issue through an appeal to values

There are a number of ways that we can analyse the ethical dimensionassociated with a decision Buchholz (1989) suggests that ethical theoriesare not just ways of analysing a decision but they may also enable us tojustify it He argues that a critical issue in decision making is being able todefend a decision using a variety of perspectives

Determining ethics according to outcome

Often individuals and organisations determine whether a decision or actionis ethical based predominantly on the actual or perceived value of theoutcome that is generated These approaches are also called consequentialisttheories and the two most often discussed are utilitarianism and egoismThey hold that the moral worth of an action or practice is determined solelyby the consequences of the practice or action and not on the intent of theaction A decision or an act undertaken by an individual or a group wouldbe considered right if the outcome generates benefits greater than the harmproduced (the lsquogreater goodrsquo) This approach to decision making uses adecision-making system that parallels costndashbenefit analysis and thus is veryappealing to business It assumes that everything can be valued and measured

THE EGOTIST APPROACH (SELF-INTEREST)

As the name suggests this approach focuses largely on benefits that canaccrue to the individual An act is considered morally right or wrong solelyon the outcomes for onersquos self Self-interest underpins ethical egoism andmany argue that the pursuit of self-interest will lead to optimal allocationof resources in a free market system Self-interest will provide themotivation for people to work hard take risks and innovate etc thusguaranteeing economic growth

Whilst this is a popular approach to defining ethical behaviour manytheorists suggest that it is a narrow interpretation Under this conceptmany actions that are clearly not beneficial to society could be argued as

Business ethics and corporate citizenship 109

beneficial for the individual and therefore perhaps seen as acceptable Wecan see egoism at work in organisations in particular through rewardsystems such as commission-based salaries Egoism can be also used toexplain why people take actions that others would see as unethical such asaccepting gifts or matters that others argue as conflicts of interest To theindividual it could be seen as merely advancing their self-interest

THE UTILITARIAN APPROACH (MAJORITY OR GROUP INTEREST)

Utilitarianism was developed by Jeremy Bentham and John Stuart Mill inthe nineteenth-century Britain to help legislators determine which laws weremorally best (Velasquez 1998)

The objective of this approach is to generate the greatest possible benefitfor the largest number of people whilst minimising the damage or harmdone to others The ethical action is the one that provides the greatest goodfor the greatest number As identified above this is akin to a costndashbenefitanalysis The issue here is not how these outcomes are achieved but ratherthe size of the cost or benefit that is incurred The primary way ofdetermining the moral worth of an action is to evaluate all the associatedsocial cost or benefit (Buchholz 1989) Utilitarianism has not only an obvi-ous appeal but it also has important limitations that are often overlookedby business

First the emphasis on measuring value often means that only those thingsthat can be measured are included issues such as emotions feelings sense ofduty are often not part of a utilitarian calculus Second determination ofvalue is somewhat subjective (see Chapter 6 for more on performancemeasures) One personrsquos view of a decision might be very different toanotherrsquos interpretation Third a significant problem with utilitarianism asit is applied in business is that it is not used to calculate the greatest benefitfor the greatest number as originally intended rather a restrictedutilitarianism is used whereby the benefits are calculated for only a certaingroup such as shareholders or customers Fourth utilitarians typicallyinclude only the direct costs and fail to include the indirect and opportunitycosts associated with a decision This can often lead managers and businessto fail to consider the impact of their decision on certain groups as discussedlater in this chapter with reference to 3BL issues raised by FlyvbjergRothengatter and Bruzelius (2003) Perhaps the most important failing forus to consider is that utilitarianism emphasises outcomes and not how adecision is made ndash that is the ends justify the means Clearly it is possible toachieve what one could argue are very ethical outcomes but in a mannerwhich is unethical or illegal The lack of attention to how decisions are madeby managers exposes the organisation to substantial downstream risk not tomention possible legal action when making project procurement decisions

110 Walker et al

Determining ethics by process and principle

Another way of determining the ethical nature of a decision is not to lookat the outcome but rather the process or actions used in arriving at thedecision or outcome This branch of ethics referred to as deontologymaintains that actions and practices have intrinsic value ndash some actions andpractices may be morally wrong no matter how good their outcomes mightbe (Buchholz 1989) Deontology also suggests that it is almost impossibleto accurately calculate benefits and harms because there are many unknownvariables As absolute certainty does not exist as is the case in the businessworld we can never really be sure of the full consequences of our actionsthus we need to use other means of determining the moral worth of anaction

In effect this branch of ethics says that focusing on the decision itself isimportant thus following duties respecting rights and using principles toguide decisions such as fairness justice and due process are advanced as themeans by which ethical decisions can be justified This has great relevanceto organisations because they use policies and procedures as a means ofguiding decision making Professionals such as doctors lawyers andengineers have codes of ethics and conduct which stipulate duties that needto be respected Similarly there are many laws such as Equal EmploymentOpportunity Anti-Corruption and Fair Trade legislation which are basedon notions of justice and fairness

THE RIGHTS APPROACH

The rights approach to determining ethics essentially proposes that peoplehave a set of rights that must be respected It emphasises that people shouldnot be seen as objects and must be afforded the right to freely choose acourse of action Velasquez (1998) provides a list of rights that can assist inguiding decision making Whilst not a complete list they are considered tobe indicative and have clear application to many business contexts

The right to the truth we have a right to be told the truth and to beinformed about matters that significantly affect our choices

The right of privacy we have the right to do believe and say whateverwe choose in our personal lives so long as we do not violate the rightsof others

The right not to be injured we have the right not to be harmed orinjured unless we freely and knowingly do something to deservepunishment or we freely and knowingly choose to risk such injuries

The right to what is agreed we have a right to what has been promisedby those with whom we have freely entered into a contract or agreement

Business ethics and corporate citizenship 111

THE DUE PROCESS AND PRINCIPLED APPROACH

This approach also focuses on the principles and processes that characterisethe decision Concepts such as fairness justice and due process areidentified by Buchholz (1989) as means by which the integrity of a decisioncan be demonstrated Perhaps the most obvious application of theseconcepts is that of law Law is often defined as the minimum moral stan-dard in society These standards are accepted and for the most part there isno need to undertake a costndashbenefit analysis (a utilitarian calculus or toanalyse rights etc) we simply follow the law and thus the decision is seenas ethical Fairness and justice is seen to be done when laws are followedand when due process is afforded Its application to organisations andmanagerial decision making is very clear Managers and organisations mustabide by applicable laws be they equal employment opportunity healthand safety or advertising requirements In addition organisational policiesand procedures can also be seen as part of this approach because theyprovide information about how to make a decision

Clearly determining ethics by process seeks to ensure the integrity of thedecision-making process however there are limitations which should beacknowledged Perhaps the most significant problem is the emphasis onhow we make the decision without consideration of the outcome Oftencourts will pass judgements on the basis that due process was not followedThis can occur in unfair dismissal cases in industrial relations where anemployee may have committed a serious offence but because managers andorganisations did not follow the required disciplinary procedures theemployee is seen to have been denied natural justice The other danger withthe due process approach is that it may encourage organisations to meetonly their minimum legal obligation This is identified by McAlister Ferrelland Ferrell (2005) as a minimalist social-responsibility position

DETERMINING ETHICS NATURE BY VIRTUE

The third major way in which people make ethical decisions is not as clearor calculating as the previous approaches rather the virtue approach hassimilarities to the controversial trait or character approaches to leadership2

This ethical approach proposes that there are certain ideals towards whichwe should strive ndash demonstrated by characteristics or virtues It isconcerned with peoplersquos motives or intention of their actions In this waywe need to recognise that it is a subjective analysis of the doer of the actionPreston (1996) suggests that this approach is not centred upon the questionlsquowhat ought we to dorsquo but rather lsquowhat kind of person ought we tobecomersquo

The virtue approach focuses on personal disposition attributes traitscharacter3 that enable one to become and to act in ways that develop

112 Walker et al

what human beings have the potential to become It enables the pursuit ofadopted ideals (lsquovirtuesrsquo) such as honesty courage compassion generosityfidelityloyalty integrity fairness self-control and prudence The goal is toencourage living properly so that good and right behaviour emanates fromwithin the person We can see the application to business in that manyorganisations develop value or mission statements as well as projectcharters for their projects which are built on such virtues The purpose ofthese is to establish the basis for organisational strategy culture and toprovide people with a series of principles that can assist in resolving anethical conflict when one of the other approaches fails to deliver a clear orsatisfactory resolution

Virtues are developed through learning and through practice Thisapproach assumes highly developed cognitive processes that is the ability torationally assess and understand complex environments and how they affectour decision-making It also assumes that we have the time to exercisereasoning to the extent that virtues become habits so that in practical lifepeople act instinctively through habit Consequently virtue approachessuggest that a truly good person does not calculate or reason abouttruthfulness or lying shehe is honest However despite a personrsquos reasoningabout what is right or good that person may still not choose to do the rightor good thing Consequently by becoming clearer about our identity (whowe are) it does not follow that actions we must take are pre-determined

The virtue approachrsquos greatest strength its generality is also its greatestweakness It does not provide specific guidance on how to resolve adilemma ndash it assumes that the virtuous person will know the answer Nordoes it provide a framework for the resolution of conflicts of virtues Forexample how does one resolve a conflict between honesty and loyaltyClearly some of these concepts are also open to interpretation Thevagueness about what constitutes a virtue like lsquointegrityrsquo can also result inits devaluation ndash this has been a criticism of mission and value statementsas being merely lsquowindow dressingrsquo because organisations and managers failto demonstrate or live up to these expectations

Applying the ethical theories as a decision-making filter

Whilst it is important to know the differences between the various ethicaltheories a further challenge is how to integrate them into decision making ndashwhen should you use utilitarianism or process and deontology or perhapsvirtue ethics

In this chapter we have identified that all the three major ethical approacheshave advantages and disadvantages To pick and choose a theory simply tojustify a decision is consistent with what Benjamin identifies as the moralopportunists constantly shifting their moral position so as to gain the mostsignificant short-term advantage (French and Granrose 1995 166ndash169)

Business ethics and corporate citizenship 113

Velasquez (1998) and Francis (1999) suggest that decision making needsto reflect a holistic approach which seeks to identify ethical implicationsfrom all three major approaches Both agree that the first step is to collectthe facts surrounding an issue and ensure that we have clarified the decisioncontext Managers need to be sure that the decision is theirs to take and thatthey have the knowledge and skills to make such a decision It is a basic eth-ical duty to ensure that we act within our defined authority and capability

Having ascertained the facts we should ask ourselves a series ofquestions which will assist us to identify the ethical dimensions associatedwith the decision

1 What are the potential risks or harms that will result from thedecision(s)

2 Which alternative will lead to the best overall consequences3 What are the moral rights of the stakeholders (including those affected

and those involved in the decision) and which course of action bestupholds those rights

4 Which decision is consistent with both the spirit and letter of applicablelaws

5 Which decision is consistent with policies and procedures of theorganisation

6 Which decision is consistent with principles of justice and fairness7 Which decision would be seen as having the characteristics of integrity

honesty truthfulness and trustworthiness

In effect these seven questions ask managers to use all the three approachesas part of the decision-making process Questions 1 and 2 reflect conse-quentialist perspectives Questions 3ndash6 deontology and process and thefinal question reflects virtue approaches If any one of the seven questionscauses concern then the decision may have questionable ethics or not be jus-tifiable Rather than pursue such actions and possibly expose organisationsand themselves to risk managers need to revisit their decisions and seekalternatives that are consistent with the principles identified above

This method of asking key questions does not necessarily guarantee thatall decisions taken will be ethical but it does increase the likelihood ofethical dimensions being uncovered and thus considered As with any skillthe more attention given to developing ethical decision-making skills themore effective they will be

Francis (1999) suggests that two further tests can be applied if there isstill uncertainty both dealing with your decision and perceptions that arerelevant to making project procurement decisions

1 Imagine that you have made a decision implemented it and for variousreasons the matter comes before a public court imagine further that

114 Walker et al

you are called to the witness box and are asked to defend your positionWould you be able to provide such a defence

2 Consider a similar scenario however on this occasion it is your motherfather spouse or children who ask you to explain your decisions Afterthe decision would they still be proud of you

Discourse is fundamental to increasing onersquos understanding of ethics andthe challenges of working in a morally complex world Managers oughtnot to assume that a decision must be taken without input from othersA rich resource for many individuals are the numerous professionalbodies which have codes of ethics and other forms of assistance such asforums that enable people to discuss and resolve challenges Similarly othermanagers and colleagues in your organisations have a wealth of experienceand knowledge and may be in a position to provide valuable counselhowever remember that their ethical perspective may differ substantiallyfrom your own Also stakeholder consultation can reveal pertinent andsalient issues

Project procurement and 3BL

The triple-bottom-line (3BL) concept came to the forefront of managementthinking with Elkington (1997) arguing that organisations should reportperformance in more than purely financial terms because this does not fullyadequately address the value proposition of significant stakeholders Thesecond two lsquobottom linesrsquo are social and environmental The social bottomline relates to the social impact of any activity to enable us to evaluate thetype and intensity of its impact upon society because the aim of businessesis to serve society by delivering goods and services If the social impact isignored then the current and future market can be undermined Theenvironment also sustains business activity and so any activity that harmsthe environment can potentially harm existing and future markets Thereasoning behind Elkingtonrsquos argument is that customers and clients shouldbe provided with sufficient information to be able to judge the level of theirsupport for a companyrsquos product (or service) so that they can make aninformed choice Those who feel that this is an intrusion into theprerogative of managers and leaders do so because they fear that these othertwo lsquobottom linesrsquo are highly politically charged A number of globalorganisations are joining into support groups that implement 3BLinitiatives For example the Australian Bank Westpac which operatesglobally has signed up to the Equator Principles initiative and as a projectfinancier this has important implications An example of their 3BLreporting can be found on the web4 A full text of the principles as well asfrequently asked questions can be found on the Equator Principles5

website In summary the website explanation of the principles contains

Business ethics and corporate citizenship 115

the following

Project financing a method of funding in which the lender looksprimarily to the revenues generated by a single project both as the sourceof repayment and as security for the exposure plays an important rolein financing development throughout the world Project financiers mayencounter social and environmental issues that are both complex andchallenging particularly with respect to projects in the emerging mar-kets The Equator Principles Financial Institutions (EPFIs) have conse-quently adopted these Principles in order to ensure that the projects wefinance are developed in a manner that is socially responsible and reflectsound environmental management practices By doing so negativeimpacts on project-affected ecosystems and communities should beavoided where possible and if these impacts are unavoidable theyshould be reduced mitigated andor compensated for appropriately Webelieve that adoption of and adherence to these Principles offers signifi-cant benefits to ourselves our borrowers and local stakeholders throughour borrowersrsquo engagement with locally affected communities Wetherefore recognise that our role as financiers affords us opportunities topromote responsible environmental stewardship and socially responsi-ble development As such EPFIs will consider reviewing these Principlesfrom time-to-time based on implementation experience and in order toreflect ongoing learning and emerging good practice

Project procurement and the financial bottom line

Procurement assumptions dominated by the financial bottom line present dan-gers in generating value for both customer procuring projects and those in thesupply chain that help deliver projects Customers who are highly price sensi-tive and seek to obtain the lowest cost may drive price-competitive orientedorganisations into a competitive advantage cycle that is dominated by lowestprice-seeking behaviour A cost advantage is generally short-lived and unsta-ble Theory based upon a transaction cost economics (TCE) view assumes thisto be driven by the lsquoefficiencyrsquo goal (Ghoshal and Moran 1996) This cost effi-ciency view can be contrasted with a competitiveness view gained throughhaving a differentiation competitive advantage that remains sustainable untilthat differentiation advantage can be replicated or improved upon (Porter1985) The broader view of resources includes knowledge reflexivity anddynamic capabilities that are used to respond to competitive pressures (TeecePisano and Shuen 1997 Eisenhardt and Martin 2000) However deliveryeffectiveness is also seen as crucial and this is expressed in project and PMterms through focussing on strategy (Morris and Jamieson 2004) A strategyview of value relates to delivering a bundle of offerings within a project out-come that meets the often complex and diverse needs of numerous and diverseproject stakeholders rather than a dominant focus on gaining value through

116 Walker et al

lowest cost An unbalanced focus on projects to surmount a return oninvestment hurdle or designed and delivered to maximise profit can be bothdistracting and ineffective Thus supporters of the 3BL concept believe that itis sub-optimal and often counter-productive to be blinded by the financialbottom line as the only valid criterion for procurement choice decisions

For mega projects where complex procurement decisions are made thereis justifiably an acute focus on the potential risk for large and embarrassingcost overruns In Chapter 2 of Megaprojects and risk an anatomy ofambition Flyvbjerg et al (2003 14) cite cost overruns on major projectssuch as the Boston arterytunnel project 196 The Humber Bridge UK175 the Great Belt rail tunnel Denmark 110 and the FranceUKChunnel 80 They also provide chilling examples of revenue deficitproblems with many mega projects and cite actual traffic as a percentageof traffic forecast in the opening year of the Chunnel project at only 18and the UK Humber Bridge at 25 (Flyvbjerg et al 2003 25) The citedfigures are well substantiated from reliable evidence presented in a range ofauthoritative sources so they can be accepted as representative for manylarge-scale projects They also stress the risk impact of non-technical issuesand claim that their data base drawn from their own studies as well asmany authoritative studies conducted by government auditing agencies andindependent research bodies suggests that

A main cause of overruns is a lack of realism in initial cost estimatesThe length and cost of delays are underestimated contingencies are settoo low changes in project specifications and design are not suffi-ciently taken into account changes in exchange rates between curren-cies are underestimated or ignored so is geological risk and quantityand price changes are undervalued as are expropriated costs and safetyand environmental demands

(Flyvbjerg et al 2003 13)

They conclude that we should not trust cost estimates and demand forecastspresented in business cases This suggests unethical behaviour through lyingand misrepresentation of situations It also suggests naivety and a lack ofconsideration of the real impact of ignoring social and environmentalaspects of a project In concentrating upon a dominating financial focuswhen preparing a business case for projects the social and environmentallegs of the 3BL stool often are ignored or at best poorly considered

Throughout this book we stress the need for looking beyond thefinancial dimensions of project procurement because society as a whole(including lsquothe marketrsquo and both lsquocustomersclientsrsquo as well as lsquosupplychainrsquo members) demand a more holistic approach to procurement thatconsiders a range of directly and indirectly influential stakeholder groupsThose who dismiss the importance of considering the 3BL as being of marginalrelevance should review risk management stakeholder management and

Business ethics and corporate citizenship 117

change-management literature A well-thought-through project businesscase should address adequate stakeholder analysis and issue mapping as avital first planning step in managing risks that can jeopardise any projectChapter 6 discusses a wider base of project performance measures than isoften considered in project evaluation and monitoring and relates closely tothe social and environmental aspects of the 3BL This chapterrsquos section onproject governance stresses the need for clear accountability and transparencyof expected standards which includes social and environmental aspects

A financial bottom-line focus manifests itself in attempts to achieveefficiency through sourcing the least expensive project inputs (see Chapter 1on outsourcing) effectiveness in terms of finding innovative ways to deliverprojects and learn from past experience (see Chapter 8) and financial sus-tainability through ensuring that the project returns sufficient financialbenefits that it justifies its existence

Project procurement and the social bottom line

The concept of a social bottom line is at least partially anchored in thebelief that the market is a broad set of immediate customers and potentialcustomers that given the financial means to access an opportunity couldand perhaps would become a consumer of goods and services on offer(Elkington 1997) Thus if business adopts a social responsibility agenda aspart of its market obligations then it will benefit financially in the longerterm The concept of embracing social responsibility can also be justifiedfrom an intangible deliverables perspective (as is done so in Chapter 6 ofthis book) that provides the deliverer (of the project to a market or to theproject delivery coordinator being part of a supply chain) with a potentialunique differentiation factor contributing to its competitive advantage

In the value for money debate the issue of publicly sponsored or fundedprojects having a critical need to deliver social benefits as their reason forbeing as Donnaly (1999 47) argues the reason why the public sectorconceived such projects as delivering clear water educational facilitiesmedical facilities and the other trappings of a civilised society was becausethe private sector could not satisfactorily deliver these ndash at least duringmuch of the twentieth century This aspect of the public policy debateargues that to obtain best value in project procurement the social bottom-line needs of projects designed to deliver social outcomes must be carefullyconsidered (Staples and Dalrymple 2008) This can translate in a numberof ways relevant to the strategic intent of a given project This notionaccords with those who argue that project selection and outcomes must bealigned with the strategic intent (Archer and Ghasemzadeh 1999 Morrisand Jamieson 2004 Norrie and Walker 2004) Imagine a highwayinfrastructure project is proposed in a rural setting and a significant part ofits timing decision for being promoted and supported was to maintain

118 Walker et al

workflow in the local area to sustain local industry capacity andemployment It may be entirely appropriate therefore that the project bedesigned and delivered in a way that helps to maintain the sustainability ofthat community together with its supporting industrial and workforce baseMaking social bottom-line factors part of project procurement selectioncriteria is not new In the National Museum of Australia (NMA) project forexample an indigenous workforce employment selection criterion was partof the evaluation process explicitly required by those submitting proposalsto form an alliance to deliver that iconic project in 2001 in CanberraAustralia Alliance partners had to demonstrate substantial acceptance ofthe draft alliance document for the project that included related codes ofpractice proposals for support of local industry development andemployment opportunities for Australian indigenous peoples There wasalso a focus on demonstrating an outstanding record of ethical and sociallyresponsible working with government and local communities and acceptingbroader responsibility (Walker and Hampson 2003)

The incorporation of social bottom-line benefits to identified projectstakeholders who may not have a critical and pressing lobbying capacity todemand social benefits can deliver kudos as well as provide future brandcache value for organisations adopting this approach Much of thephilanthropic activity that openly takes place (as opposed to anonymouscontributions) to deliver social benefit by corporations and individuals ispartially justified as a brand-enhancing or kudos-building activityRecognition of the value of strategically factoring in social bottom-line out-comes makes sense and can be achieved by linking these to tangible outputsmore usually recognised as project outputs (Nogeste and Walker 2005Nogeste 2006) In the Flyvbjerg et al (2003) book they caution aboutpromoting mega infrastructure projects on the basis of generating regionaleconomic growth Indeed while these authors recognise and support theneed to be transparent about the strategic intent for such projects they pointto a number of examples where providing infrastructure to advantage onegroup has severely damaged others One example they cite is the newtransport fixed-link infrastructure that has been constructed betweenDenmark and Sweden The intention was to synergistically stimulateeconomic activity between two centres and that there was an expectationthat people might move from Copenhagen Denmark to Malmouml Swedenbut this appears not to have happened to the extent expected In factthey cite a report from the Danish Transport Council of predictions(subsequently realised in the two years following their report) that theGreat Belt link (a mega infrastructure project) will have the affect on portcities of losing ferry operations thus affecting that constituency thatregional economic effects will be small and that positive economic benefitsthat could be generated will occur in areas not targeted to be improved(Flyvbjerg et al 2003 69) In considering corporate social responsibility

Business ethics and corporate citizenship 119

more generally Bansal (2006 2) identifies several best practices that can beapplied to business projects and other business activities

including social issues in risk assessment models measuring the cost or revenue impact of social issues and using these as

criteria in numbers-based models lengthening decision-time horizons to make these fuller assessments involving external stakeholders formally and informally and building social capital

While considering the social bottom line may be seen as a generic ethical orlsquosocially responsiblersquo thing to do we stress that to be effective in a PMsense these should be strategically targeted and that performance measuresbe developed and used in monitoring lsquosuccessrsquo of this particular projectoutcome aspect It is clear that careful thought and planning is needed sothat the unintended consequences of good intentions do not triggerlsquocollateral damagersquo

Project procurement and the environmental bottom line

The environmental bottom line also sustains business activity Any activitythat harms the environment can potentially harm existing and futuremarkets Most projects have specific legal safety health and environment(SHE) provisions to protect people and the environment that they need tocomply with Indeed the NMA project alliance provides an example ofstringent requirements (Walker and Hampson 2003) Another example ofa client that purposefully sought out green solutions to building design anddelivery to present a showcase project that seeks a strong environmentalbottom line is Melbourne City Council House 26 This bold project pro-vides a window on future projects that aspire to the values espoused by thewebsite and provides an inkling of a possible future where environmentalsustainability is considered a key element of any project An example of acompany designing and building a regional office for itself incorporating3BL principles for pragmatic reasons7 is the new Bovis Lend Lease PLSydney office Here was the evidence of a concern for developing not onlya building that had many lsquogreenrsquo credentials and features as well aspromoting a workplace that added to peoplersquos enjoyment of their workingday experience (Yates 2006)

While it is true that legislation has partially taken care of some of theabove types of issues there is much more that can be done by designingproject performance to be more environmentally sustainable (Hart 1997)He argues a three-stage environmental strategy that can informprocurement strategies Stage one is a shift in emphasis from pollutioncontrol to pollution prevention There are standards that move towards

120 Walker et al

this ndash for example ISO14000 Hart cites organisations such as the Germanchemicals giant BASF as helping China and other countries build less-polluting plants than have historically been provided Their differentiationcompetitive advantage in responding to placing subsidiary or outsourcedchemical plants in these countries comprises their advice experience anddevelopment of improved pollution standards This also enhances theirlsquobrandrsquo image

Stage two is product stewardship where not only the pollution-generatingproduct but other parts of the environmentally affected product cycle areaddressed This entails cradle-to-grave analysis of products (projects andorportfolios of projects) where pollution may occur and investigating innov-ative ways of overcoming these The Rocky Mountain Institutersquos URLwwwrmiorg provides an extensive link to materials and stimulating ideasfor ways in which a proactive approach to specifying materials methodsapproaches and resources that can be more eco-friendly For example in aradio broadcast in October 2000 Amory Lovins explained how carpet-tile-floor finishes and air conditioning were provided as lsquorentalrsquo services as partof a building project procurement approach (Lovins 2000) That approachsought to prevent pollution by better conserving resources Another designfor the environment (DFE) approach amongst a number of others cited byHart is an asset-recycling strategy adopted by Xerox for using leased recy-cling photocopier as low-cost high-quality Xerox parts to be reassembledinto new machines (Hart 1997 72)

Hartrsquos third identified stage is clean technologies The fast-expandingarea of nanotechnologies has the potential and promise to revolutioniseproduction and therefore procurement Nanotechnology is a catch-allphrase for materials and devices that operate at the nanoscale In the metricsystem of measurement lsquoNanorsquo equals a billionth and therefore ananometre is one-billionth of a meter

Much of the literature (as at early 2007) suggests that this is a realrevolution even though it is yet to have widespread impact upon us in theimmediate future (ie up to the end of the first decade of this century)However it is becoming obvious that industrial processes that use pollutingby-products will be superseded by nanotech processes or products that notonly provide superior environmental bottom-line impacts but are also lessexpensive In the shorter term nanobots (tiny machines) can be developedto work like enzymes by eating up waste products but before long they willalso be programmed to actually build components Under such circumstancesorganisations that dismiss this potential differentiating competitiveadvantage technology do so at their own peril

The above is a rapidly evolving field that will no doubt affect procurementpractice Before leaving this subject it is worth introducing a concept that isstarting to creep into the procurement lexicon ndash emissions trading and morespecifically carbon credits

Business ethics and corporate citizenship 121

This system has been in existence for many years the sulphur dioxidetrading system evolved out of 1990 Clean Air Act legislation in the USAdesigned to deal with acid-rain problems and has been more recently usedto trade carbon credits as a way to encourage reduction in greenhouse gasesand recognise that the environment (and all of us) bear the ultimate cost ofglobal warming due to greenhouse gas emissions A fast-growing trade incarbon dioxide (CO2) credits has emerged with London becoming thecarbon-credit trading capital of the world In 2006 a major report waspresented in the UK by Sir Nicholas Stern in which the financial implica-tions of global warming and the need for a carbon-trading system was madeabundantly clear8 This will have serious ramifications for procurementchoices once the requirement for carbon offsets becomes law and part of theprocurement culture We can envisage that procurement choices in futurewill stipulate not only some form of global warming lsquofootprintrsquo measure butalso CO2 reduction that footprint and carbon offset strategies

On the Australian Broadcasting Corporation (ABC) programmeBackground Briefing the programme noted an exchange between a reporterand a woman in a Sydney shopping centre accepting a free handout of energy-saving light bulbs The woman was signing a document in accepting the giftthat provided a named manufacturer with abatement certificate that it couldsubsequently use in its business activities to offset its pollution responsibilitiesas a carbon credit (ABC 2006) This example is just one of many that are hap-pening throughout the world While this recent development may be seen tobe of marginal impact upon most peoplersquos and organisationsrsquo current pro-curement choices this will become more widespread and push the market toconsider the environmental bottom line more closely

Safety health and environment (SHE) and project procurement

One can visualise safety for both the environment as well as individualsengaged in delivering projects as part of the 3BL concept Ensuring a safeenvironmental outcome relates to the environment part of the 3BL andoccupational health and safety (OHS) relates to the social part of the 3BL Inorder to address the issue of OHS it is necessary to look at the developmentof legislation and practice in these areas in order to give a perspective on theway ethics has shaped legislation and practice We focus on a small part ofthis as it relates to project procurement because this is a broad subject area

Prescriptive versus performance based

In the 1970s in the USA and the UK there was a move away fromprescriptive legislation to performance-based legislation This change inphilosophy is discussed in Lingard and Rowlinson and this change has

122 Walker et al

shaped the way organisations deal with OHS ever since The basic premisebehind this change in legislation was that organisations should be encour-aged to develop their own OHS management systems which fitted theirown particular circumstances As a consequence it was not necessary toprovide detailed prescriptive lists of how to organise safety this was left toindividual companies to devise their own safety management plan andimplement this plan and management system accordingly

A review of the international literature reveals that the same type ofwork-related deaths injuries and illnesses occur in construction indus-tries all over the world Many construction hazards are well-knownand in some cases have been studied in great depth What is apparentis that the construction industry fails to learn from its mistakes Weunderstand where deaths injuries and to a lesser extent illnessesoccur in the construction industry but we still fail to prevent them Thesame methods of working that have been used for generations are stillbeing used giving rise to the same hazards and ultimately resulting inthe same incidence of death injury and illness Furthermore theconstruction industryrsquos organisation structure and management meth-ods militate against the identification and implementation of innovativesolutions to the industryrsquos OHS problems Improvements in OHS willnot occur unless new methods of working that reduce known OHSrisks are developed However this is likely to require that the industryrsquosstructural and cultural barriers to the adoption of new methods ofworking be overcome

(Lingard and Rowlinson 2005 13)

Enforcement versus self-regulation

Unfortunately the drive which brought about this change was predicatedon the belief that existing prescriptive safety management systems wereadequately monitored policed and enforced the same can be said forenvironmental management systems However such an assumption was nottrue in many instances as indicated in the preceding quote and particularlyso in project-based industries Project-based industries are notoriouslyflexible and could be described as typical of Burns and Stalkerrsquos (1961)organic organisations As such these industries are difficult to monitor andcontrol as participants at both management and operational levels areconstantly moving and rosters are constantly changing as well Thusimplementing a structured OHS system which is self-regulating is a muchmore difficult task in such an industry as compared to the much moremechanistic setting of a factory or an office Consequently the concept ofself-regulation has been found to be far less effective in project-basedindustries than in more mechanistic organisations However it is important

Business ethics and corporate citizenship 123

at this juncture to point out that one project-based industry thepetrochemical industry has performed far better than many other project-based industries and this superior performance has stemmed from aparticular attitude organisational culture in approaching safety andcorporate governance in this sector

In industries such as real estate development and construction there hasbeen a tradition of lax management and this has been underlined by anotoriously poor OHS record in this sector Hence one might ask thequestion Is the sector mature enough to cope with self-regulation or shoulda prescriptive and enforcement-based approach be adopted After all thiswould reflect a contingency viewpoint and there is absolutely no reasonwhy all sectors should follow the same approach If a sector as a whole canbe considered immature then there is a need to embark on a differentapproach to the implementation of a performance-based OHS systemThus an industry-wide education and training programme might be mostappropriate in such circumstances Once a level of industry-wide maturityis reached then the leading performers can move towards a performance-based system Having taken such a lead these high performers can thenbe encouraged to partner with their supply chain and allow the knowledgeexpertise and experience they have developed to flow down the supplychain in terms of the implementation of plans procedures and protocolswhich enhance the overall performance of the industry

Worker engagement

An often-neglected aspect of a performance-based approach to OHS is themechanism by which workers are engaged and enabled to manage and directperformance on their projects Engagement is crucial if workers are to bringtheir specific knowledge of tasks and hazards to managementrsquos attention andmight also be considered a basic human right By forming say safety circles(and quality and sustainability circles) and engaging workers in discussionsconcerning working methods and precautions there is an excellent opportu-nity for companies to improve both performance and safety culture withinan organisation Hence specifically focused engagement programs are acharacteristic of high-performing project organisations This is particularlyimportant in a project-based industry where teams are forming breaking upreforming and breaking up once more By engaging workers at all levels andacross the whole of the project time line it is possible to ensure that goodideas and specific hazards are identified and implemented or eliminated

However the nature of the industry does lead to problems of control atall levels

The fact that construction is a project based industry is also an importantcontextual issue When attempting to manage a dynamic changingenvironment such as a construction site and indeed a construction

124 Walker et al

firm it should be borne in mind that there needs to be an appropriateorganisation structure to deal with the changing nature of the projectand ndash as it moves from design to construction to in-use phases and asproblems arise (such as late delivery of materials or labour shortages)on a day to day basis ndash there is a need for rapid decentralised decisionmaking contingency planning and an appropriate organic form oforganisation This engenders a free independent spirit in constructionsite personnel and has traditionally led to a healthy disregard forauthority and regulations This has in many instances been taken toofar and descended into unacceptable corruption and malpractice TheHousing Authority short piling case in Hong Kong (LEGCO 2003)9

and the Report of the Royal Commission into the building industry inAustralia in 2003 are examples of how this can drastically affect thewell-being of the industry and those working in it the cherishedcharacteristic of independence and initiative has also given the industrya bad name In turn these characteristics also make it difficult toimplement programs across the whole of the industry and safety andhealth on construction sites is badly affected

(Lingard and Rowlinson 2005 11)

Thus the very nature of the industry inevitably leads to ethical issuesbeing raised which must be dealt with if the industry is to become botheffective and efficient and pass muster as addressing issues of corporateresponsibility

Safety culture

Safety culture better referred to as health and safety culture reflects theattitude of all in the organisations towards a continuous improvement ofthe health and safety situation within the organisation A safety culturedoes not naturally occur in project-based industries as workers come toprojects with different experiences attitudes training skills and knowledgeHence the culture must be nurtured Understanding this and risk perceptionswithin organisations is increasingly important for company survival

Organizations increasingly recognise the importance of managingsuch risks effectively As well as becoming more internally sensitive torisk issues organizations in high-risk sectors are coming underincreasing pressure from external parties particularly regulators andmedia to manage the risks associated with their operations effectivelyOrganizations in high-risk sectors therefore increasingly seek greaterunderstanding of their internal and external risk contexts in order tobetter manage their operations within a level of risk that they cancontrol including avoiding minimising or mitigating effects of disasters

(Glendon 2003)

Business ethics and corporate citizenship 125

The effectiveness of OHS legislation

So is OHS legislation effective There is no straight answer to this questionbut adopting a contingency viewpoint it can be said that both prescriptiveand performance-based legislation have their merits and one or the otheror both are appropriate in different situations Hence the role of managementis to address these difficult questions and provide a safety managementsystem which is appropriate to the circumstances This means having agood understanding of the competence of people within the organisation(technical administrative and managerial competence) and providing asafety management system which fits both these competences and thenature of the tasks being undertaken This is a decision which has to be takenafter careful consideration In addition the context in which the decision ismade needs to include the nature of enforcement and the consequences ofnon-compliance However this implies a trade-off and the issue arises Is itethical to trade off cost against safety when human life is at stake This isa dilemma which safety practitioners legislation enforcers and companydirectors must all address

Project procurement and governance

The Wikipedia entry10 for corporate governance reads

Corporate governance is the set of processes customs policies lawsand institutions affecting the way a corporation is directed administeredor controlled Corporate governance also includes the relationshipsamong the many players involved (the stakeholders) and the goals forwhich the corporation is governed The principal players are theshareholders management and the board of directors Otherstakeholders include employees suppliers customers banks and otherlenders regulators the environment and the community at large

Rodney Turner offers the following premise relating to project governance

Project governance provides the structure through which the objectivesof the project are set and the means of attaining those objectives aredetermined and the means of monitoring performance are determinedProject governance involves a set of relationships between a projectrsquosmanagement its sponsor its owner and other stakeholders

(Turner 2006 93)

The term corporate governance can sound very grand and intimidatingbut in essence it should be seen as setting reasonable acceptable (ethical) rulesand regulations that protect those who have a stake in a project including

126 Walker et al

supply chain and team-member participants It is about accountability andresponse ndash who does what under what rules and for what rationale Furtherit revolves around structures being in place to facilitate accountability andsecond it requires the will and capacity to ensure that governancestructures are effective in ensuring ethical standards are in place Thesection on theoretical underpinnings of ethics in this chapter has indicatedthe different ways in which ethics can be viewed hence the beliefs andvalues that underpin what is seen and believed to be lsquoethical behaviourrsquoGovernance is mainly about ensuring that espoused (cultural and ethical)values are translated into matching behaviours The ethical behaviour thatmost people would relate to as acceptable is

a lack of criminal action the adherence to the notion of fair play that is not taking unfair advan-

tage over those in less-powerful positions ndash customersclients supplychain teams etc and

maintaining a sustainable system so that the long term is notjeopardised by short-termism

The above fits in well with building an organisational culture that supportspositive behaviours that are discussed in Chapter 9 of this book It alsolinks in well with some aspects of risk management notably taking duediligence to ensure that risks of this kind are mitigated against wherepossible and planned for

A simple way of looking at governance as a means of getting things doneis illustrated in Figure 41 This model is limited to the extent that itassumes that the majority of effort and engagement is involved in deterringand preventing people from taking opportunistic behaviour that inhibits orharms 3BL sustainability This assumption (Williamson 1975) draws uponTCE which recognised that there is a cost of conducting a transaction thatincludes the cost of policing standards This approach has not been univer-sally accepted as necessarily pivotal because it is argued people are humanand have a repertoire of behaviours and motivations and opportunitiesbehaviour as viewed from a TCE perspective (Ghoshal and Moran 1996)The Figure 41 model also illustrates ethical standards and cultural prac-tices as well as contributing to governance

The key to project delivery fulfilment is developing a means of projectdelivery that meets the project purpose has supportive structures to helpmake this happen using a system and people with the capacity to do so thatit is designed with accountability frameworks in place that have visiblecredible and reliable performance measures that are transparentTransparent means that there is a tangible and understandable linkbetween what is being done the way it is being done and the project out-come One may view this model as the synthesis of this book ndash finding

Business ethics and corporate citizenship 127

procurement choices and systems that deliver positive intended results(outcome rather that just outputs) in a way that we can learn from andimprove upon

This section will discuss aspects of this model in more depth but first letus get a grasp of the essentials The first element in the figure is the purposeGovernance does not just happen by itself Projects by definition are achange process (Turner 1999) Effective change first requires those whomust be involved to appreciate and support the need for the change so thatthey lsquoownrsquo the change and are committed rather than compliant with regardto that change (Kotter 1995) Thus the first step is in developing a visionthat people are likely to embed in their psyche Some projects that havemaintained a strong sense of vision can overcome poor PM performance tofacilitate project success (Christenson and Walker 2004) A strong visionshould inform the project mission that identifies what tangible ways inwhich the vision can be realised and this cascades into a set of objectives

To allow this to happen there needs to be a structural framework in placethat represents considerable intangible value to the organisation deliveringprojects and providing a real differentiated competitive advantage simplybecause each organisation is unique and has a unique set of initialconditions to set that organisation upon a trajectory of project deliveryThis requires an organisational design that provides certain functions andpeople (a project sponsor to help shape support and champion a projectrsquosvision and transform that into a systemic entity that can deliver the project

128 Walker et al

Organisationaldesign

Financialengineering

Policy +procedures

Workprocesses Codes of

practice

Legalrequirements

Structures

The purpose

Vision

Mission Goals

Delivery means

Informs

Resources

Capacity

TransparencyStakeholderdisclosurePerformance

measures

Knowledge

Know what

Know why

Know how

Care why

Motivation

Culturework ethic

Authority+ power

Risk management+ control

Accountability

Controlsgoverns

Regulations Audits

Reporting

Figure 41 Simple model of governance

vision outcome) to deliver the intended results The financial structure ndash theway that the project will be financially engineered ndash also needs to beconsidered The extent of risk capital can influence how a projectrsquos feasibilitywill be approved and how it may be monitored and controlled Forlarge-scale infrastructure projects a government raising only sovereign debt(that which is backed by an ability to raise taxes to cover costs) can intro-duce a degree of laxity in monitoring and control and so some experts inthis topic suggest that ensuring some market participation with capitalinjections that are at risk enforces a higher degree of rigour in transparencyand governance than might not otherwise occur (Flyvbjerg et al 2003122) There will also be administrative components to the project deliverysupport structure such as policies and procedures regulations and codes ofpractice This is where explicit ethical codes can make a difference to theflavour of the administrative practices and influence the organisationalculture There will be legal requirements that force certain actions such asworkplace relations laws cultural practices and observations (feast daysetc) environmental laws statutory obligations and a host of other legalrequirements Often a tacit lsquoculturalrsquo or lsquotraditionalrsquo overlay of practicescan also impact upon this element

The capacity for lsquothe systemrsquo developed for the project is also impactedupon by capacity sub-elements Resources are a natural and obvious part ofthis Resources include funding people equipment and knowledge to namejust a few In terms of a collective and individual team knowledge capacitythere needs to be lsquoknow howrsquo or technical competence to deliver the visionknowledge relation to how to achieve goals set as well as the rationale ofwhy this is important We will see in Chapter 8 that the notion of lsquostickyknowledgersquo or degree of difficulty in knowledge transfer is affected bypeoplersquos understanding of the cause and effect link that exists betweenaction and outcome (Szulanski 1996) Authority and power are alsohighlighted in the model as part of the capacity to deliver because withoutdelegated authority and the power to enforce the design of the projectdelivery strategy the project vision and its validity will be undermined Thisincludes the capacity to use knowledge to recognise and evaluate riskmanage that risk or have the authority and control to be able to pass thatrisk to others (with due recompense for doing so) who are in a betterposition to accept and deal with that risk Additionally there is the capacityinput of the cultural work ethic that influences behaviour Motivationdrives this in part This can include the lsquocare-whyrsquo element by shifting peo-ple from being compliant to the achievement of a set of specific projectobjectives to being committed to achieving the project vision even thoughthe mission and specific objective may be upgraded beyond the stated (andpossibly outdated) specified requirements This is where the spirit of thevision is seen as being more valid that temporarily fixed mission andobjectives that lead to a richer sense of success

Business ethics and corporate citizenship 129

To ensure that the project delivery design operates within the scope of itsintended outcome a number of checks and balances need to be put in placeThese are the more obvious governance aspects that gain much attention inthe literature but cannot be of use without effective configuration of theabove elements of a delivery strategy This is often understood in terms ofaccountability and transparency

The use of appropriate performance measures informed by and consis-tent with the project vision and goals is necessary to be able to measure andthen monitor what is happening as opposed to what was expected tohappen during the project life cycle These measures support monitoringtaking place to enable accountabilities to be specified and ingrained (withinthe culture of the organisation so unspecified required aspects that need tohappen lsquojust dorsquo happen because that is the way that the organisationculture drives tacit or unspecified required actions to be undertaken) toensure that required actions do happen Accountability allows people andfunctions to have attributed to them responsibility for outcomes so that itis clear what actions these people and functions are meant to take whenand how those actions will be taken and how project stakeholders with aclear and mandated influence can be assured that those accountableperform as required Accountability is informed by transparency Thismeans that all concerned with a project should have a clear indication ofwho the stakeholders are on a project the nature of their interest and theirinfluence upon decision making and disclosure of project informationStakeholder analysis and mapping as well as developing stakeholdercommunication strategies is also part of a robust stakeholder managementrisk plan and can use tools such as the Stakeholder11 CircleTM (Bourne andWalker 2005) that are discussed further in Chapter 3 Disclosure is animportant part of governance and ethical and professional behaviour as itseeks clarity and communication

Having mapped out the scope of what project governance can mean wewill now justify the above modelrsquos elements from expert evidence that hasappeared in the literature

From a corporate governance perspective there is an argument that anorganisationrsquos board of directors when effectively subject to soundgovernance principles can lead to superior strategic decision making andhence improved organisational performance (Young 2003) The rationalebehind this assertion is that well-qualified independent-thinking directorswho intelligently question board proposals and reports on performancestrengthen accountability within the organisation This quality can preventorganisations from failing to deal with conflict of interest issues that havebeen earlier cited as important ethical issues In project governance termsthis can translate to a project advisory board and an example citing expe-rience of such a company board that had input into product developmentas lsquoAn effective advisory board properly composed and structured can

130 Walker et al

provide non-binding but informed guidance and serve as a tremendous allyin the quest for superior corporate governancersquo (Reiter 2003 1) HoweverReiter noted that such boards must have a clear mandated purpose scopeand focus and be appropriately constituted to encourage open discussionand debate about relevant issues that introduces valuable review and wis-dom rather than being a closed policing agency such a board should openup possibilities as well as review existing proposals In terms of the compo-sition of corporate boards and their capacity to provide valuable review andmake sound decisions Richard Leblancrsquos work has had a profound impactin Ontario Canada and elsewhere in North America His study of corpo-rate boards and their impact upon company performance indicates that abalance of skills and abilities is often lacking in many organisations becauseof bias in board member recruitment that blinds the board to certainentrenched views (Leblanc and Gillies 2003 Leblanc 2004) He hasadvocated (and this has been accepted into legislation in Ontario) thateffectiveness of board decision-making can be enhanced by transparency ofboard composition in terms of not just their identity but the skills andcapacities that they bring to the board so that investors can make aninformed choice about investing in that organisation Relating this back toproject governance issues transparency of the composition and workings ofany project review oversight or overall governing group that initiallyapproves monitors and permits a project to continue (particularly if itbecomes a distressed project) is vital so that those on the project teamknow that their outcomes are being rigorously assessed during the projectdelivery phase The lesson that we should learn from corporate governanceliterature is that for many projects particularly those of large scope or highcomplexity a system of advisory and oversight-monitoring boards shouldbe established with suitable expertise and capacity to initiate review andapprove continuance of a project ndash already part of the Prince 2 methodology(Bentley 1997)

Recent PM thinking relating to project governance has centred on therole of project sponsor broker and steward A project broker is responsiblefor the relationship between the client and the project team A client with arequirement approaches an appropriate person who knows where theresources to meet that requirement can be sourced and mobilised A projectsteward marshals and puts together the resources necessary to deliver theproject that the project manager will be responsible for leading (Turner andKeegan 2001) The steward role can be seen as similar or the same as whatPeter Morris describes as the project champion He says that a championobtains the resources needed to accomplish the project with much of thework being externally and internally focused (Morris 1994 257) In thisway it describes a combined brokersteward role Perhaps to add to anyconfusion of terms is the term lsquosponsorrsquo whose role is to make resourcesavailable and a lsquochampionrsquo who is a senior representative who convinces

Business ethics and corporate citizenship 131

the sponsor that the project should have priority and supporting resources(Turner 1999 51)

If we try to simplify the concept in order to be clear about where theseroles fit in with project governance we can conclude that there is a role foran entity to be accountable to the client or owner of a project This entitycould be an individual such as a broker or sponsor who provides a singleinterface between the project and the entity that will receive the realisedproject deliverables or it could be a board that reports to the projectsponsor This entity should have a clear accountability to deliver and beable to effectively communicate progress towards that end

Within the board or in terms of an individual being accountable todeliver a project there should be an effective championsteward role whichis to be accountable for effective support of that project This leadershiprole ensures that the structures and capacity are in place ndash described brieflyin Figure 41 If it becomes clear that resources are insufficient that author-ity constraints inhibits performance or that there is insufficient knowledgeavailable to deliver or structural impediments such as organisational designor policy and procedures then the championsteward should transparentlyadvise the board (or sponsor) of the crux of problems encountered withpotential solutions to resolve any difficulties and be able to either gainsupport to provide the means to overcome highlighted distress or toabandon the project (Crawford 2006)

Dinsmore and Cooke-Davis (2006) identify five roles that a board-levelsponsor championsteward would fulfil being governor of the projectand avoiding either abdicating responsibility to the project team or micro-managing the project being owner of the business case that is beingcommitted to it and understanding its nuances intimately harvestingbenefits that is ensuring that both tangible and intangible benefits deliveredare optimally absorbed typical of a harvested benefit is the learning gainedthrough delivering the project being a friend in high places often theproject manager does not have the political clout to make an impact whenseeking priority over resources when heading for distress or to influence theboard to gain due recognition for project achievements finally being avisible champion of the project both within and outside the board so thatthe projectrsquos profile and vision is fully supported

In a study of project success and project governance involving a surveydata set of 168 valid records recently reported upon (Crawford 2006)results suggest that projects are not generally good at delivering the benefitsfor which they were undertaken Analysis presented about that researchsuggests that about 26 of the variance in success can be attributed to lackof governance effectiveness of project sponsors This supports the generalcorporate governance meta-analysis of studies reported upon by Young(2003) Crawford (2006) argues from her study results that in terms of

132 Walker et al

effectiveness the project sponsor is in the best position to

1 ensure that all strategic options are considered before commencing aproject

2 ensure that the project receives needed resources3 ensure that the project team has sufficient authority to complete the

project to realise expected benefits4 influence the quality of the business case presented to sanction a

project5 ensure that responsibility and accountability levels rest with the right

people in the organisation and6 ensure that if technical performance requirements of the project can be

achieved the business case will also be achievable

From the top-down perspective (ie the board level) it becomes clear thatproject governance is enhanced or limited by the quality of the structurecapacity and accountability of a board member who can effectivelychampion or sponsor a project However the governance system must bedesigned and implemented to provide the detailed knowledge andinformation about the project to the championsponsor at a board level

Underpinning and supporting the project managerrsquos ability to deliver aclear picture of a projectrsquos status to the project championsteward is a seriesof iron triangle (cost time and quality) monitoring and controlmechanisms Also the actual procurement process (to reduce the likelihoodof opportunism and exploitation and to manage uncertainty relating to theability to deliver the required outcomes) underpins this ability and featuresprocedures which help or hinder the project manager such as contractualmeans to deal with changes in scope and modifications to the existingspecification of details of work to be undertaken (Winch 2001) Therewould be organisation-wide and legal requirements that requiretransparency being provided through audits and reporting mechanisms thatshould support accountability and transparency

Chapter summary

In this chapter we have explored a number of project procurement issuesthat relate to how project procurement policies can and should takeaccount of long-term sustainability ndash of not only the organisation makingdecisions but the wider community The ethics section helps provide us withframeworks to make decisions and choices that facilitate us to lsquodo the rightthingrsquo In Chapter 3 we argued that trust is an essential ingredient in makingrealisable and valuable commitments and so ethical behaviour plays animportant role in demonstrating and facilitating trust between parties

Business ethics and corporate citizenship 133

engaged in projects Similarly the section on 3BL in this chapter relates toanother practical aspect of lsquodoing the right thingrsquo as it helps us understandthe balance needed between creating financial social and environmentalvalue through our projects so that we build lsquobrandrsquo image and loyalty whileaddressing value to stakeholders in a more holistic manner A critical partof that is OHS as it helps shape procurement choices and actions to con-form to an ethical path to deliver value as well as addresses our duty ofcare to our stakeholders Emerging issues of CO2 emissions and potentialimpact of carbon trading are raised The section on governance shows howrules regulations and protocols of delivering projects can providetransparency and accountability to govern the way that value is delivered

Vignette

134 Walker et al

CanWheat a major Canadian Saskatoon-based exporter of wheatproducts had decided to build a set of wheat storage facilities inUrqatistan a former Soviet republic now independent with untappedlarge deposits of natural gas and oil and located on the route of aproposed hydrocarbons pipeline grid connecting Siberian fields toEurope Urqatistan is ruled by an ex-Soviet regional militarycommander and highly placed party official CanWheat also is a jointventure (JV) partner with several food-processing businesses that aresubsidiaries of Global-Nutrition plc that while basing itsheadquarters in Chicago has most of its operations and logisticsgroup based in St Petersburg Russia and its marketing operationsbased in The Hague The final JV partner in the holding company thatwill own and operate the facilities is the charity TasDentAID anassociation formed by a group of Tasmanian dentists and periodontiststhat had raised AUD$50 million for the project

The storage facilities project has 60 of the necessary US$15 billionfunding financed through the JV and the rest as loans by a consortiumof banks The project comprises 10 grain-handling silos associatedrailway-access spurs a series of 30 small local bakeries spread outacross Urqatistan to be leased back to local operators and a datacentre for operational and marketing IT systems with Global-Nutrition plc providing all IT services through its be-spoke systemdeveloped and enhanced over the past 5 years The advantages of theproject were stated to lsquoprovide much needed employment in aneconomically depressed part of the world to provide a best-in-classcentral distribution logistics point for wheat distribution in a regioncritical to global hydrocarbons during the next few decades and tohelp kick-start skills development opportunitiesrsquo Urqatistan had

Business ethics and corporate citizenship 135

served as a base in the Soviet Union days for regional expertise inlogistics and engineering science through its highly regardedUniversity of Urqatistan Engineering School and Science School

Recent media reports raised disturbing allegations involvingbribery money laundering and labour exploitation These were dis-missed as misunderstanding the nature of consulting commissionspermits and administrative costs incurred and transfer costingarrangements that are perfectly legal in a global economy A Russianreporter had broken a story published in the Times in London alleg-ing that Global-Nutrition plc had recently opened up a number ofclinics in central Africa ostensibly as part of its 3BL initiatives thathad been implicated in highly suspect drug-testing practices for anunnamed major pharmaceutical company The reporter alleged that asmall number of villages (considered to be of sub-standard housing)would be removed to make way for the rail spurs and that theUrqatistan government had pledged to relocate and re-house peoplefrom those villages in a new suburb of the capital that had beenreported in National Geographic magazine as a model new lsquoSilkRoute Cityrsquo Additionally villages had agreed to compensation ofUS$2000 each for relocation of three community burial sites datingback 3000 years

A subsidiary of Global-Nutrition plc is the principal distributor ofgenetically modified wheat Much of the financial dealings have beenundertaken through their St Petersburg office CanWheat provided theengineering expertise for design briefing of the silo and rail-spur logis-tics engineering in cooperation with local engineering consultantsTasDentAID consultants directed by one of its key administrativestaff was involved in much of the preparatory work in negotiatingreal estate deals and logistics involved with transport of equipmentand materials into Urqatistan as the TasDentAID staff member hadintimate local knowledge of the country and key governmentand business stakeholders through family connections The project hadstrong government support from Australia Russia and USA

Issues to ponder

1 Identify and discuss three ethical issues raised and usingKohlbergrsquos stages model analyse these issues and any paradoxesthat may be raised to identify procurement requirements thatcould address these issues

2 Identify and discuss an example of a 3BL initiative being pursuedby JV participants and evaluate with justification your considered3BL maturity level

Useful links

The 2004 KPMG Forensic Fraud Survey see wwwcgsconzfiles Fraud-Survey-2004pdf

The Stern Report see wwwhm-treasurygovukindependent_reviewsstern_review_economics_climate_changesternreview_indexcfm

The better practice guide for governance is at the Australian AuditorGeneralrsquos office site wwwanaogovauWebSitensfViewPubsReadFormampView LatestBetterPracticeGuidesByTitleampTitle Latest20Better20Practice20GuidesampSubTitle (Released20within20the20last203020days)ampCat ampStart 1ampCount 10

Other links are indicated in footnotes in this chapter

Notes1 See KPMGrsquos bi-annual Forensic Fraud survey wwwcgsconzfilesFraud-

Survey-2004pdf2 For an interesting ABC broadcast on this subject readers can download an MP3

file of the program Bryson G (2006) The Ethics of Virtue EncounterAustralia ABC httpwwwabcnetaurnencounterstories20061759630htm

3 For more on the four virtues temperance prudence courage and justice see theWikipedea entry on httpenwikipediaorgwikiVirtueThe_four_virtues

4 See URL wwwwestpaccomauinternetpublishnsfContentWICREVEquatorprinciples

5 See URL wwwequator-principlescom6 Their website wwwmelbournevicgovauinfocfmtop171amppg1933 can be

accessed for further details7 For an example of the BLL 2005 sustainability report go to www

bovislendleasecomllwebbllmainnsfimagespdf_sustainability_report_05pdf$filepdf_sustainability_report_05pdf this report clearly states their values and3BL actions taken

8 See wwwhm-treasurygovukindependent_reviewsstern_review_economics_climate_changesternreview_indexcfm for discussion from the Stern Report relating tocarbon trading see Part IV Policy responses for mitigation (Chapters 14ndash17) onwwwhm-treasurygovukmedia986E1sternreview_report_part4pdf

136 Walker et al

3 What other 3BL maturity level that you can assess from informationprovided is indicated and what initiatives do you think could beincorporated into this project

4 What information in this vignette is missing about the project JVmembers that you would like to know more about to betterunderstand the ethical and SHE issues raised here

5 In terms of project governance identify and discuss three formalprocedures for addressing accountability and transparency issuesdo you consider appropriate for this project

9 See HKLEGCO (Hong Kong Legislative Council) 2003 wwwlegcogovhkyr02ndash03englishscsc_bldgreportsrpt_1htm

10 Reproduced from the Wikipedia article httpenwikipediaorgwikiCorporate_governance for which the use is licensed under the GNU Free DocumentationLicense

11 wwwmosaicprojectscomauTechniqueshtmlStakeholder20Circle

References

ABC (2006) The Rise of the Carbon Traders Carlisle W Sydney ABC NationalRadio Background Briefing

Aguilar F J (1994) Managing corporate ethics Learning from Americarsquos ethicalcompanies how to supercharge business performance New York OxfordUniversity Press

Allison R E (1998) Ethical values as part of definition of business enterprise andpart of the internal structure of the business enterprise Journal of Business Ethics17(910) 1015ndash1028

Archer N P and Ghasemzadeh F (1999) An Integrated Framework for ProjectPortfolio Selection International Journal of Project Management 17(4) 207ndash216

Bansal T (2006) Ivey on best practices in corporate social responsibility IveyBusiness Journal 70(4) 1ndash3

Beauchamp T L and Bowie N E (1997) Ethical theory and business UpperSaddle River NJ Prentice Hall

Bentley C (1997) PRINCE 2 A practical handbook Oxford UK Butterworth-Heinemann

Bourne L and Walker D H T (2005) Visualising and mapping stakeholderinfluence Management Decision 43(5) 649ndash660

Bryson G (2006) The Ethics of Virtue Encounter Australia ABC httpwwwabcnetaurnencounterstories20061759630htm (accessed on 28 July 2007)

Buchholz R A (1989) Fundamental concepts and problems in business ethicsEnglewood Cliffs NJ Prentice Hall

Burns T and Stalker G M (1961) The management of innovation LondonTavistock Publications

Carroll A B and Meeks M D (1999) Models of management morality Europeanapplications and implications Business Ethics A European Review 8(2) 108ndash116

Child J (1986) Organization A guide to problems and practice LondonHarper amp Row

Christenson D and Walker D H T (2004) Understanding the role of lsquovisionrsquo inproject success Project Management Journal 35(3) 39ndash52

Crawford L (2006) Project Governance ndash The Role and Capabilities of theExecutive Sponsor PMOZ ndash Achieving Excellence Melbourne Australia 8ndash11 August PMI ndash Melbourne Chapter 1ndash11 CD-ROM paper

Dinsmore P C and Cooke-Davies T (2006) The right projects done rightFrom business strategy to successful project implementation San Francisco CAJossey-Bass

Donaldson T and Werhane P (Eds) (1999) Ethical issues in business Aphilosophical approach Series Ethical issues in business A philosophicalapproach Upper Saddle River NJ Prentice-Hall

Business ethics and corporate citizenship 137

Donnaly M (1999) Making the difference Quality strategy in the public sectorManaging Service Quality 9(1) 47ndash52

Eisenhardt K M and Martin J A (2000) Dynamic Capabilities What are TheyStrategic Management Journal 21(1011) 1105ndash1121

Elkington J (1997) Cannibals with forks London Capstone PublishingFerrell O C and Fraedrich J (1997) Business ethics Ethical decision making and

cases Boston Houghton Mifflin CoFerrell O C Fraedrich J and Ferrell L (2002) Business ethics Ethical decision

making and cases Boston Houghton MifflinFlyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and risk An

anatomy of ambition New York Cambridge University PressFrancis R D (1999) Ethics and corporate governance An Australian handbook

Sydney UNSW PressFreeman R E (1999) Divergent stakeholder theory Academy of Management

Review 24(2) 233ndash236French W A and Granrose J (1995) Practical Business Ethics Englewood Cliffs

NJ Prentice HallGhoshal S and Moran P (1996) Bad for practice A critique of the transaction

cost theory Academy of Management Review 21(1) 13ndash37Glendon A I (2003) Understanding and managing risk perceptions Quarantine

and Market Access Conference Maximising Trade ndash Minimising Risk Canberra24ndash25 September pp 36ndash43

Hart S L (1997) Beyond greening Strategies for a sustainable world HarvardBusiness Review 75(1) 67ndash76

Kotter J P (1995) Leading change ndash Why transformation efforts fail HarvardBusiness Review 73(2) 59ndash67

Leblanc R (2004) Preventing future Hollingers Ivey Business Journal 69(1) 1ndash9Leblanc R and Gillies J (2003) The coming revolution in corporate governance

Ivey Business Journal 68(1) 1ndash11Lingard H C and Rowlinson S (2005) Occupational health and safety in

construction project management London United Kingdom Taylor amp FrancisLovins A (2000 8 October) Natural Capitalism ndash A Lecture by Amory Lovins

Background Briefing Sydney Australia ABC wwwabcnetorgrntalksbbingstoriess196391htm

Low S P and Leong C H Y (2000) Cross-cultural project management forinternational construction in China International Journal of ProjectManagement 18(5) 307ndash316

McAlister D T Ferrell O C and Ferrell L (2005) Business and society A strategicapproach to social responsibility Boston MA Houghton Mifflin

Mintzberg H (1975) The managerrsquos job ndash Folklore and fact Harvard BusinessReview 53(4) 49ndash62

Mintzberg H (1990) The design school Reconsidering the basic premises ofstrategic management Strategic Management Journal 11(3) 171ndash195

Morris P W G (1994) The management of projects a new model LondonThomas Telford

Morris P W G and Jamieson A (2004) Translating corporate strategy intoproject strategy Newtown Square PA PMI

138 Walker et al

Nogeste K (2006) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project Outputs Doctorof Project Management DPM Graduate School of Business Melbourne RMIT

Nogeste K and Walker D H T (2005) Project outcomes and outputs ndash Makingthe intangible tangible Measuring Business Excellence 9(4) 55ndash68

Norrie J and Walker D H T (2004) A balanced scorecard approach to projectmanagement leadership Project Management Journal PMI 35(4) 47ndash56

Porter M E (1985) Competitive advantage Creating and sustaining superior per-formance New York The Free Press

Preston N (1996) Understanding ethics Leichhardt NSW Federation PressReiter B J (2003) Corporate governance and firm performance Is there a rela-

tionship Ivey Business Journal 68(1) 1ndash7Robbins S P and Mukerji D (1990) Managing organisations New challenges amp

perspectives New York Sydney Prentice HallStaples W and Dalrymple J (2008) Best Value Public Sector Construction

Procurement International Journal of Public Sector Management (forthcoming)Szulanski G (1996) Exploring internal stickiness Impediments to the transfer of

best practice within the firm Strategic Management Journal 17(Winter specialIssue) 27ndash43

Teece D Pisano G and Shuen A (1997) Dynamic capabilities and strategicmanagement Strategic Management Journal 18(7) 509ndash533

Turner J R (1999) The handbook of project-based management Improving theprocesses for achieving strategic objectives London UK McGraw-Hill

Turner J R (2006) Towards a theory of project management The nature of theproject governance and project management International Journal of ProjectManagement 24(2) 93ndash95

Turner J R and Keegan A (2001) Mechanisms of governance in the project-basedorganization Roles of the broker and steward European Management Journal19(3) 254ndash267

Velasquez M G (1998) Business ethics concepts and cases Upper Saddle RiverNJ Prentice Hall

Walker D H T and Hampson K D (2003) Project alliance member organisationselection In D H T Walker and K D Hampson (Eds) Procurement strategiesA relationship based approach (Chapter 4) Oxford Blackwell Publishing74ndash102

Williamson O E (1975) Markets and hierarchies analysis and antitrustimplications A study in the economics of internal organization New York FreePress

Winch G M (2001) Governing the project process A conceptual frameworkConstruction Management and Economics 19(8) 799ndash808

Yates M (2006) The Building as an Organism for Knowledge and CulturalChange in Organisations The 6th International Conference on KnowledgeCulture and Change in Organisations Prato Italy 11ndash14 July Kalantzis MCommon Ground 1ndash8 Electronic

Young B (2003) Corporate governance and firm performance Is there arelationship Ivey Business Journal 68(1) 1ndash5

Business ethics and corporate citizenship 139

Chapter 5

The role of business strategyin PM procurement

Derek HTWalker Mario Arlt and James Norrie

Chapter introduction

We have stated throughout this book that the purpose of procuring aproject is part of a process to derive benefit from a planned and executedtransformation Moving from state X to Y development of a new buildingor product or moving from a stand-alone IT system to an integratedsolution all start with a need that is expressed as being part of a strategyto generate a benefit from an identified opportunity So any one projectis probably part of a series of projects that together in the context of aprogramme or portfolio sense deliver an outcome that contributes tostrategic goals of the organisation The value proposition is not so much thesuccess of the project but the success of the strategy This is why some failedindividual projects can lead to strategic success because as explained inChapter 6 and Chapter 8 the project outcome may have led to acceleratedlearning and improvement on subsequent projects that would not have hap-pened without the initial apparent failure If we use the original sense of theword strategy being associated with warfare a project may be consideredas a tactical battle in a long war This may be of little consolation to a pro-ject manager who has been haunted by the spectre of failure ndash so thischapter is important in that it may bring solace to such individuals it placesprojects in a meaningful organisational context and supports the focus onthe need for experimentation innovation and learning to be encouraged inproject management as highlighted in Chapter 8

In addition we must not forget that some strategies emerge and evolveThey often take altered paths from that originally envisaged perhaps becauseof environmental turbulence or conscious change In this context a failedproject may well emerge as being seen as playing a pivotal role in overall suc-cess An Australian example of this that many readers may relate to is thecase of the Sydney Opera House This iconic project was during itsconstruction described in the press and professional journals of the timeas an unmitigated disaster because of both significant cost and time overruns(Murray 2004) As an opera building it also appeared to cater for a tiny

Business strategy in PM procurement 141

minority of potential consumers and would not be thought of as a touristdestination Naturally the design brief and intent was to produce a spectac-ular monument that might embrace the image of a vibrant and emerginglively place where people would like to visit however the strategy forproviding an icon was somewhat masked at the time by more functional per-formance criteria To judge this examplersquos success in terms of delivering anopera house on budget on time and in a way that facilitates superb musicbeing played and listened to there is to miss the point (Heneghan 2004Murray 2004) This icon can be seen to have played a significant part ofalmost literally placing Sydney on the map1 The lsquosuccessrsquo of this building asan icon may well have been a catalyst to change the image of Sydney cap-turing an image of itself as a centre of sophistication and culture and its per-ceived place as the major Gateway to Australia for many internationaltourists This resulted in much of the finance industry moving their head-quarters and global operations in the 1980rsquos from Melbourne to Sydney

The purpose of this illustration is to stress the importance of linkingproject success to strategy through procurement choices based on strategicthinking rather than delivering a project limited to the iron triangleperformance criteria The interface between business strategy and projectprogramme management needs to be explored for appropriate project strate-gies to be developed

The purpose of this chapter is to help make explicit the link betweenstrategic intent and decision making related to making project procurementchoices This chapter is closely linked to Chapter 6 in which we discussproject performance measures and procurement Naturally performance isestablished in context with performance objectives and aims Our centralargument is that the strategic aim of performance is paramount andindividual project performance while very important and not to be under-rated is after all just a strategic performance contributor It is for thisreason that Chapter 6 includes discussion of intangible performanceaspects because these aspects can provide a greater strategic impactthan more tangible output-specified quality measures ndash such as on-timeon-budget To achieve the objects set for this chapter it is segregated intofour sections together with a vignette that presents a hypotheticalsituation together with relevant questions that if answered could reinforcelearning from this chapter

The first section deals with theories of the firm to identify what isimportant to organisations that will frame strategies to remain sustainableand competitive to deliver value to their constituents The second sectiondiscusses strategy and associated value propositions that frame thechapterrsquos discussion The third section focuses upon programme and pro-ject management The fourth section then concentrates on ways in whichproject approval and initiation decision can be made to be aligned withstrategic intent

142 Walker et al

Theories of the firm-influencing strategyand project procurement

In Chapter 1 The Make-or-Buy Decision Section we introduced severalviews or theories of the firm We will expand upon those ideas in this sectionWe argue that organisations delivering projects need to have dynamiccapabilities and high levels of knowledge competence to be able to delivera known productservice or to be adaptive and innovative to addressdynamically changing needs or potential problems to deliver solutions evenwhen they begin the project process not quite knowing how that solutionwill emerge It is interesting to think about what kind of organisation couldbest do this This prompts some interesting questions

Fundamental terms and definitions

What is a firm ndash an organisation an enterprise Why does this kind of entityexist These are sound questions to ask and probe in this book because anorganisationrsquos raison drsquoecirctre is critical to the theme of this book An organi-sation can be seen as an entity that creates value by transforming resourceinputs to outputs as products services and ideas using a variety of resourcesthat it sources as and when required and manages to facilitate thattransformation It facilitates lsquoprojectsrsquo happening and it undertakes routineoperational activities Simplistically we can see that many organisationsdo the same things time and again in a kind of factory-line way or they dothings differently by transforming a set of resources as inputs into aproduct service or idea The transformational view can either assume thatessentially the same things are produced (as in a factory assembly line orlooking at business processes as ways of doing things in a coherent andstructured manner) or that different things are produced because theoperating environment is likely to vary (subtly or radically) with eachiteration This means that firms make choices take strategic directions anddeploy specific tactics either proactively or reactively The subtext behindtheir choices can be said to be influenced by their dominant philosophyand this philosophy can shape procurement choices and their impact on thecreation of value to stakeholders

Organisations have a vision of what their role in society is and how theycan best deliver value to their constituents This vision translates to a missionthat defines what they will do ndash lsquoour mission is to (verb)rsquo There must be apoint to this activity and that is spelled out in terms of objectives and theway that these will be carried out is defined by the strategy to be employedSome parts of that mission translate to somewhat continuous ongoingoperational activities and others more clearly have a defined start and endThe project management profession has developed over the past 50 or soyears through leading some activities (that were seen as best undertaken using

Business strategy in PM procurement 143

a world-view that these activities will get done as part of the organisationrsquosday-to-day operations) to be undertaken using a PM perspective (that theyshould be seen as having an independent and defined life span with definedlife phases)

The shift from seeing many activities that were undertaken with anoperational work view to a lsquomanagement by projectsrsquo view is gainingascendancy This view sees activities as being undertaken by temporaryorganisations assembling these as a project delivered within a defined startand completion boundary (Turner 2006) We do not suggest that everythingis a project or could be twisted in some way to be seen as a project Weargue that many operational activities that were understood to be stableroutine processes (such as building cars) that could be viewed as projects(because even car models have life cycles and are also subject to masscustomisation with short production runs) should be treated and managedas projects Case management in terms of government agencies and evensuch things as customer relationships (and student experience management)is managed as a project with a focus on the case and case subject So muchof the current business context is dominated by the need for a projectmanagement approach to deliver value be that a product service and morecommonly some kind of transformation

This brings us to the interesting question of what is an organisation ndash bethat a firm business unit project team or an enterprise consisting of manydivisions sub-ordinate legal entities and a conglomerate of commercial orsocial groupings An organisation or firm is often attributed to have aphysical structure and when incorporated (literally made human in theflesh) is legally treated as an eternal entity However there are a variety ofviews of the firm (or organisation) and each view influences the way thatstrategy might be developed Fundamental to this discussion we need toclarify PM terms related to defining a project programme and portfolioto understand how a project organisation can deliver beneficial outcomesthrough a project framework

The PMI has recently turned its attention to explaining how operationsand a project live side-by-side in organisations Figure 51 illustrates this(PMI 2006 7) The PMI (2004 5) defines a project as lsquoa temporaryendeavour undertaken to create a unique product service or resultrsquo It is thusdefined in scope by time duration (rather than be ongoing) and is unique(a customised offering) Therefore viewed from a procurement perspective aproject requires an organisation or assembly of resources that need to besourced either internally or externally to deliver the specified outcome Byinference if not by definition choices need to be made and so an overallstrategy is required with cascading tactical plans that need to be managed ndashcoordinated monitored and controlled (PMI 2004 7) This can be furtherexplained as experiencing pressures of uncertainty integration and transienceusing flexible goal-oriented staged processes (Turner and Muumlller 2003 2)

144 Walker et al

A project may be a small part of the overall strategy A series of connectedprojects that strategically link in such a way can be referred to as a lsquopro-grammersquo (Turner and Muumlller 2003 Morris and Pinto 2004 xx) There willmost likely be a range of programmes underway grouped into strategicinterests such as (taking the automotive industry example) cars truckseven perhaps a hybrid fuel source vehicle Operational activities such asequipment or software maintenance for example could be seen as beingseparable Routine maintenance where the maintenance crews respondto faults and regular scheduled maintenance activities may work in a day-to-day fashion where the scope may be readily identifiable or evenunknown until the problem is investigated in depth ndash delivery expectationis lsquowithin a reasonable timersquo Emergencies and scheduled maintenance canbe viewed as a project With emergency maintenance completion time andreliability is a key performance measure and with scheduled maintenancecost and reliability are key considerations within an envelope of expectedtime delivery There are other operational activities such as legal servicesmany general administration activities etc that could also be viewed in thesame way as illustrated by the maintenance example The main differentiatorbetween operational and project activities lies with scope definition andother boundary considerations (time cost quality for example)

The PMI has defined a programme as lsquoa group of related projects man-aged in a coordinated way to obtain benefits and control not available from

Figure 51 An organisational context of managing portfolios of projects

Source PMI 2006 7

Vision

Mission

Organisational strategyand objectives

High-level operationsplanning andmanagement

Project portfolioplanning andmanagement

Organisational resources

Management ofon-going operations(of recuring activities thatproduce value) (projectised activities to increase

value production capacity)

Management ofauthorised programmesand projects

managing them individuallyrsquo (PMI 2004 368) Thus a sense of logic orstrategy is associated with a programme ndash it can just be a set of projectsundertaken by a specific sub-unit within an organisation One advantageof looking at program delivery in this way is that a highly complexinfrastructure facility such as say a tollway can be looked at as comprising aprogramme of projects some linked in similar resource bases (roads bridgestunnels) others as linked by the outcomersquos logic (e-tag systems to read andprocess transponder data for electronically charging and collecting tollsdevelopment of spin-off business enterprises marketing projects communityconsultation projects arranging finance etc) Such a very large infrastructureprogramme may even be viewed as a portfolio of projects The PMI offers auseful definition to help us understand what a portfolio may be A portfolio islsquounderstood as a collection of projects or programs and other work that aregrouped together to facilitate effective management of that work to meet thestrategic need of the businessrsquo (PMI 2004 367) The terms programme man-agement and portfolio management are similar and the distinction is somewhatconfusing The term portfolio management is becoming dominant referring tothe management of a series of related and connected projects that are pur-posefully grouped together to obtain synergies and further the strategicdirection of the organisation served by those constituent projects This is theessence of the term as currently expressed by researchers who have studied thisarea in great depth for example by Elonen and Artto (2003)

The PMI defines a portfolio as a collection of projects andor programsto meet strategic benefit (PMI 2006 4) Morris and Pinto define portfoliomanagement (2004 xx) as a strategic alignment activity lsquoconcerned withdecisions on choosing and prioritizing programs and projectsrsquo ndash the PMIincludes authorising projects and programmes (PMI 2006 5)

In highlighting these definitions it becomes clear that the dominatingontological assumption is that projects are real things that they needmanagement and that bundles of resources are assembled and deployed todeliver intended outcomes and that there must have been some strategy orat least raison drsquoecirctre for the project programme and portfolio This per-spective must be stated because many projects are ephemeral and envisageintangible outcomes such as a cultural change management project Evenfor these difficult-to-physically-see projects there is the same ontological per-spective of these having a strategy that an organisation uses to underpin theintroduction and germination of projects and programmes

How do firms and organisations deliver projects

In Chapter 2 in the Make-or-Buy-Decision Section we cited (Barney 1991)as one of the resource based view (RBV) proponents of explaining thenature of a firm We also introduced other sub-elements of that RBV thatlook at the set of competencies that a firm may have to offer its clients(Prahalad and Hamel 1990) and of those competencies we noted that

Business strategy in PM procurement 145

146 Walker et al

agility and flexibility (dynamic capabilities) to respond to turbulence werekey competences (Teece Pisano and Shuen 1997 Eisenhardt and Martin2000) Within the dynamic capabilities view of the firm is the learningorganisation view in which organisations are seen as an organic metaphorin which they need to be able to learn and effectively use knowledge tofunction flexibly in a turbulent environment Further projects programmesand portfolios exist within an institutional context Thus part of anorganisationrsquos competences and resources is its capacity to respond withina political and institutional constraints and opportunities context so thatan organisation with the resources to be able to combine its knowledge andassets to address institutional barriers as well as having the resources to doso can provide the precise resources to deliver the desired results (Oliver1997) The political and dynamic capabilities view of organisationalcompetency again highlights the need for organisations to be seen as beingknowledge based (Grant 1996 Spender 1996 Spender and Grant1996) Nelson (1991 70) and raises an interesting competency ndash itsdynamic capabilities ndash that of an organisationrsquos ability to destroy as well ascreate production infrastructure and technologies to enable nimble adaptationof new approaches and purposeful destruction of outdated approaches tomake way for the development of any new capabilities In procurementterms this means not being rooted to a specific dogmatic approach despiteprevailing political pressure (ie the lowest-cost versus best-value or publicsector versus private sector dichotomies) Often there is an underlying logicto a particular approach that fits a situation and organisations must adaptto deliver this logic The requisite capability of an organisationfirm is to besufficiently adaptable to respond to a projectrsquos needs

Strategy and strategic management schools of thought

This brings us to the next two terms that need to be made explicit Theterm strategy is widely accepted as a form of overarching plan The way thatstrategy is developed and deployed varies The second important term todefine is the organisation its purpose role and how it operates Withoutexploring these terms and understanding how meaning can influence PMand procurement perspectives we would be in danger of not recognisinghow various project types (as discussed in Chapter 2) can need differentorganisational foci and strategic management styles

The dominant view of strategic management in much of the PM literatureis one of conscious planning at a high level that is cascaded down thehierarchies that fall in line with the prevailing wisdom from on high ndash that isthat everyone is singing from the same hymn sheet Much of Section II of theMorris and Pinto (2004) edited book2 for example falls into this paradigmand this reflects the managerialism and thoughtful control-seeking behaviourthat much of the PM profession seems to identify with

One weakness that plagues many professions is that those writing andcommenting on practice tend to avoid looking outside their immediatetheoretical comfort zone This is understandable because we all havelimited time to study read and think and so we tend to seek the opinionof those we have professional respect for in our fields of endeavour ManyPM commentators have for many years accepted that there are verydifferent types of projects that range from the highly concrete to the highlyintangible (Turner and Cochrane 1993 Shenhar Dvir and Shulman 1995Shenhar and Dvir 1996) Different project types may and will require differentstrategic management approaches It is for this reason that we will providea summary of the various strategic management schools drawing heavilyfrom the text by Mintzberg Ahlstrand and Lampel (1998) Mintzberg et al(1998) list 10 schools of strategy that fall into three groups prescriptivedescriptive and configurative We will summarise these with a PM perspectiveso that it enriches our understanding of how a given strategic approach maymake more or less sense for a given project type

Prescriptive strategic schools

This set of three strategic schools is more concerned with how strategyshould take place than with how it does take place

The Design School sees strategy formation as a process of conception inwhich strategy being created from an analysis of external factors is representedby threats and opportunities and internal appraisal of the organisationrsquosstrengths and weaknesses It was developed initially in the late 1950s anddrew upon classical military theory for designing battle conditions thatcould minimise weakness and exploit strengths through detailed knowledgeof the environmental factors in which the battle would take place Thisstrengths weakness opportunities and threats (SWOT) analysis as it hasbeen widely known helps us to explore options prioritise them and selectwhat appears to be the most likely one to successfully implement It dependsupon consistency in not presenting mutually inconsistent goals and policiesand needs to be adaptive to an external environment and be reinforced bydeploying the organisationrsquos competitive advantage It is a very deliberateprocess and presupposes that the SWOT analysis can be undertakenaccurately In terms of project types discussed in Chapter 2 it seems appro-priate where objects and rules are reasonably well known the environmentis reasonably stable and the organisation undertaking the project is alsostable so that its competitive edge does not evaporate or is easily hindered

This represents lsquoType 1rsquo projects as defined by Turner and Cochrane (1993)However this school seems to be at odds with the characteristics of manyprojects that are highly volatile in terms of their operating environment goalsand priorities or where there are high levels of uncertainty Type 1 projectstypically are suited to the range of techniques espoused in the PMIrsquos body

Business strategy in PM procurement 147

of knowledge (PMI 2004) such as use of detailed work-breakdownstructures detailed scheduling tools such as PERT high levels of monitoringand control using methodologies such as PRINCE2 (Bentley 1997) andgenerally manage projects in a way that assumes that it is possible to planin great detail The approach assumes that while plans are likely to need tobe changed to reflect changed circumstances it is indeed worth the effort toinvest time and effort to develop detailed plans and to monitor these andthat the output from that monitoring process leads to a worthwhile degreeof control over the progress of the project Responsibility for the designedcontrol resides with senior management at the organisational apex (forportfolio and to a large extent programmes of projects) At the project levelthe project manager and the PM team will respond to the governancearrangements as discussed in Chapter 4

According to Mintzberg et al (1998) the design schoolrsquos view of strategyformation requires that it should be kept simple and informal made explicitin simple terms and also that it should be one of a kind and customisedafter consideration of the SWOT process Perhaps the most telling signatureof the design schoolrsquos strategic development process is that the plan isdeveloped first and followed like clockwork in a disciplined way through itsrealisation during the implementation phase The SWOT analysis remains itsmost recognised feature This approach thus tends to rely on a plan beingformulated that should work the procurement system adopted and processesand techniques used all aim to control the project according to the plan

Some of the features of this approach are salutary when considering PMoutcomes for projects other than a Type 1 project see Chapter 2 and(Turner and Cochrane 1993) First this school makes strategy explicitand discipline demands an inflexible adherence (Mintzberg et al 1998 36)to lsquofollowing the dotsrsquo Second the strategy design is separated fromimplementation (Mintzberg et al 1998 36ndash37) clearly this requires thetrajectory set by the strategy designer to be unwavering with assumptionsmade by the strategy designer in the SWOT phase to remain stable and belargely correct We know from experience that the environment experiencedduring most projects even a Type 1 project matches this requirement

The Planning School views strategy as a formal process where theultimate objective of lsquothe projectrsquo is made explicit in its strategic andoperational terms This is closer to how we see many projects beingplanned It tends to use the strengths weakness opportunities and threats(SWOT) model but rather than try to explain strategy in a hierarchal lsquomustadhere torsquo mode it introduces procedures checklists and bureaucraticallycorrect procedures that achieve the objective in a planned way It is also ahighly specialised field with experts setting the plans that are deliveredlsquoaccording to planrsquo (Mintzberg et al 1998 58)

Adherents to this school also make extensive use of scenario planningand or simulation and may mistakenly believe that scenario plans are

148 Walker et al

predictions (Flyvbjerg Rothengatter and Bruzelius 2003) The key to theplanning school approach is a belief that it is a mechanical system that canbe understood and solved In terms of project types it assumes that there arevalid project types with different aims that these conform to rules and thatrules can lead to optimal solutions This translates into a belief that projecttypes have some kind of inbred solutions lsquoout therersquo ready to be deployedand that a perfect solution or methodology is ready to successfully deploy

Projects are fraught with uncertainty The planning school concentrateson objectives that must be achieved to meet the needs of stakeholdersIn PM fields this may be viewed as more important that in operationalmanagement because project success is appreciated in the eye of thebeholder ndash the stakeholder The planning school is pragmatic and thus lookstowards benefits derived from a project that is targeted at the aim of theproject concerned it is highly logical It starts out with a premise that theproject has a vision and mission that will make a difference to creating ormaintaining value This vision can be operationalised into a mission andobjectives statement that can inform strategic planning Plans can then beparcelled up into short- and long-term plans This approach has many simi-larities with the strategic design school except that it assumes that there isa way of foreseeing the future and hence preparing for that expected future

Courtney Kirkland and Viguerie (1997) argue that there are a number ofdifferent types of uncertainty which shape our view of appropriate strategiesto pursue They discuss a lsquoclear-enough futurersquo where the likely future isreasonably predictable traditional strategy development tools are appro-priate and a single forecast and plan to meet that forecast is probablyappropriate They see another category as exploring alternative futuresperhaps using game theory A more complex lsquofuturersquo involves scenarioplanning to explore a number of possible futures with full analysis of conse-quences There is also a further state that embodies a somewhat chaotic andunknown condition in which true ambiguity prevails Clearly developingproject delivery strategies matched by procurement choices is complex andsuggests that there are few simple stock-standard prescriptive solutions

The Positioning School sees strategy as an analytical process Mintzberget al (1998 83) argue that lsquoonly a few key strategies ndash as positions in theeconomic marketplace ndash are desirable in any given industry ones that canbe defended against existing and future competitors Ease of defence meansthat firms which occupy these positions enjoy higher profits than otherfirms in that industryrsquo They go on to describe the development of thisschool in three waves The origin of this school was described as beinglinked to military maxims relating to defensive or offensive positions in abattlefield such as lsquosurround and destroyrsquo and so on The second wave washeaded by groups of boutique consultants that applied various militarymaxims to commercial strategy problems as market imperatives Theseconsultants from the 1960s through to the end of the 1980s sold packaged

Business strategy in PM procurement 149

or mass-customised niche strategic-planning solutions to organisations tohelp them develop a position strategy for them using building blocks ofexpertise that they gained from their practice Later these consultanciesbecame dominated by a smaller number of larger consulting firms whereglobal consultants with experience of working with many clients on manyproblems in many countries and environments build up a formidable database (and knowledge base) to tap into

The third wave gaining momentum in the 1980s was highly influencedby Porterrsquos competitive strategy (Porter 1985 1990) He identified fiveforces that shaped competitive advantage These are the threat of newentrants the bargaining power of suppliers threat of substitute productsthe bargaining power of buyers and intensity of rivalry among competitorsThrough analysing the nature and trajectory of these forces a firm couldadopt a competitive advantage through focusing on a narrow or broadtarget with the aim of positioning itself with a cost advantage (being thelowest-cost provider) or a differentiation strategy (having a unique offer-ing or position in terms of brand reputation and gaining loyalty) This ledto an analysis of where value is best derived ndash as is stressed in this bookThis strategy school assumes that firms have the time resources and meansto plan and analyse in detail and carefully position themselves appropri-ately However this approach may not be quite so successful in highly tur-bulent situations where scope scale and opportunity are rapidly changingAs Mintzberg et al (1998 121ndash122) argue a host of soft factors need to beconsidered alongside hard ones in turbulent conditions and while thesethree schools have strengths in measurement data gathering and analysisthey do lack responsiveness to disruptive change While some elements orphases of projects are relatively stable others are highly turbulent

Descriptive strategic schools

This set of six strategic schools is more concerned with describing howstrategy does in fact take place

The Entrepreneurial School responds to market chaos and extremeturbulence and it focuses exclusively and intensely on a top-managementperspective This school sees strategy as being centred upon vision throughthe innate intuition judgement wisdom experience and insight of theentrepreneur who formulates the strategy to meet the envisioned challengeThe fundamental basis of this school is rooted in innovation

Schumpeter (1934) coined the terms (translated from German) as gales ofcreative destruction to describe the role of market turbulence as triggeringchange in both what customers demand and what is on offer This assumesthat first-mover innovators who can position their product or service totake advantage of rapid change will prosper While undertaking analysisand design (and other features of the prescriptive group of strategy schools)

150 Walker et al

is useful in developing an offering there is frequently little time for first-moverinnovators to perfect their strategy and productservice This school ofstrategy may be appropriate to specific project types discussed in Chapter 2and described by (Turner and Cochrane 1993) ndash notably those with fewmethods known and low clarity of goalsobjectives that is some lsquowaterrsquoType 2 Projects and many Type 4 lsquoairrsquo Projects Type 1 lsquoearthrsquo engineeringprojects tend to be stable in known methods and goalsobjectives and oftenexperience what Graham Winch (1998) describes as lsquozephyrs of creativedestructionrsquo in a witty parody of Schumpeterrsquos gales of destruction term

Mintzberg et al (1998 133ndash136) describe the characteristics of theapproach summarised as follows First it is characterised by an active andaggressive search for new opportunities often not thought of or conceivedbefore For example consider providing a portable music provision facilityThis has moved radically from the courtly patronage that supported thelikes of Mozart in his career where such artists were attracted to a particularlocation Centuries later gramophones that could be located in onersquos homeprovided that service Later still the transistor radio and walkman andcurrently the iPod and MP3 player evolved at several decade intervals Eachof these innovations has been radical and they have not only changed theway that music services are procured but also the whole supply chain thatdelivered those innovations as complex portfolios of projects It may haveincluded a series of new innovations in how music is produced and storedas well as delivered The procurement strategies had to adjust to suit thesedriving innovations for example procuring iTunes instead of CDs

Second in the entrepreneurial organisation power is centralised in theownerrsquos hands ndash in fact it may be more accurate to say the mind of theentrepreneur rather than hands because it is the perspective vision andpower of persuasive argument based on a great idea that drives ad hocstrategy This style resonates with some projects where vision is the all-important guide that leads to success when techniques are poorly appliedThe vision becomes the strategic plan and as long as it is clearly understoodcompelling and motivational credible and doable and challenging to forcesmart new ways of delivering the vision and thus benefits from the project(Christenson and Walker 2004) Following on from the last point theentrepreneurial school of strategy is strongly characterised by dramaticleaps forward in the face of uncertainty These strategies are aimed to takefirst-move advantages often using unconventional approaches that extracthigh returns from a cost advantage before competitors and others in thePorter 5-force equation can catch up with them It represents true differen-tiation competitive advantage because by the time other competitors havefound a substitute to challenge the entrepreneur they have moved onto another great idea For those wishing to procure services of this kindof innovator they must take a radically different approach (procurementstrategy) to tune into this kind of project deliverer

Business strategy in PM procurement 151

Finally the motivation of the entrepreneur according to this school ofstrategy is achievement in terms of any innovation delivered as well asgrowth in business derived from that innovation that functions as a proxyfor validating the strategy This strategy is highly risky and those involvedin procurement relationships with adherents of this kind of school are in fora turbulent ride A highly bureaucratic client who seeks to work with a firmadopting an entrepreneurial school of strategic thought might demand areporting or governance system (refer to Chapter 4) that is totally inappropri-ate and therefore might kill any potential benefits to be derived by stiflingan innovative entrepreneurrsquos capacity or motivation to deliver an outcome

The Cognitive Strategy School sees strategy as a mental process and takesan interest in the way that a strategistrsquos mind works by using cognitivepsychology to do this ndash how they make decisions how they judge evidenceand how they communicate what they believe to be sound strategic decisionsThey do this within two wings of this school taking quite a different perspec-tive of how to see a strategy Mintzberg et al identify these two wings(1998 150ndash151) One wing is highly positivistic and objective taking aview of the world as if seeing a videoDVD being played The other wingsees the strategy as being subjective and so they see the strategy beingdeveloped as a process of observation and interpretation of the world

Both approaches are rational and subject to a range of judgementalbiases One of the main flaws noted by Mintzberg et al (1998 153) isthat proponents of this school may falsely believe that a cause and effectrelationship exists between things that are merely correlated Also theymay suffer under the delusion that their past actions have led to a specificoutcome when that may have been merely closely correlated to a randomevent Blind belief in so-called facts can seriously cloud judgements so caninappropriate application of statistical tools or when supported by poorlydesigned methodologies to gather data for analysis This danger is flaggedby a number of thinkers on project management and procurement notablymuch of the work of Flyvbjerg (2006) and his colleagues (Flyvbjerg et al2003) They argue that bias includes not just poorly structured governancesystems allowing poor strategic decision making based on exhaustive dataanalysis but also deliberate lying and manipulation by special-interestgroups who paint a convincing picture of the way that they would likeothers to accept their position as reasonable facts A metaphor may be usedby cognitive strategy school disciples to encourage divergent ways ofthinking to counter some of the bias found in being rigidly anchored to alsquofactualrsquo way of thinking and analysing situations While this can providea powerful and useful tool for creating innovative creative visions andmeaning it can also exaggerate inaccuracy because the context of thesituation can be misrepresented to fit the metaphor or analogy

If a strategist thinks that the correct way to develop a strategy is byrigorously gathering (quantitative qualitative) data and that facts (or theory)

152 Walker et al

inevitably lead to good strategy then they may be deluded Mintzberg et al(1998 154ndash155) also draws to our attention the impact of differentpersonality types referring to the Myer-Briggs-Type Indicator ndash (seeMyers 1962) The strength of this school is that it concerns itself withunderstanding the frames of reference assumptions mental models andproblem-solving strategies that lie behind the strategistrsquos mind Thisapproach to planning can be useful when trying to understand whathappened during a projectrsquos initiation stage and its likely impact upon itscapacity to deliver value

This school is useful as it provides insights into the way that strategiststhink and approach strategy development ndash it naturally alerts us to strengthsand weaknesses of human implications upon strategy formulation This canbe important on many projects that take years to deliver when so manychanges affect the project in so many ways so that a retrospective evaluationto gather lessons learned may be very difficult without considering thisschool of strategy

The Learning School sees strategy as an emergent process We touchedupon strategy being seen as a dynamic ability to be flexible and based uponknowledge in the knowledge-based view of the firm (Teece et al 1997Eisenhardt and Martin 2000) In this view of strategy there is a departurefrom the CEO (or the highest echelon of management) being the strategyformulator rather it implies a flow of influence stemming across theorganisation from top to bottom Strategy and changes emerge fromthe organisation as a whole through its evolved culture and how theinterplay and actions between leaders and followers affects procedures andgovernance (discussed in Chapter 4) We will discuss the link betweenproject procurement innovation and organisational learning in more depthin Chapter 8 It is worth however highlighting in this section key aspectsrelating to strategy formulation and deployment

The design school sees wisdom and knowledge flowing from on hightrickling to those below who make the strategy happen in a disciplined andmechanistic manner The learning school sees a very different picture ofwhat is happening Knowledge is seen as residing at a range of levelsthroughout organisations as specific expertise that needs the perspective andpractical application of pragmatic knowledge (Cavaleri and Seivert 2005)Quinn (1992) brought to our attention the importance of ideas bubbling upfrom below from which strategy later developed through a conversationbetween those with great ideas and those in the hierarchy who could supportthese with resources and plans of how to commercialise and gain value fromthese Quinn (1992) cites companies such as 3M see also (Shaw Brown andBromiley 1998) and explains how many of these firms have tapped intospecific technical expertise that is used to inform strategic decision making

Bontis Crossan and Hulland (2002) discuss managing an organisationrsquoslearning in terms of stocks and flows of knowledge They see learning being

Business strategy in PM procurement 153

154 Walker et al

available at the individual level as intuition being interpreted throughsocialisation and culture of an organisation then flowing to the group levelwhere it is integrated and reframed according to the circumstances facingthat group This is then institutionalised by the organisation in routinesrules rites and regulations or codes of practice This happens as a flowforward and feedback process (Crossan Lane and White 1999) so thateach of the three levels individual group and organisation is enmeshed in acommunal effort Crossan et al (1999) offer the 4 Is concept of organisationlearning ndash individual intuition informing interpretation of ideas throughreflection as an individual and through dialogue with colleagues Integrationof the reframed intuition becomes codified within groups and this leads toinstitutionalisation by the organisation This is also mediated by power andinfluence at different levels (Lawrence Mauws Dyck and Kleysen 2005)that link to governance issues discussed in Chapter 4 Individuals influencegroups who through cultural adaptation or changed practices force theorganisationrsquos leadership to respond formally This results in changedapproaches (including strategy) and procedures (tactics and governancearrangements) and this imposes a discipline that reinforces the knowledgesharing and learning within the group and by an individual Certainly the3M approach to innovation that fits with this feed forward and feedbackconcept appears to have influenced 3Mrsquos organisational culture byallowing people their pet research and development projects that can thenbe considered by 3M senior management for further development bythe organisation

The learning school helps to explain what is going on within organisationsand how new ideas products or proposals for forming alliances with othersshapes strategy It also provides additional insights into what has been termedinternal corporate venturing (Burgelman 1983) and entrepreneurship wherean internal project sponsor or champion strategically influences the selectionof particular projects

This theory of how strategy emerges radically differs from the top-downdesign school and requires different procurement approaches and a differentleadership style For ICT innovation diffusion and the support and roll outof ICT innovation and change projects 2 of the 11 factors determinedthrough factor analysis that were shown to affect case study organisationsin the Australian Construction industry among a select group of already IT-sophisticated organisations included supervisor support and a culture ofopen communication about problems and solutions (Peansupap andWalker 2005) This research fits well with the above view of strategy aslearning emergence and the 12 prescriptions for logical incrementalismoffered by Mintzberg et al (1998 183ndash184) that also matches with muchof the change-management literature (Kotter 1996 Wind and Main 1998Kanter 1999) so well

The natural development of the organisational learning strategy schoolhas been the focus on how strategy appears to emerge Here strategy mayappear to randomly surface from complex processes and interactionsoccurring in organisations that permit and encourage diverse thought andexperimentation however there is an underpinning rationale There willstill be clandestine players who find it effective to lsquosuggestrsquo ideas to theirorganisational bosses (or others with more perceived influence) who thenset in train a championing and lobbying process for the idea As Mintzberget al (1998 190) point out while individual(s) may press the idea forwardin a deliberate and strategic way the organisation may see the strategy asjust emerging The emergent strategy school adapts learning-school ideasand further develops these to introduce elements of power influencechange management and diffusion to the concept of ideas and strategies justbubbling up It also draws upon lsquosensemakingrsquo concepts Karl Weick (19891995) explains lsquosensemakingrsquo as a process where people retrospectivelyexplain (or make sense) of actions from a chain of events and influences

It is important to remember that emergence can occur through ignoranceas well as learning through brute power as well as sophisticatedly crafted andsubtle influence Strategies can be forced through even the most politicallyopen and liberal organisations and also they may be forced through by anexternal environment that imposes a particular logic Government policyin the Australian higher-education system (as elsewhere) has provided apervasive influence in (government) forcing desired strategy to lsquoemergersquo withinuniversities This has nothing to do with a learning-organisation approachother than lsquosensemakingrsquo imposing a particular logic as either inevitable oran easier path in some quid pro quo struggle for survival and sustain-ability of an organisation Strategy can emerge from administrative fiatcollective choice self-interest or professional judgement (Mintzberg et al1998 192) A broad umbrella set of constraints and opportunities canimpose a logic with details that when analysed leads to more detailedstrategies emerging

The literature relating to Hondarsquos rise in motorcycle manufacturing anddistribution within the UK and the USA in the late 1960s provides interestinginsights into how Hondarsquos strategy emerged (Pascale 1984 Goold 1996Mintzberg 1996 Mintzberg et al 1996) While that story triggered a greatdeal of debate about emergent strategy it also serves as a useful adjunct todeveloping the learning school of strategic thought This strategy school hascontributed to and drawn from the literature on core competencies (Prahaladand Hamel 1990) and how that shapes strategic intent (Hamel andPrahalad 1989) and adds to an organisationrsquos dynamic capabilities(Teece et al 1997) It also draws upon chaos theory in that it influencesorganisational strategy as being seen to need to adapt to and be flexible inturbulent situations where dramatic change can rapidly occur (Strogatz 2003

Business strategy in PM procurement 155

Backstroumlm 2004 van Eijnatten and Putnik 2004 Snowden 2006) Thisstresses the need when making procurement choices to be more cognisant oftodayrsquos turbulent environment and that one size does not fit all

The Power School sees strategy as a process of negotiation linked toinfluence and politics Some aspects are subject to further discussion inChapter 3 on how stakeholders influence a procurement strategy and so wewill limit our discussion in this chapter Influence can be legitimate beingdesignated by the governance provision such as the power to initiatesupport or approve It can be illegitimate by subverting legitimate powerthrough hidden (non-transparent) influence or pressure ndash perhaps as part ofmutual adjustment or more sinister motives Some of these influences arediscussed in Chapter 4 relating to ethics and professionalism

Being aware of the political landscape can be an advantage wheninfluencing others Bourne and Walker (2004 228) refer to project managercompetencies as needing to include three dimensions of wisdom and theseare further explained in the discussion on stakeholders in Chapter 3Dimension 1 relates to knowledge of how to look forwards and backwardsto apply correct PM techniques ndash in the case of this chapter this wouldinclude the appropriate school of strategy to draw upon when makingdecisions Dimension 2 relates to knowledge of relationships of how to lookinwards outwards and downwards which is also relevant to the powerschool of strategy as it includes the ability to manage relationships withkey influencing stakeholders Dimension 3 skills relate to considering andensuring that political influence and lobbying is addressed by lookingsideways and upwards This is what Bourne (2005) and Bourne andWalker (2004 228) refer to as lsquotapping into the power linesrsquo of projectstakeholder influence (see Chapter 3 for further discussion)

The politics school also believe that the ability to influence and negotiateis also reflected by the sense of commitment or compliance experienced bythose taking part in negotiations This will be discussed further along withnotions of trust in Chapter 9 Cultural Dimension of Project ProcurementTo summarise the relevance of those concepts in this context we can envisagecompliance as being the lowest level of commitment (Meyer and Allen1991) where perhaps legitimate power is enforced to push through strategyand may explain why the strategy may then be given only lip service Otherforms of persuasion may be employed to encourage high-level commitmentthat can lead to sustainable support for strategy Similarly trust is an impor-tant element of political persuasion because personal integrity behaviourand the dynamics of power interact in negotiation (Lewicki LitterereMinton and Saunders 1994) Trust can effectively cohabit with distrustwhere processes are put in place to ensure that transparency enables trustto build by being seen to be verified (Lewicki McAllister and Bies 1998)Mintzberg (1989 238ndash240) This highlights a number of power-politic gamesthat are played out in organisations that affect strategy development and

156 Walker et al

adoption Some of these games are overt such as using authority to coercepeople through intimidation or bribery by budget approval by usingexpertise in an exclusionary way Others are covert and might occur throughsuch ploys as alliance building empire-building selective sponsorship basedon reciprocity These are a few of those described by Mintzberg (1989) butthey give a flavour of the assumptions underpinning the power-school strat-egy that seek to understand how strategy evolves from this negotiation-dynamics perspective Strategy becomes a bargaining process and its resultscan be explained not so much by rationality or even the fiat of the leaderor any particular group rather it evolves as a series of compromisestemporarily mapped by waves of influence that map out boundaries

A related school to this is the cultural school that sees strategy as acollective process Culture can be studied from either the outside in or insideout Mintzberg et al (1998 267ndash268) outline five premises of the culturalschool First is that strategy is based upon beliefs and understandingsshared by an organisationrsquos members this has profound implications formisinterpretations in cross-cultural teams because of the wide range ofmeaning that can be assigned by different groups to what seem to be commoncultural artefacts (Grisham 2006) Second individuals acquire their culturalbeliefs through socialisation which is highly tacit and value laden Thirdbecause much of culture pertains to the unspoken and assumed artefacts atthe superficial level may appear to represent culture coherence while atdeeper levels assumptions may vary Thus a strategy document may beinterpreted quite differently by different individuals and groups Fourthstrategy takes the form of perspectives rooted in collective intentionsFinally Mintzberg et al (1998 268) argue that culture and especiallyideology does not encourage strategic change so much as perpetuate thestatus quo

The cultural school is seen by Mintzberg et al (1998 280) as beingtoo conceptually vague to be useful for working out what strategy can beachieved and how rather it is helpful for explaining what might behappening at any given time This is because so much of the literatureprincipally describes what is going on in peoplersquos heads and hearts ratherthan their physical observable behaviour it all requires expert interpreta-tion That said it introduces us to important aspects of change managementand as projects are change programmes of one kind or another and thisschool offers us a useful way of understanding the dynamics of forexample (internal team and external) stakeholder influence Considerationsof culture should be made when making procurement choices so as tominimise unpleasant unexpected outcomes happening

The environmental school sees strategy as a reactive process This schoolsees the environment as the defining actor together with leadership and theorganisation shaping strategy through the organisationrsquos reaction to forcesexternal to it Mintzberg et al (1998 288) argue that this school evolved

Business strategy in PM procurement 157

out of contingency theory with ideas such as lsquothe more stable the environmentthe more formalised the organisationrsquos internal structurersquo They presentfour premises of this school First the environment presents itself to theorganisation as a set of general forces at the centre of the strategy-makingprocess Second in a kind of Darwinian sense organisations must adaptreact or be selected out of existence Third leadership becomes a passiveelement in reading the environment and proposing organisational adaptiveaction Finally the environment metaphor leads to a belief that organisationscluster into distinct ecology-style niches Its Darwinian population-ecologyfocus leads this school to observe strategy from a population perspectiveA group of organisations within a population niche compete as one innovatesit advances within that pack provided that it has sufficient resources tosustain it however the environment has a limited carrying capacity so inthis Darwinian struggle less-efficient organisations die

Another stream of the environmental school uses institutional theorywhich posits that there is an institutional pressure to conform and so strategybecomes ways in which resources are converted into symbolic ones such aslsquobrand reputationrsquo being a market leader (of that niche within the pack)This compels competing organisations to mimic each otherrsquos perceivedsuccesses Being recognised as successful is a strategy for attracting moreresources (share-market recognition being a partner or employer of firstchoice etc) Benchmarking and lsquobest practicersquo can be viewed as expressingthis strategy Christine Oliver (1997 708) adapts institutional theory andargues that far from being passive organisations that survive are evolvinginternally by adaptation and change management to respond to externalenvironmental factors However large institutional organisations arehindered by sunk costs not in financial terms but sunk costs in culture(organisational inertia through habit) and ways of valuing skills (in public-works government departments valuing the opinion and skills of sayarchitects over engineers or vice versa) This can affect their type and rateof response because they are captives of their own history and whatappeared to work best in the past ndash being blinded rather than beinginformed ndash by history Nevertheless she states that lsquoFirms seek out compe-tency blueprints or recipes in several ways including direct imitation of asuccessful competitor (eg late-mover imitation of a rivalrsquos technology)indirect mimicry of role models (eg benchmarking) and the use of outsideconsultants to develop expertise employed competitorsrsquo This tends to forceorganisations within a niche to adopt similar strategies until one completelybreaks the mould and pole vaults into a separate niche revealing a com-petency trap of others in their niche Institutional forces therefore entrapsome firms into pursuing limited strategic choices In project procurementterms we can observe the difficulty in government agencies and corporatesmoving away from a lowest-price to the best-value approach No matter

158 Walker et al

what the rhetoric is the tender and evaluation process always seem tofavour and slip towards trying to get a low tender cost

Mintzberg et al (1998 294) cite a number of critics who argue thatenvironment explains neither short- nor longer-term survival and decaybecause other internal forces for example irrational competitor actionsand other factors may have as much if not more influence upon organisationalsustainability However they do value this perspective as being useful intrying to understand how organisational populations form and adoptstrategy and how that helps us think about strategy related to seeinghow strategic choices may be perceived to be limited in organisations at amature stage in their life cycle

Configuration strategic schools

This last strategic school is concerned with strategy as a process ofconfiguration and transformation PM is described as creating a transfor-mation so this school may be of particular interest to readers of this bookMintzberg et al (1998 302) identify two main labels for this school strategyas configuration and as transformation Some of the preceding schools canbe seen as representing different phases or stages of an organisationrsquosapproach to strategy as it evolves and responds to the challenges it sensesStart-up organisations tend to have a charismatic entrepreneurial leaderwith a focus on visionary strategies while mature organisations that havebeen around a long time have built up not only cultures and habits but alsohave professional managers who conservatively approach strategy Likewisedifferent types of project and different types of sponsor or clients will elicitdifferent strategic approaches to project procurement that match what theyare comfortable with

Mintzberg et al (1998 305ndash306) states that Configuration Schoolproponents believe that most of the time an organisation can be describedin terms of a kind of stable configuration of its characteristics for a distin-guishable period of time adopting a particular structure by adopting itsstrategies to meet the challenges it faces from its external environment Thereare periods of stability and periods of extreme turbulence when disruptivechange requires a quantum leap to another organisational form Thesesuccessive states of configuration and transformation occur over time similarto the stages of organisational transformation triggered by turbulent shocksdescribed by Greiner in (Greiner and Schein 1988 Greiner 1998) The key tostrategic management therefore is to sustain stability most of the time whenthat maintains competitive advantage and to be able to shift gear to beingtransformational to cope with disruptive change to position the organisationto be ready for the next fairly stable period This is where the other strategyschools have their usefulness because the process of strategy making can

Business strategy in PM procurement 159

be seen as Mintzberg et al (1998 305ndash306) argue as

lsquoone of conceptual designing or formal planning systematic analyzingor leadership visioning cooperative learning or competitive politickingfocusing on individual cognition collective socialization or simpleresponse to the environmental forces but each must be found at itsown time and in its own contextrsquo ndash lsquothe resulting strategies take theform of plans or patterns positions or perspectives or else ploys butagain for its own time and matched to its own situationrsquo

Finally in this section it is worth looking at transformational change againbecause this is in essence a PM issue Change-management proponents stressthat in order to achieve change people need to be persuaded that change isrequired They need to see that the current state needs reform because itis either currently undesirable or will lead to imminent undesirable conse-quences Further a specific plan to make that change needs to be made Thisplan should be credible achievable and reasonable in terms of the balancebetween the efforts to be made (or sacrifices) and the benefits to be derivedfrom that change (Kotter 1995) This way of looking at strategy fits wellwith the PM concept of identifying a need and developing a brief (thebusiness case) deciding upon a plan of action to achieve the strategythat includes working out how to assemble the required resources (theprocurement plan) and then taking action to deliver the desired outcomes(the implementation stage) and finally to deliver the outcome and learnfrom the experience (the closeout stage) Understanding the various strategicschools of thought is helpful for us to argue for change or to emphasisechoosing an appropriate procurement strategy

Linking business strategy to procurement

This section will explore the area of project portfolio management (PPM) ndashhow projects may be strategically selected It will outline three levels ofactivity involving project execution at the project programme and portfoliolevel We will then discuss current insights gained from study of howprojects can and should contribute to creating and delivering value to theirsponsors and stakeholders

Project managers tend to see a project as a given task that must be carriedout This view is fast changing as the importance of managing complexityand risk associated with large projects is better understood and the trenddevelops towards managing businesses as a series of projects where anincreasing amount of attention is directed towards this view of PM (Archerand Ghasemzadeh 1999 KPMG 2003 Turner and Muumlller 2003 Morrisand Pinto 2004 Blomquist and Muumlller 2006b)

Recent work funded in part by the PMI has led to some useful clarificationaround how PM and programme and portfolio management fit together

160 Walker et al

Business strategy in PM procurement 161

(Morris and Jamieson 2004 Blomquist and Muumlller 2006ab) In simpleterms the whole process is about improving PM (doing the project right)and improving programme or portfolio management (doing the right pro-jects) Modern portfolio theory was pioneered by a Nobel-prize-winningeconomist (Markowitz 1991) and it has also been further developed by aca-demics from marketing and product development backgrounds to proposemodels of selecting the strategically appropriate project from a range ofchoices (Cooper Edgett and Kleinschmidt 1997ab Cooper 2005)

Elonen and Artto (2003) identified from an in-depth study of twoportfolios that revealed common problems not only make sense but havealso been used to map problems of roles and practices that indicate poorportfolio management performance identified in a comprehensive anddetailed study undertaken by (Blomquist and Muumlller 2006a 63) TheBlomquist and Muumlller (2006b) study comprised 11 semi-structured inter-views with senior managers from large globally operating organisationsrepresenting 5 different industries Their findings indicated that managerswith a focus on portfolio management aim for maximising organisationalresults

They also conducted a quantitative study analysing organisationsrsquo gover-nance practices roles and responsibilities of 242 participating programmeportfolio managers They devised an index (Blomquist and Muumlller 2006b)that measured benefit to the organisation All participants indicated somelevel of programme and portfolio practice so they divided the sample intoone group that performed above the mean and another group at or belowthe mean They then analysed the characteristics of roles and practicesof those that performed below the mean-index results (designated as low-performing organisations) using the analysis of variance (ANOVA) statisticaltechnique Table 51 illustrates their findings (Blomquist and Muumlller 2006a63) They discovered that as expected portfolio management practices areaffected by the complexity of the environment Higher complexity demandedmore rigorous application of a programmeportfolio governance structure tomeet the needs of their environment and project types The organisationsstudied were primarily involved in for-profit business activity but aninteresting question is raised by this what can we learn from this researchthat can be applied to another very important sector not-for-profits (tosociety in general rather than commercial organisations)

First it is instructive to understand what programme and portfoliomanagement generally offers It is instructive to consider two basic require-ments that need to be satisfied by programmeportfolio management toimprove value generation for project clientssponsorschampions andother stakeholders These are to first select the lsquorightrsquo project to realiseand second to design a delivery governance system to ensure that expectedbenefits are realised The first part is related to developing a system tochoose the lsquorightrsquo project the second relates in part to Chapter 4 in relationto governance and in part to performance measures which is discussed in

Table 51 Mapping strategy research against known problem areas

Chapter 6 but will also be expanded here with a discussion of the role ofthe project management office (PMO) and its variants

Choosing the lsquorightrsquo project

In the private sector practitioners and academics have begun to partiallyaddress this challenge by first adopting and then translating portfolio theoryas originally defined within the Finance discipline into a project managementcontext (Martino 1995 Cooper et al 1997a) This approach is generallyknown as PPM In effect this extends the boundaries of traditional projectmanagement by attempting to include how projects are selected prioritisedand approved to proceed rather than a simple focus on project execution

An important underpinning of the original theory is the normal priorityplaced on maximising the financial return while minimising the risk of theselected portfolio This point cannot be ignored when the theory is appliedto project management This is known as portfolio optimisation Thisapproach leads to the development of decision support tools (normally inthe form of some kind of consistent scoring model) to assist in portfolioselection Most of these scoring models emphasise selecting projects thatoffer higher financial returns as measured by traditional means that isreturn on investment (ROI) internal rate of return (IRR) or project paybackConsiderations might however include amounts of available capital orresources thus forcing the selection of a portfolio of lsquoaffordablersquo or lsquodoablersquoprojects based on cash-flow considerations The emphasis and underpinningsof any and all of these more or less complex approaches remains primarilyfinancial While this may seem like an acceptable assumption in the privatesector where the singular purpose of most corporations is to make profits atalmost any cost (Bakan 2004) it should be clear that this same assumptioncannot and should not hold true in the public sector In fact others haveeven questioned this approach within the private sector (Elkington 1997)suggesting its focus is too narrow and propagates concepts such as the 3BLand social responsibility as other points of reference for corporate perfor-mance in the private sector This aspect is discussed in detail in Chapter 4of this book If managing a portfolio of projects for financial gain is notappropriate in the public sector and perhaps not even in the private sectorwhat are the right criteria then

Since achieving alignment between strategy and projects is one of theoft-cited benefits of programme management (Morris and Jamieson 2004)we must therefore conclude that one critically important aspect in anyrevised PPM methodology is the assurance of a firmer connection betweenthe organisational strategy-and project outcomes This suggests a needfor project management professionals to be both deeply involved and tocompletely understand the strategy-making process and to properly addresscommunicating eventual links within both single-project management andmultiple-project management settings to those on their project teams

Business strategy in PM procurement 163

164 Walker et al

This notion has been sufficiently explored The literature rightly calls fora clearly defined and measurable business strategy and an accompanyingvision and mission for every project This leaves the question how doesone theoretically and practically link this to PPM methodology andpractices in a way that will enhance the understanding of strategy amongproject team members

It is also relevant to question why many PM professionals naturallyassume a profit-centric model could be universally applied in a projectmanagement context It does not seem as if this fundamental assumptionhas been challenged to any great degree in the existing literature While thisassumption may make sense in the original context of selecting a financialportfolio where investors like corporations are focused on maximisingtheir rates of return in the public sector strategic objectives are normallymore complex to define and measure than a pure profit motive (for instancesocietal outcomes regulatory compliance life and death issues communityhealth educational achievement etc) A more rational and effectiveapproach to project selection would be to create conditions in the scoringmodel and accompanying decision-support tools where one could besatisfied that

a sufficient portfolio of strategic projects actually existed and if properlyselected and managed would lead to the organisation accomplishing itsintended strategy and

given a clear definition of strategy it would be possible to select projectsthat were most likely to have the maximum strategic contributionbalanced across all aspects of the stated strategy and not just itsfinancial performance

One approach offered here is an adaptation of the balanced score card(BSC) idea that will be discussed in more detail in Chapter 6 A BSCattempts to balance competing notions of how value can be represented andwe suggest that all projects should be prioritised using a balanced assessmentRather than discuss the underlying theory we refer readers to Chapter 6or to read about the underlying concepts (see for example Kaplan andNorton 1992 1993 1996 1998ab) Norrie (2006) developed and tested asystem of evaluating projects for using this evaluation framework to guideapproval of projects offered for development and realisation as part of aportfolio of opportunities for enacting change He argues that while tradi-tional scoring models simply only compared financial return to risk themore sophisticated proposed scoring model must now compare strategic con-tribution across four individual dimensions to risk The outcome of thischange is a more complex but more strategic and dynamic scoring model asshown in Figure 52 The four elements are based upon the Kaplan andNorton criteria modified for a PM and portfolio management purpose

Business strategy in PM procurement 165

The model recognises outcomes being related to people customers serviceand financial outcomes that are strategic elements in an organisationrsquossustainable development Each project proposal can be assessed accordingto criteria related to an organisation-specific template Most organisationshave a strategy that helps them develop specific measures and where this isnot present they are advised to access expert advice to help them develop amodel that fits their unique circumstances As noted earlier in the theory ofthe firm section organisations should aim to mould a unique and difficult-to-imitate set of characteristics of the value that they offer If an organisationis confused over how to structure their equivalent to Figure 52 then itshould commission a consultant to help it do so

Each dimension of the graph represents its own traditional risk rewardmatrix with reward on one axis and risk on the other The centre of thegraph represents (00) suggesting that as projects move outward from thecentre they increase in risk and return ndash a normal assumption in mostinstances since rarely is their return without risk Each project is analysed forits contribution (measured in terms from a very weak or indirect supportingcontribution all the way through to a direct or very direct measurableimpact) and the size of the circle represents the degree of contribution of theproject in each domain This is determined by comparing the contributionof the individual project outcomes (always in their most measurable terms)to the previously established gap identified during the planning process

Figure 52 Norriersquos proposed balanced PPM scoring model

People

Service Financial

High

High

Return Return

Risk

Risk

High

Size of bubble indicates strength of strategic contributionVery direct Direct Indirect Weak

High

Low Low

Low Low

Customer

between current and future performance levels for that domain at the overallenterprise level Similarly projects which impact more than one quadrantconcurrently (ie contribute to building strategic capability in several areasrather than only in one) are more valuable to the organisation and shouldbe executed in order of highest priority The more each project can establisha significant ability to contribute to a lessening of that strategic gap inmeasurable terms the more reliable the project is to that quadrant attainingits intended performance level overall

In relation to risk the circles are then positioned to determine thoseprojects as having relatively higher or lower assessed risk (depicted bymoving outward on the graph from the centre as having more assessed risk)This combination allows for trade-off decision making in each quadrant ona project-by-project basis between risk and reward The importance of thischange in practice cannot be underestimated for its possible contributionto the private sector certainly but it is even more significant in the publicsector The complex multi-stakeholder strategy present in the public sectormakes traditional financially driven project scoring models quite limitedin their applicability To address this imbalance we must use a methodwhich allows us to measure for example outcomes related to the greatersocial good or achievement of social policy objectives not just financialterms (eg improvements in overall health levels decreases in waitinglists or treatment lapses increases in educational success rates access tocost-effective day care or improvements in the number of commercialpatents issued to business etc) The BSC would allow one to do thatFurthermore once the BSC is incorporated into a public sector settingwe have demonstrated how it can be used to balance strategic outcomeswith the costs of programme implementation enforcement and other fac-tors (Norrie 2006)

This balanced view of strategy is imperative in the public sector whereresponsibilities cannot be abandoned simply because they are costly Howeverwhere applicable financial efficiency is still equally valued creating theright balance for application of the methodology in this sector In additionit retains the approach of mitigating potential project benefits with possiblerisks thus retaining an important theoretical foundation of effective PPMmethodologies By combining these methodologies we find a way toacknowledge this complexity and we can learn to account for the true valueof a project beyond its pure financial impact By adopting the BSC as amethod of measuring any particular part of the public sectorrsquos mandateacross its four dimensions and attaching relevant measures to each it finallybecomes possible to score the relative strategic value of any project bymeasuring its potential individual contribution to the overall measuresin each of the four dimensions But there is another inherent value in thisproposed change which is subtle but critically important If an organisationrsquos

166 Walker et al

Business strategy in PM procurement 167

focus is on strategy execution and if projects form part of the infrastructurerequired to execute strategy once it has been formulated it becomesimperative that the organisation ensures that it has a sufficient numberof projects in each dimension to actually accomplish its stated goalsThis transfers the notion of lsquobalancersquo from the scorecard methodology intoa project setting demanding that the project portfolio also be similarlybalanced This helps build expected performance levels into the selection ofthe project portfolio from the outset

This approach complements the notion of stage-gates proposed byCooper (Cooper 2005) for selecting winning product developments wherea series of go or no-go decisions are made at logical junctures of a productdevelopment cycle (read project phase for PM) This portfolio practice isparticularly common in some industries for example in the pharmaceuti-cal industry (Lehtoned 2001 Morris and Jamieson 2004 chapter 4) andin research and development (RampD) in telecommunications (PoskelaKorpi-Fippula Mattila and Salkari 2001)

The PMO enacting portfolio strategy

There has been much discussion regarding the PMO concept and where itis currently heading Most construction projects are managed on sitethrough a project office where specialists and much of the project teamcongregate in physical proximity to work together to share ideas and tofacilitate communication through rich personal contact This has beenhappening for many decades if not centuries The main difference that hasmore recently occurred that is relevant to this chapter is that the PMO hasbeen evolving as a way to move beyond just gathering people together andbetter coordinating their actions and resources towards sharing standards(Rad 2001 Ingebretsen 2003 Blomquist and Muumlller 2006b Crawford2006) This facilitates programme or portfolio management (Turner 1999chapter 14 Artto 2001) in a way that adds coherence

PMOs at its lowest level merely provide a location where project teammembers gather to do their PM work and this is often restricted to thoseinvolved in the lsquoiron trianglersquo processes of time cost and quality controlThis level of PMO supports decision making coordination and control and isa way of lsquohousingrsquo project managers Once they are linked either physically orthrough a form of communities of practice (COP) as for exampleillustrated by a construction industry example (Jewell and Walker 2005)that the knowledge sharing which takes place allows standards to be set thatmake established PM processes more repeatable for that organisation Thusthe PMO facilitates organisation-wide impact of an incremental improve-ment and increased PM maturity The PMI standard OPM3 (PMI 2003)specifies a five-level maturity model Initial where ad hoc PM approaches

168 Walker et al

are deployed and the project is characterised by chaos and confusion withthe same mistakes being repeated for each project Repeatable where basicPM tools techniques and processes are deployed and formalised often witha start in developing a procedures manual or system that allows success to berepeatable or failures not to be repeated Defined the procedures manual orsystem is formalised and tested to a point where it is accepted as a policyand guides PM activities Managed at this stage performance is recordedand data collected to demonstrate the effectiveness of the systems in placein the PMO and it is possible to justify resources and initiatives and gaugethe value of the PMO and ensure the systems are well understood andaccepted and finally the optimising level may be reached this is where it iscontinuously improved and is embedded in the organisational culture(Crawford 2002 Rad and Levin 2002 282) The impact and degree ofinvolvement of the PMI in projects can be mapped Kendall and Rollins(2003 284) illustrate a simple example where business units function unitsor other organisational sub-units can be established as columns in a tableand each split into columns for type of project for example developmentintegration maintenance etc The rows can then represent a classificationof type of projects undertaken that makes sense to the organisation forexample large medium and small The cells of the table can then be pop-ulated by project references so that the scope scale and type of projectsundertaken by the organisation can be visualised This can be useful forsenior managers to understand what PM is happening or it can be used asan input into a project filtering and screening process described in the pre-vious section of this chapter

We can now start to get a sense of where the PMO could be strategicallyheading Chris Cartwright from Ericsson Australia presented at a PMIchapter seminar a detailed account of Ericssonrsquos development of a strategicPMO for the Asia Pacific region that has won awards for excellence inbusiness (Cartwright 2006) this discussion is extended in Chapter 11 Heoutlined how PMOs evolve or inevitably are doomed to be restructured outof existence The Ericsson Melbourne PMO started life as many others asan attempt to raise PM skills and capabilities and a large part of its originalremit concerned creating standards promoting learning exchange andsharing experience and gathering data on success or otherwise of theirprojects This evolved to being involved in decision making about whichprojects to focus on and so its role crept into the portfolio managementarena and further evolved to being one where it has a strategic focus in notonly advising on the strategic selection of projects but also in helping todevelop business cases coach PM staff as well as advise sponsors andchampions on how to optimally enhance their role The PMO in its latestevolution is proactive and has been made more accountable If projectsnow start to drift the focus is not on auditing and crisis management ratherit is on needs analysis facilitating better quality resource decision making

Business strategy in PM procurement 169

coaching and mentoring developing COPs and facilitating people-networkingand supporting projects from the start so that they do not become distressedThe result has been that the PM and program management activities hasmoved from a back-of-house small revenue generator to being a revenueand social capital star that is recognised now at board level Thistrend concurs with efforts by the PMI for example to get greater board-level recognition of PM and its value in addition boards and high-leveladvisory groups would have more PM skills to draw upon when makingstrategic decisions

Chapter summary

This chapter starts with a general discussion of the nature of the organisationand various perceptions of its reason for being The purpose for this sectionwas to question how organisations create and generate value throughprojects This led to a summarised discussion about the various strategicschools that currently attempt to describe why organisations behave in theway they appear to do The rationale of this was that if organisations haveto choose between a range of potential projects then they should choosethose that deliver greatest benefit for stakeholders given the purpose thatorganisations see themselves as fulfilling A highly commercial organisationwill have a different vision priorities and objectives to a not-for-profit onefor example and so it is likely that their strategic propensity will alsodiffer The section on strategic choosing the lsquobestrsquo fit project naturallyflows from understanding the organisationrsquos strategic rationale The BSCtool described provides a useful way of making strategic choices We thenintroduced the concept of the PMO as a strategy-enabling device as itfacilitates taking strategy into action by guiding projects in a strategic andformal way Chapter 11 takes both the theory and practice of the PMOfurther so that readers may find more substance and content relating tothat aspect in Chapter 11

Vignette

XYZ Corprsquos strategy is defined as being geared towards a leadingmarket position for private yachts in its respective geographic marketRather than being a trendsetter the company typically respondsquickly to market trends and is known for being a reliable integratorof proven technologies and features XYZ Corprsquos reputation in themarket is characterised by modern yet somewhat standardised designswith limited customisation options Compared to its competitors

170 Walker et al

the company is best described as a lsquofast followerrsquo but it leads thecompetition in delivering a quality product in short time frames ata very reasonable price point However due to stiff competitionmargins are very slim and the corporation is struggling to make thedebt payments for substantial equipment purchases of the past

The PMO which is responsible for both PPM and project executionhas the following potential projects to choose from

1 upgrade manufacturing facility with new kitchen and dining areaa project long promised by the CEO benefiting staff moraleCost $200k over two years

2 PMP training and Certification of the 10 project managerswho oversee large-scale yacht projects Cost $50k Benefit non-conformance cost savings of 120k over three years

3 purchase of a new tool machine for manufacturing more customaccessories Cost $250k Benefit additional sales of approximately$2m pa

4 hiring of an additional industrial designer Cost $120k paBenefit approximately $1m in sales through more customiseddesign offerings

5 RampD for new hybrid propulsion projects to offer a product whichcomplies with more stringent noise and pollution restrictions forinter-coastal waterways Cost $5m over five years

6 new construction of an RampD facility to allow projects like thehybrid propulsion and other basic research efforts Cost $400k and

7 replacement of the lsquobrokenrsquo order entry system and other relatedsoftware Cost $100k Benefit time savings 50k pa and ordergeneration of at least $15m per year Update financial reportingsystem required to be completed in the new fiscal year in orderto sustain regulatory compliance Cost $75k

Issues to ponder

The CFO assigns a project budget of $500k which cannot beexceeded The outcome of the first selection process is to lsquoshortlistrsquoprojects (2) (3) (4) (7) and (8)

1 What strategy model or combination of models best characterisesXYZ Corp

2 Is the provided information sufficient to make an optimal decisionIf not what information is missing

Notes

1 For readers interested in finding out more about this icon visit theAustralian Government Culture and Recreation portal web site www cultureandrecreationgovauarticlessydneyoperahouse

2 The authors recommend this text as being a high valuable reference for projectmanagers and PM students as it is a comprehensive and current collection ofPM theory and practice

References

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Artto K A (2001) Management of Project-oriented Organization ndash ConceptualAnalysis In Project Portfolio Management ndash Strategic Management ThroughProjects Karlos Artto M M and Taru Aalto Helsinki Project ManagementAssociation of Finland 5ndash22

Backstroumlm T (2004) lsquoCollective Learning A Way Over the Ridge to a NewOrganizational Attractorrsquo The Learning Organization MCB University Press11(6) 466ndash477

Bakan J (2004) The Corporation The Pathological Pursuit of Profit and PowerNew York Free Press

Barney J (1991) lsquoFirm Resources and Sustained Competitive Advantagersquo Journalof Management 17(1) 99

Bentley C (1997) PRINCE 2 A Practical Handbook Oxford Butterworth-Heinemann

Blomquist T and Muumlller R (2006a) lsquoMiddle Managers in Program and ProjectPortfolio Management Practices Roles and Responsibilitiesrsquo ProjectManagement Journal 37(1) 52ndash66

Blomquist T and Muumlller R (2006b) Middle Managers in Program and ProjectPortfolio Management Practices Roles and Responsibilities Newtown SquarePA Project Management Institute

Bontis N Crossan M M and Hulland J (2002) lsquoManaging an OrganizationalLearning System by Aligning Stocks and Flowsrsquo Journal of Management Studies39(4) 437

Business strategy in PM procurement 171

3 If the financial benefit of the RampD investment would achieve aquick payback should the company assume more debt funding togo ahead with them

4 Provided projects (2) (3) (4) (7) and (8) could be funded couldthis choice set be justified as the optimal portfolio

5 What would be the decision steps after the lsquoshort listingrsquo exercise

Bourne L (2005) Stakeholder Relationship Management and the StakeholderCircle Doctor of Project Management Graduate School of Business MelbourneRMIT University

Bourne L and Walker D H T (2004) lsquoAdvancing Project Management inLearning Organizationsrsquo The Learning Organization MCB University Press11(3) 226ndash243

Burgelman R A (1983) lsquoA Model of the Interaction of Strategic BehaviorCorporate Context and the Concept of Strategyrsquo Academy of ManagementReview 8(1) 61ndash70

Cartwright C (2006) The Journey to a lsquoBest in Classrsquo ndash Corporate Project Officemembers P M C Melbourne PMI Melbourne Chapter

Cavaleri S and Seivert S (2005) Knowldege Leadership the Art and Science of theKnowledge-based Organization Oxford Elsevier Butterworth Heinemann

Christenson D and Walker D H T (2004) lsquoUnderstanding the Role of ldquoVisionrdquoin Project Successrsquo Project Management Journal 35(3) 39ndash52

Cooper R G (2005) Product Leadership Pathways to Profitable InnovationNew York Basic Books

Cooper R G Edgett S J and Kleinschmidt E J (1997a) lsquoPortfolio Managementin New Product Development Lessons from the Leaders-2rsquo Research TechnologyManagement 40(5) 43ndash52

Cooper R G Edgett S J and Kleinschmidt E J (1997b) lsquoPortfolio Managementin New Product Development Lessons from the Leaders-Irsquo Research TechnologyManagement 40(5) 16ndash28

Courtney H Kirkland J and Viguerie P (1997) lsquoStrategy Under UncertaintyrsquoHarvard Business Review 75(6) 67ndash81

Crawford J K (2002) The Strategic Project Office New York MarcelDekker AG

Crawford L (2006) Project Governance ndash The Role and Capabilities of theExecutive Sponsor PMOZ ndash Achieving Excellence Melbourne Australia 8ndash11August PMI ndash Melbourne Chapter 1ndash11 CD-ROM paper

Crossan M M Lane H W and White R E (1999) lsquoAn Organizational LearningFramework From Intuition to Institutionrsquo Academy of Management Review24(3) 522ndash537

Eisenhardt K M and Martin J A (2000) lsquoDynamic Capabilities What are TheyrsquoStrategic Management Journal 21 (1011) 1105ndash1121

Elkington J (1997) Cannibals with Forks London Capstone PublishingElonen S and Artto K A (2003) lsquoProblems in Managing Internal Development

Projects in Multi-project Environmentsrsquo International Journal of ProjectManagement 21(6) 395ndash402

Flyvbjerg B (2006) From Nobel Prize to Project Management Getting Risks RightResearch Conference 2006 New Directions in Project Management MontrealCanada 16ndash19 July Project Management Institute CD-Rom flyvbjerg_bent 1ndash17

Flyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and RiskAn Anatomy of Ambition New York Cambridge University Press

Goold M (1996) lsquoDesign Learning and Planning A Further Observation on theDesign School Debatersquo California Management Review 38(4) 94

Grant R M (1996) lsquoToward a Knowledge-based Theory of the Firmrsquo StrategicManagement Journal 17(Winter Issue) 109ndash122

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Greiner L E (1998) lsquoEvolution and Revolution as Organizations Growrsquo HarvardBusiness Review 76(3) 55ndash68

Greiner L E and Schein V (1988) Power and Organisation Development NewYork Addison-Wesley Management

Grisham T (2006) Cross Cultural Leadership Doctor of Project ManagementSchool of Property Construction and Project Management Melbourne RMIT

Hamel G and Prahalad C K (1989) lsquoStrategic Intentrsquo Harvard Business Review67(3) 63ndash76

Heneghan T (2004) The Architectural Review Opera Becomes Phantom (TheSaga of Sydney Opera House) (Book Review) EMAP Architecture 215(1) 95

Ingebretsen M (2003) lsquoWin Project Battles Managers Enlist Project War RoomsrsquoPMnetwork 17 26ndash30

Jewell M and Walker D H T (2005) Community of Practice Perspective SoftwareManagement Tools A UK Construction Company Case Study In KnowledgeManagement in the Construction Industry A Socio-Technical Perspective Kazi AS Ed Hershey PA Idea Group Publishing 111ndash127

Kanter R M (1999) lsquoFrom Spare Change to Real Changersquo Harvard BusinessReview 77(3) 122ndash132

Kaplan R S and Norton D P (1992) lsquoThe Balanced Scorecard ndash Measures thatDrive Performancersquo Harvard Business Review 70(1) 171ndash179

Kaplan R S and Norton D P (1993) lsquoPutting the Balanced Scorecard to WorkrsquoHarvard Business Review 71(5) 134ndash142

Kaplan R S and Norton D P (1996) lsquoUsing the Balanced Scorecard as a StrategicManagement Systemrsquo Harvard Business Review 74(1) 75ndash85

Kaplan R S and Norton D P (1998a) Putting the Balanced Scorecard to WorkIn Harvard Business Review on Measuring Corporate Performance Boston MAHarvard Business School Publishing 147ndash181

Kaplan R S and Norton D P (1998b) Using the Balanced Scorecard as a StrategicManagement System In Harvard Business Review on Measuring CorporatePerformance Boston MA Harvard Business School Publishing 183ndash211

Kendall G I and Rollins S C (2003) Advanced Project Portfolio Management andthe PMO ndash Multiplying ROI at Warp Speed Boca Raton FL J Ross Publishing

Kotter J P (1995) lsquoLeading Change ndash Why Transformation Efforts Failrsquo HarvardBusiness Review 73(2) 59ndash67

Kotter J P (1996) Leading Change Boston MA Harvard Business School PressKPMG (2003) Programme Management Survey ndash Why Keep Punishing Your

Bottom Line General Report Singapore KPMG International Asia-Pacific 20Lawrence T B Mauws M K Dyck B and Kleysen R F (2005) lsquoThe Politics of

Organizational Learning Integrating Power into the 4I Frameworkrsquo Academy ofManagement Review 30(1) 180ndash191

Lehtoned M (2001) Resource Allocation and Project Portfolio Management inPharmaceutical RampD In Project Portfolio Management ndash Strategic ManagementThrough Projects Karlos Artto M M and Taru Aalto Eds Helsinki ProjectManagement Association of Finland 107ndash140

Lewicki R J McAllister D J and Bies R J (1998) lsquoTrust and Distrust NewRelationships and Realitiesrsquo Academy of Management Review 23(3) 438ndash459

Lewicki R J Litterere J A Minton J W and Saunders D M (1994)Negotiation Sydney Irwin

Business strategy in PM procurement 173

Markowitz H M (1991) Portfolio Selection Efficient Diversification ofInvestments Cambridge MA Blackwell

Martino J P (1995) Research and Development Project Selection New York WileyMeyer J P and Allen N J (1991) lsquoA Three-Component Conceptualization

of Organizational Commitmentrsquo Human Resource Management Review1(1) 61ndash89

Mintzberg H (1989) Mintzberg on Management Inside Our Strange World ofOrganisations New York MacMillan

Mintzberg H (1996) lsquoReply to Michael Gooldrsquo California Management Review38(4) 96

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Mintzberg H Pascale R T Rumelt R P and Goold M (1996) lsquoThe HondaEffectrsquo California Management Review 38(4) 80

Morris P W G and Jamieson A (2004) Translating Corporate Strategy intoProject Strategy Newtown Square PA PMI

Morris P W G and Pinto J K Eds (2004) The Wiley Guide to ManagingProjects Series The Wiley Guide to Managing Projects New York Wiley

Murray P (2004) The Saga of Sydney Opera House The Dramatic Story of theDesign and Construction of the Icon of Modern Australia New York Spon Press

Myers I B (1962) Introduction to Type A Description and Application of theTheory of the Myer-Briggs Type Indicator Palo Alto CA ConsultingPsychologists Press

Nelson R R (1991) lsquoWhy Do Firms Differ and How Does It Matterrsquo StrategicManagement Journal 12(Winter) 61ndash75

Norrie J L (2006) Improving Results of Project Portfolio Management in thePublic Sector Using a Balanced Scorecard Approach Doctor of ProjectManagement School of Property Construction and Project ManagementMelbourne RMIT University

Oliver C (1997) lsquoSustainable Competitive Advantage Combining Institutional andResource-based Viewsrsquo Strategic Management Journal 18(9) 697ndash713

Pascale R T (1984) lsquoPerspectives on Strategy The Real Story Behind HondarsquosSuccessrsquo California Management Review 26(3) 47

Peansupap V and Walker D H T (2005) lsquoFactors Affecting ICT DiffusionA Case Study of Three Large Australian Construction Contractorsrsquo EngineeringConstruction and Architectural Management 12(1) 21ndash37

PMI (2003) Organizational Project Management Maturity Model (OPM3)Knowledge Foundation Newtown Square PA PMI

PMI (2004) A Guide to the Project Management Body of Knowledge Sylva NCProject Management Institute

PMI (2006) The Standard for Portfolio Management Newtown Square PAProject Management Institute

Porter M E (1985) Competitive Advantage Creating and Sustaining SuperiorPerformance New York The Free Press

Porter M E (1990) The Competitive Advantage of Nations New YorkFree Press

174 Walker et al

Poskela J Korpi-Fippula M Mattila V and Salkari I (2001) Project PortfolioManagement Practices of a Global Telecommunications Operator In ProjectPortfolio Management ndash Strategic Management Through Projects KarlosArtto M M amp Taru Aalto Eds Helsinki Project Management Association ofFinland 81ndash102

Prahalad C K and Hamel G (1990) lsquoThe Core Competence of the CorporationrsquoHarvard Business Review 68(3) 79ndash91

Quinn J B (1992) lsquoThe Intelligent Enterprise a New Paradigmrsquo Academy ofManagement Executive 6(4) 48ndash64

Rad P (2001) lsquoIs Your Organization a Candidate for Project Management Office(PMO)rsquo AACE International Transactions PM0701ndash04

Rad P F and Levin G (2002) The Advanced Project Management Office AComprehensive Look at Function and Implementation Boca Raton FL St LuciePress imprint of CRC Press

Schumpeter J A (1934) The Theory of Economic Development An Inquiry IntoProfits Capital Credit Interest and the Business Cycle Cambridge MAHarvard University Press

Shaw G Brown R and Bromiley P (1998) lsquoStrategic Stories How 3M isRewriting Business Planningrsquo Harvard Business Review 76(3) 41ndash50

Shenhar A J and Dvir D (1996) lsquoToward a Typological Theory of ProjectManagementrsquo Research Policy 25(4) 607ndash632

Shenhar A J Dvir D and Shulman Y (1995) lsquoA Two-Dimensional Taxonomy ofProducts and Innovationsrsquo Journal of Engineering and Technology Management12(3) 175ndash200

Snowden D J (2006) lsquoStories from the Frontierrsquo ECO 8(1) 85ndash88Spender J-C (1996) lsquoMaking Knowledge the Basis of a Dynamic Theory of the

Firmrsquo Strategic Management Journal 17(Winter Issue) 45ndash62Spender J-C and Grant R M (1996) lsquoKnowledge and the Firmrsquo Strategic

Management Journal 17(Winter Issue) 5ndash9Strogatz S H (2003) Sync The Emerging Science of Spontaneous Order

New York THEIA Hyperion BooksTeece D Pisano G and Shuen A (1997) lsquoDynamic Capabilities and Strategic

Managementrsquo Strategic Management Journal 18(7) 509ndash533Turner J R (1999) The Handbook of Project-based Management Improving the

Processes for Achieving Strategic Objectives London McGraw-HillTurner J R (2006) lsquoTowards a Theory of Project Management The Nature of the

Project Governance and Project Managementrsquo International Journal of ProjectManagement 24(2) 93ndash95

Turner J R and Cochrane R A (1993) lsquoThe Goals and Methods Matrix Copingwith Projects With Ill-defined Goals andor Methods of Achieving ThemrsquoInternational Journal of Project Management 11(2) 93ndash102

Turner J R and Muumlller R (2003) lsquoOn the Nature of the Project as aTemporary Organizationrsquo International Journal of Project Management21(3) 1ndash8

van Eijnatten F M and Putnik G D (2004) lsquoChaos Complexity Learning andthe Learning Organization Towards a Chaordic Enterprisersquo The LearningOrganization MCB University Press 11(6) 418ndash429

Business strategy in PM procurement 175

Weick K E (1989) lsquoTheory Construction as Disciplined Imaginationrsquo Academy ofManagement Review 14(4) 516ndash531

Weick K E (1995) Sensemaking in Organizations Thousand Oaks CA SageWinch G M (1998) lsquoZephyrs of Creative Destruction Understanding the

Management of Innovation in Constructionrsquo Building Research amp Information26(5) 268ndash279

Wind J Y and Main J (1998) Driving Change ndash How the Best Companies arePreparing for the 21st Century London Kogan Page

176 Walker et al

Chapter 6

Performance measures andproject procurement

Derek HTWalker and Kersti Nogeste

Chapter introduction

Projects are procured to fulfil one or more project outcomes Chapter 2referred to a range of project types and their characteristics and a discussionof project vision and how it can be used to determine what is expected to bedone and how to do it Chapter 3 discussed the importance of stakeholdersand identifying their expected project outcomes and also how developingtechniques and processes to address these should shape performancemeasures and provide an effective mechanism to engage with themIn Chapter 4 we discussed triple-bottom-line (TBL) concepts ethics andgovernance and the governance model presented in Figure 41 of that chapterillustrates how performance measures can be linked to accountability andtransparency and the way that disclosure to stakeholders of how the projectis to be delivered was to be performed Chapter 5 discussed how strategy isthe starting point in working out what gaps exist between a current value-generating situation and maintaining sustainable existing value or generatingnew value Chapter 8 discusses how learning and innovation are dependenton feedback and consequently how project performance measures canprovide crucial (feedback) knowledge to enhance an organisationrsquoscontinued success

Figure 61 illustrates the basis for this chapter Project performancemeasures should be defined to reflect the full complement of project stake-holdersrsquo expected project outcomes ndash both tangible and intangible Well-defined performance measures will comprise a combination of lag and leadindicators which satisfy audit and control requirements and also providethe basis for continuous quality improvement

This chapter deliberately avoids detailed discussion on traditional projectperformance techniques relating to time cost and quality planningmonitoring and control because they are adequately addressed in manyother texts on project control (Cleland and King 1988 Harris andMcCaffer 1995 Turner 1999 Cleland and Ireland 2002) Instead we takea more holistic view of how project performance measurement can be

defined to align with stakeholdersrsquo expected project outcomes This chapteris therefore structured as follows

The following section discusses the concept of project success and how itmay be measured This involves a brief discussion of several tools that haveemerged over the past decade or two especially those related to a balancedscorecard approach that recognises lsquohardrsquo and lsquosoftrsquo measures The lsquoA moresophisticated view of successrsquo section discusses lsquointangiblersquo outcomes in par-ticular The last section discusses how capability maturity models are relatedto project performance measures

The prime objective of this chapter is to demonstrate how stakeholder-based definitions of project performance can be used to define projectprocurement performance specifications for both tangible and intangibleoutcomes Outcomes include the full complement of benefits or value whichis often delivered but poorly defined monitored and reported upon Inaddition this chapter will help readers to understand how procurementchoices might incorporate performance measures that drive improved internaland supply chain team quality and innovation cultures Encouraging andfacilitating these cultures through shaping project procurement choices maythen lead to improved effectiveness and efficiency in delivering value

The concept of project success

There has been a lot of interest in the concept of project and PMsuccess Anton de Wit (1988) distinguishes between project success and

178 Walker and Nogeste

Figure 61 Basis of the chapter

What issuccess

Oranisationalperformance

needs

Clientrsquosperformance

needs

Societyrsquosperformance

needs

Identifiedexternal stakeholder

performanceneeds

Projectperformance

measures

Performancecommunication

processes

Performancemonitoringprocesses

How do wemeasuresuccess

Project control

Stakeholder performance needs

PM success He states that project success is judged by the degree to whichproject objectives have been met We can extend this distinction to arguethat a successful project also delivers outcomes which provide the potentialfor benefits and that successful PM sustains or enhances the value of aprojectrsquos objectives

PM success refers to the extent to which efficiency-focused PM processesare applied It is important to note that PM success cannot compensate foran organisation choosing the wrong problem to solve or for poor projectdefinition and design (as indicated in Figure 12) The choice of the wrongproblem to solve may be due to a number of factors including the projectsponsorrsquos own personal motivations We discussed the cognitive school ofstrategy in Chapter 5 which included examples provided by FlyvbjergRothengatter and Bruzelius (2003) of project strategies based on poorlydefined or suspect project sponsor motivations

The concept of PM success has evolved over time Early literatureequated outputs with success primarily in terms of time cost and qual-ity standards (de Wit 1988) This then evolved to a broader definition ofPM success including scope management stakeholder management com-munication management the linking of causes and effects and theproven ability to learn from experience (Cooke-Davies 2002) PM suc-cess has also been defined through a process lens focused on project lead-ership and coordination spanning the project phases of conceptionplanning production and handover (Munns and Bjeirmi 1996) Morerecently the concept of PM success has evolved to include the definitionand alignment of expected project outcomes and outputs includingintangible outcomes and tangible outputs (Nogeste 2004 Nogeste andWalker 2005) The definition and alignment of expected project out-comes and outputs will be discussed in more detail later in this chapterPM success has also been defined by relating an organisationrsquos PM matu-rity to capability maturity models (CMMs) (Ibbs and Kwak 2000 PMI2003 Cooke-Davies 2004)

In a widely cited PM paper Baccarini (1999) outlines how the LogicalFramework Method (LFM) an approach developed in the 1970s by theAmerican Aid Agency may be applied to defining project success and howit can lead to the development of a balanced approach to measuring projectperformance The LFM traces the links between goal purpose outputs andinputs The project goal is understood to be the overall orientation andalignment with the organisationrsquos strategic direction The project purposedescribes the near-term effects upon stakeholders outputs are specifictangible results and deliverables and inputs are the resources and activitiesused to deliver the outputs Baccarini describes the LFM as a howndashwhylogic chain where the relationship between the project objectives are trans-parently presented ndash the lsquohowrsquo describing the means and the lsquowhyrsquo the endsProject success is defined by starting with the project goals and asking howthey can be achieved ndash thus generating a description of the project purpose

Performance and project procurement 179

Asking in turn how the purpose will be achieved generates a description ofthe project outputs and again asking how the outputs will be achievedgenerates a description of the necessary project inputs Working in reverseorder from project inputs through project outputs purpose and goals thelogical basis for a project can be defined by asking the question lsquowhyrsquo ateach step in the logic chain

A more sophisticated view of success

Projects may meet one or more of the following needs as outlined by de Wit(1988 166)

1 A functional reason drsquoecirctre such as responding to a commercialopportunity or delivering necessary infrastructure In these casesthe project

a will work and should pay for itselfb is justified on the basis of engineering and economic rationale andc performance measures will include economic and technical such

as fitness for purpose

2 A prestige need based on the overriding logic that the project is toboost the ownerrsquos brand image (examples being the Eiffel Tower or theSydney Opera House ndash both of these may create large amounts oftangible and intangible value simply through their existence) In thesecases the project

a Will be judged on political criteriab Is justified on the basis of ephemeral rationale such as pride

spiritual uplifting and the expected long-term intangible benefitsfrom the project generating culturally transformational icons

c Performance measures will most probably include political andperception-oriented criteria such as popularity increased standingenhanced reputation or even the increased power of sponsors and

3 A research need that is based on pure or applied research projects suchas medical research or experimental projects In these cases the project

a Will be judged according to how well it provides a platform forfuture pure or applied research initiatives

b Is justified on the basis of reaching a solution to a complex problemthat satisfies key stakeholders (even though goals and targets maybe somewhat unclear at the outset of the project)

c Performance measures will most likely focus on the developmentof absorptive capacity and enhanced agility to react to newopportunities (see Chapter 8 for further discussion on this aspect)

180 Walker and Nogeste

Other categories of projects could also be added Nevertheless the point isthat project success is closely tied to motive and need and as Flyvbjerg et al(2003) stress motivation should be expressed as transparently as possibleto help resolve any conflicts of interest at the pre-feasibility and feasibilitystages of a project Standard project performance measures of time costand quality should not automatically be given highest priority Insteadproject performance measures need to accurately reflect the lsquotruersquo priorityof stakeholdersrsquo expected project outcomes both tangible and intangible

As discussed in Chapter 2 of this book Shenhar et al have undertakenmuch work to define different types of projects Of particular interest istheir relatively sophisticated association of the four dimensions of successwith the time frame of expected results which is based on their argumentthat lsquoproject success planning should be an integrated portion of the organi-sationrsquos strategic thinking and strategic managementrsquo (Shenhar et al 2001b719) Table 61 illustrates and comments on several emergent successdimensions the way that they may be measured and comments upon thesemeasures This table illustrates the presence and the degree of attainment ofthe highlighted emergent success dimensions together with comments onthese measures (Shenhar et al 2001b 712)

Figure 62 adapted from Shenhar et al (2001b 717) illustrates the asso-ciation of the four (4) dimensions of success with the time frame of expectedresults Dimension 1 has the short-term goal of project efficiencyDimension 2 has the medium-term goal of customer success Dimension 3has the long-term goal of business success and Dimension 4 has the verylong-term goal of preparing for the future Figure 62 indicates a relativelyhigh concern for project efficiency and customer impact whilst only mod-erate importance is placed upon business success with virtually no impor-tance placed upon actively preparing for the future Shenhar et al suggestthat this framework can be used as the basis for defining project perfor-mance success measures for different types of projects

The concept of success would not be complete without understanding therole of a project vision that translates into a mission statement and explicitobjectives There are numerous well-publicised examples of failed projectsThe Standish Group have reported numerous examples of failed IT projects(1994 2003) In a recent book the founder and chairman of the StandishGroup presents 10 lessons learnt on the basis of the Grouprsquos experience andmany case studies (Johnson 2006) Two of these lessons learnt are of directrelevance to this chapter First that of having a clear vision and secondthat of having a well-primed project champion One of the more spectacu-lar project failures is the London Stock Exchange Taurus project wherepoor project vision led to massive scope creep and subsequent classical case-book failure resulting in the project being cancelled after spending pound500million (Drummond 1998) The failure of Project Taurus is attributed to anumber of reasons including poor stakeholder management and the

Performance and project procurement 181

Table 61 Emergent success dimensions

Success dimension Measures Comments

1 Project efficiency Meeting schedule goal Goals need to be realistic If Meeting cost goal lsquostretch goalsrsquo are to be used

then they need to be definedclearly along with theconsequences of meetingthe goals only part way

2 Impact on the Meeting technical Many of these relate tocustomerstakeholder specifications orthodox quality measures

Meeting functional and can be addressed usingperformance total quality management

Solving a customerrsquos (TQM) philosophicalproblem approaches

Fulfilling customer needs Shenhar et al (2001b) refer to Customerrsquos use of the customers defining project

project product success However as noted Customer satisfaction in Chapter 3 a variety of Meeting intangible needs stakeholder groups can Meeting unarticulated influence the perception of

needs project successThereforethe relevant stakeholdergroups need to be clearlyidentified along with theirrespective success criteria

Consideration also needs tobe given to clearly definingexpected intangibleproject outcomes

Effort must be expended toclearly articulate as manyexpected outcomes aspossible Otherwiseunarticulated expectationsmay not be addressed

3 Business success Commercial success While commercial success is Gaining increased important authors such as

market share Shenhar et al (2001b) ignorethe situation where someorganisations may chooseto limit themselves to aparticular niche market

4 Preparing for the Developing a new Shenhar et al (2001b)future technology identified that these types

Creating a new product of measures have been Creating a new market relatively poorly represented

in the relevant body ofliterature

inability to effectively and accurately gauge how well project objectiveswere being met

A project first needs to have a clear vision of the transformation that it isexpected to achieve and how it will add value Development of a vision byinteracting with stakeholders is discussed in depth in Chapter 3 What isrelevant here is that a clear and unambiguous vision be developed andcommunicated to all project participants so that the image of success isclear in the minds of all concerned with the project On at least onereported project a clear image of success kept the project team and stake-holders focused upon achieving success ndash even when PM processes werebeing poorly applied (Christenson and Walker 2003) A project visionstatement can be assessed according to how easy it is to understandwhether it is motivational inspirational credible promotes workingsmarter and specifies stretch goals (Christenson and Walker 2003 50)Project vision statements should be translated into specific mission statementsthat explain how the vision will be transformed into reality The missionstatements should clearly define project goalsobjectives Cascading fromthe vision mission and objectives will be the detailed specification of theproject composition and the methods and processes that will be used torealise the project These methods and processes can include the definitionand alignment of expected project outcomes with project outputs (Nogesteand Walker 2005 Nogeste 2006a)

Performance and project procurement 183

Figure 62 Relative importance dimensions of project success Adapted from Shenhar et al(2001b 717) with permission from Elsevier

4-Prepare for the future

3-Business success

2-Impact on customer

1-Project efficiency

Projectcompletion

Shortterm

Mediumterm

Longterm

Timeframe

Future

In the short- to medium-term view after project completion there is very highimportance on project effiency and customer impact moderate importance of

business success and no importance of preparing for the future

Low

Mod

erat

eR

elat

ive

impo

rtan

ceH

igh

A balanced scorecard (BSC) approach

For about 50 years it has been known that there is a need to clarify the linksbetween a broad range of performance indicators and productivity (Likert1958) The value of a balanced approach to highlighting performancemeasures and linking these to the projectrsquos objectives and organisationalvision has been more recently demonstrated on commercial projects (Norrieand Walker 2004) and not-for-profit projects (Norrie 2006) The principaladvantage shown by using this approach was that a clear and significantcause-and-effect link between the PM methodology adopted and the goalsand vision is achieved This achieves the same level of clarity between a goaland its rationale as was noted earlier with the LFM During the early 1990sin particular the literature began to acknowledge the short-sightedness andlack of cause-and-effect clarity between inputs and performance As Eccles(1991 134) argues lsquodeveloping a coherent companywide grammar isparticularly important in the light of an ever-more stringent competitiveenvironmentrsquo Eccles also highlighted how short-term (often lagging)indicators represented by financial performance measures can skewperceptions of performance Companies need to report on leadingperformance indicators that illuminate the cause-and-effect links betweeninputs and outcomes

Robert Kaplan and David Norton introduced the ideas of a BSC in theearly 1990s They recognised the value of leading indicators and successfullydeveloped and operationalised these into a BSC tool that became widelyknown and used The BSC comprises the following four elements (Kaplanand Norton 1992 72)

1 the financial perspective that poses the question lsquohow do we look toshareholdersrsquo

2 the internal business perspective that poses the question lsquowhat must weexcel atrsquo

3 the innovation and learning perspective that poses the question lsquocan wecontinue to improve and create valuersquo and

4 the customer perspective that poses the question lsquohow do customerssee usrsquo

A small number of critical goals are defined for each of these perspectivesalong with associated measures For example Kaplan and Norton describethe financial perspective of a case study example as having three goals ndash tosurvive (measured by cash flow) to succeed (measured by quarterly salesgrowth and operating income by division) and to prosper (measuredby increased market share and return on investment) In addition theinnovation and learning perspective of a case study example had four goals ndashtechnology leadership (measured by time to develop the next generation)manufacturing learning (measured by process time to maturity) product

184 Walker and Nogeste

focus (measured by percentage of products that equal 80 of sales) andtime-to-market (measured by new product introduction versus competi-tion) (Kaplan and Norton 1992 76)

Kaplan and Norton also described how vision strategy and a BSC couldbe linked providing the example of how Rockwater (a part of Brown ampRootHalliburton) and Apple used the BSC to plan long-term performance(Kaplan and Norton 1993) During the mid-1990s Kaplan and Nortonexpanded their BSC methodology beyond objectives and measures to alsoinclude targets and initiatives This led to the BSC becoming both a strategicand operational instrument (Kaplan and Norton 1996) able to be used forproject performance management More recently Kaplan and Norton havefurther developed the BSC into a strategy mapping tool that can be used tospecify goals in terms of plans and initiatives Kaplan and Nortonrsquos StrategyMaps have helped to further clarify cause-and-effect links (Kaplan andNorton 2000 2004c) which is particularly useful when seeking support forinitiatives that are linked to leading performance indicators The combinationof cause-and-effect links and leading performance indicators allowed Kaplanand Norton to include the definition of intangible assets within StrategyMaps including the use of traffic light reporting to graphically representperformance (Kaplan and Norton 2004a)

While Kaplan and Norton were working on the whole-of-businessperspective others were applying these ideas to project environments forexample in IT and ICT projects (Stewart and Mohamed 2001 Stewartet al 2002 2004) Stewart (2001) describes how the BSC was applied ona case study project to evaluate project health (based on the project phasesof initiationconceptualisation planning implementation execution andcloseout) In addition Norrie (2006) describes how the BSC was used by arange of not-for-profit projects to filter project proposals and cull non-strategic projects resulting in the realignment and reassignment of scarceresources to strategic projects

By improving project monitoring communication and control Kaplanand Nortonrsquos BSC has clearly been shown to be of value to both in-houseand outsourced projects

Hypothetical example of a BSC

TheSource PL is an organisation that helps local councils within a denselypopulated region of Australia to source sub-contractors suppliers and skilledcontract management staff for small-scale projects ranging from constructionand maintenance that many builders or facilities management organisationsmay not be interested in through to sports events product launches andproduction of marketing and community interaction communication servicesThe stated vision of TheSource is lsquoTo provide local council organisations witha best-in-class level of procurement decision-making infrastructure supportrsquo

Performance and project procurement 185

The organisationrsquos mission is lsquoTo maintain knowledge and intelligence ofhow to deliver best-in-class procurement decision-making infrastructuresupport and to continue to deliver that level of service to local councils whodo not have the background or resources to do sorsquo The organisationrsquos keyobjectives are as follows

1 to remain a sustainable and viable business so that they can delivertheir mission

2 to develop and maintain business processes to support their missionwhich are at least equal to best-in-class procurement support infra-structure in the best resourced PM organisations

3 to ensure access to knowledge about best-in-class innovations thatensure that the organisation continuously learns from the experience ofitself and best-in-class PM organisations and

4 to maintain a commitment to delighting customers and other stake-holders with the results of service delivery whilst also maintaining acommitment to continuous improvement

TheSource started its journey with a handful of experienced senior managerswho were retrenched during the mid-1990s from a large city council whencost cutting demanded a drastic head-count reduction These foundingmembers had experience in building and maintenance event management ITand social service delivery All founding members had gained tertiary-levelacademic qualifications and remained passionate about learning andinnovation The founding members also had a strong social consciousand strong belief in the value of the TBL They especially wished to assistsmaller councils that did not have broad business and environmentalsustainability skills to offer their communities public services and facilitiesthat met TBL goals The founding members of TheSource formed a collectivethat evolved over a two-year period into a consultancy organisation similarto the TGC organisation described in Chapter 8 (Miles and Snow 1995Miles et al 2005) As part of their commitment to maintain and improvetheir service delivery core members of TheSource conducted a series ofstakeholder workshops to investigate stakeholdersrsquo needs and identify gapsin the existing service delivery process and systems Following the workshopTheSource core staff developed a strategic plan which included the definitionof a small number of critical objectives for each of the four BSC perspectivesalong with a matrix of goals measures targets and corresponding initiativesThe matrix was validated by reviewing it with the most articulate stake-holders A sample BSC is presented in brief in Figure 63

When defining goals it is important to focus on lsquothe critical fewrsquo (Murrayand Richardson 2000) Based on interviews with key executives froma sample of 20 organisations from large companies (some being subsidiariesof global corporations) operating in Canada Australia and Chile about theirstrategic planning and performance measurement practices Murray and

186 Walker and Nogeste

Richardson concluded that successful strategy implementation was morelikely to occur when organisations and staff concentrated on the critical fewhigh-impact initiatives Their findings can be considered to be quite logicalsince a long lsquoshopping listrsquo of initiatives would prove to be quite distractingand overwhelming with the potential for people to focus on what they wantto do rather than necessarily tackling high-impact initiatives In addition inan environment comprising many concurrent initiatives it may prove almostimpossible to track the true impact of each initiative

The aim therefore should be to identify and analyse difficult performanceissues into a consolidated list of the top 3 or at most top 5 ranked andprioritised issues This allows the organisation to maintain focus on thecritical few issues that matter most to business sustainability and more easilyrecognise cause-and-effect loops between the measure and a sustainableoutcome It is worth noting that the definition of lsquofewrsquo is context sensitiveand therefore should be determined according to the number of initiativesrequired to achieve an organisationrsquos vision mission and goals Table 62provides an example of how TheSource defined its learning and growthperspective in terms of the initiatives that would be implementedmonitored and reported upon

As a result of their strategic planning exercise TheSource defined 2ndash3initiatives per year per BSC perspective This was done with the expectationthat as the whole group of engaged stakeholders (including TheSource staff)became familiar with this approach the number of improvement initiativescould be increased and the measures targets and initiatives would becomebetter articulated and designed forming a virtuous circle of improvement

Performance and project procurement 187

Figure 63 BSC showing strategy and high-level objectives

To ensure that its customers andstakeholders are not only delightedwith the results from their expected

service delivery from us but thatour knowledge transfer of what is

possible allows them to lead avirtual spiral of continuous sustainable

improvement in service delivery

Customer

To develop and maintainbusiness processes to supporttheir mission that can deliverat least equal to best-in-class

procurement supportinfrastructure in the most

well-resourced PM organisations

Internal business process

Learing and growth

Vision

Financial

To ensure access to knowledgeabout best-in-class and to

enact innovations that ensurethat it continuously learns from

the experience of itselfand best-in-class PM organisations

To remain a sustainable andviable business so that

they can deliver their mission

To provide local councilorganisations with a

best-in-class level of procurementdecision making

infrastructure support

Ta

ble

62

Illus

trat

ion

of le

arni

ng a

nd g

row

th p

ersp

ectiv

e

Goa

lPur

pose

Mea

sure

Targ

etIn

itiat

ive

To a

chie

ve o

ur g

oal

how

Goa

lTo

eng

age

our

Num

ber

(n)

and

qual

ity3

cher

ry p

icki

ng in

itiat

ives

Che

rry

pick

ing

will

we

sust

ain

our

abili

tyst

akeh

olde

rs in

a p

roce

ss(1

ve

ry lo

w5

ve

ryw

ith lo

w im

pact

as

a tr

ial

1 ndash

esta

blis

hing

the

to

cha

nge

and

impr

ove

of fe

edba

ck im

prov

emen

thi

gh)

inte

nsity

with

in fi

rst

6 m

onth

sw

ithfo

rmat

of d

etai

ls a

bout

a

thro

ugh

join

t le

arni

ngIm

pact

sca

lei

mm

edia

cyndash

3 hi

gh-in

tens

ive

beta

ver

sion

info

rmat

ion

wor

ksho

ps(1

1ndash

2 ye

ars

to 5

fu

ndam

enta

l exe

rcis

esba

se o

n pl

umbe

rs

Purp

ose

To le

ad t

o ac

tual

with

in 1

ndash2 m

onth

s)in

sec

ond

6 m

onth

sel

ectr

icia

nsa

ndim

prov

emen

tIm

prov

emen

t sc

ope

ndash jo

bbin

g bu

ilder

s(1

ch

erry

pic

king

2

ndash in

cent

ive

syst

em t

rial

ea

sy s

ucce

sses

to

5

that

hel

ps p

eopl

e m

ake

tack

ling

fund

amen

tal

sens

e of

iden

tifie

d ef

fect

ive

deliv

ery

flaw

s)co

mpe

titiv

e ad

vant

age

know

ledg

e

Performance and project procurement 189

Figure 64 illustrates the process that was followed It must be acknowledgedthat TheSource was established under relatively unusual circumstances Asredundant employees from several councils the founding members hadalready developed considerable social capital in the form of trust andrespect intimate customer knowledge and process knowledge gained byworking for their previous employers who had now become their clientsSimilarly the founding members had developed considerable social capitalwith their supply chain including people they had previously contracted viatheir employer-councilsrsquo relatively bureaucratic procurement processesTherefore the founding members had a ready pool of stakeholders willingto work with them to develop and implement lsquoa new way of doing businessrsquoStakeholder discussions varied from the more formal to the less formal andspontaneous in quasi-social settings Because core staff had a community-centric ideology and focus they frequently met stakeholders in socialsettings where the topic of conversation naturally flowed towards feedbackand validation of their projects Therefore their combined forms of stake-holder engagement resembled an action learning research project (Peters1996 Peters and Smith 1996 Coghlan 2001 Smith 2001 Zuber-Skerritt2002 Coghlan and Brannick 2005)

After five years TheSource occupied a niche market being awardedmany small works projects without a need to tender for work The openbook policy and open mind approach adopted by TheSource allowed theirclients to satisfy all reasonable probity requirements and while the companyincome was not excessive (key staff earned about 20ndash30 more than theywould have had they remained in their council positions) the organisationhad built up considerable knowledge capital Staff members continued tomaintain and develop relationships with their clients and supply chain

Figure 64 Typical BSC operationalisation cycle

feedback

draft

validate

Stakeholderworkshop to unearth

issues

DevelopVISION missionkey objectives

Internalstaff input

Stable finalisedVISION missionkey objectives

Identify andoperationalise the

lsquocritical fewrsquo

Broadstakeholder

input

Monitorand review

Refine

Activate

OperationalisedBSC

In addition process improvement initiatives resulted in much previously tacitknowledge being made explicit TheSource now has a formidable lessons-learned knowledge base comprising an ICT web portal (see Chapter 7) awell-supported and ICT-enabled COP (see Chapter 8) and sophisticatedprocess knowledge Since its inception more than ten years ago TheSourcehas re-engineered and fine-tuned its business processes and systems to apoint which would be nearly impossible to imitate without relatively largeinvestments in time money and expertise On this basis the organisationrsquosvision of business sustainability expressed in terms of its own position inrelation to its competitors has been realised In addition TheSource hasalso accumulated stores of lsquogoodwillrsquo that have become tangible in terms oftheir being the first organisation to be contacted by many councils forsmaller projects and also an increasing number of larger and more complexprojects This situation has resulted in TheSource now competing withsignificant PM and Facilities Management operators

Interestingly with their move into the sphere of larger and more complexprojects TheSource was approached by some of its lsquonew competitorsrsquoto franchise TheSource business model Franchise-related negotiationscurrently under way indicate that TheSource is an organisation that isworth many millions of dollars

This hypothetical case study illustrates how the BSC when linked tobusiness strategy and a strong upstream and downstream value chain focuscan provide a vehicle for both a quality culture and innovation culture BSCmeasures can be used to make internal procurement and PM activityperformance more transparent as well as more focused on sustainabilityUsed as a reporting tool the BSC allows clients to gain a better appreciationof all the value elements When designing reward systems the BSC alsoallows probity requirements to be clearly addressed

Particular aspects of this hypothetical case study lead into the nextsection of this chapter which focuses on the improved identification anddefinition of tangible and intangible project outcomes

Fully realising value ndash from tangiblesand intangibles

Since the early 1990s when Kaplan and Norton were developing andpublishing their ideas about a BSC there has been a veritable explosion ofideas about the true nature of value ndash perhaps in support of the economicrationalist debate or perhaps providing an alternative view

In parallel with Kaplan and Nortonrsquos ongoing development of the BSCand Strategy Maps there was a movement under way in Scandinavia andthe UK The Scandinavians had a particular interest in the generation ofsocial capital value through cooperation knowledge sharing and caringabout human workplace issues Karl Erik Sveiby (1997 11) compared

190 Walker and Nogeste

the visible and invisible and tangible and intangible parts of a balancesheet He classified invisible intangible assets into three categories externalstructure (brands customer and supplier relationships) internal structure(an organisationrsquos management legal and relationship structureprocedures and processes IT research and development initiativespatentable ideas and corporate knowledge or memory) and individualcompetence (education experience personal networks and so on) Sveibydescribed how the difference in the total share price (market) value and thebook value of a firm can be partially (if not substantially) explained byintangible assets

Other parallel efforts in Scandinavia included the development of Skandiarsquosintellectual capital (IC) navigator (Edvinson 1997) and the definitionof intellectual capital by Roos and Roos (1997) as comprising organisationalrelationship and human resources

Another strand of related work in the UK was generated by the accountingprofessions (Neeley 2002 Neeley et al 2002) This work was based on thegrowing interest in the TBL concept (Elkington 1997) and acknowledgementthat balance sheets were limited to providing information about laggingperformance indicators

Fully realising project value ndash from tangibleand intangible outcomes

The importance of an organisationrsquos tangible and intangible assets combinedwith projects being procured to implement organisational strategy leads tothe need for stakeholders to align the strategic importance of tangibles andintangibles through to the project level (refer Figure 65) One means ofdoing so is for project stakeholders to use the Outcome ProfileTM template1

Performance and project procurement 191

Figure 65 Using Outcome ProfileTM templates to document the strategic alignmentof tangibles and intangibles through to the project level

BenefitBenefitBenefit

BenefitBenefitBenefit

Strategic organisationl objectives

Project objectives

IntangibleProjectOutcomes

IntangibleProjectOutcomes

Outcome profile

Project outputs

Project activities and resources

192 Walker and Nogeste

to guide them through the process of defining tangible and intangibleproject outcomes (Nogeste 2006b)

The Outcome ProfileTM template comprises the following subheadingseach for the described purpose

Outcome name

A commonly agreed descriptive Name for the expected outcome

Outcome description

A clear and common description of the expected outcome

Outcome realisation time frame

Specification of the outcome realisation time frame ensures a clearand common understanding of when the outcome can reasonably beexpected to be realised ndash either during or after the project

Outcome Owner

The Outcome Owner is assigned responsibility for the realisationof the outcome If the outcome is to be realised some time aftercompletion of the project then it is impractical to assign the respon-sibility to the Project Manager

Benefits

The Benefits of an Outcome are described in terms of the advantagesprovided by the outcome (Ward et al 2004 7) ndash the underlyingreasons for pursuing the outcome

Whilst outcomes and benefits are often confused with each other(Ward et al 2004 8) they are different Benefits are only able to berealised as a result of an lsquoobservable outcomersquo ndash lsquothe outcome isneeded for the benefit to be realisedrsquo (Ward et al 2004 54) Forexample if an outcome of an Information Technology project is thatpersonnel are able to do their work more quickly freeing up timethen the ensuing benefit is lsquowhat is actually done with the time that isfreed up since clearly if managers do not find ways to utilise the timereleased then no benefit will materialisersquo (Ward et al 2004 8) lsquoOnlywith the conscious intervention of managersrsquo will an outcome yieldbusiness benefits (Ward et al 2004 8)

Performance and project procurement 193

In some cases project stakeholders may also wish to define potentialdisbenefits This will help project stakeholders to agree that thepotential disbenefits lsquoare a price worth paying to obtain the positivebenefitsrsquo (Ward et al 2004 15)

Benef iciaries

The recipients of the benefits (or disbenefits)

Success Criteria

It is important to explicitly define Success Criteria especiallyto avoid multiple and possibly contrary definitions of projectsuccess Project stakeholders may define success in different ways(Shenhar et al 2001a 716) by referring to different sets of data oreven when referring to the same set of data interpret it differentlyaccording to their particular perspective (Rad 2003) In additionto interpreting data differently lsquothe success rating of a projectmay also differ according to subjective individual judgementrsquo(Dvir et al 2002)

Success Criteria may be defined in either quantitative or qualitativeterms It is currently considered acceptable to define the SuccessCriteria of intangible outcomes in terms of lsquo ldquoguesstimatesrdquo backed upwith explanations of assumptionsrsquo (Keen and Digrius 2003) sincelsquoit is better to be approximately right rather than absolutely wrongrsquo(Andriessen and Tissen 2000) This is an approach which is inkeeping with Kaplan and Nortonrsquos findings that lsquoeven if the measures(of intangible assets) are imprecisersquo the simple act of attempting togauge them lsquocommunicates the importance of these drivers for valuecreationrsquo (Kaplan and Norton 2004b)

Outputs

Aligning an outcome with its associated outputs defines the need forthe project to generate particular outputs an approach which isconsistent with the UK Treasury Departmentrsquos Green Book whichdescribes outcomes being able to be expressed in terms of outputs(HM Treasury 2003 13)

In addition it is important to define which outputs areare notwithin the scope of the project For example if a project is to gener-ate a signed contract the generation of a contract renewal may be anoutput to be delivered after completion of the project

Using the Outcome ProfileTM template to define expected project outcomesbenefits and outputs in business outcome vocabulary will increase the likeli-hood of procuring successful projects because the use of this vocabularymaintains a focus on (business) outcomes rather than (project management)processes (Dallas 2002) This is an especially important information to pro-vide to project managers and project teams given the results of recentresearch studies which have identified that lsquoProject managers infrequentlytie project management outcomes to corporate business outcomesrsquo (Phelan2004)

The following three-step method can be used to complete the OutcomeProfileTM template

Step 1 ndash plan and conduct a stakeholder workshopStep 2 ndash document the workshop reportStep 3 ndash use the workshop report as a key input to project planning

review

The purpose of each of these key steps is as followsStep 1 ndash plan and conduct a stakeholder workshopThe purpose of the workshop is for a selected group of project stakeholders

to use the Outcome ProfileTM template to identify prioritise and defineexpected tangible and intangible project outcomes

Step 2 ndash document the workshop reportThe workshop report comprises a number of sections including each

expected project outcome defined according to the Outcome ProfileTM

template an outcomesoutputs cross-reference matrix (refer Figure 66) andany additional notes recorded during the workshop

194 Walker and Nogeste

Dependencies

The successful realisation of an outcome its benefits and outputs willbe dependent on a number of factors that need to be clearly definedand documented as dependencies

Risks

The successful realisation of an outcome its benefits and outputs willbe subject to a number of risks which need to be identified andassessed along with corresponding mitigationcontingent actions whichwill need to be incorporated into the project plan A good startingpoint for risk identification is to examine the risks associated withpreviously defined dependencies

The outcomesoutputs cross-reference matrix highlights the relationshipbetween project outcomes and outputs This cross-reference table illustratesthe potential for one output to affect multiple outcomes (Department ofFinance and Administration 2003a) and prevents the situation where therelationship between outputs and outcomes is a lsquomatter of judgementrsquo(Department of Finance and Administration 2003b)

Step 3 ndash Use the workshop report as a key input to project planningreviewThe workshop report comprising the completed Outcome ProfileTM

templates outcomesoutputs cross-reference table and any additional work-shop notes are used by the project manager to planreview the project plan

For example

1 The completed Outcome ProfileTM templates are used to define theproject scope and schedule in terms of the project outputs and theactivities and resources required to generate them

2 The outcomesoutputs cross-reference table provides a project reportingframework whereby the progress of individual outputs can be relatedto the delivery of related outcomes

3 The individual Outcome ProfileTM detailed risk assessments arecombined to become the basis of the project risk register

4 IssuesAction Items identified during the workshop and documentedin the workshop report become the basis of the project issuesactionitems register

Whilst relatively simple in structure this three-step process for completing theOutcome ProfileTM template requires significant energy and rigour It relies

Performance and project procurement 195

Figure 66 Outcomeoutput cross-reference matrix

Output Name Outcome Outcome Outcome Outcome Outcome

1 2 3 4 n

Outputs Within the Scope of the

Project

Outputs Outside the Scope of the

Project

upon what Peter Senge (1990) refers to as dialogue the dialogue between theworkshop facilitator and stakeholders helps to revealidentify define and pri-oritise expected outcomes In addition the workshop facilitator needs to havewell-developed social and relational skills Therefore the PM and facilitationexperience of the workshop facilitator needs to be taken into account

A key breakthrough contribution of the Outcome ProfileTM template is itsability to guide stakeholders through the process of cross-referencing bothtangible and intangible expected project outcomes to tangible outputs Inparticular by explicitly cross-referencing intangible outcomes to tangibleoutputs all parties involved have a better appreciation and understandingof causendasheffect links between outcomes outputs and the actions andresources required to develop the corresponding outputs and deliver theexpected outcomes Causal ambiguity is reduced because cause-and-effectloops are easier to understand This aspect is of particular relevance whenconsidering that causal ambiguity has been identified as one of the princi-pal reasons why best practice and other forms of knowledge transfer islsquostickyrsquo and difficult to transfer (Szulanski 1996 2003)

We illustrate the use of the Outcome ProfileTM template2 with one of fiveaction research cases used to develop and validate the Outcome ProfileTM

template and the three-step process (Nogeste 2006a)

The CYPRASS project

The CYPRASS Project is a youth-oriented crime prevention project based inan Australian regional town (population 10000) with the key objective ofaddressing the risk factors that lead to youth crime The project is spon-sored by a law enforcement agency and overseen by a multi-agencyManagement Committee

Success of the CYPRASS project is recognised as being dependent on thedelivery of both tangible and intangible outcomes Relatively satisfied withtheir definition of expected tangible project outcomes the CYPRASSManagement Committee was keen to improve the definition of expectedintangible project outcomes Therefore the Management Committee agreedto participate in a doctoral level research study focused on the improved def-inition and alignment of intangible outcomes and tangible outputs

The three-step process previously described was applied to theCYPRASS Project as follows

Step 1 ndash Plan and conduct a stakeholder workshopDuring the stakeholder workshop members of the CYPRASS

Management Committee identified prioritised and defined the five priorityintangible outcomes of

1 youth personal development2 networks of positive relationships

196 Walker and Nogeste

3 cultural change within the law enforcement agency (to accommodatemore of a crime prevention mindset)

4 the positive image and reputation of the CYPRASS project and5 an improved perception of youth by the broader community

The Management Committee was able to clearly link expected intangibleoutcomes to tangible project outputs defining intangible project outcomes intangible terms For example the priority intangible outcome of lsquonetworks ofpositive relationshipsrsquo was defined as comprising three tiers of networksformal links partnerships and personal relationships

Step 2 ndash Document the workshop reportFor the CYPRASS Project the workshop report included an Outcome

ProfileTM per expected intangible project outcome as illustrated by thefollowing abbreviated version of the Outcome ProfileTM developed forthe expected outcome of Partnerships

Performance and project procurement 197

Outcome name

Partnerships

Outcome description

The purpose of the Partnership outcome is to establish and maintainformal one-to-one inter-organisational sharing links between theCYPRASS programme and other organisations supported by formalagreements (eg Memorandums of Understanding) that define ashared and combined commitment to the provision of youth referraland support services in the local shire

Partnership organisations will comprise local representation oforganisations that have established formal links with CYPRASS Forexample Department of Justice

Outcome realisation time frame

Short (months) to mediumlong term (depending on the currentstatus of a partnership)

Outcome owners

CYPRASS Management Committee CYPRASS Project Officer

Benefits

1 capability to provide strategic holistic services based on sharedand combined contributions

198 Walker and Nogeste

2 shared and combined resources skills and experience capable ofproviding larger range of services and

3 CYPRASS is seen as a lsquonetworking agentrsquo introducing partners toeach other for example could be formalised with lsquopartner eventsrsquo

Beneficiaries

Local at-risk youth their families peers and the broader community

Success criteria

Quantitative success criteria

1 number of partnerships2 number of partnerships that have delivered personal relationships

for example mentors3 increasedecrease in number of partnerships and4 in-kind resources contributed by partners

Qualitative success criteria

1 positive testimonials or feedback from partnership members

Outputs

1 Proforma Partnership Agreement including mention of whohowmakes public statements about the CYPRASS programme

2 Contact List to include which Management Committee member isresponsible for managing which partnerships including medialiaison partnerships with local media

3 Management Committee meeting agenda includes standing itemsfor reviewing partnership-related activities including resourceestimates for developingmaintaining partnerships

Dependencies

1 Management Committee membersrsquo time2 Management Committee member organisationsrsquo support3 CYPRASS formal links are capable of delivering a sufficient

number and diversity of partner organisations and4 lsquoSufficientrsquo number and diversity of partnering organisations

Risks

In summary six partnership-related risks were identified Of these fiveare medium risks and one is a Low risk With the majority of risks beingassessed as Medium partnership-related risks need to be actively man-aged by the Management Committee to prevent them from becomingHigh risks and placing the realisation of partnership outcomes at risk

Step 3 ndash Use the workshop report as a key input to project planningreviewBy cross-referencing intangible project outcomes to hitherto unplanned

(lsquomissingrsquo) tangible project outputs the Management Committee and moreparticularly the Project Officer were able to identify why expected intangi-ble project outcomes were not being realised The Project Officer was thenable to define the resources and activities required to develop the lsquomissingrsquoproject outputs The process also enhanced the projectrsquos risk managementprocess

Capability maturity models (CMM) andproject performance

Organisations that prefer to either pre-qualify potential tenderers ornegotiate with a preferred alliance-type partner may find it convenientto use a tool that evaluates the organisationrsquos maturity in delivering keytangible or intangible project benefits For example if innovation is akey element of a BSC that is important to the client organisation then itmay wish to benchmark the partner organisation with itself Alternativelyit may wish to monitor its organisational partner to assist that partner toimprove its organisational innovation maturity in any given BSC dimensionFor example an organisation commissioning in-house projects may wish toassess the maturity of its internal business units that deliver projectsWhatever the reason for the evaluation the following section should beof interest

An early initiator of the CMM concept was developed by a research teamfrom Carnegie Mellon University in the USA supported by the softwareengineering industry sector (Paulk et al 1993) Paulk et al (1993 2)started this work in November 1986 The result was a five-stage model thathas been widely adopted and adapted ndash for example in assessing construc-tion management processes in the Australian construction industry (CIDA1994) and for Knowledge Management and Organisation Learning (the K-Adv) (Walker et al 2004 Walker 2005) The most familiar of more recentCMM tools is the PMIrsquos Organisational Project Management MaturityModel (OPM3) (PMI 2003) Maturity levels are generally described in fivestages Initial (1) leads through a disciplined approach to applying bestpractices to being Repeatable (2) Standard consistent application of theseprocesses leads to level (3) Defined and once the processes become pre-dictably and routinely applied the maturity level becomes Managed (4)Through continuous process improvement it reaches level (5) Optimised(Paulk et al 1993 6 PMI 2003 28) OPM3 is being progressivelydeployed by organisations concerned with improving productivity andeffectiveness of their PM teams

The (K-Adv) provides us with an example of how a CMM tool mightallow us to understand how organisations create competitive advantagethrough effective use of knowledge

Performance and project procurement 199

200 Walker and Nogeste

The K-Adv model envisages a knowledge competitive advantage as flowingfrom the organisationrsquos ability to better manage its knowledge resourcesFigure 67 indicates that the pivotal feature of the K-Adv is delivered bypeople and only people can effectively manage knowledge so the lsquopeopleinfrastructurersquo is the key element of the knowledge advantage An effectivepeople infrastructure does not easily occur it needs to be nurtured by aneffective lsquoleadership infrastructurersquo that facilitates and frames an effectivepeople infrastructure because the leadership group controls access to muchof the needed resources With effective leadership in place a supportinginformation and communication (ICT) infrastructure can be put in place

Figure 68 further illustrates the three infrastructure elements of theK-Adv model Each of the three elements has two sub-elements and eachof these can be further described in terms of critical attributes The socialcapital part of the people infrastructure sub-element for example requiresfour further attributes ndash trust and commitment knowledge creation knowl-edge sharing and transfer and knowledge use and lsquosensemakingrsquo Each ofthese boxes illustrated in Figure 68 can be used as the basis of a CMM

The people infrastructure is the key to the K-Adv delivering competitiveadvantage and value because it is this facility which when supported byleadership and ICT infrastructures actually delivers value through organi-sational learning (OL) (Walker et al 2004 Walker 2005) In our illustra-tion of how a CMM can be used we focus on the attribute lsquoknowledge useand sensemakingrsquo This is because it closely links with the BSC lsquoLearningand Growthrsquo theme that we have followed in this chapter and is furthercomplemented by discussion in Chapter 8

Figure 67 K-Adv main elements

Source Walker 2005

The peopleinfrastructure

Delivers

The GoalCompetitive advantagethrough a knowledge

advantage

Feedbackloop

Feedbackloop

Feedbackloop

Facilitates+ Frames

Supports +Enhances

Leadershipinfrastructure

ICTinfrastructure

Frames Strategises+ Project managers

Performance and project procurement 201

The K-Adv tool can be used to facilitate performance measurement in twoways First through focusing upon stakeholder goals (prior to or at the timeof procuring projects) the relevant K-Adv attribute can be evaluated to testthe organisationrsquos capability to deliver the identified necessary value Secondif projects are being undertaken internally the tool can be used to bench-mark and strategically plan how to increase the organisationrsquos CMM levelThis process will shortly be explained and illustrated

The capability maturity level for a specific identified attribute (eg forknowledge use and sensemaking) can be measured using a scenario orlsquoword picturersquo that describes how a particular maturity level may appear toa CMM evaluator These word pictures can use the CMM matrix descrip-tion already developed by Walker (2004) or the CMM matrices can becustomised to reflect a specific learning and growth BSC initiative identified(as illustrated in Table 62) An example follows to illustrate the process

We will now focus on the lsquoknowledge use and sensemakingrsquo attribute (box)in Figure 68 Walker (2004) identified four performance characteristics forthis attribute from the literature ambiguity and creative chaos redundancyand thinking requisite variety and reflection and curiosity The key questionfor this attribute is lsquoHow can we make sense of our knowledge to best useit for competitive advantagersquo This can be applied to the lsquoambiguity andchaosrsquo attribute measure in terms of the answer lsquoby providing a demanding

Figure 68 K-Adv elements and sub-elements

Source Walker 2005

Knowledge advantage

Leadership Peopleinfrastructure

ICT Enablinginfrastructure

Envisioning

ICT hw amp swinfrastructure

FunctioningHardware

FunctioningNetworks

Functioningsoftware

Functioningportals

+ Interface

ICT systemsupport

Personalassistant

Identifyingstakeholder K-value

Developing corevision issues

Developing vision options

Articulatingthe vision

Training +develpment

Capacityplanning

Example of CMM for this attribute

Visionrealisation

Socialcapital

Processcapital

Trust + Commitment

Knowledge creation

Knowledge sharing+ Transfer

Knowledge use+ Sense making

Business systems+ Rejuvenation

Problem solvingexperimentation

+ Learning

Knowledgesharing processes

Rewards systemsPlanning vision realisation

Mobilising resources

Deploying the vision

Maintaining the vision

Archiving

202 Walker and Nogeste

stretch challenge in ambiguous terms that provides creative chaos thatpeople respond positively torsquo The level of maturity is determined by theorganisation through self-assessment and providing evidence that mostclosely fits the CMM matrix cell Each cell provides a word-picture thatapproximately indicates the maturity level These descriptors were carefullydeveloped from the literature and validated through workshops with stake-holders but we recognise that they will need refinement customisation andupdating to reflect each organisation

The levels have been determined by the construction of the CMM Fivelevels have been broadly identified throughout the model Level 1 InactiveAWARENESS is evidenced by lsquoPeople seem generally uneasy and unreceptiveto unconventional thinkingrsquo Level 2 Pre-active INITIATION is evidencedby lsquoRigid rules and processes make it difficult and demotivating for people tooffer creative ideasrsquo Level 3 Active ADOPTION is evidenced by lsquoSmall-scalelocal ldquoskunkworksrdquo initiativesrsquo Level 4 Pro-active ACCEPTANCE andADAPTATION is evidenced by lsquoThe workplace culture appears chaoticwith a buzz of new and conflicting ideas being debated and exploredrsquoLevel 5 Embedded ROUTINISATION and INFUSION is evidenced bylsquoTop management periodically creates crises and facilitates both senior-levelmanagement to deliver challenging goals and empowers the coal-faceworkforce to find delivery strategiesrsquo

This process can be repeated for each of the performance characteristicsof the attribute illustrated in Table 63 and each attribute indicated in thesummary model Figure 68 and for each of their identified performance indi-cators For simplicity of illustration we follow with our focus on the socialcapital sensemaking attribute The process of benchmarking using the CMMfollows by proceeding through each attribute of CMM in the table Theresults can yield a current state situational analysis that is useful for audit-ing and establishing a baseline and understanding the current performancelevels for lsquoliftingrsquo that performance CMM level at a defined future time lsquoTrsquo

Figure 69 illustrates how the tool can be used for benchmarking andstrategic planning Key relevant leaders in an organisation participating ina K-Adv study would be asked which matrix cell illustrated in Figure 69best describes where they consider themselves to be currently performingand where they would like to be at time lsquoTrsquo in the future Gap analysis(identifying the range between the now and preferred future state) revealsthe degree of change necessary Strategic and tactical plans can then bemade based on the analysis of how to lift positions in the CMM from thecurrent to desired position This process can be helpful for planning whatis needed and undertaking a feasibility analysis as part of preparing a busi-ness plan to instigate the desired change It is also a useful tool for workingwith a partner or business unit prior to procuring PM services so that thelsquoLearning and Growthrsquo part of the BSC can be addressed as part of the

Tabl

e 6

3 Se

nsem

akin

g an

d its

con

trib

utio

n to

the

K-A

dv C

MM

tab

le

Mat

urity

Perfo

rman

ce amp

cha

ract

erist

ic

Ambi

guity

and

cre

ative

cha

osRe

dund

ancy

and

thi

nkin

gRe

quisi

te v

arie

tyRe

flect

ion

amp c

urio

sity

QU

ESTI

ON

How

can

we

By p

rovi

ding

a d

eman

ding

By

pro

vidi

ng s

uffic

ient

By e

ncou

ragi

ng p

eopl

e to

By p

rovi

ding

suf

ficie

nt

mak

e se

nse

of o

urst

retc

h ch

alle

nge

inre

sour

ces

to d

eliv

er

be o

pen

to a

var

iety

of

time

and

spac

e fo

r kn

owle

dge

to b

est

use

it am

bigu

ous

term

s th

atbo

th t

ime

and

a su

itabl

evi

ews

and

chan

nels

of r

ich

peop

le t

o co

ntem

plat

efo

r co

mpe

titiv

e ad

vant

age

prov

ides

cre

ativ

e ch

aos

venu

e to

be

able

to

thin

kco

mm

unic

atio

nan

d re

flect

so

that

the

yA

nsw

er rarr

that

peo

ple

resp

ond

and

expl

ore

men

tal

map

con

sequ

ence

spo

sitiv

ely

tom

odel

s an

d hy

poth

eses

Inac

tive

Aw

aren

ess

Peop

le s

eem

gen

eral

lyT

he o

rgan

isat

ion

purs

ues

A s

tric

t co

de o

f bus

ines

sR

efle

ctio

n an

d cu

rios

ityun

easy

and

unr

ecep

tive

a le

an-a

nd-m

ean

appr

oach

dete

rmin

es h

ow t

hing

sis

reg

arde

d as

indu

lgin

gto

unc

onve

ntio

nal

whe

re a

ll no

n-co

rear

e do

ne w

ithin

the

beha

viou

rsth

inki

ngac

tivity

has

to

be ju

stifi

edor

gani

satio

nPr

e-ac

tive

Initi

atio

nR

igid

rul

es a

nd p

roce

sses

As

a by

-pro

duct

of k

eepi

ngT

here

is a

cha

otic

ad

hoc

Ref

lect

ion

and

curi

osity

ism

ake

it di

fficu

lt an

dco

re id

eas-

peop

le

appr

oach

to

form

s of

supp

orte

d in

the

ory

but

dem

otiv

atin

g fo

r pe

ople

em

ploy

eds

ome

leve

l of

com

mun

icat

ing

in p

ract

ice

is v

iew

ed a

sto

offe

r cr

eativ

e id

eas

indi

vidu

al t

ime

for

inno

vativ

e id

eas

was

tefu

lre

gene

ratio

n is

pos

sibl

eT

here

are

no

rule

sA

ctiv

e A

dopt

ion

Smal

l-sca

le lo

cal

A fo

rmal

ised

per

iod

ofT

he o

rgan

isat

ion

bala

nces

Pe

ople

are

enc

oura

ged

lsquosku

nkw

orks

rsquo ini

tiativ

eslsquos

abba

tical

rsquo tim

e-ou

t is

chao

s w

ith r

igid

to

be

curi

ous

and

tore

sour

ced

thro

ugh

proc

esse

s fo

r in

nova

tion

refle

ct b

ut o

nly

in t

heir

com

petit

ive

prop

osal

expl

orat

ion

pers

onal

tim

esu

bmis

sion

Pro-

activ

e A

ccep

tanc

eT

he w

orkp

lace

cul

ture

A

ll bu

sine

ss u

nits

are

T

he o

rgan

isat

ion

supp

orts

The

org

anis

atio

n

ada

ptat

ion

appe

ars

chao

tic w

ith a

ex

pect

ed t

o fu

nd a

set

a w

ide

vari

ety

of fo

rms

faci

litat

es p

rese

ntat

ions

buzz

of n

ew a

ndre

sour

ce

age

budg

etof

com

mun

icat

ing

and

by t

houg

ht le

ader

s to

conf

lictin

g id

eas

bein

gto

ena

ble

new

initi

ativ

esex

plor

ing

new

idea

sst

imul

ate

refle

ctio

n an

dde

bate

d an

d ex

plor

edto

em

erge

curi

osity

Embe

dded

Rou

tinis

atio

nTo

p m

anag

emen

tT

he o

rgan

isat

ion

sets

T

he o

rgan

isat

ion

links

with

The

org

anis

atio

n ho

sts

In

fusi

onpe

riod

ical

ly c

reat

esas

ide

a re

gene

rativ

e ou

tsid

e ag

enci

es in

an

d fu

lly s

uppo

rts

acr

ises

and

faci

litat

es b

oth

inve

stm

ent

fund

to

stra

tegi

c al

lianc

es a

ndco

rpor

ate

univ

ersi

tyse

nior

-leve

l man

agem

ent

supp

ort

initi

ativ

es fo

rre

war

ds in

divi

dual

s an

d th

at s

pons

or a

ctio

nto

del

iver

cha

lleng

ing

emer

ging

inno

vatio

nBU

s to

col

labo

rate

with

lear

ning

inte

rnal

res

earc

hgo

als

and

empo

wer

s th

ede

velo

pmen

t ac

ross

the

mul

ti-di

scip

line

team

s an

das

wel

l as

part

icip

atin

g in

coal

-face

wor

kfor

ce t

oor

gani

satio

ndi

vers

e gr

oups

cros

s in

dust

ry o

r se

ctor

find

deliv

ery

stra

tegi

esre

sear

ch a

ctiv

ities

204 Walker and Nogeste

intangible outcomes from the project This process can also be linked backinto an Outcome ProfileTM developed using the tools described earlier3

Chapter summary

This section provides some useful examples of tools that can be used toidentify and measure expected project outcomes that satisfy stakeholderneeds and provide a basis for measuring project performance in terms thathave been missing from much of the PM literature to date The chapterrsquosgoal was to provide a transformational view (from the orthodox lsquoirontrianglersquo cost time quality) of project performance A chapter sectionidentified project success in broader terms than delivering a project on coston time and to specified and explicit quality requirements We purposelywent further to include the need to develop a performance managementsystem that meets the need of a broader level of stakeholders and suggestthat even implicit and intangible needs can be made sufficiently explicit andunderstood that performance measures can be developed to monitorachievement of delivering on these needs

We have provided insights into how the two clouds illustrated in Figure 61can be defined and addressed Chapter 3 relating to stakeholder influenceon project procurement delivery clearly indicated the importance of

Figure 69 Example of benchmarking and gap analysis

Source Walker 2005

Current position

The workplace culture appears chaoticwith a buzz of new and confliction ideasbeing debated and explored

Desired positionat time lsquoTrsquo

lsquoWord picturesrsquo describescenarios to populate thebenchmarking matrix

People seem generally uneasy andunreceptive to unconventional thinking

Performance and project procurement 205

identifying influential high-impact stakeholders whose opinion of how wellthe project met their needs will shape perceptions of project and PMsuccess In that chapter we stressed the need for stakeholder engagementand communication to present useful and meaningful performance statusreporting that not only provides a monitoring and control tool but alsoprovides an engagement tool so that relevant joint decision making whereand when appropriate can effectively take place

We provided in this chapter examples of three types of tool that can beusefully employed a BSC an outcomendashoutput definition and alignmenttool and a CMM tool We argue that deployment of tools such as theseshould be factored into the project procurement brief so that project stake-holders and sponsors can better visualise and understand the true level ofvalue they are receiving and can make their judgements of project and PMsuccess on a more reasoned and informed basis

Vignette

We provided a vignette in the hypothetical example of TheSource inits efforts to develop a BSC for its business At this point we can addthat TheSource has been toying with the idea of more formally linkingmany of the intangible outcomes that produced lsquocustomer delightrsquo toits BSC measures It decided to do this so that it could better engagewith its customers and supply chain partners and so that it could morefully identify specific (but previously inexplicit) benefits that it hasdelivered to further place its brand ahead of any of its competitorsespecially that it is now considering franchising and thus would needto develop more easily understood procedures to be able to franchiseits business idea Further it realised that it needed to benchmark itsbusiness units as it expanded the scale scope and reach of the servicesit could deliver and the CMM appears a reasonable tool to use todo this as well as to develop through gap analysis plans for futureimprovement

Issues to ponder

1 Develop a coarse-grained CMM for the process of procurementperformance measurement and try to assess where your currentorganisation lies in relation to TheSource

2 Just concentrating upon the BSC for the moment make a list ofthe tasks that you think would need to be completed to develop afirst draft of a BSC for TheSource and make some preliminaryestimates of time resources and costs likely to be incurred

206 Walker and Nogeste

Notes1 Refer to wwwprojectexpertisecomau for details on this tool and how it can be

used2 For a fuller discussion of the following readers should refer Nogeste K and

Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Making the IntangibleTangiblersquo Measuring Business Excellence 9(4) 55ndash68 where this material wasoriginally published in more detail than appears in this section of the chapter

3 See note 1

References

Andriessen D and Tissen R (2000) Weightless Wealth Harlow Great BritainPearson Education Limited

Baccarini D (1999) lsquoThe Logical Framework Method for Defining ProjectSuccessrsquo Project Management Journal 30(4) 25ndash32

Christenson D and Walker D H T (2003) Vision as a Critical Success Factor toProject Outcomes The 17th World Congress on Project Management MoscowRussia June 3ndash6 On CD-ROM

CIDA (1994) Two Steps Forward One Step Back ndash Management Practices in theAustralian Construction Industry Sydney Construction Industry DevelopmentAgency

Cleland D I and Ireland L R (2002) Project Management Strategic Design andImplementation 4th ed New York McGraw-Hill

Cleland D I and King W R (1988) Project Management Handbook 2nd edNew York Van Nostrand Reinhold

Coghlan D (2001) lsquoInsider Action Research Projects Implications for PractisingManagersrsquo Management Learning 32(1) 49ndash60

Coghlan D and Brannick T (2005) Doing Action Research in Your OwnOrganization 2nd ed London Sage Footprint

3 Again concentrating on the BSC for TheSource make a list ofexpected tangible and intangible outcomes for developing BSCbenefits

4 The tools techniques and processes described in this chapter couldpresent additional management overhead for any organisationespecially a small one like TheSource To what extent do youthink that the cost and management attention required to followthis path is worthwhile Detail 3 examples

5 What performance measurement issues would you expect mightemerge for a franchisee of TheSource regarding stakeholderengagement and measurement of intangible outcomes that deliverbenefits in terms of training and awareness operational trainingdevelopment and knowledge sharing

Performance and project procurement 207

Cooke-Davies T (2002) lsquoThe ldquoRealrdquo Success Factors on Projectsrsquo InternationalJournal of Project Management 20(3) 185ndash190

Cooke-Davies T (2004) Maturity and Measurement What Are the RelevantQuestions about Maturity and Metrics for a Project-based Organization to Askand What Do They Imply for Project Management Research PMI ResearchConference 2004 London 12ndash14 July Slevin D P D I Cleland and J K PintoPMI CD-ROM Disk 1ndash15

Dallas M (2002) Measuring Success The 5th European Project ManagementConference ndash PMI Europe 2002 Cannes France Davis Langdon

de Wit A (1988) lsquoMeasurement of Project Successrsquo International Journal of ProjectManagement 6(3) 164ndash170

Department of Finance and Administration (2003a) Specifying Outputs wwwfinancegovaubudgetgroupCommonwealth_Budget_-_Overviewspecifying_outputshtml 27 January

Department of Finance and Administration (2003b) Specifying Outputs Case StudieswwwfinancegovaubudgetgroupCommonwealth_Budget_-_Overviewspecifying_outputs__case_studihtml 17 May

Drummond H (1998) lsquoRiding a Tiger Some Lessons of Taurusrsquo ManagementDecision 36(3) 141ndash146

Dvir D Raz T and Shenhar A J (2002) lsquoAn Empirical Analysis of the Relationshipbetween Project Planning and Project Successrsquo International Journal of ProjectManagement 21 89ndash95

Eccles R G (1991) lsquoThe Performance Measurement Manifestorsquo Harvard BusinessReview 69(1) 131ndash137

Edvinson L (1997) lsquoDeveloping Intellectual Capital at Skandiarsquo Long RangePlanning Elsevier Science Limited 30(3) 366ndash373

Elkington J (1997) Cannibals with Forks London Capstone PublishingFlyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and risk an

anatomy of ambition New York Cambridge University PressHarris F and McCaffer R (1995) Modern Construction Management 4th ed

Oxford Blackwell ScienceHM Treasury U (2003) The Green Book ndash Appraisal and Evaluation in Central

Government httpgreenbooktreasurygovuk 6 AugustIbbs W C and Kwak Y H (2000) lsquoAssessing Project Management Maturityrsquo

Project Management Journal 31(1) 32ndash43Johnson J (2006) My Life is Failure ndash 100 Things you Should Know to

be a Successful Project Leader West Yarmouth MA The Standish GroupInternational Inc

Kaplan R S and Norton D P (1992) lsquoThe Balanced Scorecard ndash Measures thatDrive Performancersquo Harvard Business Review 70(1) 171ndash179

Kaplan R S and Norton D P (1993) lsquoPutting the Balanced Scorecard to WorkrsquoHarvard Business Review 71(5) 134ndash142

Kaplan R S and Norton D P (1996) Using the Balanced Scorecard as a StrategicManagement System 1

Kaplan R S and Norton D P (2000) lsquoHaving Trouble with Your Strategy ThenMap Itrsquo Harvard Business Review 78(5) 167ndash176

Kaplan R S and Norton D P (2004a) lsquoMeasuring the Strategic Readiness ofIntangible Assetsrsquo Harvard Business Review 82(2) 52ndash63

208 Walker and Nogeste

Kaplan R S and Norton D P (2004b) lsquoMeasuring the Strategic Readiness ofIntangible Assetsrsquo Harvard Business Review (February) 52ndash63

Kaplan R S and Norton D P (2004c) Strategy Maps Converting IntangibleAssets into Tangible Outcomes Boston Harvard Business School Publishing

Keen J and Digrius B (2003) lsquoThe Emotional Enigma of Intangiblesrsquo CIOMagazine (April) 104ndash107

Likert R (1958) lsquoMeasuring Organizational Performancersquo Harvard BusinessReview 36(2) 74ndash83

Miles R E and Snow C C (1995) lsquoThe New Network Firm A SphericalStructure Built on a Human Investment Philosophyrsquo Organizational Dynamics23(4) 5ndash18

Miles R E Snow C C and Miles G (2005) Collaborative entrepreneurshiphow communities of networked firms use continuous innovation to createeconomic wealth Stanford Calif Stanford Business Books

Munns A K and Bjeirmi B F (1996) lsquoThe Role of Project Management inAchieving Project Successrsquo International Journal of Project Management14(2) 81ndash87

Murray E J and Richardson P R (2000) lsquoShared Understanding of the CriticalFew a Parameter of Strategic Planning Effectivenessrsquo International Journal ofPerformance Measurement 2(123) 5ndash14

Neeley A (2002) Business Performance Measurement ndash Theory and PracticeCambridge UK Cambridge University Press

Neeley A Bourne M Mills J Platts K and Richards H (2002) Strategy andPerformance Getting the Measure of Your Business Cambridge UK CambridgeUniversity Press

Nogeste K (2004) lsquoIncrease the Likelihood of Project Success by Using a ProvenMethod to Identify and Define Intangible Project Outcomesrsquo InternationalJournal of Knowledge Culture and Change Management 4 915ndash926

Nogeste K (2006a) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project Outputs Doctorof Project Management DPM Graduate School of Business Melbourne RMIT

Nogeste K (2006b) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project OutputsGraduate School of Business Melbourne RMIT University

Nogeste K and Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Makingthe Intangible Tangiblersquo Measuring Business Excellence 9(4) 55ndash68

Norrie J L (2006) Improving Results of Project Portfolio Management in thePublic Sector Using a Balanced Scorecard Approach Doctor of ProjectManagement School of Property Construction and Project ManagementMelbourne RMIT University

Norrie J and Walker D H T (2004) lsquoA Balanced Scorecard Approachto Project Management Leadershiprsquo Project Management Journal PMI35(4) 47ndash56

Paulk M C Curtis B Chrisses M B and Weber C V (1993) lsquoCapabilityMaturity Model Version 11rsquo IEEE Software 10(4) 18ndash27

Peters J (1996) lsquoA Learning Organizationrsquos Syllabusrsquo The Learning Organization3(1) 4ndash10

Peters J and Smith P A C (1996) lsquoDeveloping High-potential Staff ndash An ActionLearning Approachrsquo Journal of Workplace Learning 8(3) 6ndash11

Phelan T M (2004) The impact of effectiveness and efficiency on project successHoboken NJ Stevens Institute of Technology

PMI (2003) Organizational Project Management Maturity Model (OPM3)Knowledge FoundationNewtown Square Pennsylvania PMI

Rad P F (2003) lsquoProject Success Attributesrsquo Cost Engineering 45(4) 23ndash29Roos G and Roos J (1997) lsquoMeasuring Your Companyrsquos Intellectual

Performancersquo Long Range Planning Elsevier Science Limited 30(3) 413ndash426Senge P M (1990) The Fifth Discipline ndash The Art amp Practice of the Learning

Organization Sydney Australia Random HouseShenhar A J Dvir D Levy O and Maltz A (2001a) lsquoProject Success

A Multidimensional Strategic Conceptrsquo Long Range Planning InternationalJournal of Strategic Management 34(6) 699ndash725

Shenhar A J Dvir D Levy O and Maltz A C (2001b) lsquoProject SuccessA Multidimensional Strategic Conceptrsquo Long Range Planning 34(6) 699ndash725

Smith P (2001) lsquoAction Learning and Reflective Practice in Project Environmentsthat are Related to Leadership Developmentrsquo Management Learning 32(1)31ndash48

Standish (1994) The Chaos Report (1994) Company Research Report DennnisMA 14

Standish (2003) Latest Standish Group CHAOS Report Shows Project SuccessRates Have Improved by 50 httpwwwstandishgroupcompressarticlephpid2 25 March

Stewart R A and Mohamed S (2001) lsquoUtilizing the Balanced Scorecard for ITISPerformance Evaluation in Constructionrsquo Journal of Construction Innovation1(3) 147ndash163

Stewart R A Mohamed S and Daet R (2002) lsquoStrategic Implementation ofITIS Projects in Construction A Case Studyrsquo Automation in Construction11(6) 681ndash694

Stewart R A Mohamed S and Marosszeky M (2004) lsquoAn EmpiricalInvestigation into the Link Between Information Technology ImplementationBarriers and Coping Strategies in the Australian Construction Industryrsquo Journalof Construction Innovation 4(3) 155ndash172

Stewart W E (2001) lsquoBalanced Scorecard for Projectsrsquo Project ManagementJournal 32(1) 38ndash53

Sveiby K E (1997) The New Organizational Wealth Managing and MeasuringKnowledge-based Assets San Francisco Berrett-Koehler Publishers Inc

Szulanski G (1996) lsquoExploring Internal Stickiness Impediments to the Transfer ofBest Practice within the Firmrsquo Strategic Management Journal 17(Winter specialIssue) 27ndash43

Szulanski G (2003) Sticky Knowledge Barriers to Knowing in the Firm ThousandOaks CA Sage Publications

Turner J R (1999) The Handbook of Project-based Management Improving theProcesses for Achieving Strategic Objectives 2nd London UK McGraw-Hill

Walker D H T (2004) The Knowledge Advantage (K-Adv) Unleashing Creativityand Innovation Unpublished report draft manuscript Melbourne 183

Performance and project procurement 209

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T Wilson A J and Srikanathan G (2004) The KnowledgeAdvantage (K-Adv) For Unleashing Creativity amp Innovation in the ConstructionIndustry Brisbane CRC in Construction Innovation httpwwwconstruction-innovationinfoimagespdfs2001ndash004-A_Industry_Bookletpdf

Ward J Murray P and David E (2004) Benefits Management Best PracticeGuidelines Bedford United Kingdom School of Management CranfieldUniversity

Zuber-Skerritt O (2002) lsquoA Model for Designing Action Learning and ActionResearch Programsrsquo The Learning Organization 9(4) 171ndash179

210 Walker and Nogeste

Chapter 7

E-business and projectprocurement

Derek HTWalker Guillermo Aranda-MenaMario Arlt and Justin Stark

Chapter introduction

E-business in its variety of forms that use information communicationtechnologies (ICT) has changed the way that business transactions can takeplace (Sawhney and Parikh 2001) E-procurement has drastically alteredthe value-generation equation by ICT reducing transaction costs (Duyshart1997 Duyshart et al 2003) and facilitating internet commerce (Lawrenceet al 2003) In todayrsquos market many companies present themselves to theworld via their internet site they tender and respond to tenders using web-enabled technologies manage and control their accounting and informationexchange using electronic means and they also use groupware internettechnologies for sharing knowledge decision making coordination andproject control Moving from paper-based to object-oriented data modelshas transformed much of the procurement process and improves supplychain integration

There has been a clear journey along a value curve over time for manycompanies that suggests the following trajectory stand alone datainformationprocessing (for internal applications) communication and informationdataexchange between business units within an organisation processingtransaction data ndash for example electronic data exchange (EDI) betweenorganisations relationship marketing processes that bind parties moreclosely together using customer relationship management (CRM) applicationsand inter-operability of data exchange and e-business (Sharma 2002)Also the journey takes us from substantially paper-based to fully integratedelectronic forms of information exchange financial transactions coordinationand monitoring and control of resources and activities This is illustratedin Figure 71

The literature presents case study examples of e-business for majorcompanies such as BHP Billiton1 one of Australiarsquos largest companies anda major global resource company (Chan and Swatman 2000) as well asmedium-sized construction companies such as Kane Construction2 inAustralia which are typical of many organisations that undertake projects

using ICT to not only present themselves to potential customers and supplychain partners but also as part of a portal that allows them to interact withtheir supply chain using e-business applications This particular organisationuses its web presence to project its corporate image and market its servicesKane Constructionrsquos web site3 provides an example of how this project-basedorganisation can interact with the world as well as presenting its e-face toprospective clients and supply chain partners who may use e-business as amatter of course

The relevance of linking e-business to procurement in a book such as thisrelates to general changes in procurement patterns that includes closeralignment (and hence the need for ICT interoperability) as well as businessprocess alignment Companies that use ICT as a lsquogivenrsquo may be unlikely towant to deal with organisations that have failed to develop e-businesscapability or might choose to exploit a superior ICT capability The ratio-nale is that much of the value that integrating organisations in a supplychain through common platform ICT with interoperable data provides acritical competitive advantage (Sawhney and Parikh 2001) The nature andextent of this capability varies amongst organisations involved in projectsand so this chapter seeks to help us understand what is meant by e-businesshow it operates so that we can gain a historical perspective and betterappreciate this evolving business paradigm and to be better prepared fore-business demands in a turbulent demanding and highly competitiveglobal business environment Finally government has seen e-business as astrategic interest for procurement and has established or sponsored

212 Walker et al

The organisation

Level 4ndash full ICT and transactional exchanges across supply chain

Level 3ndashEDI transactional between organisation communications

Level 2ndashcommunication and data organisation-internal exchange systems

Level 1ndashstandalone independent transactional IT systems

BU n

BU n

BU 3

BU 3

BU 2

Clients

Paper based

E-commerce

E-business

BU 2

BU 1

BU 1

BU 1

IntegratedOnline + Offline

IsolatedOnline or Offline

Sub-contractors

Suppliers

Linked

Figure 71 E-business trajectory

organisations to help develop standards and to promote e-procurementThe Australian Procurement and Construction Council Inc4 is one example(Australian Procurement amp Construction Council Inc and DOLAC 1997)

This chapter is presented in three broad sections A vignette at the end ofthe chapter presents a scenario and prompts relevant questions flowingfrom that scenario

The first section deals with definitions commonly used a brief descriptionof the evolution of e-business with respect to project procurement driversand inhibitors legal issues and issues about system compatibility (bothfrom a business function and technology viewpoint) The purpose of thissection is to familiarise readers with the main e-business issues that relateto project procurement The second section deals with the role of ICTportals in project procurement This ranges from technical developmentssuch as wireless portals and facilitating technological infrastructures to thebusiness systems and regulations that need to harmonise with technologyadvances to enable e-business to be embraced and to facilitate data-miningThe systems and regulation issues that are discussed revolve aroundgovernment policy legal aspects and business process alignment issues thatmake effective use of advantages that e-business offers The third sectionprovides readers with a historical perspective of e-business for projectprocurement In this section the trends that developed in the 1990s whene-business took off as a concept through to the early part of this decadewill be discussed The discussion continues to the present with a perspectiveof current examples of how e-business has evolved Finally in this sectionwe speculate about how project procurement may be undertaken in comingyears Of course our experience of history is that change overlaps with fewif any schisms The Stone Age did not end because we ran out of stones(Lovins 2000) Similarly while the picture we paint from the 1990s may befamiliar to some readers in 2007 others may see the 2010 speculations asshort-term plans within their own workplace

Fundamentals of procurement using e-business

The above section intimated what e-business means and a history of itsdevelopment was briefly provided Before proceeding further we willprovide definitions and a more detailed history of this trend Firstdefinitions there are many derivations of the term e-business that may beconfusing so a few definitions are provided to clarify what we arediscussing in this chapter

Fundamentals

Poon and Swatman (1999) describe e-commerce as sharing business informa-tion maintaining business relationships and conducting businesstransactions using internet-based technologies The focus is clearly upon

E-business and project procurement 213

using e-technologies to conduct business transactions where purchases andpayments are made electronically However using e-commerce does notnecessarily gain an organisation a competitive advantage because it is anenabling or facilitating technology and not a solution as pointed out byBarnes et al (2004) They undertook a series of case studies of 12 e-businessesand compared how these businesses linked their e-commerce activities withtheir full business operations such as the front order-entry and procurementof resources area logistics operations management productservicedelivery and the strategic alignment of all these aspects They adapted a1980s four-stage maturity model of organisational strategic role and con-tribution of the operations function (Hayes and Wheelwright 1984) toevaluate maturity of e-business This approach helps us better understande-business development stages and indicates where various e-business formsfit into the Figure 71 e-business trajectory

Stage 1 relates to inadequate technology holding back operationsOrganisations may use e-commerce applications but their technology or itsintegration with the logistics and delivery side may cause problemsbottlenecks and inefficiencies For example an e-business system may beused to generate business (sales commitments to project or whatever) butthis part of the business system does not lsquotalkrsquo to the production end sodelivery suffers Stage 2 follows industry norms and best practice but as anunthinking follower so the results can be hit and miss ndash perhaps as good asmany but not gaining any clear competitive advantage because the overallstrategy has not yet been fully developed or implemented Stage 3 may haveaddressed the need to integrate e-commerce with e-operations perhapsthrough an enterprise resource planning system (ERP) that is internallyfocused to address efficiencies and thus derive competitive advantagethrough a cost advantage This stage can be described as deploying e-businessbecause business activities are e-enabled in a well-linked manner and linkedto the business strategy Stage 4 represents a more transformational stagewhere the integration at Stage 3 is present but it allows greater engagementwith external stakeholders so that new opportunities are searched for thelinked strategy is more outward looking and leads the organisation togreater differentiation and focus on potential market niches

Christopher Barnatt (2004) provides a useful historical account of howe-business has emerged He traces the origins back to a fiction writerWilliam Gibson who in a book written in 1984 (now updated (Gibson2004) to reflect upon current developments emerging from the fantasy ofthe original edition) first coined the term cyberspace to describe theconsensual hallucination of an abstract electronic world that human beingscould occupy across computer networks Barnatt (2004 80) also providesan evolutionary maturity model in four stages In Stage 1 he discusses howin the early 1990s the electronic frontier first mooted by Gibson could beconceptualised as a business model with the advent of the concept of

214 Walker et al

lsquovirtualrsquo communities businesses and teams and the increasing use of LotusNotes as a groupware tool Businesses still interacted with the client andcustomer using traditional technologies During the second half of the1990s Stage 2 emerged with the rise and fall of the dotcom The dotcomsused purely internet-based e-commerce technologies to undertake onlinebusiness activities while traditional businesses did business with customersoffline and the term lsquobricksrsquo or lsquoclicksrsquo became shorthand ways todifferentiate between these two radically different business models In theaftermath of the dotcom collapse which was attributed to poor businesssustainability issues the Stage 3 emerged as an integration stage This stagerepresents an evolution towards e-business where the online and offline cus-tomers were able to conduct business with traditional businesses that hadembraced e-commerce and were integrating these technologies with theiroperational business processes ndash thus moving towards e-business Stage 4represents the current mid-2000s situation where many lsquotraditionalrsquo organ-isations are now using multiple integrated online and offline interfaces thatcustomers can use to respond to a customerrsquos preferred interaction withthese companies This stage also relates well to the Stage 4 situationdescribed by Barnes et al (2004)

We can see from this discussion there is a range of possible ways ofunderstanding e-business from its pure focus on e-commerce tools forinteracting with a client to procure goods or services to a fully integratedsuite of software tools and enabling systems and business processes thatallows seamless electronically enabled procurement through deliveryprocesses that have been strategically thought through and aligned to thedelivery mode Thus e-business can be seen to refer to the integration ofe-commerce with electronically enabled business processes to deliver goodsand services E-business maturity can be measured in terms of the levels ofintegration of processes from procurement to delivery and its interactionwith development of business strategy from reactive through to proactive

Forms of e-commerce and e-business

We have introduced some fundamental concepts and this now allows us tounderstand how e-commerce and e-business may be undertaken We cannow consider some of the many e-procurement derivatives that areexplained below Interaction between customers and suppliers (and allparticipants within a supply chain) can be enabled through informationfiles and transactions being transmitted electronically by

P2P ndash peer-to-peer networks where individuals deal with otherindividuals within a network The company PayPal5 has recentlyestablished a P2P payment system and there are a number of P2P fileswap networks in existence

E-business and project procurement 215

B2C ndash Business to customer Selling online to individuals or organisationssuch as Amazon for books CDs and so on

B2G ndash Business to government This is widespread in tendering andacross the Globe this is becoming a common feature For example theCommonwealth Government of Australia6 whose purpose is for citizensto obtain information as well as be able to transact business and searchfor tender requests or to respond electronically to tenders and so on

C2G ndash Citizens to government Many governments have extensive websites for interacting with citizens to provide information and to receivefeedback

C2C ndash Consumer to consumers In many ways EBay is a C2C facilitatoras its business model is to allow consumers to interact as if in an open(physical) market place swapping bartering and buying and sellingthrough an online intermediary Hobbyists and people interested inmemorabilia also get together to interact and swapbuy makingtransactions through using the e-facilitator

C2B ndash Consumer to business This may use the reverse auction modeloffered by a number of organisations including airline discounterswhere bidders set their price limit and the intermediary facilitatessubscribing businesses to decide whether to accept these bids Someorganisations have sophisticated electronic agents which allowconsumers to configure their options to order items Dell7 is one ofmany that has this capacity

G2G ndash Where governments can be linked communication betweenthese entities can be invaluable In Australia like the USA Germanyand other countries with a federal and state (or province) constitutionthis kind of cross-government electronic interaction is most usefulGovernments also interact as mentioned earlier with business in G2Band with consumers in G2C transactions

E-procurement drivers and inhibitors

E-procurement has created new enablers for providing information (aboutproducts services companies corporate actions etc) and communication(audio video and data in real-time or near-time) in addition to facilitatinga transaction (purchase auction or other forms) between businesses andtheir customers Through computer networks (extranets ndash business specificinteractions) and the internet in particular businesses and consumers canobtain information cheaper and faster In many cases they can communicateat virtually no cost8 and transact instantaneously

While e-commerce is typically associated with the emergence of theinternet it dates back to the facilitation of transactions in the 1970s usingEDI standards for electronic invoicing Many banks and their business

216 Walker et al

partners have been extensively using electronic funds transfers since the1980s as a fast and cost-efficient payment model

E-procurement can entail various procurement facilities from electronicorder systems (whether used in online stores or electronic exchanges) toelectronic market places and desktop purchasing systems (DPS)

E-procurement yields a series of benefits

reduction in (administrative transaction and back-office) costs improvement of process efficiency shortening of order fulfilment cycle times improved commercial relationships with suppliers lowering of inventory levels improvement in management of the supply chain and lower price paid for goods

However e-procurement is not a one-size-fits-all approach due to thefollowing disadvantages

significant increase in IT maintenance costs ongoing management andupdates standardisation of processes between differing systems andgeneral interoperability issues

significant upfront cost for enablement IT security risks and increase in prices paid for goods is possible especially for small order

volumes

The main driver for e-procurement is cost reduction achievable throughprocess automation reduced inventories identification of and procurementat lowest market prices for commodities and the better use of economies ofscale and other effects

Five e-procurement models and their impact on projects are explained asfollows These present not only how e-commerce transactions are conductedbut also the ways in which it enables the procurement transactions totrigger e-business processes for delivery of products or services

E-sourcing

Strategic sourcing is a systematic process for reducing the total cost ofexternally purchased goods or services at a defined quality level E-sourcingis the automation of this process It allows identifying new suppliers for aspecific category of purchasing requirements using internet technologyacross spatial boundaries Benefits of E-sourcing include increased decision-making flexibility and (potentially) lower prices through a broader range of

E-business and project procurement 217

suppliers However sales personnel are often more effective at negotiatingthe best deal possible with a customer than can a customer whenconfronting an electronic system ndash especially for non-commoditisedofferings with many and varied options available Also large companies areunlikely to start undertaking business with unknown suppliers which tothem can constitute a large risk factor though preferred supplier lists mayalleviate this risk

For the procurement of project services e-sourcing may not be a relevantapproach due to their characteristic as a lsquounique endeavourrsquo Howeverproject organisations may use e-sourcing for the efficient procurement ofcommodities required as factor inputs on projects

E-enabled (reverse) auctions

In a typical auction a seller puts up an item for sale multiple buyers bid forthe item and the highest bidder will buy the goods at a price determined bythe result of the bidding In a reverse auction a buyer issues a request forquotations to purchase a particular item Multiple suppliers quote the price atwhich they are willing to supply the requested item or service Thetransaction is awarded to the supplier that provided a combination of thelowest price or best service delivery (time quality assurance etc)

E-enabled auctions can be found in many industries (automotiveaviation chemical construction health care food amp beverage agriculture)horizontal marketplaces and can apply to B2B B2G B2C and C2Cmarkets Global e-exchanges like Auto Exchange9 and AUTOVIA10 haveattracted automotive supplier and customers alike due to the commoditisednature of the products and services in this industry

There are many claims for cost savings from e-enabled auctions Onereport from the consulting group IDC indicates that lsquowhen asking 68purchasing managers about the amount of savings generated by usinge-procurement applications in the past 12 months 44 said they were ableto reduce their costs by between 1 and 4 of their budget Another 13said the range was between 5 and 9rsquo (IDC and Pang 2001 3) Howevere-enabled auctions are not the silver bullet of procurement some of thesavings from using reverse auctions are absorbed by higher costs related toerrors in supplier data post-auction negotiation quality problems of newand unknown suppliers late deliveries or non-delivery and other factors Afunctioning market place for e-enabled auctions should minimise the risksby inviting only pre-qualified suppliers which meet certain criteriaregarding quality and the ability to deliver

The biggest drawback of the approach is that the diminishing buyerndashsupplierrelationships may cause harm in the long run Since a supplier loses whatthe buyer gains from a game theoretical perspective where some form ofretaliation is likely to happen add-on services maintenance and support

218 Walker et al

beyond the contractually agreed service levels and follow-up contracts arelikely to be higher priced than in a traditional buyerndashsupplier relationshipFor a project business this insight is very relevant if a sustainablerelationship is intended a relationship-minded procurement approach ismore likely to succeed Other project scenarios such as a one-timetransaction may warrant using e-enabled auctions

Web-based Enterprise Resource Planning

Web-based Enterprise Resource Planning (ERP) procurement modules use asoftware system that is based on internet technology to create and approvepurchasing requisitions place purchase orders and record the receipt ofgoods and services It describes essentially the integration of ERP solutionsbased on SAP Oracle Peoplesoft JD Edwards (both now absorbed byOracle) or other platforms which used to be insular solutions restricted tothe company using the ERP system with its suppliers and customersTypically transactions are facilitated through Electronic Data Interchangeusing standards such as EDI ANSI X12 EDIFACT and most importantlythe current de facto standard XML which are supported by recent versionsof ERP solutions In order to effectively and efficiently use web-based ERPfunctioning ERP systems must be in place clear buyerndashsupplier processes(workflows) have to be defined and implemented and a high-volumeinteraction between the buyer and long-term suppliers is meaningful torecover implementation cost and realise efficiency gains Project organisationswhich meet these criteria will benefit from web-based ERP

As a result of web-based ERP integration efforts buyerndashsupplierrelationships are typically strengthened which makes this e-procurementapproach suitable for relationship businesses

In a Delphi study of 23 Dutch supply chain executives on the impact ofERP on supply chain management that is of itself an important procure-ment choice consideration reveals some interesting findings that are rele-vant for future e-business considerations (Akkermans et al 2003 284)Their findings report that there are five main issues facing these supplychain executives

1 further integration of activities between suppliers and customers acrossthe entire supply chain

2 on-going changes in supply chain needs and required flexibilityfrom IT

3 more mass customisation of products and services leading to increasingassortments while decreasing cycle times and inventories

4 the locus of the driverrsquos seat (the group lsquoin chargersquo) of the entire supplychain and

5 supply chains consisting of several independent enterprises

E-business and project procurement 219

Their study revealed an only modest role for ERP in improving supply chainmanagement due to the current (at the 2003 time) focus of ERP as being onintegrating and harmonising business processes within an organisationrather than across the supply chain This they maintain presents consider-able inhibitors for innovation within firms however they flag a movetowards ERP re-focusing itself on a supply chain with provision for facili-tating either common standards or common interface protocols that allowdifferent firms within a supply chain to gain advantage from informationdata and knowledge flows across the chain This interesting aspect may bemore dominant at the time of publication or shortly thereafter of thisbook The promise that ERP systems offers is that those firms which linkinto an ERP-enabled supply chain may be able to be both innovative andeffective ndash they may be able to further stretch improvement boundarieswhile maintaining benefits of data information and knowledge transferFor a useful review of the history and analysis of critical factors relating toERP readers can refer to Al-Mashari et al (2003) They present a model ofa taxonomy for ERP critical factors (Al-Mashari et al 2003) that is some-what similar to other studies into the diffusion of innovation for examplesee Peansupap and Walker (2005)

The second main finding is that the panel experts saw only a modest rolefor ERP in improving future supply chain effectiveness and a clear risk ofERP actually limiting progress in SCM (Akkermans et al 2003) ERP waspresented as offering a positive contribution to only four of the top 12future supply chain issues that were identified in their study (1) morecustomisation of products and services (2) more standardised processesand information (3) the need for worldwide IT systems and (4) greatertransparency of the marketplace Implications for subsequent research andmanagement practice are discussed The following key limitations ofcurrent ERP systems in providing effective SCM support emerge as the thirdfinding from this exploratory study (1) their insufficient extended enterprisefunctionality in crossing organisational boundaries (2) their inflexibility toever-changing supply chain needs (3) their lack of functionality beyondmanaging transactions and (4) their closed and non-modular systemarchitecture These limitations stem from the fact that the first generationof ERP products had been designed to integrate the various operations ofan individual firm In modern SCM however the unit of analysis hasbecome a network of organisations rendering these ERP productsinadequate in the new economy

The key lesson that can be gathered from the ERP literature is that it hassubstantial potential to influence procurement decisions based upon e-businessfrom integration and harmonisation that can gain strategic ICT and IT-related competitive advantage to participating organisations (and thatincludes the client in an outsourcing procurement arrangement or internallywhere projects are being managed from inside an organisation)

220 Walker et al

E-MRO

Similar to web-based ERP e-MRO (Maintenance Repair and Operating)enables non-product-related MRO supplies Channels for e-MRO includedirect or DPS standardised catalogues (eg at buyerrsquos site) brokerintermediaries (Application Service Providers which purchase goods on thebuyerrsquos behalf within certain price limits) and supply-side shop systems

Like web-enabled ERP e-MRO is suitable for processes that showhigh standardisation little human agent involvement and a supply-sidefocus on price

Advantages of e-MROs include the following

straightforward set-up for standardised purchasing processes of e-goods potential realisation of significant cost savings and upgrade of purchasing agents to fulfil more complex and demanding

tasks

Downsides are the following

no personnel interaction between contracting parties no discretion over quality and prices no complex decision making possible content rationalisation leads to potential loss of valuable product

information and across-the-board lack of Universal Product Codes (UPC)

For project organisations the implications are the same as for web-enabledERP

E-informing

E-informing describes the gathering and distributing of purchasinginformation both from and to internal and external parties using webtechnology In this context channels like email brochure-ware web sitespermission marketing online newsletters listserv discussion groups onlinechat rooms are used Typical problems of e-informing surround reliabilityand relevance of information found A number of online research data andnews services which emerged from the market research community haveestablished information services about companies their performancefeedback from customers and records of corporate action which allowmuch faster evaluation of existing and potential suppliers

E-informing is critical for the project procurement process as itenables inexpensive and immediate access to information about businesspartners

E-business and project procurement 221

E-procurement implementation

This should follow general PM best practices and can be summarised ascomprising five distinctive phases which should be considered for anye-procurement implementation

Defining objectives and a strategy for the effort

As with any business improvement effort objectives and a strategy shouldbe defined upfront Is the effort merely geared at cost savings How will thischange impact on the supplier relationships of the company Whichproducts and services should be boughtsold through e-procurementchannels and which should not Can we achieve further processimprovement and reduce the number of defects in the procurement processThese and other questions should be answered prior to pursuing thetransformation effort

Establishing a business case for gains from e-procurement

As discussed before business benefits from e-procurement will notmaterialise for every procurement scenario A quantitative business casewill help identify the merits and measure their achievement during and afterthe improvement project

Process re-engineering

As mentioned before the primary benefit from e-procurement implementationmay reside in the improvement of internal or buyerndashsupplier processessince these processes typically involve frequent manual interaction and maybe barely standardised or even defined A re-engineering effort for theseprocesses should be conducted with the emphasis on optimal interactionbetween buyer and supplier with information technology as a constraint Alesson learned from e-procurement projects is that they are often assignedto a chief information officer (CIO) or chief technology officer (CTO) of acompany and therefore IT-centric Implementing existing inefficientprocesses into a new technology platform will only partially (or not at all)realise the potential gains from e-procurement enablement E-procurementbares the potential to radically improve process management throughworkflow definition and (automated) workflow management

Technical implementation

The implementation of e-procurement solutions such as web-enabled ERPscan come at substantial cost Provided the company already possesses a

222 Walker et al

modern ERP system e-procurement capabilities will be embedded or easyto add through additional modules or (web) services If however an olderor proprietary ERP solution is used substantial custom development ofe-procurement functionality and especially interfacing capabilities toelectronic markets or the systems of the business partners may be requiredwhich may destroy the business case for the implementation Lastlytraining of the procurement stakeholders ongoing support and maintenancealso have to be considered as part of the implementation cost As in any ITimplementation user acceptance component and integration testing will berequired to assure a functioning platform from Day One

Change management

Lastly process and system changes as described bring significant change toan organisation In order to achieve acceptance of the e-procurementsolution change management plans have to be developed and executed toachieve adaptation of the e-procurement solution by the procurement staffSince change management always constitutes a challenge this componentof the effort can be critical to the success of the project

Legal ethical and security issues

Undertaking e-business transactions with partners or procuring goods orservices using e-business entails considering legal and ethical obligations(though these may be complicated by jurisdiction issues) In theory tradingusing e-business should be conducted under the same rules and regulationsas with paper-based word-of-mouth or telephonic systems The maincomplication that e-business presents is centred on copyright ownership ofdatainformation and matters of censorship

Another aspect is fraud Fraud was mentioned in Chapter 4 and referencewas made to the KPMG survey11 Wilson (2004 2) argues that fraud can beunderstood by considering the Cresseyrsquos Fraud Triangle model that positsfraud to occur where there is opportunity pressure and rationalisationPressure comes from the fraudsterrsquos motivational drives be that greedneed malice or ego Rationalisation derives from the individualrsquos ethicalstance and as explained in Chapter 4 people may be moral chameleons andthus join in a fraudulent act with others rationalising it to be an act that iscongruent with the norms of the group or as is more commonly the case itmay be an individual who rationalises the act as lsquopay backrsquo at someone oran organisation for a perceived injustice or because of some other sense ofthe act being lsquonot immoral unethical or illegalrsquo These two drivers dependupon the individual The third part of the triangle relates to opportunityand that has procurement and e-business ramifications A procurementsystem may afford opportunity for corrupt or unethical practices such as

E-business and project procurement 223

collusion or bribery E-business affords the opportunity to hack intosystems manipulate transactions and commit other fraudulent acts It isthis reason and the widening vulnerability of individuals and organisationsthrough electronically linked devices systems and data bases that behovesus to ensure that procurement systems design-in and enact appropriatesecurity and protection measures these go beyond what is legally requiredto what is sensible and prudent

A further issue is the degree to which locking in a supply chain to aspecific set of tools or approaches can restrict competition or collaborationIn an interesting example while not related to e-business but sharingcommon issues a study of 30 projects associated with the Taipei MassRapid Transit (MRT) programme showed that the governmentrsquos deliberaterestrictive procurement practices locked out local contractors for biddingand when these practices ceased costs for the same type of work dropped atan average of 26 (Wei et al 1999) The issue related to pre-qualificationcriteria which favoured large multi-national contractors with high levels oftechnical and management expertise that should have provided excellentvalue for money as well as knowledge transfer However due to politicalfactors at the time many global companies did not find tendering for thework attractive so that the pool of potential bidders was drasticallyreduced thus leading to higher bids A similar danger presents itself whena common set of e-business tools are required to be used that may restrictpotential supply chain partnersrsquo ability to collaborate through these strictpre-qualification hurdles being in place

Finally there are valid concerns about the ownership and right of use ofe-collected meta-information such as details about searches undertakenusing search engines Indeed it has been speculated that the meta-dataabout each individual using the search engine Google currently comprises amassive (as far we know) untapped information base that can be mined forsale as marketing data for e-businesses (Carlisle 2005) Organisations suchas Boeing have already seen the value in selling meta-data derived fromfacilities management (FM) and maintenance feedback information toclients thus transforming itself from a manufacturer to a services and FMorganisation and then to consultant and targeted informationknowledgeprovider In the final transformation it uses a range of data miningtechniques to use historical repair maintenance and other data about itscustomersrsquo use of its products and services to enable it to develop newinformation and knowledge-based business activities (Szymczak andWalker 2003) To enable customer data in whatever form that takes to beused either for project effectiveness improvement or for additional businessopportunities requires acknowledgement of data-information ownershiptogether with access and use rights This project procurement concernshould be addressed to facilitate informed consent of knowledge andinformation to be shared

224 Walker et al

Compatibility and interoperability issues ndash information modelling

This section discusses and explores how procurement choices can changethe relationship between parties in a supply chain so that what wasintended (the concept and design of a change action product or service) iseffectively translated into delivery of the expected outcome Often inconstruction and manufacturing for example the process required by theprocurement choice imposes barriers to creativity stemming from theoriginal concept to be transformed into a product that retains the creativevalue envisaged We will now explain how compatibility or incompatibil-ity between sub-systems (ie interoperability issues) can enhance or inhibitthe delivery of value encapsulated in the conceptual design beingtransformed into the change product or service project outcome The coreissue from this perspective is How in e-business can the supply chain usea common platform for developing design information that can be usedseamlessly in the production phase The solution to this problem that cantransform the way that projects are designed and physically delivered isthrough a common information model To do this all the supply chainmust be working on the basis that information is shared and automaticallytranslated from one user to the next This is an interoperability issueRecent research and development work on the development of informationmodelling is now presented to be explain this using the construction industryas its focus

Building Information Modelling (BIM) is a fundamentally differentapproach to project design and implementation (or architectureengineeringand construction from a building industry perspective) It can be said thatthe traditional way of documenting information has not fundamentallychanged in the last 500 years when symbolic language and orthographicdrawing methods where used to design and construct the buildings of theRenaissance period Orthogonal methods provided the communicationmeans for master builders to represent compressed information Drawingwas then introduced as a method of projection in which an object isdepicted on a surface using parallel lines to represent its shape onto abi-dimensional plane With the advent of Computer Assisted Design (CAD)in the 1980s (arguably computer-assisted drafting or drawing ndash but notdesign) a new means to produce and re-produce orthogonal drawingsemerged Although it offers clear improvements on using ink and paperdrawing as the communication medium has changed only from physicallyusing drawing paper on drawing boards to producing digital CAD-drafteddrawings This new CAD medium has provided improvements for accessreplication and sharing of building geometrical information however CADdrawings are still generated using straight and curved lines Thus whileinformation contained in project CAD drawing documentation has become

E-business and project procurement 225

much more complex and the medium to generate and share documents hasevolved the method to represent it has not substantially changed for overfive centuries

BIM is a method to represent building geometrical information in a three-dimensional (3D) space thus generating objects instead of orthogonaldrawings In a BIM environment individual 3D objects also become therepositories of embedded information and attributes related to a particularbuilding material or appliance Completed project information ordocumentation can be stored in a single-centralised database or federateddatabases where information is saved by individual teams in specialiseddomains If BIM is generated applying consistent rules and protocols BIMfiles can be shared across various software packages This would includethe ability to display and modify information in a range of formatsaccording to usersrsquo roles within a project or within the organisationVarious software applications could import a single file and viewperformcost tabulations 2D floor plans and 3D flow diagrams also interact withperformance dashboards where a range of scenarios could be explored withthe client or team members

Therefore generating BIM in consistent ways is important as it enablesthe exchange of information across software applications enabling improveddesign decisions and collaboration amongst project team members TheStandard for the Exchange of Product Model Data which reached the statusof Draft International Standard in 1994 (STEP ISO-10303) is amongst thebetter known standards in industry The STEP standard has successfullybeen implemented in mechanical engineering and manufacturing for overtwo decades now However this standard has proven to be less popular inthe building and construction industry ndash perhaps as a consequence of themore casual contractual nature in which the industry operates As aresponse to this an industry-purpose standard emerged about a decade agothis is called Industry Foundation Classes (IFCs) The IFC standard wasdeveloped by the International Alliance for Interoperability (IAI) and isdefined as follows12 lsquoIFCs are data elements that represent the parts ofbuildings or elements of the process and contain the relevant informationabout those parts IFCs are used by computer applications to assemble acomputer readable model of the facility that contains all the information ofthe parts and their relationships to be shared among project participantsThe project model constitutes an object-oriented database of the informationshared among project participants and continues to grow as the projectgoes through design construction and operationrsquo

The IFC has not seen its full potential so far some impediments mightinclude fear of losing intellectual property (IP) through sharing projectinformation Originally BIM data access was restricted to a common singledata repository ndash with all its attendant trust and security implications Thisis not currently the case Data can now be locally stored and distributed and

226 Walker et al

accessed according to individual project teamsroles In this way the IFCstandard for interoperability has evolved since the time when there was nointernet broadband and the storage mechanisms comprised central datarepositories Trust and security issues remain as current impediments forBIM adoption because designers still fear losing intellectual property

Since the emergence of the International Alliance of Interoperability (IAI)in 1995 various generations of IFCs have appeared including IFCs 10 in1997 IFCs 2 edition 2 released in May 2003 including the more recentIFCs eXtensible Markup Language (ifcXML) that uses extensible markuplanguage (XML) (Nisbet and Liebich 2005) This means that the standardfor data storage and interoperability is now aligned with todayrsquos webdevelopment thus this standard is more likely to reach a wider audienceThis should accelerate its pool of potential users across design client andcontracting organisations and into a wider supply chain

The active promotion of BIM interoperability and the IFC standard by theEU Software Copyright Directive has been instrumental in promoting BIMand interoperability at a European level Lueders (1991 3) in demystifyingIP and security issues cites the directive13 explaining interoperability betweencomputing components as being lsquothe ability to exchange information andmutually to use the information which has been exchangedrsquo This does not bydefinition mean that each component must perform in the same way orcontain all of the same functionality as every other one does

In a more global perspective the IAI has lobbied for and promoted the useand adoption of IFCs (and more recently for internet-based exchange meth-ods IFC ifcXML and the semantic web) to improve representation and inter-pretation issues (Nisbet and Liebich 2005) These may include the following

Automatic compilation of bills of material in digital form as input datato cost estimations and time scheduling The quantities can then beused for production preparation and on call deliveries from themanufacturers (savings ndash shorter time and fewer errors)

Automatically generated foundation for climate and energy simulationof all the spaces (savings ndash shorter time better solutions and energysavings during the lifetime) and

Fewer co-ordination errors (savings ndash reduced redesign and re-construction)

The European Interoperability Framework (EIF) definition identifies threeaspects to Interoperable BIM (Lueders 2005)

Technical ndash linking up computer systems by agreeing on standards forpresenting collecting exchanging processing and transporting data

Semantic ndash ensuring that transported data shares the same meaning forlink-up systems and

E-business and project procurement 227

Organisational ndash organising business processes and internal organisationstructures for better exchange of data

Examples of BIM adoption aligned with web technologies include thefollowing

Singaporersquos lsquoePlan Checkrsquo a government-driven initiative whichautomates the review process for drawings and checks planningproposals more accurately and in less time approving or rejecting themThis is because parametric information is loaded into a system (ieGovernment e-planning)

lsquoHITOSrsquo is a Norwegian governmental initiative to contextually andgeographically assess building proposals in a BIM especially on areasof urban context and geographical information systems (GIS)

Finland also leads in the adoption of BIM and has developed a series ofIFC compliant software applications including thermal andenvironmental analysis software such as Riuska and Ecotect

In Australia the Cooperative Research Centre for Construction Innovation(CRC-CI) in collaboration with the Commonwealth Scientific andIndustrial Research Organisation (CSIRO) has developed and tested a set ofIFC-compliant BIM tools and applications Some include LCAdesign forthe assessment of greenhouse emissions and embedded energy assessmentespecially during the selection of materials and building methods OtherCRC-CICSIRO application development includes the lsquoContract PlanningWorkbenchrsquo (CRC-CI 2002-056-C)14 which links 3D models with workschedules (also referred to as 4D models) Specifically the constructionplanning workbench automates the production of schedules withvisualising building site progression especially for in-situ concretestructures A current project includes the BIM Estimator which automatesquantity take-off in bridge design for the Queensland Department of MainRoads (CRC-CI 2006-037-D)15 and these are two amongst several IFCcompliant software applications recently developed in Australia

Other leading BIM development and implementation by privateinitiatives include Gehry Technologies with SOM architects who are cur-rently implementing BIM methodologies for building design and documentmanagement A current project includes a high rise building in Hong Kongwhich uses Digital Project (DP) as its BIM platform DP is based on CATIAby Dassault Systems16 which is a leading design software utilised in theaerospace and automotive industries DP is a software application whichperforms as CATIArsquos interface for architects structural engineers buildingservices engineers contractors and fabricators SMO architects reportedly17

have improved their relationship with the client and contractors BIM meth-ods are also enabling SOM to improve communication and collaboration

228 Walker et al

amongst architects engineers and team members improving thus designdecisions and collaboration amongst team members These improvementswould include the use of BIM as a construction planning and communicationtool including the use of work space allocation in building sites This isdone with zoning by colour coding ndash for instance work space demarcationand materials This has direct implications for site safety engineeringcommunication and logistics

A recurring question posed by most design practitioners exposed to BIMis whether BIM is worth the trouble Interestingly anecdotal reports indicatethat BIM will not be an option in the near future but suggest that it isexpected to evolve to be the method and the industry standard The questionthen becomes how to accelerate its adoption by the industry at largeImpediments such as the fear of losing intellectual property training issuesand cost concerns are amongst the main concerns for design consultants toadopt BIM (see Chapters 8 9 and 13 for more discussion on innovation andculture implications) However according to Gallaher et al (2004) interop-erable BIM documentation will be required by most private and public clientorganisations Various official reports relate to on the cost of ignoring inter-operability among software systems used in the construction industry suchas architectural and engineering tools project programming costing andscheduling tools (Gallaher et al 2004) Their report suggests that the costof non-interoperability is about US$158 billion in the US alone Arguablythose organisations not looking to implement interoperability will have topay a higher cost Although there is no hard evidence to back up this state-ment there will be a cost for ignoring it

BIMIFCs compliant software includes Autodeskreg Revitreg Nemetscheckreg

Archicad Vector Works and Bentlyreg TriFormareg Other standards forInteroperability include Autodesk Design Web Format (DWFreg) which isa shareware that enables users of other CAD applications that do notoffer built-in DWF publishing such as Bentleyreg MicroStationreg andSolidworksreg to create DWF files The fundamental difference between BIMand standards such as DWF is in the form and nature of the data becauseCAD-layered drawings are not understood by BIM as data objects

Some value propositions for the adoption of BIM are offered

spending more time on design and less on documentation intensifying collaboration because BIM models contain information

supplied and needed by all participants in a project until recently BIMimplementations mainly focused on using 3D models to improvedrawing production but the real promise of BIM lies in its applicationacross the entire project team especially in the area of improvedbuilding performance

automating 2D drawing production automating links between specifications and drawings

E-business and project procurement 229

improving the integrity and accuracy of information improving visualisation and communication especially for contractors

builders and other stakeholders encouraging the design team to think about an integrated design practice

and integrated design process as this forces all design consultants tothink about practical construction implications as they design

being an enabler for innovation parametric planning becoming a natural interface with GIS systems intensifying involvement of architects and other designers in construction

as they will be modelling virtual buildings improving direct control of computer-aided manufacturing (CAM) and

fabrication (previously known as CADCAM) this has already beenused successfully on the National Museum of Australia for example(Walker et al 2003 251ndash254)

improved explorations of form resulting in more innovative yet practicaldesign

modelling sustainability and mass customisation

A fundamental change in industry has to happen if BIM is to work Changecan come from Government enforcement client organisations identifyingadded value through its use the private sector identifying businessopportunities through its use or simply through general education acrossusers and designers Suggested value propositions for education includemeeting the following needs

for greater understanding among students and graduates of theprocess implications of design upon construction delivery

for integrating design and construction courses for promoting 3D thinking among students for facilitating a culture of collaboration through integrated learning by

the various disciplines involved in design and delivery of constructionprojects

for teaching BIM tools and applications for students to be ready to usethem

for understanding of buildability principles for improving decision-making riskbenefit assessment ndash defineforesee

impacts for introducing project management principles (4D modelling that is

integrating 3D design with project management tools) and for students to better understand the construction process and site

logistics through simulation and visualisation

CAD has perhaps been the major problem for BIM adoption asdrawings have been invariably committed to a hard copy version at

230 Walker et al

numerous (if not at every) stage of a construction project BIM alsosupports automation of drawings and blueprints production for examplethere is no need to draw floor plans cross sections or isometrics but onlyselect and print various views from the BIM model Another fundamentaldifference between CAD and web-enabled BIM is the ability to implementnew approaches for design assessment and obtaining planning permission

One of the main fears expressed by many design consultants is riskexposure to losing their design and intellectual property This has also beendiscussed and demystified First access to data and project information canbe restricted by password control in a similar fashion to that currentlyused by project intranets Second from a legal perspective breaking intosystems is no different to a burglar breaking into an office to stealinformation Third BIM and interoperability are not synonymous withcloning ndash interoperability means that building components which maydiffer in functionality can share information and use that information tofunction accordingly

Researchers who have studied this area of interest for over a decade18

suggest that the key to improve construction productivity relies upon itsability to operate more efficiently and effectively with less informationwaste and more knowledge sharing Information being transposed as iscurrently often the case even with CAD results in the potential formiscoding mistaken interpretation and other errors of transposition Inaddition needless multiple handling of information and data is a waste oftime and energy Similarly as has been discussed in Chapters 8 and 13knowledge sharing to achieve innovation is best facilitated throughcollaborative problem solving ndash BIM facilitates this In relation to electronicinformation management especially in the form of web-enabled buildinginformation modelling this means that managing and coordinating notonly blue prints but all documentation and project information fromdesign to property maintenance phases This presents a unique and newopportunity to diverse industries such as property construction and projectmanagement It is expected that electronic information management canprovide commercial efficiencies through more effective project procurementand supply chain management This is fundamentally different to CADeven web-enabled CAD (Design Web Format DWFreg)

The internet-enabled BIM as a network-enabled environment remainsin its infancy but we will see the situation swiftly change in the near futureThis principle is now giving rise to many new services previously tied to thephysical value chain and has resulted in completely new value chains beingcreated These include online BIM building product catalogues enablingengineers and architects to build BIM models and run simulation and visu-alisation scenarios It also facilitates prototyping and codes and specificationchecking Internet developments are offering new means for project collab-oration not just in collocated groups but also in virtual global team-workingand supply chain integration in a truly e-commerce environment

E-business and project procurement 231

Figure 72 illustrates how the BIM concept in the ArchitectEngineerConstruction (AEC) and FM professional group has been evolving anddiffusing over time It indicates BIM evolving from initial IFC centraldatabases to e-catalogues then into GIS into e-business as ifcXMLfacilitates opportunities for the expansion of BIM capabilities using webtechnologies

To conclude we argue that the IFCs and the Standard for the Exchangeof Product model data (STEP ndash ISO) are the most promising standards forinteroperability in the property and construction sectors The move towardsifcXML aligns with major web development initiatives and we envisagethat ifcXML will become one of the main enablers for its speedy adoptionand dissemination

For those interested in learning more about BIM model viewers you canlink to

IAI Karlsruhe Germany at wwwiaifzkdeifc TNO Delft Holland at wwwifcbrowsercomdownloadsBETAIFC

Engine Viewerexe DDS Oslo Norway at ftpftpddsnopubinstallIfcViewer

DDSIFCViewerexe

For further information about interoperability readers can access the IAI atwwwiai-naorg

The role of ITICT portals in procurement

Perhaps one of the most practical developments over the recent years is theway that web portals have dominated the user interface between system anduser and user and user During 1997 and 1998 research into use of ICT by

232 Walker et al

GIS

e-catalogue

IFC centraldatabase

BIM

in A

EC

FM

e-business

new directions BIM alignment with WEBtechnologies

ifcXML

Figure 72 BIM diffusion

major construction industry contractors and consultants in Australia andHong Kong revealed that most parties were only somewhat aware (havingheard of or read about) intranets but very aware use frequently as a matterof course the internet (Walker and Rowlinson 1999 chapter 8) Now mov-ing on a decade they appear ubiquitous for many if not most commercialgovernment and not-for profit organisations ndash Arthur Tatnall reports thatwhen undertaking a Google search for the word lsquoportalrsquo it revealed 356million hits He explains the term from its archaic roots meaning lsquoanentrance or gatewayrsquo and he discusses nine types of portals (Tatnall 20043ndash7) that we expand upon

Mega portals that link users to other portals that can be highlyextensive There seems to be a trend for much cross indexing of weblinks between organisations so that most portals now share this extensivemeans of linking those who conduct searches or seek information torelevant portal links

Vertical industry portals that are based around specific players such asthe construction procurement portal SITE19 also these can be part of avalue chain gaining access to special areas of business transactionthrough an extranet of linked internet web sites

Horizontal portals when used by a broad base of users across ahorizontal market ndash for example a site that links a range of businessesin a physical location to promote e-commerce such as Buzewest asdescribed in Pliaskin and Tatnall (2005) a wider scale network portalof this type would be Vicnet20 the Victorian (Australia) web site thataims to link a state-wide range of businesses as well as other usefulcommunity information

Community portals often set up by community groups to foster aspecific interest ndash for example one portal communitybuildersnsw21 isa site that helps people in communities to set up community activitiesexplains how to encourage volunteering and provides a range of accessto electronic resources and services that do not quite fall into a for-profitactivity These sites might also link to media outlets such as radio orprint or may contain blogs

Enterprise information portals (EIP) that are often gateways to acorporation contain the sort of information that interested parties candownload such as annual reports newsletters an email access point forfurther information and so on The global construction group BovisLend Lease provides a good example22 where a whole series of infor-mation particularly under their lsquopublicationsrsquo or lsquonewsroomrsquo areas isreadily available Apart from immediate responsiveness from requestinga download (annual report for example) the saving to both reader andhost corporation is considerable as it eliminates the need for staffproducing and packing off hard copy materials

E-business and project procurement 233

E-marketplace portals as described earlier in this chapter Pliaskin andTatnall (2005 6) provide an example of the Swiss company ETA SAFabrique drsquoEbauches23 that manufactures watches as a group ofindividual companies and presents itself through this portal as a unitedfront to customers as well as its suppliers

PersonalMobile portals this is a wide and expanding area ofdevelopment Pliaskin and Tatnall (2005 6) note that this technologyis being embedded in mobile phone technology That book publishedin 2005 indicates how quickly things have moved as now we seeBlackberryTM and many major mobile phone manufacturers offeringweb through phone video messaging and a host of services Some ofthe more remarkable developments include taking mobile phonetechnology and personal data assistants (PDAs) and linking them tohome appliances such as a robot dog that can wander throughout anarea like a watchdog sense danger (in terms of traces of smoke etc)and be accessed entirely by a mobile phone portal24 Clearly this has majorproject procurement implications as more integrated and e-connectedcomponents restrict the number of providers and force many organisationsinto highly relationship-based transactions

Information portals are moving beyond the printed media offering e-magsand e-newspapers25 The more widespread use of digital ration and TVstreaming as well as podcasting has revolutionised many media outletsThe Australian Broadcasting Corporation (ABC) Radio National (RN)has provided transcripts of programmes for several years26 and theyhave extended this to listening to programmes that have been set up forstreaming as well as automatic links between iPods and the ABC RNweb site so that as soon as you link your iPod to the internet it auto-matically downloads programmes that you have specified as beingmade available to you With a trend towards organisations in the sup-ply chain feeling the need to provide current information and commu-nicate 247 this technology is most likely to move from being generatedby media outlets and also many other organisations

The final portal type identified by Pliaskin and Tatnall (2005 7) isspecialisedniche portals that cater for special interest groups This typeof portal merges with the notion of communities of practice (COPs)and ICT tools that support these An example of one of these is the UKconstruction industry using the product Sigma Connect that connectsthe workforce within an organisation or across a range or organisationsvia the portal to share knowledge and maintain social contact (Jewelland Walker 2005)

The role and functioning of portals is rapidly changing with new ideasproducts and services coming on stream constantly All of these offeropportunities to rethink how the entire communication aspect of project

234 Walker et al

procurement will function In Chapter 3 we discussed stakeholders andtheir influence upon projects Maintaining contact with stakeholders toprovide information and data about projects is already becoming a keycompetence of PM (PMI 2003 2004) Using portals to do this is the nextlogical step

E-procurement trends and emerging themes

Organisations have recognised the benefit of e-procurement and spentsignificant efforts and funds on implementing e-procurement solutions It isforeseeable that electronic procurement will become lsquobusiness as usualrsquo andthe term e-procurement will disappear

Over the past 5ndash10 years e-procurement was mostly focused one-sourcing achieving cost savings due to the achievement of greater infor-mation efficiency and better use of economies of scale Greater informationefficiency since potential suppliers beyond spatial boundaries could besought and finding the lsquobest pricersquo for a certain commodity required lesstime and search cost

Similar to B2C price search mechanisms such as Pricegrabber FroogleEpinions and Shoppingcom pricing information for businesses has overallbecome more transparent Similar to the B2C search engines besides netprice additional information on product availability and shipping costs aswell as customer satisfaction feedback may be available Industry portalstypically provide contact information and in some cases directly allowprice queries There are however barriers to the adaptation of the B2Cmodel often goods are not commodities but highly customised andtherefore not easily comparable Up-front pricing for custom-engineeredgoods continues to require a request for proposal (RFP) process in order todefine the requirements which leads to a certain price for a certain scenarioFurther complexity emerges from taxes tariffs and export restrictions ininternational transactions which cannot always be anticipated and maysignificantly impact on cost scope and timeline for delivery

A better use of economies of scale through centralised procurement inlarge corporations or government entities or purchasing alliances forsmaller businesses which allowed generating economies of scale similar tolarger entities

One example for such use of economies of scale is MarketplaceNovation a purchasing alliance of approximately 2500 health care organi-zations in the US According to company sources (wwwnovationcocomaboutfact_sheetasp) Novation maintains agreements with over 500suppliers and distributors of medical laboratory and safety equipmentcapital equipment and services office supplies and other goods andservices The combined purchasing power of this e-sourcing provideramounts to US $25bn in annual purchases According to an early study in

E-business and project procurement 235

2000 the initial 31 hospitals to join this alliance saved approximately$12m annually a substantial amount of their procurement-relatedexpenses which spurred rapid growth of the service

Three major trends could further propel e-procurement

Seamless Process Integration Further Reduction of traditional procurement activities and Comprehensive Decision Support

Seamless process integration and process outsourcing

While e-procurement efforts over the past 10 years have focused onpurchase transactions these transactions need to be integrated into thelarger picture of the end-to-end supply chain

For example a radio frequency identification (RFID)-enabled inventorymanagement system in a warehouse may enable a more responsive andhighly automated procurement process Shelf-mounted readers will detectthe removal of a palette containing boxes of a product and report thereduction in inventory to the procurement system Based on this real-timeinventory data and assumptions of future demand which may result frombuying trends developed from historical and seasonal informationcommodities can now be ordered automatically based on rules defined bythe procurement officer Such rules can look as follows lsquoProcure x amountof product y to be delivered no later than on date z at the lowest possibleprice point using a preferred vendor listrsquo Such automation of the actualprocurement process allows procurement officers to focus on high-valueactivities such as the definition and validation of procurement strategiesEven greater precision will be achieved with a more granular tracking ofcommodities as costs for RFID tags and readers continue to decline andlarge wholesalers and retailers (eg Wal-Mart) aggressively push theirsuppliers towards the adoption of RFID box- and item-level tagging willallow the most accurate and timely prognosis of product demand

Other applications where RFID tags are integrated into the product willalso allow triggering early procurement For example tags which monitorwear and tear on mechanical equipment will permit more precise mainte-nance forecasts a machine operator would identify early wear on machinetools or motors a fleet operator could more accurately predict the need fortyre replacements (and orders) based on actual wear rather than mileage-basedestimates

Such a seamless process integration where human intervention is limitedto exception cases and process control will allow further increases in savingsfrom e-procurement since

standardised procurement tasks can be further automated

236 Walker et al

procurement specialists can focus on

ndash the definition and implementation of procurement strategies ratherthan order execution Such strategies include vendor andproductservice selection standards scenarios for procurementvendor due diligence and market analysis

ndash exceptional cases which require special attention due to largeorders lsquounusual requirementsrsquo orders which are critical to thesuccess of the business and so on and

order processes can be accelerated which in return allows lowerinventories and therefore further reduced inventory cost

From a technical perspective such process integration is catalysed by webservices which allow the integration among heterogeneous and distributedsystems Due to the nature of web services which are independent fromprogramming languages hardware platforms and operating systems trueinteroperability can be achieved

Further reduction of traditional procurement activities

If procurement is an auxiliary rather than a core process for an organisa-tion the entire process may be outsourced and managed by a serviceprovider with speciality expertise in e-procurement (see The Next Level ofE-Procurement Laura Powell Public Utilities Fortnightly Nov 2006 14411 20ndash21) Besides the core expertise in e-procurement such a serviceprovider can offer two additional cost-related benefits (a) throughproviding additional economies of scale for example by establishingeMROs and (b) by executing remaining manual procurement activities inlow-cost locations off-shore

Another change related to traditional procurement activities is the replace-ment of human negotiating processes through e-negotiations E-negotiationsare executed through electronic agents who exchange offers (quotes) acquiremarket information and subsequently engage in negotiations towards anacceptable agreement for detail on e-negotiation strategies27 Replacing thehuman negotiating processes with e-negotiations represents another changeto traditional procurement practice

Comprehensive decision support

Lastly e-procurement will further accelerate information efficiency ofmarkets allow better analysis of supplier satisfaction market prices termsand conditions and other procurement parameters In return this informationwill allow further fine-tuning of procurement decisions whether executedby procurement specialists or through electronic agents

E-business and project procurement 237

As stated before procurement specialists will be less involved intransactional processes around the order execution but rather focus onstrategic procurement aspects such as selection of preferred vendorsdefault procurement methods and negotiation strategies and so on

Successful e-procurement initiatives will hinge on the ability to buildscalable and adaptable solutions which will grow and develop withchanging business needs and allow for new procurement mechanismswhich cannot be foreseen at this point In this regard process maturity andthe ability to use ICT effectively and efficiently can become a criticalbusiness success factor

Lastly decision making will be assisted by continued development ofe-tools that measure monitor and compare procurement options Forexample the construction industry uses a lsquobill of quantitiesrsquo that is aschedule of all items comprising the project scope to assist in costmanagement at the design stage This will be extended to provide similarinformation on project scope in terms of water use impact embodiedenergy and CO2 footprint impact

Chapter summary

In this chapter we began with Figure 71 which illustrated how manyorganisations are moving along a trajectory of increasing integration ofcommon information knowledge and data The current term that mostpeople recognise as describing this process is e-business which has movedbeyond the transfer of financial data and information such as invoices billspayments and so on to the transfer of complex models of the project outcomethat can be viewed by all participants in a way that suits their needs

We explained some of the fundamental terms in current use that describethe various forms of e-commerce which is an important part of e-businessWe discussed drivers and inhibitors of e-business and also discussed legalsecurity and ethical issues The movement of organisations in supply andvalue chains along the e-business maturity continuum led us to discuss animportant barrier that is being overcome through great research and devel-opment effort into interoperability so that a project can reduce informationand wasted management effort caused through re-creating informationmodels at each step in a supply chain We devoted a substantial part of thechapter to interoperability issues This is because a common platform forrepresenting an electronic form of project design (that can be presented tosupply chain parties in the form shape and structure that best suits their useof the information) provides an exciting opportunity to substantiallyeliminate current information duplication and waste practices It also offersmany improvements in visualisation and simulation modelling A BIM canbe used to measure a projectrsquos environmental lsquofootprintrsquo This could providea powerful e-business application to facilitate development of the kind of

238 Walker et al

instruments and decision support tools able to determine the basis for acarbon trading currency that (as was mentioned in Chapter 4 carbonemission control is an important emerging triple-bottom-line issue) willneed to be addressed in making project procurement choices

The section on the role of ITICT portals linked previous concepts to atool portals that allow a convenient interface between users and thevarious e-business applications These will be and are governed by thedesign of security and access designed by portal developers Monitoring andtracing user preferences and search patterns can help such systems tocustomise the appearance of the portals to fit the userrsquos habits as we expe-rience when using standard packages such MS Word which can lsquorememberrsquothe latest nine documents accessed for example However as was indicatedin the section on legal ethical and security issues users continually leave atrace of data on preferences and search history that can be mined to targetand shape business opportunities This aspect of business development maynot be welcomed by users ndash customers or supply chain participants This isbecause it could represent an infringement of privacy or cooption ofintellectual property relating to user habits and preferences and soprocurement systems need to address this important and potentiallycontentious side effect of e-business applications This section offered anatural prompt for us to discuss future and emerging e-business trends

The key theme to this book is project procurement and a recurringelement has been value that can be realised through collaboration andinformation and knowledge sharing and use We have endeavoured todiscuss the wide and disparate topic of e-business with a focus on how itcan be used in a project procurement context Our research into thisinteresting and evolving topic area leads us to believe that e-business canenable improved procurement systems however the implications for PMand all in the supply chain are that participants will need to be ICT literateand will also need to accommodate fears of sharing data information andknowledge so that supply chain management becomes value chainmanagement linked to a procurement choice that demands participants arelinked through protocols that allow this to happen

Vignette

E-business and project procurement 239

The election of 2010 devastated the government of Howard Shrubpresident of lsquoEmulandrsquo as satirists referred to the country whosegovernment had steadfastly refused to acknowledge rising electoralconcerns about climate change sustainability and offshore outsourcingthat had left many companies hollowed out shells with small numbersof very highly paid senior managers based in regional headquarters

240 Walker et al

and hoards of resentful ex-employees Many of the recentlyunemployed had been forced to down-scale their expectations of acareer by taking less attractive jobs when changing employmentTheir vote was their sole legal remaining means of protest Shrubretired to his ranch while many of his erstwhile governmentcolleagues sought refuge in returning to their electoral homes asquietly as possible The new government elected with a massivemajority based on a platform of radical change set about trying toimplement its political agenda through a series of innovativeinfrastructure projects The PublicPrivate Partnership (PPP) approachwas still deemed viable by the new President Greenyard administrationbut it was considered to need a radical overhaul A few pilot demon-stration projects had been mooted as an innovative way forwardvalidated by the election promises made in the winning campaign thatwas still fresh in everyonersquos minds

One of the programme of projects that Greenyard announced wasthe expansion of an integrated public transport system in Sunburnethe capital city of one of the southern states The vision for that pro-gramme was not only to improve transport but also to move thenation towards complete energy self-sufficiency This was to be a 15-year programme of integrated projects to change the transport cultureof the millions of citizens who had overwhelmingly voted for policytransformation For several years an increasing number of them hadbeen using gasoline-electric hybrid cars Also these commuters hadthe capacity to use their residential solar panels to power their carsand home and feed back surplus energy into the power grid

A new 200 kilometre mid-city rail beltway was to be constructed tolink the spoke-and-hub rail line configuration that currently existedThe beltway was to use an above-ground electric monorail systemFourteen new stations were to be constructed with park-and-ridefacilities for commuters to reach stations by bike or car the carshaving docking stations where they could be recharged Those partic-ipating in residential energy co-generation to feed the electricitypower grid could gain benefit from an electronic metering system thatcalculated debits and credits for parking offset by power generationfrom electricity co-generation

A bill was quickly passed by Greenyardrsquos government affectingconstruction of the stations The bill required permits for all newbuildings to be issued only when the owners provided sustainabilityplans that projected each onersquos carbon emission lsquofootprintrsquo specifiedcounter measures and had an electricity co-generation implementationplan Generous credits were indicated as an incentive and increasinglysevere penalties for non-compliance were proposed over a 10-year

E-business and project procurement 241

period A further requirement imposed upon those parties in anysupply chain that would be involved in the pilot projects (and inferredfor most future projects) was that all project design documentationwould be based upon a commonly accessible BIM and that a newproject portal development was part of the lsquoprojectrsquo to link notonly the supply chain for the pilot project delivery but also citizensto be able to gain information from government and feed backcomments and suggestions as it was being developed delivered andoperated

This programme was linked to an industry renewal strategy thataimed to turn lsquoEmulandrsquo into a highly e-business and ICT literatenation A significant barrier to participation in any government pro-ject was lack of ability to work to the new procurement policies Theindustry renewal policy aimed to refresh the nationrsquos capacity moti-vation and ability to develop solar energy farming technologies It hadonce been a world leader before the Howard Shrub government hadignored supporting or nurturing this sector preferring to rely on off-shore solar and alternative energy developments An education andtraining renewal strategy was aimed at providing the necessary sup-port to improve the skills of citizens and business

The pilot projects particularly the Sunburne Public Rail TransportBeltway project were recognised as very expensive but valuablelearning exercises to trigger ambitious innovation on a scale neverattempted before With an overwhelming political mandate and arealisation that a step change was desperately needed Greenyardanticipated that his government had at least two if not three or moreterms of office to clearly demonstrate positive results and radicaltransformation Procurement policies held a pivotal place inGreenyardrsquos government strategies

Issues to ponder

1 Provide examples of three forms of e-business that is inferred inthis vignette

2 Discuss the three most important drivers and barriers to theproposed adoption of e-business as indicated in the programme

3 The PPP approach would tend to severely narrow the field ofpotential participants in such an ambitious and bold programmeProvide three examples and discuss their implications of legalethical and security issues that you feel may challenge thedevelopment of this project

4 The above project assumes that a BIM can be provided to linkproject participants Discuss what you consider are the three most

Notes1 See wwwbhpbillitoncombbhomehomejsp accessed on 27 May 20062 See wwwkaneconstructionscomau accessed on 27 May 20063 See note 24 See wwwapccgovau accessed on 27 May 20065 See wwwpaypalcomauau accessed on 27 May 2006 6 See wwwaustraliagovau accessed on 27 May 20067 See www1apdellcomcontentdefaultaspxc auampl enamps gen accessed on

27 May 20068 However the cost for establishing the infrastructure for e-business may also be

quite expensive because while the transaction cost might be very low it is notzero (eg procuring market data etc)

9 See wwwautoexchangecom accessed on 27 May 200610 See wwwautoviaukcomindexhtm accessed on 27 May 200611 KPMGrsquos bi-annual Forensic Fraud survey wwwcgsconzfilesFraud-Survey-

2004pdf accessed on 27 May 200612 Source wwwiai-naorgtechnicalfaqsphp IAI accessed 20 January 200713 See httpeuropaeuintsmartapicgisga_docsmartapicelexapiprodCELEX

numdocampnumdoc 31991L0250ampmodel guichettamplg en accessed on 27May 2006

14 See CRC-CI 2002-056-C Cooperative Research Centre for ConstructionInnovation Contract Planning Workbench wwwconstruction-innovationinfoindexphpid 32 accessed on 27 May 2006

15 See CRC-CI 2006-037-D Cooperative Research Centre for ConstructionInnovation Automated Estimator Commercialisation wwwconstruction-innovationinfo accessed on 27 May 2006

16 See www3dscomproducts-solutionsplm-solutionscatiaoverview accessed on27 May 2006

17 See GT 2006 Gehry Technologies ndash Digital Project wwwgehrytechnologiescom18 For further details on standards many papers and reports see wwwiai-

internationalorgResourcesRelated_PublicationsSourceshtml accessed on 27May 2006

19 See wwwciteorguk which is described by its home page as CITE is acollaborative electronic information exchange initiative for the UK constructionindustry where data exchange specifications are developed by the industry forthe industry enabling the industry to move forward together

20 See wwwvicnetnetau its stated reason for being on its home pagestates lsquoThe Vicnet Division provides community internet services to Victoriannot-for-profit organisations Through Vicnet the State Library of Victoriadelivers information and communication technologies and support services

242 Walker et al

value-adding advantages that it may produce Also highlightthree challenges to its use and how these may be mitigated

5 The project has an extremely long time horizon for its implemen-tation Discuss the most important (in your opinion) example ofemerging trends that may significantly impact upon this vignetteprogramme in terms of FM collaborative decision making andthe balance of on-shore and off-shore supply chain participation

which aim to strengthen Victorian communities Vicnet works with a wide rangeof not-for-profit community organisations including sporting recreationaleducation multicultural health and arts groups It also provides services to thegovernment education and welfare sectorsrsquo

21 See wwwcommunitybuildersnswgovaubuilder accessed on 27 May 200622 See wwwbovislendleasecom and explore that site23 See wwwetach accessed on 27 May 200624 See web-japanorgtrendssciencesci030414html Japanese companies seem to

be concentrating heavily on providing innovative services for elderly or disabledpeople living alone that are linked to mobile phone technology

25 See wwwprintdirectcom accessed on 27 May 200626 See wwwabcnetaurntranlisthtm and wwwabcnetaurnbackgroundbriefing

for downloading sound and podcast files accessed on 27 May 200627 See the research work of Prof John Debenham University of Technolgy Sydney

for example www-staffsocsutseduau~debenhampapersES03pdf) accessedon 27 May 2006

References

Akkermans H A Bogerd P Yucesan E and van Wassenhove L N (2003) lsquoTheImpact of ERP on Supply Chain Management Exploratory Findings from aEuropean Delphi Studyrsquo European Journal of Operational Research 146(2)284ndash301

Al-Mashari M Al-Mudimigh A and Zairi M (2003) lsquoEnterprise ResourcePlanning A Taxonomy of Critical Factorsrsquo European Journal of OperationalResearch 146(2) 352ndash364

Australian Procurement amp Construction Council Inc and DOLAC (1997) NationalCode of Practice for the Construction Industry Code of Practice Deakin ACTAustralia Department of Labour Advisory Council (DOLAC) Secretariat ndashDepartment of Workplace Relations and Small Business

Barnatt C (2004) lsquoEmbracing E-businessrsquo Journal of General Management 30(1)79ndash96

Barnes D Hinton M and Mieczkowska S (2004) lsquoThe Strategic Management ofOperations in E-businessrsquo Production Planning amp Control 15(5) 484ndash494

Carlisle W (2005) Googlemania Background Briefing Australia ABC RadioNational httpwwwabcnetaurntalksbbingstoriess1556705htm

Chan C and Swatman P A (2000) lsquoFrom EDI to Internet Commerce The BHPSteel Experiencersquo Internet Research Electronic Networking Applications andPolicy 10(1) 72ndash82

Duyshart B H (1997) The Digital Document Oxford Butterworth-HeinemannDuyshart B Mohamed S Hampson K D and Walker D H T (2003) Enabling

Improved Business Relationships ndash How Information Technology Makes aDifference In Procurement Strategies A Relationship Based Approach Walker DH T and K D Hampson Eds Oxford Blackwell Publishing Chapter 6 123ndash166

Gallaher M P OrsquoConnor A C Dettbarn Jr J L and Gilday L T (2004) CostAnalysis of Inadequate Interoperability in the US Capital Facilities IndustryResearch Report Gaithersburg Maryland US Department of CommerceTechnology Administration National Institute of Standards and Technology(NIST)NIST GCR 04-867 Final Report 2ndash8 210

E-business and project procurement 243

Gibson W (2004) Neuromancer New York Ace BooksHayes R H and Wheelwright S C (1984) Restoring Our Competitive Edge

Competing Through Manufacturing New York WileyIDC and Pang A (2001) eProcurement Ensures Visionary Companies a Place in the

New Economy httpwwworaclecomapplicationsprocurementIDC_wp_Compaqpdf accessed on 28 May 2006

Jewell M and Walker D H T (2005) Community of Practice PerspectiveSoftware Management Tools A UK Construction Company Case Study InKnowledge Management in the Construction Industry A Socio-TechnicalPerspective Kazi A S Ed Hershey PA Idea Group Publishing 111ndash127

Lawrence E Lawrence J Newton S Dann S Corbitt B and Thanasankit T(2003) Internet Commerce Digital Models for Business Sydney John Wiley ampSons Australia

Lovins A (2000) 8 October Natural Capitalism ndash A Lecture by Amory LovinsBackground Briefing Sydney ABC wwwabcnetorgrntalksbbingstoriess196391htm

Lueders H (1991) Interoperability and Open Standards for eGovernment ServicesBrussels The Council of the European Communities Volume 1 P 0111 42ndash46

Lueders H (2005) Linking up Europe The Importance of Interoperability fore-Government Services EU Commission Staff Working Paper Initiative forSoftware Choice Secretariat Interoperable Delivery of European eGovernmentServices to Public Administrations Businesses and Citizens 1ndash23

Nisbet N and Liebich T (2005) ifcXML Implementation Guide InternationalAlliance for Interoperability Modeling Support Group 1ndash48

Peansupap V and Walker D H T (2005) lsquoExploratory Factors Influencing ICTDiffusion and Adoption Within Australian Construction Organisations A MicroAnalysisrsquo Journal of Construction Innovation 5(3) 135ndash157

Pliaskin A and Tatnall A (2005) Developing a Portal to Build a BusinessCommunity Web Portals The New Gateways to Internet Information andServices Tatnall A London IDEA group 335ndash357

PMI (2003) Organizational Project Management Maturity Model (OPM3)Knowledge Foundation Newtown Square PA PMI

PMI (2004) A Guide to the Project Management Body of Knowledge Sylva NCProject Management Institute

Poon S and Swatman P (1999) lsquoAn Exploratory Study of Small Business InternetCommerce Issuesrsquo Infomation and Management 35 9ndash18

Sawhney M and Parikh D (2001) lsquoWhere Value Lives in a Networked WorldrsquoHarvard Business Review 79(1) 79ndash86

Sharma A (2002) lsquoTrends in Internet-based Business-to-business MarketingrsquoIndustrial Marketing Management 31(2) 77ndash84

Szymczak C C and Walker D H T (2003) lsquoBoeing ndash A Case Study Example ofEnterprise Project Management from a Learning Organisation Perspectiversquo TheLearning Organization MCB University Press 10(3) 125ndash139

Tatnall A (2004) Web Portals The New Gateways to Internet Information andServices Hershey PA Idea Group

Walker D H T and Rowlinson S (1999) Use of World Wide Web Technologiesand Procurement Process Implications In Procurement Systems A Guide to Best

244 Walker et al

Practice in Construction Rowlinson S and P McDermott Eds London EampFNSpon 184ndash205

Walker D H T Hampson K D and Ashton S (2003) Developing in InnovationCulture In Procurement Strategies A Relationship Based Approach Walker DH T and K D Hampson Eds Oxford Blackwell Publishing Chapter 9236ndash257

Wei L Raymond J K and Ahmad H (1999) lsquoEffects of High PrequalificationRequirementsrsquo Construction Management amp Economics 17(5) 603ndash612

Wilson R A (2004) lsquoEmployee Dishonesty National Survey of Risk Managers onCrimersquo Journal of Economic Crime Management 2(1) 1ndash25

E-business and project procurement 245

Chapter 8

Procurement innovation andorganisational learning

Derek HTWalker and Tayyab Maqsood

Chapter introduction

We have stressed throughout this book that effective project procurementconcerns value generation not simply cost minimisation The interfacebetween business strategy (see Chapter 5) and procurement often links inwell with performance measures (Chapter 6) and both culture (Chapter 9)and how to foster innovation and leverage knowledge and learning ndash thefocus of this chapter The purpose of this chapter is to help make explicitthe link between strategic intent developing learning strategies throughprocurement and PM practice and making project procurement choices

To achieve the objectives set for this chapter it is separated into threesections together with a vignette that presents a hypothetical situationalong with relevant questions that if answered will reinforce learning fromthis chapter

The first section deals with business strategy and innovation to identifyhow innovation and creativity can be important to many organisations andhow they may frame strategies to remain sustainable and competitive indelivering stakeholder value The second section discusses the nature ofinnovation and learning and provides some recent models that link it tostrategic engagement through procurement The third section focuses uponorganisational learning opportunities its advantages and its link toprocurement

Business strategy and project procurement

In Chapter 5 we discussed the nature of the firm how organisationsdevelop strategy and how that links to project procurement to gain andmaintain competitive advantage We explained how the resource-basedview (RBV) of the firm can shape an organisationrsquos strategy to useprocurement strategies as well as its internal development to shape itscompetitive niche We also indicated how a sub-set of the RBV argues thatlearning is a critical resource with which to develop and hone an

Innovation and organisational learning 247

organisationrsquos dynamic capabilities ndash so that it can be nimble and lean andquickly respond to competitive forces In this section we will furtherexplore how strategy develops and results in a procurement decision thatdefines the extent to which the organisation will integrate itself with itssupply chain (including its customers and other stakeholders)

Strategy and innovation level

We briefly explore Porterrsquos 5-forces model to link it to delivering competitiveadvantage Porterrsquos competitive strategy (Porter 1985 1990) identified fiveforces that shaped competitive advantage These are listed as follows

1 threat of new entrants2 bargaining power of suppliers3 threat of substitute products4 bargaining power of buyers and5 intensity of rivalry among competitors

Through analysing the nature and trajectory of these forces a firm couldadopt a competitive advantage by focusing on a narrow or broad targetwith the aim of positioning itself with a cost advantage (being the lowestcost provider) or a differentiation strategy (having a unique offering orposition in terms of brand reputation and gaining loyalty) Being innovativeand a better manager of knowledge than competitors means that if anorganisation is seeking a cost advantage then knowledge and innovationcan enable it to be efficient and keep abreast (if not ahead) of its competitorsIf the organisation is seeking a differentiation advantage doing somethingdifferent providing a (near) unique product or service or having systemsand procedures that are efficient effective and difficult to replicate then itwill likely have a more lasting competitive advantage than having atemporary cost advantage ndash which may be breached through being readilyreplicated (or improved upon) or undermined through substituting inputsthat are commonly available Procurement choices are concerned withdeciding which organisations and clients a firm will collaborate with todeliver projects so that its business strategy should shape its decision ndash itmay for example seek out complementary resources if these are lackingAlso strategic procurement choices involve looking inwards and outwardsand making decisions about whether (1) either an exploration (outwardlooking) stance to discover new things should be taken or an exploitationof external resources or (2) to focus upon internal capabilities andresources (March 1991 Rothaermel and Deeds 2004)

The Porter model allows us to understand procurement from theperspective of the competitive forces he identified The new entrantschallenge revolves around building a competitive advantage that is difficult

248 Walker and Maqsood

to breach however it may well be the case that a new entrant may have anascent idea that can be capitalised upon by a dominant player In this caseit is in the interest of the dominant player to join forces with the lsquobrightsparkrsquo and attempt to develop a sum that is greater than the potential oftheir parts Thus alliances joint ventures and partnering arrangements canmake sense so long as the parties have appropriate levels of trust anddistrust (see Chapter 9 for more detail on this) The bargaining power ofsuppliers can be accommodated by taking a lean supply chain approach(Womack et al 1990 Womack and Jones 2000) Alternatively a leadsupplier position can be taken through looking at the strategy of workingwith global providers at various levels Ferdows (1997) provides a modelfor achieving this strategy based upon global factory production andoutsourcing where players advance up the value-adding supply chain Theethical and business costbenefit needs to be considered when making achoice Threat of substitute products can and should be seriouslyconsidered so that (as in judo) a confrontational force can be not onlydeflected but turned against the aggressor In procurement strategy termsthis is concerned with building upon good ideas to match organisational-internal strengths and competencies to flip the substitute idea either out ofthe field or to morph it with other innovations and absorb it into a morepowerful and sustainable offering The bargaining power of buyers can alsobe accounted for One way is to overwhelm them by being a sole supplieror make it very difficult to switch Alternatively as has been suggested byDorothy Leonard-Barton (Leonard-Barton 1992 1995 Leonard andRayport 1997 Leonard and Sensiper 1998) a firm can work with itsclients and buyers to provide more value than either parties separatelyproviding the end productservice Intensity of bargaining power ofsuppliers can be strategically dealt with by offering non-obvious advantagesto form alliances that can form synergies so as to equalise or reassert a moresecure position at lsquothe tablersquo ndash where sophisticated negotiation in procurementcomes in to play Rivalry among competitors can be handled with adefensive strategy that allows co-opting competitor competence (Prahladand Ramaswamy 2000) or domination

In this section we may have given the impression that being innovative toachieve a differentiation competitive advantage is a path worth taking Ofcourse in doing so we are assuming a level of business sophistication thatmay well be beyond many organisations However most organisations state(judging by the rhetoric of the business press and by annual reports) thatcost competitiveness is lsquokingrsquo Certainly producing value for money requiresa keen eye on costs as well as innovative and smart ways of deliveringoutcomes (both tangible and intangible) So we need to consider the formsof competitive strategy that organisations adopt These forms differ fromthe lsquoschoolsrsquo of strategy described in Chapter 5 in that they are actionsrather than philosophical stances

Innovation and organisational learning 249

Miles and Snow (2003) provided a neat typology of strategic characteristicsof a firmrsquos strategy under four organisational types ndash prospector analyserdefender and reactors As Croteau and Bergeron (2001) note firms chooseone type over another depending upon the perceived business environmentProspectors wish to have access to the largest possible market and arehighly innovative in bringing change to unsettle their competitors Theyintroduce innovative offerings and aim to be the supplier of first choice tothose organisations that are willing and wish to pay a premium to be lsquoaheadof the packrsquo Defenders are less innovative than prospectors or rather theyare less agile so they need to select niches that they are comfortable in anddefend these aggressively They will concentrate on finely honing their costsand quality of offering so that they fend off competitors as long as is possi-ble to make the costbenefit worthwhile Analyser firms have a bit of bothprospector and defender in them They tend to resemble the early adoptercategory of innovator as outlined by Rogers (2003) These organisationsruthlessly select their market segments and position themselves where theycan best maximise their outcomes They are happy to hold second place andlearn from the innovators to improve their offerings relative to thosechallenging them These organisations believe that they can maintain astrongly competitive position from learning from the mistakes andexperiments of innovative prospectors and do so more effectively than theirlsquoalso-ranrsquo competitors The final group are reactors This group expendenergy in countering competitors in value-negative or at best neutral wayssuch as spending money on marketing public relations legal battles and

Organisationrsquosenvironment

Competitive approaches

Strengths

Threats

WeaknessesCompetencies

CultureResourcesCompetitorrivalry

Prescriptive

CoalescenceCollaborationCooperationCompetition

Reactor

Defender

Analyser

ProspectorConfigurativeDescriptive

Suppliersrsquobargaining

power

Threat of newentrants

Threat of substituteproducts

Buyersrsquobargaining

power

Strategic penchant

Opportunities

Figure 81 Firmrsquos characteristics shaping its procurement decisions

250 Walker and Maqsood

other superficial ways to try to exclude competitors or reduce the surfacingof innovative ideas that challenge their ability to deploy these ideas In thefirst three of this four-typology model the emphasis is upon innovationand alliancing or finding value-adding ways to deal with change andopportunity In the fourth example energy is not aimed at productserviceinnovation ndash rather perception management

In Chapter 5 we discussed the summary of strategic schools of thoughtoffered by Mintzberg et al (1998) This helps us to discern the penchantthat influences or dominates an organisationrsquos strategic stance When thatinfluence is combined with an understanding of an organisationrsquos environ-ment governed by the competitive forces that Porter (1985 2001) envis-ages (informed by an organisationrsquos knowledge of the limitsscope of itsresources competencies and culture to perceive the strengths weaknessesopportunities and threats that it faces) organisations can begin makingdecisions about how its procurement strategy might be shaped Its naturalcompetitive approach (based upon its perception of its lsquoworld viewrsquo andhow that affects it) further shapes an organisationrsquos procurement approachFigure 82 illustrates this set of forces that shapes procurement decisionmaking

An organisationrsquos strategy-making group will see the task of procurementdecision making with a penchant for one or more schools of thoughtoutlined in Chapter 5 that will help explain the way that such decisions aremade The result can determine the extent to which it will form relation-ships with its supply chain Walker and Hampson (2003a 45) describe howenterprise networks partnering and alliances develop They use the idea of

Coalescence

Collaboration

Cooperation

Competition

One-off contract Repeat businessPartnering

OpportuniticJVAlliance

CommittedJVAlliance

Incr

easi

ng v

alue

thr

ough

Tru

stC

omm

itmen

tK

now

ledg

e sh

arin

gJo

int

coor

dina

ted

prob

lem

sol

ving

Figure 82 Increased value from forming relationships

Innovation and organisational learning 251

a continuum of the degree of objectives alignment between supply chainentities from low to high as providing increasing potential benefits throughpartnering and cooperation based on Thompson and Sanders (1998 74)

The lowest level is competition where there is a complete disconnectbetween the partiesrsquo objectives and often this results in each link in thesupply chain trying to take advantage of gaps in scope specification to claimlsquoextrasrsquo and generally devoting a lot of energy into anticipating conflicts orreacting to attacks from others (in the form of claims and counter-claims)This changes to a point where through cooperation the parties have somelimited commonality of objectives There may be a formal attempt to alignthe project delivery goals through partnering arrangements as discussed inChapter 2 This releases some of the reactive energies and reduces theburden of administrative effort in preparing for conflict Well-definedescalation plans allow problems and conflicts to be better dealt with bythose with appropriate authority to make commitments lsquostickrsquo As thealignment increases towards collaboration there is a substantial overlap ofinterests organisation-specific objectives and benefits (including innovationand knowledge generation and transfer) that become more evident As thisrelationship becomes more encompassing it can reach a stage of coalescencewhere genuine mutual objectives are addressed by the parties and thealignment reaches a point where there is a tight rather than loose fit ofgoals methods processes infrastructure support and even culture This ismanifested in intense joint problem solving and communication that canimprove both innovative capacity and knowledge management (KM) asillustrated in Figure 82 here Tightness of fit between strategy andoperational delivery is recognised as being more productive and likely tolead to successfully meeting objectives (Miles and Snow 1984)

Figure 82 illustrates the links between level of cooperation andrelationship between organisations in a project supply chain and increasedvalue generated through increasing trust commitment knowledge sharingcoordinated joint problem solving and other cultural understanding aspectswhich permit energy to be directed towards innovation and coordinatedeffort rather than defensive routines In this way organisations are placedcloser to strategically acting like prospectors or analysers (Miles and Snow2003) not so much by strategising productservice offerings to the marketbut rather in their attitude towards their contribution towards the projectgoals and vision

Given the holistic nature of this book it is not surprising that wepromote the idea that most organisations that are likely to be sustainableare better advised to follow an innovation and knowledge intensiveroute to achieve development of products and services that are sustainablebusiness prospects We have stated our bias as leaning towards innovationand learning and so we will proceed upon that path To that end it is worthbriefly discussing how alliances joint ventures and close collaborative

252 Walker and Maqsood

groups can synergise their efforts towards producing value-adding projectoutcomes

Relational-based project delivery ndash partneringjoint venturing alliances

In Chapter 2 (procurement choices section) we discussed relational-basedproject delivery systems broadly under partnering arrangements (oftenunder competitive tendering arrangements) and the formation of joint ven-tures and alliances In this chapter we concentrate on these as facilitators ofinnovation and learning

The literature on partnering and its advantages is substantial Numerousstudies and reviews have been undertaken in many countries in the USA(Weston and Gibson 1993 CII 1996) in the UK (Bennett and Jayes 1995Mathews 1999 Akintoye et al 2000 Bresnen and Marshall 2000 Daintyet al 2001 Bresnen 2003) and in Australia (Lenard et al 1996 Lenard1999 Uher 1999 Walker and Hampson 2003b) The general consensus isthat partnering assists and facilitates an environment in which trust candevelop and in which an orderly dispute resolution process can be agreedupon so that cross-organisational teams can work together for joint benefitHowever as was pointed out by Walker et al (2002) in partneringindividual organisations in a project supply chain may sink while othersmay swim A principal point of departure that is evident from their casestudy of the National Museum of Australia (NMA) which was deliveredunder a project alliance arrangement was that the alliance locked in(through its rewards and penalty arrangements) that team members onlyfelt consequences of gain or pain from acting jointly rather than separately

Project joint ventures are legal arrangements whereby separate organisa-tional entities form a project team together to deliver projects Large-scaleconstruction infrastructure projects common for example in Hong Kong(HK) have tended to be delivered using joint ventures (JVs) of global andlocal construction organisations The main reason why individual oftenvery large construction companies do so is to offer a customer-focusedservice package which meets that customerrsquos needs (Walker and Johannes2003a) While one motivation for establishing JVs has been to spreadfinancial and other risks there is a strong motivation to better capturelearning so that this hidden and intangible asset may be later applied toimprove JV partnersrsquo competitive advantage (Walker and Johannes2003b) Figure 83 illustrates this motivation based upon interviews withnine CEOssenior executives of JV partners and 40 site management staffon three case studies undertaken in HK (Johannes 2004) The benefitshighlighted that including intangible benefits such as enhanced reputationbrand image improved organisational learning and enhanced businessopportunities are consistent with the literature dealing with other industries

Innovation and organisational learning 253

For example in e-commerce JVs originators develop content syndicatorspackage content and distributors deliver the product (Werbach 2000 87)Doz and Hamel (1998) provide many examples of advantages of formingalliances which bring together separate skill sets that may lead to JVs in aseparate entity that develops new businesses though they caution us abouthow one firm may take advantage of another firm in a JV in a hiddencompetitive ploy to dominate a market Cross-border alliances and JVscan provide valuable knowledge insights through close interaction betweenpartners This was particularly the case with US and Japanese alliancesin the 1980s and 1990s (Bleeke and Ernst 1993) An important point madein most of the literature is that JVs and alliances should be managed with acareful power symmetry in mind (based on financial or intangiblecontributions) so that strategic decision making is not dominated by oneparty that way trust and commitment is more likely to survive

It is evident from the more current literature (Miles and Snow 1995Miles et al 2005) that the most successful business models that promoteagility innovation and rapid adaptation to turbulence that is so prevalenttoday are for organisations to form formal or informal networks Thesego beyond the kind of regional alliances found in the Milan region forfashion or Silicon Valley for electronics (Porter 1998) or keiretsu links

Skillscompetenciesidentified

Projectopportunityidentified

$ Profits

Org 2Org 1

1- Realise project outcomeswith maximum return to JV

partners 2 - Realise learning fromJV partners

Intellectualproperty

Reputation andbrand image

Learningapplied to

future JVs orstand alone

Betterunderstanding ofJV partners for

future JV projects

Andthrough joint

learning

JVformed

leading toOrg n

Figure 83 JV and learning

Source Walker and Johannes 2003b 111

254 Walker and Maqsood

in Japan or chaebol in Korea (Dyer et al 1998) The current crop of allianceorganisations form virtual and global linkages based upon common cultureand trust that ensures that contributions made by partner organisationsreceive due benefit (Miles et al 2005) These types of organisations haveresponded to the difficulty in attracting talent and fully utilising that talent inone central organisation by forming alliances (both formal and informal)as a cluster of atomic-like small firms that focus around a constellation oftalented entrepreneurs This is what Miles and Snow (1995) refer to as thespherical form and they cite an Australian Sydney-based firm technical andComputer Graphics (TCG) as an example of this kind of CAD organisationalform that procures its required resources through a loose alliance of like-minded players This concept moves them well beyond their earlier prospectorand analyser type firms to a form that deploys a business model in which it

1 identifies a market niche (much like an analyser would do)2 finds a development partner (probably as a JV partner)3 locates a major customer (which may involve the customer being a

significant interactive problem-solving contributing partner)4 involves other TCG firms (part of their alliance network which

typically has 5ndash10 professionals) and5 extends the triangle in new directions (often new and innovative

applications will emerge as part of the creative and innovative process)

This new organisational form has a governance regime dominated by astrict set of ethical codes of practice along with cultural norms (Miles andSnow 1995 9) This form of procurement and its governance structurevalidates the importance of transparent ethical frameworks being estab-lished (see Chapter 4) and a strong culture (see Chapter 9) because thealliance works effectively through affective commitment simply becauseenergy is not wasted in dispute resolution rather conflict is centred oncreative abrasion (Leonard and Straus 1997) which stimulates innovativeideas The organisational form typified by TCG overcomes many of themore structured and formal internal and legally complex arrangementsidentified as causing failures in network organisations during the 1990s ndashthe paradox of coping with a turbulent environment using tightly linkedorganisational structures (Miles and Snow 1992)

Figure 84 illustrates how the core organisation will need to respond insourcing its required talent in this networked organisation age The coreorganisation will require well-aligned infrastructure ndash this is not new andhas been advocated for a long time (Miles and Snow 1984 Pettigrew andFenton 2000) The key message is that by managing the central elements ofthe organisational infrastructure particularly information communicationtechnology (ICT) supporting people to be innovative the sum is far greaterthan its constituent parts Pettigrew and Whittington (2003) argue that

Innovation and organisational learning 255

managing structures processes and boundaries (relating to deciding the scopeand scale of what will be internally managed and what will be outsourced)is crucial and that mismanaging one can have a leveraged adverse affect asmuch as managing all of these three elements well can have a leveragedimprovement in performance Figure 84 illustrates its core activities asleadership (stressing both strategy and deployment) stakeholder relationshipmanagement ICT support financial and resource support and strategichuman capital (see Chapter 10 for more discussion on this issue) Four humancapital activities are highlighted as needing to be excellent a customer rela-tionship management (CRM) system that can track individual employeeswith rare and valuable skills as knowledge workers (ESkies) facilitatingskills development opportunities ndash these could include a community of prac-tice (COP) approach mentoringcoaching knowledge events training andseminar type events leadership development to ensure that those in leader-ship roles in the organisation have sufficient acumen and ability to persuadeand inspire others and an active facilitation of KM and organisationallearning (OL) recognising knowledge and innovative capacity-delivery asthe most significant asset that this type of organisation possesses People insmall organisations with the type of person required for complex projectwork of this nature will work on the projects and there will be manyprojects managed by this type of organisation More detail of this concepthas been presented elsewhere (Walker 2005)

This section argues that the competitive environment exerts pressuresupon organisations that may hold a particular competitive approach (thatthey tend to respond with) and that coalescence into a committedrelationship best serves most of todayrsquos knowledge-intensive organisations

Project organisations

Coreorganisation

Project 2Project 1

ICTsupport

Leadership

Stakeholderrelationship

MgtStrategic

HC

$ + otherresources

Project n

ESKie n

ESKie 2ESKie 1

Individual employeeskilledcontracting knowledgeworker (ESkies)

Strategic human capital (HC)function activities1 CRM2 Facilitating skills development opportunities3 Leadership development4 Facilitating KM and OL

Figure 84 Alliance implications for procurement

Source Walker 2005

256 Walker and Maqsood

These organisations need to be highly adept at effectively managing theirinfrastructure and particularly need a superbly functioning strategic HRdepartment that nurtures not only its employees but also its lsquoextendedfamilyrsquo of regular value contributors This view sets procurement choiceupon a new plane and requires new levels of sophistication of how to relateand collaborate with people and supply chain members This view moveswell beyond the limits of relying on an organisationrsquos legal or contractsadministration department to ensure that projects are successfully delivered

Learning and innovation ndash a procurement perspective

This section focuses upon how learning and innovation can be encouragednurtured and facilitated through an appropriate procurement strategy

The literature from the USA UK Australia and elsewhere confirms thatdemanding clients and users are good for triggering innovation In a large-scale study of innovation in the Australian construction industry it is clearthat demanding clients expect and through their explicit or implicitexpectations and procurement practices trigger their project delivery teamsto develop innovative products processes or services (Manley 2006 Manleyand Mcfallan 2006) a case in point is the NMA project mentioned earlierin this chapter where one of the selection criteria was a lsquodemonstrated abilityto add value and bring innovation to the projectrsquo (Walker and Hampson2003c 91) Examples from the UK include a demand-side set of driversthough the pressure emerges from both the client and the deliverer trying togain a competitive edge by offering valuable alternatives to those initiallyexpected (Gann and Salter 2000) Other UK studies also indicate a role fordiscerning clients and project providers as well as the role of the professions(Winch 1998 2005) US studies indicate a similar pressure that arises fromconstruction clients who demand cleverer solutions to their projectproblems and professionals who wish to deliver more value (Tatum 1984Slaughter 1998) Added to this is the influence that some of the USliterature suggests is exerted by lead users of innovations who undertakebeta testing or forms of alliance can influence development of products andprocesses (Von Hippel et al 1999) Organisations work with such usersthrough a process termed lsquoempathic designrsquo where solutions are developedin the field through trial-and-error experimentation and observation oflead users who can help perfect innovative solutions when developingproducts services and processes (Leonard-Barton 1992 1995 Leonardand Rayport 1997 Leonard and Straus 1997) All these examples fromacross many continents and disciplines share a central idea that innovationis unleashed from the creative and curious interface between clients andusers who wish to explore new and more useful ways to do their job(Leonard-Barton 1992 1995 Leonard and Rayport 1997 Leonard and

Innovation and organisational learning 257

Straus 1997) This supports the inference that if clients choose to include arequirement to demonstrate innovative capacity in delivering projects thatserendipitous value may be generated as an outcome provided that theclient side of the team has the capacity motivation and open mind toengage in experimentation

Recent research provides a useful model that helps to explain the processAt first Figure 85 appears somewhat crowded and complex but it is com-posed of several simple ideas that are highly relevant to PM procurementchoices It acknowledges that the external environment with its inherentcompetition and opportunities and threats exerts a powerful dynamic thatdrives motivation to innovate Opportunities for access to knowledgerepositories exist for firms through their professional bodies universitiesand shared sources such as COPs These sources pushoffer access toresearch outcomes and other knowledge forms such as theoretical frameworksand case study data often with an expectation or hope that the organisa-tion will reciprocate by feeding back some of the firmrsquos internal knowledgebank into that source for validation or enhancement through collaborativeinvestigation Thus there are both knowledge push-and-pull forces exertedbetween the external source and the organisation The organisationpossesses existing knowledge through its people and processes and this is

External sources of innovations contributing to external knowledge bankincreasing with time

Pull PullPullGAPGAPGAP bw

researchamppractice

Push

Culture

Existing knowledgein organisation

People

Process TechnologyProcess

Process

Stage 3Ideal transformed stateStage 2

Transformation in processStage 1Before transformation

Learning organisation

Knowledge management initiativesKnowledge management

initiativesKnowledge management initiatives

Exte

rnal

env

iron

men

t C

ompe

titio

n T

hrea

ts

People

Innovation

Innovation

People

Cycle repeatsand refines

Internal knowledge

bank improved

Internal knowledge

bank further

improvedInternal

knowledge

bank

Innovation

Culture

Culture

Knowledge after certainlearning

Knowledge in theorganisation afterfurther learning

Technology

Technology

Time line

PushFeedback

FeedbackFeedback

Push

Figure 85 An innovation trajectory

Source Maqsood (2006b 174)

258 Walker and Maqsood

enabled by its technology infrastructure Knowledge is mainly forced intothe organisation with much effort as a push force with very weak pull forcesallowing knowledge to be fed back to the outside world for validation andenhancement This represents a state in which there is a low level of organ-isational learning influence from outside While this may be adequate forshort-term survival if the organisationrsquos internal knowledge capital base isstrong it will inevitably miss signals of external change and turbulence sayfrom substitute offerings by competitors or players outside the lsquoindustryrsquothat could enter the competitive field In this sense an organisation may beeither a prospector defender or reactor in the Miles and Snow (2003)typology An organisation at this stage is also missing valuable opportunitiesto innovate through empathic design as indicated by Leonard and Rayport(1997) and Von Hippel et al (1999)

Stage 1 illustrated in Figure 85 indicates the stage that most organisationsare currently experiencing People processes and technology may be poorlyaligned so that there are barriers to the generation and flow of knowledgeand while it is used it may be sub-optimally applied ndash this is indicated by theseparation of these three elements and the weak link by dotted linesProcesses may be traditional for the industry with little experimentationandor they may be somewhat ad hoc Technology support could includewidespread use of groupware and portals as discussed in Chapter 7 but theaim of its deployment would centre on data processing rather than informa-tion processing and coordination storage and retrieval of explicitly recordedinformation rather than developing and extending communities of practicePeople would be linked to technology and processes through more formalmeans in standard ways with little experimentation on how to lsquotweak thesystemrsquo and there may be a general satisfaction with the way things workwhen compared to past times when IT was solely about data processingand processes were recorded in lsquothe manualsrsquo The organisational culture isinward looking and hence the barriers to outside influence are impeded by animpervious barrier ndash indicated by the thick boundary lines Organisationsmore acutely aware that they should continuously improve would be under-taking limited experiments in using groupware as a KM tool such as LotusNotes Yellow Pages for finding and sourcing within-firm experts etc In arecent study of three of Australiarsquos leading construction contractors observedKM initiatives included development of portals for information retrievallimited within-firm communities of practice for ICT use enhancement andinformation and knowledge storage through the portal for aspects such assafety reporting lessons learned and other explicit knowledge repositories(Peansupap 2004 Peansupap and Walker 2005a)

The greater the number and more intense the scope of these KMinitiatives the greater is the chance that the organisation is moving towardsor entering the Stage 2 development Experimentation and reflection onexperiments undertaken are key elements in an organisation increasing its

Innovation and organisational learning 259

capacity (to assimilate external knowledge) to absorb further change andembed learning moving towards being a learning organisation (Cohen andLevinthal 1990 Gann 2001 Caloghirou et al 2004) This is becauseexperimentation and actively seeking external knowledge assists in (1) devel-oping language and meaning (ie jargon lsquoin-termsrsquo and technical language)that can be shared easily with outside sources (2) being better able tocategorise and conceptualise external knowledge and thus be in a positionto internalise this knowledge and apply it to the workplace (3) better ableto discern patterns and the potential value of external knowledge (Cohenand Levinthal 1990)

The degree to which an organisation is oriented towards seeking externalknowledge varies according to the type of organisation According toMeacheam (2006) an organisationrsquos KM stage of development can be cat-egorised by analysing it in a 9-cell matrix On the vertical axis he createsthree rows representing the lsquoknowing cyclersquo (1) the way it makes sense ofknowledge received transferred and generated (2) the way it createsknowledge and (3) the way that it uses knowledge for decision making Onthe horizontal axis he constructs three columns representing support struc-tures identified by Croteau and Bergeron (2001) the organisations infra-structure (its technology physical assets that allow people to interact andtools) its infostructure the rules and processes that allow people to com-municate and infoculture the background knowledge that actors haveembedded about their world and workplace and the way that the organisa-tion encourages or restricts knowledge transfer Meacheam (2006) arguesthat using the Miles and Snow (2003) typology of prospector analyserdefender and reactor can help explain how and why different organisa-tional types seek knowledge from external sources in different ways Thistypology is useful in assessing where an organisationrsquos maturity level maylie in terms of Figure 85 as well as explaining what level best fits thatorganisation For example a prospector will be seeking knowledge aboutwhat external markets fail to currently deliver and what internal innova-tions it can hone reshape or further develop to aggressively lead its com-petitors An analyser would need to carefully seek external knowledge fromthe market and identify potential for finding a specialised niche market forits productsservices and learning as an early adopter (Rogers 2003) how itcan improve upon lead innovators A defender organisation would be con-centrating to a large extent on knowledge that it can muster to stay in themarket and lower costs and raise barriers to entry by others perhapsthrough continuous improvement and incremental improvements in itsofferings A reactor organisation is poor at knowledge absorption and findsitself continually under threat and perhaps uses external and internalknowledge to mount campaigns to fend off competitors use spin-doctoringto advertise its offerings in the most favourable light possible and restrictwhat it may view as dangerous or subversive leakage of proprietary

260 Walker and Maqsood

knowledge from the organisation Meacheam (2006) offers insights thathelps to explain an organisationrsquos likely trajectory along the Maqsood(2006a) model presented in Figure 85

Stage 2 of the Figure 85 model indicates an organisation that has reducedthe imperviousness of the boundaries between the organisation and the out-side world and has also better integrated its people processes and technol-ogy There is stronger evidence of knowledge creation transfer and use forproblem solving as well as a greater degree of feedback of knowledge to betested and validated by external sources such as academia professional asso-ciations clients and competitors (perhaps through undertaking benchmark-ing exercises) This stage indicates a more or less equal push and pull ofknowledge KM initiatives are more prevalent and intense in scope and thesepropel the organisationrsquos learning and develop its absorptive capacity

At Stage 3 an idealised condition is contemplated The people processesand technology is completely seamless and embedded The boundaries arehighly permeable and there is a greater export of knowledge for validationthan is being imported This model appears similar to the sphericalorganisational form advanced by Miles and Snow (1995 Miles et al 2005)as discussed earlier While this appears to many organisations a dangerous andinsecure way of managing its critical knowledge assets it may be that such astate provides greater advantages for rapid innovation and commercialisationthan its downside of being vulnerable to exploitation by its competitors AsMiles and Snow (1995 9) indicate organisations that operate in this way needto have a strong culture clear governance and cultural protocols filteringmechanisms to exclude predatory organisations and as indicated by Walker(2005) in Figure 84 a superb strategic human capital management system

The main implications for procurement choices discussed in this sectionrelate to how organisations may present themselves as a learning partner offirst choice in alliances or in developing their internal dynamic capabilitiesand knowledge resources Further the models presented thus far indicatethat organisations that work closely together (either by collaborating onprojects or developing innovations through synergising their particularskills base) need to align their development and use of ICT Before we leavethis part of the discussion we should look at how some of the underpinningtechnologies such as ICT may best be diffused Results from a recent studyundertaken by Peansupap (2004) for his PhD extensively published in theliterature with Walker provides revealing insights into the drivers of andbarriers to ICT diffusion that operate at the organisation (macro) project(meso) and individual (micro) level (Peansupap and Walker 2005ab2006ab) The study surveyed 117 management staff from three largeAustralian construction organisations and was supplemented by a follow-up qualitative study that assists us understand how three large Australianconstruction contractors that routinely use ICT in a project environmentdiffuse ICT innovation

Innovation and organisational learning 261

Innovation diffusion is defined as the process in which a new idea conceptor technology has been introduced throughout a social system over a timeperiod (Rogers 2003) The term lsquoICT diffusionrsquo is defined in this chapter asthe process by which an ICT application is adopted and implemented by anorganisation until its expected users accept and transfer knowledge of howto use these ICT applications throughout the organisation

Wolfe (1994 407) identifies three streams of innovation diffusion researchDiffusion of innovation (DOI) research addresses patterns of how innovationspread throughout a studied group of adopters Organisational innovative-ness (OI) addresses the determinants of how innovation occurs ndash focusedupon the organisation Process theory (PT) addresses the process of innova-tion and how and why adopters carry out innovation Stages of innovationhave been classified in various ways He notes 10 stages idea conceptionawareness matching appraisal persuasion adoption decision implementa-tion confirmation routinisation and infusion (Wolfe 1994 410) whileRogers (2003 199) offers five stages knowledge persuasion decisionimplementation and confirmation The outcome of the study reported upon inthis chapter was specifically focused upon PT for the actual implementationstage of the ICT applicationrsquos deployment

Using factor analysis the Peansupap (2004) study identified 11 factorsinfluencing ICT diffusion in these organisations These fell into four cate-gories ndash management (M) technology (T) individual (I) and environment (E)Also the model indicates (thick-lined elements in Figure 86) how ICTdiffusion takes place from initial adoption to actual implementationthrough six key ICT diffusion processes and how each factor impacts uponthose diffusion processes

1 developing new business practicesprocesses2 organisational adoption of the ICT decision3 preparing for the initial use of ICT applications4 reinforcing the actual use of the ICT applications5 clarifying benefits of ICT application use and6 developing a positive perception towards ICT and ICT diffusion

The extent of the influence of these factors is presented in Table 81Results from two phases of the study are presented in Table 81 The 11 factors are grouped by factor categories as illustrated in Figure 86The rounded mean values are based on 1 very low to 5 very highfrom the survey results of the three Australian organisations a governmentdepartment a global consultant and a major contractor The three casestudy results for the factors are based on qualitative research based uponinterviews with a representative sample of staff from three majorconstruction contracting firms the major contractor in the survey wasincluded in the qualitative study All organisations are based in Australia

262 Walker and Maqsood

1 New Business PracticesProcess

2 Organisationaladoption decision of ICT

External ICT knowledge andconstruction knowledge

Basic IT skills Capabilityto learn Previous

experience

Technologycharacteristics

Improvement [M I T E]

Yes

Act

ual i

mpl

emen

tatio

n st

age

Initi

al a

dopt

ion

stag

e

No

Develop negative emotionstowards ICT

3 Initial of ICTapplications

4 Actual use of ICTin world

5 Clearbenefits of use

6 Develop positive per-ception towards ICT use

Supervisor andOrganisation support

Professional development(ie Training)

Technical support(ie help desk)

Problems

M

I

T

E

Colleaguersquos help andsharing environment

Open discussion environment Assist

Communities of practicesICT Diffusion ICT Resistance

Assist

No

Yes

Assist

Assist

AssistLimited

knowledge

Management category

Thickened indicate organisational ICT diffustion processrs each is numbered

Industrial category Technology category Environment category

Figure 86 The framework of ICT innovation diffusion with an organisation

and the contractors typically turn over in excess of AU$1 bn per year andall three have experience of using IT for well over a decade An implicationthat can be drawn from this study is that there is consistent support for thenature of ICT diffusion amongst these ICT-sophisticated users to be seen asrequiring

1 users that have already experimented with IT applications and thushave built up an absorptive capacity for grasping how to use new ICTtools and have developed some confidence in their ability to tackle andovercome problems when learning how to use new ICT tools

2 management needs to financially support and resource an ICT help orassistance infrastructure that includes training help desk facilitiesone-on-one lsquohand holdingrsquo and providing a reward system even if thisis focused on less tangible rewards such as promotion prospects

3 an ICT infrastructure that provides real and tangible benefits from itsuse and is sufficiently free from technical problems to not hinder orfrustrate users Users commented negatively about ICT infrastructurewhen it tended to relate to low speedlow bandwidth access on site orwhen technical issues interrupted their access and use of ICT tools and

Innovation and organisational learning 263

4 A workplace culture and environment that supports collegial help andknowledge exchange deters or at least not rewards knowledgeinforma-tion hoarding and allows the safe lsquospacersquo for criticism and feedback whenpoor performance is evident for management support or technical support

It becomes clear from the above research study that if a procurementapproach is intended to include the need for a supply chain to engage in theshared use of common or well-interfaced ICT tools outlined in Chapter 7e-business then participating organisations will need to

source staff with requisite entry-level ICT skills have a minimum ICT infrastructure that includes management support

as well as technical tools equipment and support develop and maintain a workplace culture that is rich in sharing knowl-

edge and information and allows dissenting voices to be assertive indemands for support to use available tools and foster enthusiastic com-mitment to achieve benefits through collaborating with users of thisessential ICT infrastructure

Table 81 Comparison of ICT user experience of resulting innovation diffusion factors

Factor description Survey Case Case Case rounded study study studymeans org A org B org C

Individual (I) factors 38F3 Supporting individualpersonal 42 bull bull bull bull bull bull bull bull bullcharacteristics

F2 Clear benefits of ICT use 41 bull bull bull bull bull bull bull bullF9 Positive feelings towards ICT use 36 bull bull bull bull bull bull bull bullF10 Negative emotions towards ICT use1 18 bull bull bull bullEnvironment (E) factors 39F6 Supporting an open discussion 39 bull bull bull bull bull bullenvironment

F8 Collegial help 39 bull bull bull bull bull bull bull bull bullManagement (M) factors 32F5 Supervisor and organisational support 38 bull bull bull bull bull bull bull bullF1 Professional development and 33 bull bull bull bull bull bull bull bull bulltechnical support

F7 Supporting tangible and intangible reward 24 bull bull bullTechnology (T) factors 35F4 Supporting technology characteristics 37 bull bull bull bull bull bull bull bullF11 Frustration with ICT use1 17 bull bull bull bull

Notes1 Negative factors therefore a low value implies high emotions towards ICT applicationsbull Low level of perceived present factorsbull bull Medium level of perceived present factorsbull bull bull High level of perceived present factors ndash comparison between results of case study of threelarge global ICT sophisticated contractor organisations

264 Walker and Maqsood

The main gap in the discussion in this chapter so far relates to helping usunderstand how to better manage knowledge and its effective transfer thatacts as an effective trigger to spur innovation

Organisation learning KM and innovation

Many of the underpinning assumptions expressed in earlier sections in thischapter relate to how organisations undertake KM through the creationsharing transfer and then use of knowledge in a value chain However wehave not yet explained the KM process in this book Fortunately there is alarge and growing body of literature and several world class academicjournals that a key word search at a university library will readily locate

While many lsquofactsrsquo about objects may be said to be independently outthere (eg a sun that rises each day etc) it is only people who constructand create knowledge in their minds We could say that much knowledge isrecorded explicitly the knowledge we gain from manuals protocols andprocedures for example However even that type of knowledge is toodense and rich to be fully recorded and there are always acceptableexceptions to rules and workarounds We could say that such codifiedknowledge is partial knowledge or that manuals merely contain informationand data not knowledge Polanyi (1997) made the famous often quotedstatement that we know more than we can say and referred to knowledgeas being tacit that is unspoken and embedded His illustration of this wasour ability to instantly identify a familiar face out from a crowd and beingunable to explicitly and fully explain how we do that A business examplewould be how we solve a particular problem use a protocol or proceduresmanual or even to operate many software packages

A further knowledge-type concept is self-transcending knowledge thatlies beneath tacit knowledge and is knowledge that is not embodied ndash anexample of this is when an artist lsquoseesrsquo a painting or sculpture and knowsits form but the actual artefact remains within the stone or paints and mate-rials until liberated by the artist (Scharmer 2001) ndash a procurement solutiondesign could fit this metaphor where knowledge of the end product existsin part in a projectrsquos drawings or specifications but the artefact is not tan-gible until liberated by those involved in its production to lsquoliberate itrsquothrough their self-transcending knowledge process

One of the early KM theorists Nonaka (1991) offered some early KMconcepts He explained KM in terms of a spiral process referred to as theSECI cycle where tacit knowledge is shared between people in a socialsetting (S) this knowledge is then made explicit (E) through discussion ofexamples and metaphor that hone in on lsquodetailsrsquo it is then combined (C)with existing explicit codified knowledge in notes memos and proceduresand manuals and finally it is institutionalised (I) where it is formallyreframed by an organisation and embedded in the culture as lsquothe way that

Innovation and organisational learning 265

things are done around herersquo This all occurs in a setting where suchknowledge sharing is encouraged and fostered in a knowledge sharing spaceor environment ndash a lsquobarsquo (using the Japanese term) (Nonaka and Konno1998) This view of how knowledge is created captured transferred usedand then reframed in a KM cycle is more directly applicable to small groupsand individuals in its philosophy than for organisations

When applying this thinking more broadly to larger organisations wecan use the model developed by Crossan et al (1999) who envisaged theKM process in a larger organisational context as comprising the lsquo4IsrsquoIntuiting happens when experiences images and metaphors help to socialisean individualrsquos knowledge through expressing feelings and other tacitknowledge This is then processed by others through Interpreting thisknowledge and making sense of it it is further refined through Integratingthis new knowledge with the organisationrsquos existing knowledge base andthen finally Institutionalising it by embedding it into its culture androutines All this happens at the individual group and organisational levelwith the potential for insights and re-framing of knowledge to growmeaning rather than have it locked up as tacit individual knowledge Theprocess dynamic is driven by a feed forward lsquopushrsquo of knowledge and feedback lsquopullrsquo set of forces This looks at knowledge organisationally as aseries of stocks and flows (Bontis et al 2002) in which knowledge reservesare accessed and used restocked and replenished within an organisationand sustained by the organisation through people also with the organisationalimpact being more obvious than with the SECI model (Nonaka 1991Nonaka and Takeuchi 1995) This Crossan et al (1999) model howeverwhile being further refined than the SECI model failed to recognise thepowerful institutional and cultural forces at play For example peerpressure exerts a supportive or restrictive force at the individual levelGroup norms and leadership styles similarly affect the feedback and feedforward flows at the group level on individuals and also can force changeupwards Similar forces along with corporate governance (see Chapter 4)have a significant impact at the organisational level through providingdiscipline and domination drivers (Lawrence et al 2005)

The net effect of considering these forces is that a 4Is model with theimpact of power and influence considered provides us with a clearerpicture of the forces and pressures at work in managing knowledge This isillustrated in Figure 87

Influence during the intuition process can be episodic ndash affected bybehaviours such as moral suasion reward systems derived throughnegotiation It has implications regarding the way that champions of ideasemerge or are made available for those with intuitive ideas than can lead tosuccessful productive innovation Ideas need champions to argue andnegotiate for often scarce resources and they need to be backed by expertiseand a culture that readily brings these together Integration is also episodic

266 Walker and Maqsood

and requires force to regulate available behaviours to lsquopush throughrsquoinnovative ideas which may require organisational routines to facilitate theflow of ideas from a group or filter them in some way that helps contrastweak ideas with powerful ones The organisational systemic response toinstitutionalisation of innovative ideas and knowledge is through disciplineand domination ndash procedures and protocols that should ideally enhanceknowledge feedback and feed forward

The addition of the social political elements help make the Figure 87model more useful for us in attempting to design an optimal system tomaximise the potential for knowledge to flow more freely In the previoussection we discussed an organisationrsquos infrastructure (its technologyphysical assets that allow people to interact and tools) its infostructure (itsKM practices) and infoculture the background knowledge that actors haveembedded about their world and workplace and the way that the organisationencourages or restricts knowledge transfer (Croteau and Bergeron 2001Meacheam 2006)

A weakness in the above model that restricts our full understanding ofthe KM and innovation diffusion process is that knowledge is notoriouslylsquostickyrsquo ndash difficult to transfer and tends to stick to the person or groupgenerating it KM is about not only creating knowledge but its effectivetransfer for further refinement and use The above model makes the

Individual

Group

Intuition

Influence

Interpretation

Discipline anddomination

Force

Organisation

Institutionalisation

Institutionalisation

Integration

Social psychologicalprocesses

Feedback

Feed

back

Social politicalprocesses

Figure 87 The 4Is plus power

Source Lawrence et al 2005 183

Innovation and organisational learning 267

assumption that knowledge naturally flows but it does not indicate the flowspeedrate Szulanski (1995 1996 2003) undertook a PhD on the stickinessof knowledge and identified seven sources of knowledge stickiness Sourcelacks motivation (unwillingness to share knowledge) Source lacks credi-bility (the source lacks authority expertise or is perceived as unreliable oruntrustworthy) Recipient lacks motivation (doesnrsquot care) Recipient lacksabsorptive capacity (has not the background to perceive cause-and-effectlinks lacks underpinning knowledge or experience in experimentation toknow how to use the knowledge) Recipient lacks retentive capacity (forgetsvital details) Barren organisational context (the culture or governancestructure inhibits knowledge sharing) and Arduous relationship betweensource and recipient (lack of empathy trust or commitment to collaboratein the task of sharing knowledge)

He concluded from testing his model using canonical correlation analysisof a data set consisting of 271 observations of 122 best-practice transfers ineight companies that contrary to conventional wisdom blames primarilymotivational factors his findings show major barriers to internal knowl-edge transfer are knowledge-related factors such as the recipientrsquos lack ofabsorptive capacity casual ambiguity and an arduous relationship betweenthe source and the recipient (Szulanski 1996) These factors relate to indi-vidualrsquos and organisationrsquos ability to build and sustain social capital thatcould be designed into a procurement system

Nahapiet and Ghoshal (1998) argue that social capital relates to thestructural links and ties that facilitate a network of people who have therequired quality of knowledge to make it worth their interacting to manageknowledge and that they have a cultural match that allows sharing andtransfer to take place This is determined by the way they interact ndash howthey access and share knowledge their motivational drivers the value thatis expected from their interaction and their ability to share knowledgeThis links to knowledge stickiness which determines the rate scope andscale of knowledge transfer Figure 88 was developed from the abovetheory and adapted by Manu and Walker (2006) to enable benchmarkingof knowledge transfer among teams of foreign aid experts and a localconstruction supply chain on a Pacific Island aid project The model servesto illustrate how elements of social capital form part of the general threeinfrastructures identified by Croteau and Bergeron (2001) are relevant todesigning a procurement system with these three structures in mind

The thrust of this section has been focused upon exploring how KMoccurs People jointly solve problems and in doing so use and re-frameknowledge and they tend to transfer this to colleagues within and outsidetheir organisations One facilitating structure for this has been a COPdescribed as lsquoa group of people informally bound together by sharedexpertise and passion for a joint enterprisersquo (Wenger and Snyder 2000 139)

268 Walker and Maqsood

This notion of cooperation and collaboration to create and share knowledgeparticularly in a non-formal structure that was not initiated by organisa-tions following a KM strategy is an interesting construct that has beeninternalised by firms Also a COP has been shown to be a powerful situa-tional learning tool with small groups working on projects and reflectingupon their experiences (Orr 1990 Sense 2003 2004 2005) COPs haveevolved into forms that include their original informal arrangements butnow also include more formally structured and organisation-initiated forms(Storck and Hill 2000 Wenger et al 2002) COPs not only can be effectiveKM initiators but they also can significantly contribute to the delivery ofsocial capital that is an important intangible asset for organisations asit facilitates KM activities and can help build strong organisational culturesto assist effective governance Examples of a construction organisationestablishing a COP software infrastructure tool in the UK are provided byJewell and Walker (2005) and more informal COPs that involved ICT inAustralia (Peansupap and Walker 2005a) It is evident from these case studiesthat considerable social capital was being formed through that process

This chapter has focused upon how KM can assist in innovation inproject environments Several models were presented to illustrate theimportant underpinnings that are required to build social capital that assistsKM and can help reduce stickiness of knowledge so that it can be readilyshared and used The main point made is that KM can facilitate innovationthat in turn can provide value that would not otherwise be derived from

Social capital dimensions

Structural

Cognitive

Relational

The quality of theirlinks = establishment

The quality of knowledgeinteraction

People

Values

Networks

Expected valueof exchange

Determine thequality of

Motivationto exchange

Ability + capacityto exchange

Access to share +exchange

Determine the qualityknowledge created

SharingCombiningRe-framing

The cultural matchthat enables peopleto share knowledge

Social capital knowledgeuse activities

Stickiness

Transferredknowledge

Figure 88 Social capital and knowledge transfer

Source Manu and Walker (2006 480)

projects We stress that collaborative procurement arrangements best suitthis model and we also suggest and urge those making procurement choicesthat they should design the procurement system to maximise collaborationand easy knowledge transfer across the supply chain The authors developthis argument more specifically elsewhere (Maqsood et al 2007) While itmay be argued that relationship-based procurement approaches are morelikely to achieve this end it may be possible that more cost competitivearrangements could achieve the same end However when considering theorganisation type referred to at the start of this chapter (prospectordefender analyser and reactor) it is unlikely that reactors have the capacityto understand the subtle nature of how the infrastructure infostructure andinfoculture can be used to provide innovation and value beyond costreduction strategies

Vignette

Innovation and organisational learning 269

Helen Stakeholder First Developments (SFD plc) Pacific Regionrsquosnewly appointed Director of Procurement commissioned a managementconsultantrsquos report into how to best encourage innovation within thecompany and to strategically develop its business developmentplanning and implementation Six months ago the organisation hadlost a long-term alliance deal with a dynamic and the highly prizedclient PharmaXL who had been establishing pharmaceutical researchand production facilities across the region The stated reason for SFDnarrowly missing out to a rival SmartBuilt (that they had beenunaware even existed) was because that their rival was more proactivelyinnovative and this better matched PharmaXLrsquos corporate supplychain management philosophy SFD had always felt confident that itsnumerous awards and prizes for innovative construction and designby the Master Buildersrsquo organisations and several professional bodieswas proof of its leadership in this area Losing out to this lsquounknownrsquocompany had been a shock

The consultants report indicated that SFD was patchy in its uptakeof ICT innovations and other operationally technical innovations inconstruction technology While SFD had some great supply chainpartners who relished challenges most preferred to have contractresponsibilities well spelled out particularly with regard to trial anderror on innovations The SFD board had several solid engineers whohad been energetic leaders in the 1970s and were justifiably proud ofthe awards and excellence prizes that they had won in recent yearsand they felt that they had much to offer the lsquoyoungstersrsquo in theorganisation ndash if only everyone could find some extra time

270 Walker and Maqsood

SmartBuilt had been in existence for only five years and was a smallorganisation with a CEO and three principals with 60 permanentemployees based mainly in their Vancouver head office The threeprincipals comprised a Chief Operations Officer (COO) ChiefKnowledge Officer (CKO) and Chief Relationships Officer (CRO)The Vancouver head office provided total ICT support and theyseemed to have a string of alliances with construction contractors andengineering consultants all over the globe They had very smalldormitory offices that maintained a presence in a number of citiesSan Francisco Toronto Princeton NJ Singapore ShanghaiMelbourne Buenos Aires Santiago Helsinki St PetersburgStockholm Panama The Hague Cape Town Bangalore Dubai andSatildeo Paolo They also seemed to be linked with several leading univer-sities and several of the senior staff described as project managershad been co-authors on about 15 keynote conference presentationsjournal papers and book chapters with others from their universitycollaborators as well as some authors who appeared to be associatedwith some very heavy corporates that included PharmaXL and two ofits competitors

Helen read the report with deep interest so that she could makesome sensible suggestions to the board tomorrow She had tappedinto her university friends and network of colleagues from Arupengineering Skanska and Bechtel Most had heard of SmartBuilt andhad some interesting observations Trying to pin this organisationdown was like nailing jelly to a wall It had an alliance with manymore specialist PM groups individuals with wide global experiencebut this all seemed to have crept up over the horizon since 2000 Itsweb site and annual report seemed a bit unconventional as it stressedthat it only worked with clients and supply chain partners who wereprepared to join in a knowledge-impact evaluation system whichSmartBuilt administered There appeared to be a pre-alignment (pre-project start) agreement on identifying improved innovative practicesand the development of some kind of points system that worked likecurrency or assets but had future potential returns add-on valueand transformational value it was unclear from the web sites howthis unusual system worked One thing that was clear SmartBuiltseemed to work with a common group of supply chain partners andclients and the project teams floated in and out from somewherealmost at call The more that Helen tried to fathom how thisorganisation operated the more confused she became This seemed topresent a totally different business model to any she had previouslyencountered

Innovation and organisational learning 271

References

Akintoye A McIntosh G and Fitzgerald E (2000) lsquoA Survey of Supply ChainCollaboration and Management in the UK Construction Industryrsquo EuropeanJournal of Purchasing amp Supply Management 6(3ndash4) 159ndash168

Bennett J and Jayes S (1995) Trusting the Team Reading UK Centre forStrategic Studies in Construction The University of Reading

Bleeke J and Ernst D (1993) Collaborating to Compete ndash Using StrategicAlliances and Acquisitions in the Global Marketplace New York John Wiley

Bontis N Crossan M M and Hulland J (2002) lsquoManaging An OrganizationalLearning System by Aligning Stocks and Flowsrsquo Journal of Management Studies39(4) 437

Bresnen M (2003) The Seven Deadly Paradoxes of Partnering (Seven DeadlySins) TG23 ndash Culture in Construction International Conference onProfessionalism in Construction ndash Culture of High Quality Hong Kong 27ndash28October Fellows R pp 1ndash15

Bresnen M and Marshall N (2000) lsquoPartnering in Construction A CriticalReview of the Issues Problems and Dilemmasrsquo Construction Management andEconomics 18(2) 229ndash238

Caloghirou Y Kastelli I and Tsakanikas A (2004) lsquoInternal Capabilities andExternal Knowledge Sources Complements or Substitutes for InnovativePerformancersquo Technovation 24(1) 29ndash39

CII (1996) The Partnering Process ndash Its Benefits Implementation andMeasurement CII Bureau of Engineering Resources University of Texas atAustin CII Source Document 102ndash11

Cohen W M and Levinthal D (1990) lsquoAbsorptive Capacity A New Perspectiveon Learning and Innovationrsquo Administrative Science Quarterly 35(1)128ndash152

Issues to ponder

1 What level of alignment of process people and technology doesSmartBuilt appear to have achieved relative to SFD

2 Discuss three vital clues that are missing from the consultantrsquosreport that would help Helen better understand how an innovationculture was developed by SmartBuilt

3 Discuss three clues that suggest how SmartBuiltrsquos supply chainand customer partner choices might have evolved

4 Describe the top three innovations that SmartBuilt appears tohave been developing

5 Draw up a plan and justify how Helen may counter the competitivethreat that SFD faces when trying to align with other key customersor supply chain partners not currently aligned with SmartBuiltWhat are the options facing Helen and SFDrsquos board

272 Walker and Maqsood

Crossan M M Lane H W and White R E (1999) lsquoAn Organizational LearningFramework From Intuition to Institutionrsquo Academy of Management Review24(3) 522ndash537

Croteau A-M and Bergeron F (2001) lsquoAn Information Technology TrilogyBusiness Strategy Technological Deployment and Organizational PerformancersquoThe Journal of Strategic Information Systems 10(2) 77ndash99

Dainty A R J Briscoe G H and Millett S J (2001) lsquoSubcontractor Perspectiveson Supply Chain Alliancesrsquo Construction Management amp Economics 19(8)841ndash848

Doz Y L and Hamel G (1998) Alliance Advantage ndash The Art of Creating ValueThrough Partnering Boston Harvard Business School Press

Dyer J H Cho D S and Chu W (1998) lsquoStrategic Supplier Segmentation TheNext ldquoBest Practicerdquo in Supply Chain Managementrsquo California ManagementReview 40(2) 57

Ferdows K (1997) lsquoMaking the Most of Foreign Factoriesrsquo Harvard BusinessReview 75(2) 73ndash88

Gann D (2001) lsquoPutting Academic Ideas into Practice Technological Progress andthe Absorptive Capacity of Construction Organizationsrsquo ConstructionManagement and Economics 19(3) 321ndash330

Gann D and Salter A J (2000) lsquoInnovation in Project-Based Service-EnhancedFirms The Construction of Complex Products and Systemsrsquo Research Policy29(7ndash8) 955ndash972

Jewell M and Walker D H T (2005) Community of Practice PerspectiveSoftware Management Tools A UK Construction Company Case Study InKnowledge Management in the Construction Industry A Socio-TechnicalPerspective Kazi A S (Ed) Hershey PA Idea Group Publishing pp 111ndash127

Johannes D S (2004) Joint Venture Contracting Relationships Between Foreignand Local Contractors in the Construction and Engineering Industry of HongKong Implications of Understanding Collaborative Practice PhD ThesisMelbourne RMIT University School of Management

Lawrence T B Mauws M K Dyck B and Kleysen R F (2005) lsquoThe Politics ofOrganizational Learning Integrating Power into the 4I Frameworkrsquo Academy ofManagement Review 30(1) 180ndash191

Lenard D (1999) lsquoFuture Challenges in Construction Management Creating aSymbiotic Learning Environmentrsquo Journal of Construction Procurement 5(2)197ndash210

Lenard D J Bowen-James A Thompson M and Anderson L (1996) Partnering ndashModels for Success Adelaide Australia Construction Industry Institute Australia

Leonard-Barton D (1992) lsquoThe Factory as a Learning Laboratoryrsquo SloanManagement Review 34(1) 23ndash38

Leonard-Barton D (1995) Wellsprings of Knowledge ndash Building and Sustainingthe Sources of Innovation Boston MA Harvard Business School Press

Leonard D and Rayport J F (1997) lsquoSpark Innovation Through EmpathicDesignrsquo Harvard Business Review 75(6) 102ndash113

Leonard D and Sensiper S (1998) lsquoThe Role of Tacit Knowledge in GroupInnovationrsquo California Management Review 40(3) 112ndash132

Leonard D and Straus S (1997) lsquoPutting Your Companyrsquos Whole Brain to WorkrsquoHarvard Business Review 75(4) 110ndash121

Innovation and organisational learning 273

Manley K (2006) lsquoThe Innovation Competence of Repeat Public Sector Clients inthe Australian Construction Industryrsquo Construction Manangement andEconomics 24(12) 1295ndash1304

Manley K and Mcfallan S (2006) lsquoExploring the Drivers of Firm-level Innovationin the Construction Industryrsquo Construction Management and Economics 24(9)911ndash920

Manu C and Walker D H T (2006) lsquoMaking Sense of Knowledge Transfer andSocial Capital Generation for a Pacific Island Aid Infrastructure Projectrsquo TheLearning Organization 13(5) 475ndash494

Maqsood T (2006a) An Investigation into the Role of Knowledge Management inSupporting Innovation for Construction Projects PhD Thesis Melbourne RMITUniversity School of Business Information Technology

Maqsood T (2006b) The Role of Knowledge Management in SupportingInnovation and Learning in Construction PhD Thesis Melbourne RMITUniversity School of Business Information Technology

Maqsood T Walker D H T and Finegan A D (2007) lsquoFacilitating KnowledgePull to Deliver Innovation through Knowledge Management A Case StudyrsquoEngineering Construction and Architectural Management 14(1) 94ndash109

March J G (1991) lsquoExploration and Exploitation in Organizational LearningrsquoOrganization Science A Journal of the Institute of Management Sciences2(1) 71

Mathews J (1999) Applying Partnering in the Supply Chain In ProcurementSystems A Guide to Best Practice in Construction Rowlinson S andP McDermott (Eds) London EampFN Spon pp 252ndash275

Meacheam D W (2006) The Effects of the Miles and Snow Organisational Typeon the Knowledge Management Methods of Organisations PhD Thesis SydneyMacquarie University Graduate School of Business

Miles R E and Snow C C (1984) lsquoFit Failure And The Hall of Famersquo CaliforniaManagement Review 26(3) 10ndash28

Miles R E and Snow C C (1992) lsquoCauses of Failure in Network OrganizationsrsquoCalifornia Management Review 34(4) 53ndash73

Miles R E and Snow C C (1995) lsquoThe New Network Firm A SphericalStructure Built on a Human Investment Philosophyrsquo Organizational Dynamics23(4) 5ndash18

Miles R E and Snow C C (2003) Organizational Strategy Structure andProcess Stanford CA Stanford University Press

Miles R E Snow C C and Miles G (2005) Collaborative EntrepreneurshipHow Communities of Networked Firms Use Continuous Innovation to CreateEconomic Wealth Stanford CA Stanford Business Books

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Nahapiet J and Ghoshal S (1998) lsquoSocial Capital Intellectual Capital and theOrganizational Advantagersquo Academy of Management Review 23(2) 242ndash266

Nonaka I (1991) lsquoThe Knowledge Creating Companyrsquo Harvard Business Review69(6) 96ndash104

Nonaka I and Konno N (1998) lsquoThe Concept of ldquoBardquo Building a Foundation forKnowledge Creationrsquo California Management Review 40(3) 40

274 Walker and Maqsood

Nonaka I and Takeuchi H (1995) The Knowledge-Creating Company OxfordOxford University Press

Orr J (1990) Talking About Machines An Ethnography of a Modern Job PhDThesis Ithaca NY Cornell University

Peansupap V (2004) An Exploratory Approach to the Diffusion of ICTInnovation a Project Environment PhD Thesis Melbourne RMIT UniversitySchool of Property Construction and Project Management

Peansupap V and Walker D H T (2005a) Diffusion of Information andCommunication Technology A Community of Practice Perspective InKnowledge Management in the Construction Industry A Socio-TechnicalPerspective Kazi A S (Ed) Hershey PA Idea Group Publishing pp 89ndash110

Peansupap V and Walker D H T (2005b) lsquoExploratory Factors InfluencingICT Diffusion and Adoption Within Australian Construction OrganisationsA Micro-Analysisrsquo Journal of Construction Innovation 5(3) 135ndash157

Peansupap V and Walker D H T (2006a) lsquoInformation CommunicationTechnology (ICT) Implementation Constraints A Construction IndustryPerspectiversquo Engineering Construction and Architectural Management 13(4)364ndash379

Peansupap V and Walker D H T (2006b) lsquoInnovation Diffusion at theImplementation Stage of a Construction Project A Case Study of InformationCommunication Technologyrsquo Construction Management and Economics 24(3)321ndash332

Pettigrew A and Fenton E M Eds (2000) The Innovating Organization (SeriesThe Innovating Organization) Thousand Oaks CA Sage

Pettigrew A and Whittington D (2003) Complementarities in ActionOrganizational Change and Performance in BP and Unilever 1985ndash2002 InInnovative Forms of Organizing Pettigrew A R Whittington L Melin et al(Eds) Thousand Oaks CA Sage pp 173ndash207

Polanyi M (1997) Tacit Knowledge In Knowledge in Organizations ndash Resourcesfor the Knowledge-Based Economy Prusak L (Ed) Oxford Butterworth-Heinemann pp 135ndash146

Porter M E (1985) Competitive Advantage Creating and Sustaining SuperiorPerformance New York The Free Press

Porter M E (1990) The Competitive Advantage of Nations New York Free PressPorter M E (1998) lsquoClusters and the New Economics of Competitionrsquo Harvard

Business Review 76(6) 77ndash90Porter M E (2001) lsquoStrategy and the Internetrsquo Harvard Business Review 79(3)

63ndash78Prahlad C K and Ramaswamy V (2000) lsquoCo-Opting Customer Competencersquo

Harvard Business Review 78(1) 79ndash87Rogers E M (2003) Diffusion of Innovation 5th Edition New York The Free

PressRothaermel F T and Deeds D L (2004) lsquoExploration and Exploitation Alliances

in Biotechnology A System of New Product Developmentrsquo StrategicManagement Journal 25(3) 201ndash221

Scharmer C O (2001) Self-transcending Knowledge Organizing AroundEmerging Realities In Managing Industrial Knowledge ndash Creation Transfer andUtilization Nonaka I and D Teece (Eds) London Sage pp 69ndash90

Innovation and organisational learning 275

Sense A J (2003) lsquoLearning Generators Project Teams Re-ConceptualizedrsquoProject Management Journal 34(3) 4ndash12

Sense A J (2004) lsquoAn Architecture for Learning in Projectsrsquo Journal of WorkplaceLearning 16(3) 123ndash145

Sense A J (2005) Cultivating Situational Learning Within Project ManagementPractice PhD Thesis Sydney Macquarie University Macquarie Graduate Schoolof Management

Slaughter E S (1998) lsquoModels of Construction Innovationrsquo Journal ofConstruction Engineering and Management 124(2) 226ndash231

Storck J and Hill P A (2000) lsquoKnowledge Diffusion Through ldquoStrategicCommunitiesrdquorsquo Sloan Management Review 41(2) 63ndash74

Szulanski G (1995) Appropriating Rents from Existing Knowledge Intra-FirmTransfer of Best Practice Institut Europeen drsquoAdministration des Affaires(France) INSEAD ndash The European Institute of Business Administration

Szulanski G (1996) lsquoExploring Internal Stickiness Impediments to the Transfer ofBest Practice Within the Firmrsquo Strategic Management Journal 17(Winter)27ndash43 [Special Issue]

Szulanski G (2003) Sticky Knowledge Barriers to Knowing in the Firm ThousandOaks CA Sage Publications

Tatum C B (1984) lsquoWhat Prompts Construction Innovationrsquo Journal ofConstruction Engineering and Management 110(3) 311ndash323

Thompson P J and Sanders S R (1998) lsquoPartnering Continuumrsquo Journal ofManagement in Engineering ndash American Society of Civil EngineersEngineeringManagement Division 14(5) 73ndash78

Uher T (1999) lsquoPartnering Performance in Australiarsquo Journal of ConstructionProcurement 5(2) 163ndash176

Von Hippel E Thomke S and Sonnack M (1999) lsquoCreating Breakthrough at3Mrsquo Harvard Business Review 77(5) 47ndash57

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T and Hampson K D (2003a) Enterprise Networks Partneringand Alliancing In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishingchapter 3 30ndash73

Walker D H T and Hampson K D (2003b) Procurement Strategies ARelationship Based Approach Oxford Blackwell Publishing

Walker D H T and Hampson K D (2003c) Project Alliance MemberOrganisation Selection Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishing chap-ter 4 74ndash102

Walker D H T and Johannes D S (2003a) lsquoConstruction Industry Joint VentureBehaviour in Hong Kong ndash Designed for Collaborative Resultsrsquo InternationalJournal of Project Management Elsevier Science UK 21(1) 39ndash50

Walker D H T and Johannes D S (2003b) lsquoPreparing for OrganisationalLearning by HK Infrastructure Project Joint Ventures Organisationsrsquo TheLearning Organization MCB University Press UK 10(2) 106ndash117

276 Walker and Maqsood

Walker D H T Hampson K D and Peters R J (2002) lsquoProject Alliancing vsProject Partnering A Case Study of the Australian National Museum ProjectrsquoSupply Chain Management An International Journal 7(2) 83ndash91

Wenger E C and Snyder W M (2000) lsquoCommunities of Practice TheOrganizational Frontierrsquo Harvard Business Review 78(1) 139ndash145

Wenger E C McDermott R and Snyder W M (2002) Cultivating Communitiesof Practice Boston Harvard Business School Press

Werbach K (2000) lsquoSyndication ndash The Emerging Model for Business in the InternetErarsquo Harvard Business Review 78(3) 85ndash93

Weston D C and Gibson G E (1993) lsquoPartnering ndash Project Performance in USArmy Corps of Engineersrsquo Journal of Management in Engineering AmericanSociety of Construction Engineers 9(4) 410ndash425

Winch G M (1998) lsquoZephyrs of Creative Destruction Understanding theManagement of Innovation in Constructionrsquo Building Research amp Information26(5) 268ndash279

Winch G M Ed (2005) Managing Complex Connective Processes InnovationBroking (Series Managing Complex Connective Processes Innovation Broking)London Ashgate Press

Wolfe R A (1994) lsquoOrganizational Innovation Review Critique and SuggestedResearchrsquo Journal of Management Studies 31(3) 405

Womack J P and Jones D T (2000) From Lean Production to Lean EnterpriseIn Harvard Business Review on Managing the Value Chain Review H B (Ed)Boston Harvard Business School Press pp 221ndash250

Womack J P Jones D T and Roos D (1990) The Machine that Changed theWorld ndash The Story of Lean Production New York HarperCollins

Chapter 9

Culture and its impact uponproject procurement

Steve Rowlinson Derek HTWalker and Fiona Y K Cheung

Chapter introduction

How is organisational and national culture relevant to making projectprocurement choices This is a question that is not in the view of many ofus concerned with the study of procurement asked frequently enough andanswered sufficiently clearly to impart the required sense of relevance

Projects are delivered by people Effective PM and procurement of all thepeople-related elements of a project and programmes of projects is acompetence that has a critical impact upon project success that cannot bedismissed Aspects of project leadership are embedded in many of thechapters of this book

Underpinning leadership is an ability to understand people understandtheir values and traits and understand how this may affect the way that theprocess of PM is conducted Understanding what makes people lsquotickrsquo andindeed how whole systems of people processes and technology interact isabout understanding peoplesrsquo and organisationsrsquo values and the deepestformative assumptions about what is fair and reasonable This is vital toundertaking stakeholder analysis (Chapter 3) making sense of how ethicsand governance influence procurement choices (Chapter 4) comprehendingthe basis of what strategic approach or school of thought is most useful toexplore procurement decisions (Chapter 5) developing and enforcing aperformance measure system that is relevant and fair (Chapter 6) how toencourage value generation through innovation (Chapter 8) and how toattract enlist and maintain the most talented team to deliver projects(Chapter 10) It also strongly links with case studies in Chapter 12 andChapter 13 Understanding what makes people tick is about understandingtheir cultural perspective what they see as attractive incentives and howthey see lsquofair playrsquo so that they can trust and be confident that theycan make a contribution that is worthwhile valued and engenders theircommitment Culture when looked at from this perspective is a vitalcomponent and the lifeblood of an organisation

This chapter is structured in three parts This introduction section posedthe question why culture is central to project procurement and indicated

how this may be so The second section provides some insights into themeaning and definition of cultural value terms that will frame the rest of thechapter We argue that trust and commitment is vital to any commercial orindeed internal team working relationship in which effort is expended forrewards and benefits so we need to be clear what we mean by these termsand their relevance to project procurement We also discuss culture from itsnational and organisational perspective because of cultural orientation andunderpinning assumptions and because PM is undertaken using teams ofcross-cultural composition In the third section we will then explore howunderstanding culture can be effective and useful when negotiating eitheras a part of a procurement process or as part of a mutual adjustmentprocess within teams and as part of a dispute resolution system devised todeal with misunderstandings disputes and clarification of ambiguoussituations PM is a process that is undertaken within a fog of ambiguity (atleast in terms of the detail) and turbulence because it is about change Wesummarise the chapter and then end the chapter with a vignette

The significance of culture

Culture refers to the way of life of a group of people patterns of behaviourthat are seen to be useful and valuable to the people concerned and worthyof being passed on from one generation to another Schein (1985) explainsculture in terms of operating at three levels of depth At the superficial levelit is expressed by artefacts such as badges logos a printed missionstatement or a project charter This level hints at espoused values what thatcommunity claims to be best represented by At a deeper level lies theespoused value of that community This may be explained as lsquorespect foremployeesrsquo or lsquocustomer focusrsquo or lsquocan-dorsquo mentality However while thatprovides a more explicit example of what to expect from (and is expectedof) that community there is a deeper layer of embedded behavioural traitsthat epitomises culture that is underlying these assumptions These can beillustrated by observed and ingrained behaviour such as lsquonot letting theteam downrsquo so that people appear from nowhere to help when a crisis ordifficulty arises

Figure 91 illustrates culture in its generic systemic form There is a worldof cultures Nations share some common humanitarian values and asindicated in Chapter 4 central ethical tenets can be traced across nationsHistory and specialisation has fostered the emergence of professions and arange of professions generally can be seen to work within organisationsand as discussed in Chapter 4 professions are defined by their culture oftheir ethical standards Professions cross organisational and nationalborders Project team groups also exist within and across organisationaland national boundaries It can be seen from this representation thatcultural diversity extends across many boundaries People work within the

278 Rowlinson et al

complex network of competing and common interests and belief systemsFor each lsquoculturersquo there is as Schein (1985) explains varying intensity ofshared culture from the superficial to the profound At the superficial levelartefacts such as badges or uniforms or lsquonormsrsquo can be observed that areunderpinned by values that are represented by those artefacts Examples ofthese are lsquoan innovative approachrsquo lsquorespect for the customer-professional-clanmemberrsquo or lsquodelivering the lowest costsuperb qualityrsquo etc These arefounded upon assumptions of what is lsquogoodrsquo or lsquobadrsquo

Culture takes time to evolve Assumptions feed values that triggersymbolic representation in artefacts whereas artefacts can be more readilyswitched and changed It takes time to change or to evolve into a set oflsquonewrsquo culture values and changing assumptions is something that can onlybe internally realised ndash often through a difficult and complex process ofpersuasion It is very difficult to define each type of culture on its own Nomatter which type of culture we look at they all overlap with each otherand cannot be separated from one another Culture needs to be looked atas a whole American anthropologists Kroeber and Kluckhohn (1952)presented 160 different definitions of culture Bodley (1994) defines cultureas involving what people think what they do and what they produce Jenks(1993) argues the term lsquoculturersquo became widely accepted due to the changesto the structure of social life during the industrial revolution

Culture is thus broadly defined as the dominant set of learned sharedand interrelated behaviour within a society (Vecchio et al 1992) Terpstraand David (1985) also see culture as a lsquocompelling set of symbols whichprovides a set of orientations for members of a societyrsquo This is in tune withmany other recent texts on culture for example in Brown (1998) so thebasic view of culture has remained consistent over recent decades Whentaking these orientations together solutions are provided to problems that

Culture and project procurement 279

A world culture world of cultures

Observable artefacts

Professions

PeopleProject

teamgroups

Organisations

Nations

Shared values

Commonassumptions

Intensity level ofshared culture

Taproot

Deeper

Low

Figure 91 A systems view of culture

all societies must solve if they are to remain viable As Punnett (1998)suggests culture is interrelated and provides orientation to people

Owens (1987) and Schein (1985) see organisation culture as patterns ofshared beliefs and values that evolve into norms of behaviours which areadopted in solving problems Rousseau and Parks (1993) view culture aslayers of elements which all lie along a continuum of subjectivity and acces-sibility These layers range from physical manifestations of culture to fun-damental assumptions which are hidden deeply in the centre of culture andare most difficult to uncover (Thorsdottir 2001) Hofstede (1991 7ndash10)argues that the process of engraining cultural values the manifestation ofculture is embedded through cultural practices being immersed within aculture Symbols such as words and gestures carry specific meaningrecognised by those within that culture There is usually a set of heroes whopossess highly prized characteristics that represent the idealised values heldby that culture Culture is shaped by the collective activities that areessential rituals that bind the members of the culture Those outside theculture may see all this as peculiar practices that provide a set of markersthat identify a particular culture We see this at all the levels illustrated inthe right-hand side of Figure 91 Trompenaars (1993) uses the analogy ofculture as an onion which has many layers The products of the basicvalues are on the outer layer and assumptions are deep inside the onionwhich reflects Rousseaursquos view on culture Schein (1985) proposes threelevels in organisation culture ndash surface (by means of structure and rules ofconduct) organisation values and underpinning assumptions as alsosuggested by Wood et al (2001)

Culture is knowledge behaviour and value and evolves over timeCulture is built over time (Handy 1985) National culture has an effect onorganisational behaviour It creates divergent mindsets regarding character-istics of interaction and assumptions defining the boundaries of behaviour(Vecchio et al 1992) National culture assumptions are also made duringbusiness and workplace interaction For example

Australians would expect open and honest communication and are notafraid of confrontation

Chinese custom expects that there should be no direct confrontationwith superiors relationship and job security are highly valued and

The English exhibit a strong sense of pride and show politeness to otherseven though a strong sense of distrust might exist between parties

In essence national culture influences the attributional basis for evaluatingbehaviour and the consequences of behaviour (Vecchio et al 1992)

As shown in Figure 91 the surface aspects of organisational culturerelate to observable culture These are the methods that the group hasdeveloped and which have to be learnt by new members (Wood et al 2001)

280 Rowlinson et al

where the behaviours are clearly visible Observable aspects of the cultureemerge from the collective experience of its members Some of these aspectsmay be observed from day-to-day practice others may have to bediscovered by asking subordinates about past events and the history of theculture Going further down the next level in culture is shared valuesbetween members in an organisation Shared values play a critical part inlinking people together They also provide a set of orientations for membersof a society These orientations when taken together provide solutions toproblems that all societies must solve if they are to remain viable Punnett(1998) suggests that culture is interrelated and provides orientation to peo-ple However the shared values may not be agreed by every member in theorganisation but they have all been exposed to the values and have oftenbeen reminded that they are important (Wood et al 2001) While at thedeepest level of culture there are common assumptions or truths developedand shared by members through their joint experience in the organisationCulture is learnt shared and interrelated

In searching for a practical way of understanding how systems work orwhat makes people lsquotickrsquo we can use these models of culture to analyse andmake sense of what we see so that we can build effective environments inwhich to shape action in the desired manner The value intended to be deliv-ered through this section is that it should provide a pathway to help us under-stand the forces at play in organisations and groups In doing so we are betterprepared to design procurement systems or make procurement choices andshould better predict likely outcomes to actions triggered by the procurementprocess As we have stressed throughout this book recent PM procurementtrends and ambitions relate to proactively rather than reactively influencingoutcomes through gaining a holistic view of procurement as being a changeagent Culture lies at the core of managing change Further all members of aproject team constantly engage in negotiation of what to do when to do it andwhat resources (including time energy and favours as well as more obviousresources such as money equipment etc) can be traded In any negotiationunderstanding the value proposition of lsquothe otherrsquo is both vital and culturallybound (Fisher and Ury 1983 Lewicki et al 1994 Thompson 1998 Ting-Toomey and Kurogi 1998 Munns et al 2000 Williams and Miller 2002)

Organisational culture is an interconnected web of relationships (Tierney1988) Handy (1985) identifies four primary forms of organisational culturebased upon the work of Roger Harrison (see for example Harrison andStokes 1992)

1 Power culture ndash which is configured as a web with the primary powerat the centre and is frequently found in entrepreneurs

2 Role culture ndash in which functions and professions provide the structuralpillars to support the overarching top management and is typical ofpublic service organisations

Culture and project procurement 281

3 Task culture ndash in which the structure can be represented as a net and isjob or project orientated such culture can usually be found in a matrixorganisation and

4 Person culture ndash in which people interact and cluster relatively freely

Although national culture and organisational culture cannot be studiedin isolation from each other there is a clear distinction between the twotypes of culture It is important to understand the connections betweenorganisational culture and national culture because organisational culturefrequently derives from national culture Many of the shared beliefs andvalues that develop in organisations can be traced to commonly heldassumptions in society (Wood et al 2001) Organisations seek a set ofcommon beliefs and values amongst personnel which accord with thebeliefs of the organisation while people retain levels of individuality whichimpact on organisational performance (Liu and Fellows 2001) Nationalculture is where people in the same nation share the same beliefs values andpractices It creates divergent mindsets regarding characteristics ofinteraction and assumptions defining the boundaries of behaviour (Vecchioet al 1992) National culture is learnt early in life without awarenessIt is reflected in behaviour and reinforced by rules and procedures Forexample in Germany business plans would be for 20 or even 50 years inthe future whereas in America the business planning intervals are oftenmuch shorter

Organisational culture is beliefs values and practices shared by mostmembers of an organisation Like national culture each organisation has itsown unique culture Members of an organisation need to learn their ownculture When one moves to a new organisation one needs to learn the rulesof the new culture Compared with national culture organisational cultureis acquired at a later stage in life at a conscious level Also values changewhen the top management introduces new beliefs and attitudes to thesubordinates National culture originates from the root and is more difficultto change than organisational culture as illustrated in Table 91 originallypresented in Cheung (2006 35)

National culture is reflected in organisational culture Members of anorganisation would resist plans to impose a culture which does not reflector which goes against their national values (Laurent 1986) Althoughorganisational culture values are learnt later in life at the workplace theyalso have an influence on behaviour just as national culture does The extentto which the individual is influenced by the organisational culture dependsvery much on how long heshe has stayed with the organisation (Mead1998) Organisational culture has a much stronger influence on a long-termemployee than a lsquojob-hopperrsquo who moves rapidly between companiesSimilarly supply chains linked into long-term relationships may develop aprogramme or project culture After all culture takes time to lsquotake rootrsquo

282 Rowlinson et al

Culture and value

Sharing common values lies at the very heart of culture Hofstede (1991)argues that culture is a system of values Indeed if culture is viewed as anemergent social process values are very important because the values of thecollective form the foundations of an emerging culture (Root 2000)However as with culture values are very complicated and cannot be easilydefined In human society the removal of value means no value judgementsand so no quality (Pirsig 1974 Root 2000) All that remains in animaginary world of no art variety or trade is pure science mathematicsphilosophy and logic Of course there are certain concepts within the mindthat are not affected by the removal of the lsquovaluersquo concept because they arenot part of the physical perceived reality yet other concepts such as lovewhich has a strong relationship to objects in the world are greatly affected(Root 2000) Value is a set of relationships between the mind (self) and theworld (Robinson 1964 Pirsig 1974 Morrill 1980) If values are purelysubjective they can then be equated with the satisfaction of a perceivedneed or an object being of interest (Perry 1954) It was argued by Pirsig(1974) and Robinson (1964) that value then just becomes a term foranything the individual likes and is meaningless within a social group Onthe other hand if values are objective they can be described as self-existentessences whose reality is independent of the feelings of the observer(Morrill 1980) Again Pirsig (1974) argues that the world can be split intosubjects and objects quality and values cannot be measured objectively dueto their subjective nature and cannot be subjective because they are linkedto the object Thus value is neither subjective nor objective Root (2000)suggests existentialism provides a way out of this paradox by quotingMagee (1988) lsquothe objects of our consciousness do exist as objects ofconsciousness for usrsquo Thus culture may be viewed as an object as long asit is treated as our consciousness and is real in its effects (Root 2000)

In sociological terms an individual is lsquoculturedrsquo when the valuing processis conscious Taking a child as an example the valuing process of a child is

Culture and project procurement 283

Table 91 Comparison between national culture and organisational culture

National culture Organisational culture

Share same beliefs values and practices Share same beliefs values and practices Nation Organisation Learnt early in life Learnt at a later stage in life Learnt subconsciously Learnt at conscious level Difficult to change Changes when moving to a new

organisation or when new beliefs orattitudes are introduced by topmanagement

flexible and depends highly on context food is valued highly when the childis hungry but once fed is negatively valued (Rogers and Stevens 1967) At theearly stage values are driven by the child as an organism representing a clearapproach to values As the child develops the valuing process becomesdependent on the external environment The child learns the good and thebad from others and absorbs them as hisher own values The valuing processchanges from organism-driven to being dependent on the norms of behav-ioursvalues expected by others (Rogers and Stevens 1967 Root 2000)Such ideas align with Terpstra and Davidrsquos (1985) belief ndash culture is learnt

However the mechanism for acquiring values is dependent on thecollective level of mental programming (Hofstede 1980) whichdistinguishes people from one group to another by classifying groups Itdoes not only focus on an individual but also individuals with similar cul-tures would cluster together and form groups of different cultures Somesuccessful organisations share some common cultural characteristicsOrganisations with strong cultures possess a broadly and deeply sharedvalue system (Mead 1998 Wood et al 2001)

Dimensions of culture

Cultures vary in their underlying values and attitudes (Wood et al 2001)The way people think about such matters as achievement and work wealthand material gain risk and change may influence how they view work andtheir experiences in organisations Using an example of Western and Asianculture a Western manager may value autonomy and therefore not providedetailed operational directions to his Asian subordinates Based on thefindings of Hofstedersquos study in early 1980s Koreans can be described ascollectivists whereas Americans are individualists In this case subordinatesmay look up to the manager for direction and treat him (usually male) withtotal respect Because of cultural differences when the subordinates do notperform appropriately the manager may attribute this to their incompetenceand the subordinates may come to believe the manager cannot be trustedSuch consequences then act to reinforce cultural stereotypes and in turnlead to more divergence between cultures and increase misunderstanding(Vecchio et al 1992)

One of the most ambitious studies of how cultural differences relate toorganisational issues was undertaken by Hofstede in 40 different countriesHe developed a framework that offers an approach for understanding valuedifference across national cultures Based on his findings and evidence inthe field of cultural differences Hofstede (1980) identifies four (later fiveafter visiting Hong Kong) cultural dimensions The five dimensions used todifferentiate between cultures are

1 Large or small power distance Power distance reflects the degree towhich a society accepts a hierarchical system and unequal distribution

284 Rowlinson et al

of power Large power distance indicates larger inequalities betweenthe members in these societies with power and those without People inthese societies also find it normal that usually a small number of peoplehave much power while most of the people have less power Incountries with small power distance the basic idea is that in principleeverybody is born equal and the principles of say social democracydominate

2 Masculinity versus femininity Masculinity reflects the degree to whicha society defines achievement in terms of success and the acquisition ofmoney or material possessions Some societies with sharp and strictdivisions turn masculine others when the divisions are loose andblurred turn feminine In masculine societies people admire the oneswho have success In feminine societies people pursue a different set ofvalues such as relationship orientation concern for quality of lifemodesty and caring

3 Individualism versus collectivism Individualism reflects the degree towhich a society values independence from group membership It isconcerned with the form and manner of the relationship between anindividual and others in the society In individualist cultures people aresupposed to look after themselves and their direct families only peopleare expected to conform while in collectivist cultures people belong toa larger group (eg in-group extended family etc) which takes care oftheir interests in exchange for loyalty and relationships are more tightlystructured

4 Strong or weak uncertainty avoidance Uncertainty avoidance reflectsthe degree to which a society tolerates ambiguous situations and theextent to which it has created institutions and beliefs to minimise oravoid these situations In some societies people are socialised to acceptambiguity and uncertainty and do not feel threatened In othersuncertainty is seen as disruptive and makes people psychologicallyuncomfortable Strong uncertainty avoidance societies reduceuncertainty and limit risk by ordering and structuring things imposingrules and systems

5 High and low Confucian dynamism Confucian dynamism isassociated with the teaching of Confucius This dimension is the degreeto which people in a country emphasise values associated with thefuture over values that focus on the past or present In societies withhigh scores on Confucian dynamism people tend to be pragmaticfuture-oriented and focusing on obligations and tradition whereas inthose with low scores people tend to be normative and short-termoriented quick results are expected and people are more concernedwith stability

Further studies on cross-cultural impact on leadership and managing peoplewere undertaken across 61 nations under the global leadership organisational

Culture and project procurement 285

behaviour and effectiveness (GLOBE) study (Ashkanasy et al 2002 Guptaet al 2002 Gupta et al 2002 House et al 2002 Szabo et al 2002Javidan et al 2005) These extended the type of questions asked byHofstede The GLOBE study investigates values that participants perceivealong the dimensions for both the lsquoas isrsquo and lsquoshould bersquo situation Thisdistinction is important because a person may be in a situation where theyfind themselves in a high power distance work environment (the as issituation) and they may feel that the work environment should exhibitlower power distance characteristics The investigation of the gaps betweenlsquoas isrsquo and lsquoshould bersquo values revealed that national cultures could beexamined in terms of nine rather than five dimensions performanceorientation future orientation assertiveness power distance humaneorientation institutional collectivism in-group collectivism uncertaintyavoidance and gender egalitarianism The survey involved thousands ofmiddle managers in food processing finance and telecommunicationsindustries in these countries GLOBE compared their cultures and attributesof effective leadership

While it is beyond the scope of this chapter to discuss the details of thisimportant research it is worth our considering that the additionaldimensions described as future orientation and performance have beendealt with in this book under Chapter 5 (Strategy) and Chapter 6(Performance measurement) supports our inclusion of these topics as beingrelevant to designing a procurement choice system to deliver projectsClearly national cultural values have a bearing on the details of aprocurement system design and how choices may be made

We should also consider how national culture may influence organisationalculture from the point of view of what it means to be a team player Thiswould apply within organisations and in supply chains across organisationsserving a project or programme Gibson and Zellman-Bruhn (2001 247)conducted an investigation using five different metaphors for teamwork(military sports community family and associates) They derived thesefrom the language team members used during interviews in four differentgeographic locations of six multinational corporations Results indicatedthat after controlling for gender team function and total words in aninterview use of the teamwork metaphors varied across countries andorganisations They analysed specific relationships between nationalcultural values and categories of metaphor use between dimensions oforganisational culture and categories of metaphor use Their resultsrevealed patterns of expectations about team roles scope membership andobjectives that arise in different cultural contexts Their study provided aninsight relevant to this book

A strong implication of these findings is that multinational managerscannot assume that their own conceptualization of teamwork will be

286 Rowlinson et al

shared Team members in different nations or organisational contexts arelikely to have different expectations for how the team will be man-aged our research challenges the assumption that the meaning of team-work is commonly held across contexts and thus represents a first steptoward a cultural contingency framework for the meaning of teamwork

(Gibson and Zellman-Bruhn 2001 300)

It becomes necessary when negotiating within teams or engagingorganisations in project teams as supply chain members to consider howlanguage symbols metaphors and other artefacts represent the workplaceculture These may be either thoughtfully used to take into account cultureor they may be poorly used resulting in the project goals beingmisconstrued goals misaligned expectations of actions to be taken beingmisunderstood The above aspect could be viewed negatively and fearfullyor it could be used positively Tom Grisham in his doctoral thesis (Grisham2006) developed a useful model of using cross-cultural leadership toenhance cross-team and within-team interactions that is applicable to theabove discussion This can be applied in both dispute resolution as well asnegotiation ndash both applicable to this project procurement discussion

Conflict is placed at the centre of his model (Grisham 2006 179)illustrated in Figure 92 here Conflict is addressed through a discoursebetween parties in which details under discussion are viewed through threesets of lenses The size of each lens indicates the amount of time appropriateto be spent on each activity illustrated

In the knowledge lens in the context of culture lsquothe use of metaphors isa critical technique for developing a richer knowledge of cultures (personal

Culture and project procurement 287

Knowledge

Diagnosis

Conflict

Lessons

Diagnosis

Knowledge

Intervention

Figure 92 The conflict hourglass model

societal commercial etc) A cultural knowledge of the cultural individualityof the contestants including religion customs folklore music art literaturephilosophy language history geography ethics power gender and eco-nomic status are criticalrsquo (Grisham 2006 178) The diagnosis lens involvesactive listening to pick up salient clues and make sense of these clues thuscultural knowledge is vital here The intervention lens can be difficult as itrequires intervening in a manner that matches the cultural lsquonormsrsquo of theparties ndash there may be serious mismatches that present barriers The processand experience of addressing conflict results in lessons learned to begenerated These lessons need to be diagnosed and the synthesis of thisknowledge fed back into building the knowledge base of parties

As people participate and interact conflict inevitably occurs This canrange from discussions about meaning and reframing knowledge about per-ceptions (making sense of actions and other day-to-day problem-solvingnegotiation) through to serious disagreements requiring resolutionCommunication and understanding is a major part of this and is closelylinked with cross-cultural competence

Cultural implications of commitment on value

We discussed in Chapter 3 aspects of trust commitment and power in termsof stakeholder management This is highly relevant to issues revolvingaround the negotiation for resources and the design of procurementprocesses whether that is undertaken in-house or outsourced We discussedin that chapter models that explain how trust is generated and applied dif-ferent types of trust and how these relate to project phases and how trustand distrust can co-exist We also illustrated an extension to the typologyof commitment offered by Meyer and Allen (1991) and finally we linkedthat with a discussion of a power typology presented by Greene and Elfrers(1999 178) We will therefore limit our discussion in this chapter sectionto how culture may influence these concepts

Many successful organisations share some common culturalcharacteristics Organisations with strong cultures often also have adeeply shared value system (Deal and Kennedy 1982 Wood et al 2001)Wood et al (2001) argue that unique shared values have the followingbenefits they

1 provide a strong corporate identity2 enhance collective commitment3 provide a stable social system and4 reduce the need for formal and bureaucratic controls

Culture is a system of shared values that distinguish one group of peoplefrom another (Fang 2001) and value can be explicitly or implicitly

288 Rowlinson et al

desirable to individuals or groups which also influences their selections ofvarious modes means and ends of actions (Adler 2002) Value alsoprovides a guide for desired patterns of behaviour and explains why peopleselectively attend to certain goals while subordinating others A high levelof commitment by members also implies a strong value system within theorganisation Individuals express culture and its normative qualitiesthrough the values that they hold about life and the world around them(Adler 2002)

Affective continuance and normative commitment should be consideredas components rather than types of commitment because an employeersquosrelationship with an organisation might reflect varying degrees of all three(Meyer and Allen 1991) The definition of culture given by Liu and Fellows(1996) reflects a similar theme They argue that culture comprises a sharedunderstanding of what is correct proper and normal for the conduct ofrelationships and has both normative and behavioural components Ascommonly accepted by scholars culture defines peoplersquos behaviour Astrong commitment to the organisation by an employee results in behavioursuch as being more punctual and getting to work on time more flexible atwork hours to the organisationrsquos benefit willing to take up tasks outside thejob specification more self-motivated a good team player and good atdeveloping relationships with subordinates Although strong commitmentto the organisation by employees influences their performance Meyer andAllen (1991) argue continuance commitment to the organisation isnegatively related to job performance The suggested relation was observedin many studies as being supported (Meyer et al 1989 Konovsky andCropanzano 1991) but also refuted in some studies (Moorman et al 1993Angle and Lawson 1994 Bycio et al 1995) A strong positive relationshipwas found between affective commitment and job performance (Ingram etal 1989 Meyer et al 1989 Konovsky and Cropanzano 1991 Moormanet al 1993 Leong et al 1994 Bycio et al 1995) Similar results werefound between normative commitment and job performance (Randall et al1990 Ashforth and Saks 1996) (eg Randall et al 1990 Ashforth andSaks 1996) although the results were weaker than for affectivecommitment Rowlinson (2001) points out that organisational culture andstructure must be matched if employees are to retain commitment to theorganisation

Clearly a strong culture and value system can reinforce a remarkablypositive view of the organisation and its environment However a strongculture can also be a double-edged sword creating great resistance todramatic changes in an organisation (Wood et al 2001) Organisationswith strong power dynamics and role prescriptions can impede the promo-tion of staff empowerment (Goodstein and Boyer 1972 Serrano-Garcia1984 Gruber and Trickett 1987 Foster-Fishman and Keys 1997Cunningham and Hyman 1999) Implementing changes to an organisation

Culture and project procurement 289

effectively requires strong commitment from top management (Oakland1993 Bresnen and Marshall 2000 Prabhu and Robson 2000)

Staff empowerment was cited by Walton (1985) as a powerful means toengender commitment Fawcett et al (1994) refer to empowerment as theprocess of gaining influence over events and outcomes of importance to anindividual or group Staff at lower organisational hierarchy levels feel thatthey are given greater responsibilities in decision making This may lead tomore commitment to the project and to achievement of its missions(McDonough III 2000) leading to greater job satisfaction and sense ofownership The decision-making process in projects is shorter since local(hands-on) knowledge is acquired (Griffin and Hauser 1996) Project staffwork in a more cooperative manner as a team and in so doing enhanceproject process (Moenaert et al 1994 Jassawall and Sashittal 1998) andproject performance such as timely completion (McDonough III andBarczak 1991)

In laymanrsquos terms culture is lsquohow we do things herersquo Culture and itsinteraction with the organisational structure expresses commitment andhas the potential to affect a projectrsquos success In unsuccessful projects it isoften found that people in the project or the organisation do not understandthe organisational culture and the existing culture is often not supportiveof their efforts Also having supportive workplace culture procedures inplace is the first challenge getting staff in the organisation or the projectteam to follow it is another issue We will take contract administration inthe construction industry as an example Traditional contracting has anadversarial effect on the project team people tend to work in opposition toeach other rather than cooperatively as a team However as with nationalculture the organisational culture also has an effect on the project teamthrough the project culture Experience shows that project performance isoften hindered by the parent organisation This is commonly seen in aconstruction project with a high staff turnover when the parent companyremoves staff from the project especially when a new project arises Thenew project member(s) need to learn about the project including theproblems facing it and its history as well as building up their relationshipswithin the project team If the parent organisation has a culture ofcommunicating in black and white terms with everything being referredback to the contract document then staff working on the project will tendto act in a similar manner Rather than concentrating on working efficientlyand effectively on the project work staff may spend a large portion of theirtime on correspondence lsquofighting the paper warrsquo with letters back andforth between the contractor and the client representative

Organisational structure also plays a major role in project success It isthe way in which the interrelated groups of an organisation are heldtogether Yet to develop or to change an organisational structure takesmuch less time when compared with initiating a different organisational

290 Rowlinson et al

culture Changes in organisational structure can also be carried out morefrequently for example by changing the organisation chart and reportingrelationships

Organisational structure can be described as being based on organisationsize number of supervisory levels number of sections and job titles numberof operating sites administrative intensity (based on the supervisorndashstaffratio spans of control by top manager and the percentage of supervisorsabove the bottom-level supervisors) number of divisions and the form ofdepartment (eg functional project product or matrix forms) (Van de Venand Ferry 1980 Galbraith 1995 2002)

Cultural implications of trust on value

We discussed models of trust and distrust in Chapter 3 The modelillustrated in Figure 33 showed that trust is defined as the willingness torely upon the actions of others to be dependent upon them and thus bevulnerable to their actions (Mayer et al 1995 715) Trust is also perceivedas a result of an effective collaborative relationship and higher level ofpartnercustomer satisfaction (Zineldin and Jonsson 2000 Mohamed2003) Trust is seen as representing a lsquodiffuse loyalty to the organisationrsquowhich prompts the individual to lsquoaccept as the occasion demandsresponsibilities beyond any specific contracted functionrsquo (Parson andSmelser 1984) Moorman et al (1993) believe that trust is built up over aseries of interpersonal encounters in which the parties establish reciprocalobligations However Gambetta (1998) and his contributors see trust as aprecondition of cooperation because partners need some assurance that theother parties will not defect

The traditional Chinese way of doing business exhibits a high level oftrust at an interpersonal level Trust has a very strong moral content whenseen in the Chinese way (see ConfuciusLun Yu)1 Trust has the meaning ofintegrity as well as the meaning of trustworthiness and compliance In theRecords of Historian it states in a similar way lsquoby commending the soldierthe empire should trust him (in the sense of trustworthiness and ability)with all his heart once he is recruitedrsquo Trust in this context has the meaningof integrity as well as the meaning of trustworthiness and compliance (Lauand Rowlinson 2005 20)

The implication of high trust is that one would be confident and psycho-logically secure One is more relaxed less suspicious and defensive towardsthe organisation one is entrusted to (Westwood 1993) High trust betweenparties not only reduces the transaction costs it makes possible the sharingof sensitive information permits joint projects of various kinds and alsoprovides a basis for expanded moral relations in business (Brenkert 1998)Trust may have a direct effect on work group process and performance andin Dirksrsquo (1999) findings it is shown that better coordination and greater

Culture and project procurement 291

efficiency are found in a high-trust group and hence better performanceBarney and Hansen (1994) believe that a firm characterised by a culture oftrustworthy values and beliefs will often behave with a strong form of lsquotrustin exchangersquo relationship

Wood and McDermott (1999b 108ndash109) define trust from a socialperspective with the following statement

Trust is a multidimensional (Sako 1992 Ganesan 1994 McAllister1995) multifaceted social phenomenon (Fukuyama 1995 Misztal1996) which is regarded by some as an attitude (Luhmann 1979Flores and Solomon 1998) by others as a personality trait (Wolfe1976) and as a vital social lubricant (Luhmann 1979 Flores andSolomon 1998 Gambetta 1998)

Ganesan (1994) and McAllister (1995) identified two dimensions oftrust whereas Sako (1992) and Mittal (1996) have argued for threedimensions of trust namely competence (behaviour) motives (feelings) andcommitment (beliefs) (Wood and McDermott 1999a) Das and Teng(1998) refer to trust as the expectation of positive motives (behaviour) ofthe trustee while Lewicki et al (1999) see trust as positive conduct wheremorality comes from the individual Trust also has a social meaning con-cerning both individual and organisation Social trust described by Earleand Cvetkovich (1995) is a bridge from State A (disequilibrium or non-normal) to State B (equilibrium or normal) It constitutes the in-group andout-group theory where people will behave differently in groups and isculture-specific (Earle and Cvetkovich 1995 Fukuyama 1995) Nevisrsquosmodel of hierarchy of needs (Nevis 1983) shows that social need is higherin Chinese culture than in Western culture

Trust is also seen to have different levels which is an essential preconditionfor a successful negotiation (Fisher and Ury 1983) It is interesting to seehow and where trust is implied in different cultures French negotiators maycome to the table mistrusting the other party until they can establish an elementof trust while American negotiators may come fully trusting the otherunless led to believe that the other person is untrustworthy (Jackson 1993)Japanese tend to have a tolerance of ambiguity and rely on mutual trustwhile facing internationalisation of business Westwood (1993) finds this isa way of avoiding making offensive statements Many managers in Asiancountries negotiate in a subtle and indirect manner to avoid confrontationThe Chinese negotiation process is in an order of preference compromising(1) avoiding (2) accommodating (3) collaborating and (4) competing(Westwood 1993) with competing being the last resort (Lau 1999 Lauand Rowlinson 2005)

Trust is described as calculative with constituents of self-interest andvested benefits in the economic dimension (Williamson 1975 1985)

292 Rowlinson et al

Williamson (1993) further suggests two other kinds of trust namely personaland institutional Personal trust is suggested to be non-calculative and isirrelevant to commercial exchange institutional trust refers to the socialand organisational context on a contractual basis (Sako 1992 Williamson1993) In management Deming (1994) states that trust is mandatory foroptimisation of a system where a network of interdependent componentswork together to try to accomplish the aim of the system In organisationalmanagement trust is shown in the form of achieving results demonstratingconcern and possessing integrity (Shaw 1997) and in an employeersquosperception of trust in performance appraisal trust is measured by abilitybenevolence and integrity (Mayer and Davis 1999) These items aremeasured as antecedent factors (Wong et al 2000) for trust relationships inorder to evaluate trustworthiness between trustor and trustee

Trust is particularly important when a relationship contains the followingelements

entering into any form of contract exchange of information uncertainty arising from unforeseeable future contingencies risk sharing a degree of interdependence between agents the threat of missing opportunities acting as a means of enhancing the effectiveness of a relationship that

depends upon extensive cooperation at both inter-organisational andintra-organisational levels

developing the business relationship to a higher level reaching alternative goals by group members and negotiating to avoid confrontation

Construction project teams are unique entities created through a complexintegration of factors with inter-disciplinary players and varying rolesresponsibilities goals and objectives (Goodman and Chinowsky 1996)Collaboration and teamwork are therefore crucial since sharing up-to-dateinformation between participants leads to minimising errors reduction oftime delays and breaking the widespread rework cycle Benefits of collabo-rative rather than adversarial working relationships within constructionorganisations are well documented (Walker and Hampson 2003a)

Successful collaborative relationships rely on relational forms ofexchange characterised by high levels of trust Higher levels of trustencourage more open communication between individuals (Argyris 1973Ruppel and Harrington 2000) which subsequently increases understandingof other partiesrsquo perspectives (Johnson and Johnson 1989) Hosmer(1994ab) suggests trust leads to commitment which in turn leads toenthusiastic cooperation and innovative effort in people However it has

Culture and project procurement 293

been shown in the past that the construction industry has a strongerpreference for distrust rather than the full benefits of cooperation (Woodand McDermott 1999a) There is a need for culture change to bring aboutincreased cooperation between parties on a long-term basis With relationalcontracting based on a long-term relationship and trust a winndashwinsituation can be created for both the client and contractor The developmentof trust between organisations is seen as a function of the length of therelationship between them (Bresnen and Marshall 2000) It is also believedthat the construction industry is one that requires more trust betweenparties due to the high uncertainty in the industry

Partnering has been criticised as benefiting the clientsrsquo side only (Green1999) Bresnen and Marshallrsquos (2000) work shows that contractors wouldabsorb extra costs in the interest of maintaining good relationships with theclient and increasing chances of gaining future work Yet one may ask whycontractors are still involved if they gain no benefit The reasoningbehind this may be the global pressure for change Partnering is seen to bea pre-qualification requirement in recent years

In essence should the client attempt to spend as little money as possibleto get the work done and the contractor attempts to earn as much as possiblefrom the project the goals and values of each become incompatible Thisreflects human behaviour from an economic point of view all humanbeings are selfish that is contractors compete for the project Competitivetendering is the most common approach used in the construction industryThe norm behind the tendering process is that the lowest bid wins the con-tract The downside of this mechanism is the lower the proposed projectcost the higher the risk for work to be low quality with extra costs incurredduring andor after work After all the contractor also runs a business andwould not carry out work which would result in a financial loss Rather aminimum amount of profit to be made is set With a low bidding price onthe tender what is most likely to happen is that cost cutting on items suchas labour cost will affect the quality of labour (something which is difficultto state in the contract) with extensive sub-contracting which makes workdifficult to supervise and has a great impact on the quality control of workdone Also chosen materials suppliers might perform poorly with noguarantee of prompt delivery of materials Such problems have beenaddressed by implementing a pre-qualification system ndash ISO certification

However with relational contracting benefits accrue not just to the clientbut also to the contractors because of the high chance of future workMaintaining a good relationship to sustain a long-term relationship canlead to reduced tendering cost by means of lower transaction costs and thisbenefits both the client and contractor A cynical view might be expressedfirst-generation partnering suits the public sector as it provides no guaranteesof future work but commits the contractor to a non-contractual relation-ship alliancing suits the private sector as long-term business relationships

294 Rowlinson et al

and mutual benefits can accrue ndash in both cases probity issues can bemanaged as illustrated in the case study in Chapter 12

Characteristics and benefits of relational contracting include long-termrelationship trust commitment interpersonal attachment and cooperativeand collaborative attitudes towards problem solving Partnering alliancingPrivate Public Partnerships and joint ventures are examples of relationalcontracting approaches and were introduced to the Australian constructionindustry during the twentieth century

Studies show that role cultures are barriers to change (see for exampleFoster-Fishman and Keys 1997 Cunningham and Hyman 1999) They areparticularly unsuitable for a continuously changing and competitiveenvironment Interactions in the organisation between functional groupsand individuals are controlled by rules and procedures restricting staffempowerment especially at the lower or team levels Role culture is oftenstereotyped as bureaucracy On the other hand task culture is job or projectorientated This culture is extremely adaptable it reacts quickly to changesand is most appropriate where flexibility and sensitivity to the environmentare important (Handy 1985) This culture suits a project team environmentvery well after all the whole emphasis of the culture is on getting the jobdone Project teams are formed for specific purposes and can be reformedabandoned or continued Individuals in task cultures are found to have ahigh degree of control over their work can be judged by results and haveeasy working relationships within the project team with mutual respectbased upon capacity rather than status

Perceived effectiveness of relational contracting

The following reflections on the effectiveness of relational contracting aredrawn from research within Queensland Governmentrsquos Departments ofMain Roads and Public Works and their relationships with their primecontractors

General observations and comments

Positive correlations exist between the extent of commitment by bothcontractor and client with high levels of commitment from both partiesresulting in a more productive relationship Indeed a high level ofcommitment from all parties is needed in order for the relationship and theproject to be successful Furthermore unsuccessful relationship managementpartnering projects were found to have one common theme ndash lack ofcommitment from all levels that is from project director at head officethrough site management down to the inspectors and foremen at the worksite Such levels of commitment must be built up through effective workshopsprior to and during the project process by experienced facilitators

Culture and project procurement 295

In this manner it is important to recognise that personal relationships arevery important for successful partneringrelational contracting Partiesbecome more cooperative problems are discussed rather than disputedthere is positive problem solving rather than confrontation and there issharing of information which leads to reduction of risks and unreasonableclaims

Cooperation with team members is a fundamental requirement forrelational contracting When professionals rate contribution to companysuccess as of great importance for an ideal job there is often a strong linkagewith a high score on affective commitment Engendering a strong emotionalattachment to the organisation and contributing to the companyrsquos successbecomes highly important Thus facilitating a common and positive goalalignment to company success between professionals and the organisationis imperative Relational contracting cannot be implemented effectively ifproject team members at all levels have no common goal

A common problem on projects is that cultural barriers to change existat both management and operation levels Problems arise when there is amismatch between the organisational culture as perceived by theprofessionals and the organisational structure that is implementedProfessionals generally prefer working in a task culture but often inbureaucracies they find themselves working in a role culture Matrixorganisation is particularly suitable to the construction project environment(Bresnen 1990 Rowlinson 2001) and such an organisation will onlywork effectively with a task culture In the Hong Kong study conducted byRowlinson (2001) the mismatch between the actual organisation cultureand organisation structure is one of the factors that created barriers toimplementing changes in the department studied

Relational contracting can be said to suit for example the Australianculture very well Due to the nature of the Australian culture professionalsare not afraid to express their ideas or disagreement Direct confrontationbetween individuals is accepted and is the preferred method of collaborationas well as conflict resolution Australian professionals have strongindividualist attitudes open discussion of matters is preferred which has animplication for decision-making styles and problem-solving techniquesFurthermore compared to say their Chinese counterparts in Hong KongAustralian professionals are not afraid to express disagreement with theirsupervisors

However uncertainty avoidance is an issue that might impact on theefficiency of implementation of relational contracting Ineffective rules andprocedures can be imposed to satisfy peoplesrsquo emotional need for formalstructure Studies have demonstrated that professionals prefer a flatorganisation structure and have a strong desire for decentralisation yet alsoexpect a medium level of formality (this may reflect a sentient or profes-sional culture issue with engineers) Although having roles clearly specified

296 Rowlinson et al

assists the relationships between parties excessive formalisation rules andprocedures do not necessarily contribute to relationship building and pro-ductivity and might in fact have a negative effect on the decision-makingprocess Decision-making processes are often prolonged due to extensivelayers of procedures that affect work efficiency The importance of havingboth formal and informal mechanisms in place is an important issue to bearin mind in relational contracting projects

Strong support and commitment from project parties is crucial forproject success and implementation of changes Also the more the partiesare satisfied with their relationships the more productive their relationshipsare and both levels of relationship satisfaction and productivity tend toincrease with the degree of personal acquaintance These organisationalstructure and management style issues have been highlighted as being nec-essary for providing an innovative workplace environment (see Chapter 13)and for effective knowledge management (see Chapter 8)

The model illustrated in Figure 93 presents an input-processndashoutputmodel for successful relationship contracting (RC) originally presented inCheung (2006 152)

Culture and project procurement 297

Figure 93 Relationship contracting inputndashoutput map

Parent organisationculture

Relational contractingenvironment

Relationship start-up

Relationship process evaluation

Processmaintenance

Learning registerProblem-solvingtechniquesTeam building

Physical sitelocation

Job satisfactionIndividual level

OutcomesOrganisation level

Fast trackprojectproblemresolutions andvariationsStaff up-skillingFuture jobopportunities

RelationalcontractingcultureAbility to meetor close upissues at ownlevel

Project cultureCommitmentGoal alignmentCommunicationRelationshipmanagementunderstanding

Foundationworkshop

Monthlyrelationshipmeeting

On-goingfacilitations

On-goingworkshops

Training andeducation

RM processattendeesInvolvement of major sub-contractors(s)

Leadership andmanagement

Commitment

Internal factors

Process set-up

Selection ofproject teammembersFiltration of RCconcept to alllevels

Relationshipmaintenanceprocess

Tender system

(Process maintenance)

External Factors

DocumentationEvaluation

Marketcondition egover-heatedmarketResource andmaterialsavailablitiesPoliticalinfluence

Input Process Output

Relationshipmanagementprocessstructure

Lessons learned from project alliancing

The following lessons are derived from research (Rowlinson 2005Cheung 2006 Rowlinson et al 2006) undertaken on the experiences of anAustralian infrastructure alliance the Brisbane Water EnvironmentalAlliance Supply (BWEA) and is supplemented by learning from numerousother alliance projects studied by the authors including the NationalMuseum of Australia project alliance reported in Walker and Hampson(2003b)

Rowlinson et al (2006) in reporting on the BWEA project identified aset of skills which could be applied to alliance projects and which werein many ways essential if the alliance was to operate in an innovative andcollaborative manner The first attribute was an ability to work as a team ndashthis ability applied to both individuals and to groups Second they identi-fied the importance of stakeholder engagement and communicationskills This engagement needed to take place both within the team andacross the teams in order to ensure collaboration cooperation andunderstanding Finally the ability to think broadly to think outside of thebox and creatively to innovate in both project and process was seen as anattribute which everyone within the team needed to both develop andrespect along with the overriding culture of collaboration and an attitudeof lsquono-blamersquo

A number of process issues were identified as important influences ofeffectiveness including processes that provide cultural artefacts thatsymbolically represented the values of the alliance team and the workenvironment in general A number of issues were seen as positive influ-ences on the work group culture that was common to the BWEA theNational Museum of Australia (NMA) alliance as well as being observedby Dr Peter Davis in his PhD research (2006) in which he interviewedsome 50 alliance participants (see Chapter 12 in this book) The processissues includes the following

specific merchandise and equipment that symbolically focused lsquotheprojectrsquo as the prime organisational lsquohomersquo of participants deliveringthe project

informal social occasions such as barbecues induction processes and team-building workshops

Of the activities and initiatives that assisted in team development andcontributed to project success the following appear to be most influentialbrainstorming innovation days coaching risk manager role innovationmanager role facilitation services group team building sessions and theconcept of zero-in targets (a process of focusing on initiatives to be literally

298 Rowlinson et al

zeroed-in on as a level 1 priority) Such initiatives although generally wellaccepted can create their own problems such as

universality (ie equity and consistency) of coaching level of involvement in performance measure determination by lsquolowerrsquo

levels of the project hierarchy buy-in (and invitation in) by subcontractors who are often excluded

from the lsquoteamrsquo despite being part of this supply chain and significantcontributors to innovation and solution building and

a neglect of documentation and reliance on word of mouth whichin the life of the project and given personnel changes may lead toambiguity misunderstanding and subsequent souring of relations

It is a commonly held belief that flexibility is an important capabilityrequired of individuals for success of projects and that the initiatives abovehelp to develop and foster just such flexibility in both individuals andgroups However it is worth noting that barriers to flexibility are alsopresent such as lack of proximity (distance between offices and sites) thebudget and how it has been negotiated and lsquoadversarialrsquo traditional issuessuch as approval processes for project variations The move away from thelsquooldrsquo culture of confrontation and dispute needs constant reinforcementfrom the (alliance) manager innovation manager and even the (alliance)psychologist This all reflects the overriding concern to develop andmaintain a positive team culture across organisational boundaries

It is important for the maintenance of a positive culture that innovation isseen as one of a number of output measures In order to reinforce this it isimportant to regularly organise activities such as innovation days in order tocontinuously develop creativity and innovation which in most instances leadto successful outcomes However this has to be reinforced by a no-blameculture (Hutchinson and Gallagher 2003) inevitably not all innovations aresuccessful and the concept of lsquoresponsible risk takingrsquo has to be recognisedand rewarded Sounding a note of caution however many relational contractscan easily revert to being mired in a culture of conservatism where there isnot enough on-going innovation and this is often linked to the time work-load and work life balance constraints (see the Wivenhoe Alliance case studyreferred to in Chapters 10 and 13 for an interesting view on this issue)

So how does one define project and team success A current and verypersuasive view is that project team effectiveness can be demonstrated by

individuals having developed new skills individuals having obtained knowledge understanding and a tolerance

of other disciplines individuals having been given decision-making opportunities and

having developed skills commensurate with this responsibility and the team that has worked well together and would like to do it again

Culture and project procurement 299

How project success is measured is a more problematic issue as it involveshard criteria such as dollars and days and soft criteria such as stakeholdervalue attainment and personal development ndash see Chapter 6 for somefurther discussion of PM performance measures Hence a whole range ofcriteria are appropriate such as

community benefit personal development adopting innovative solutions (perhaps through effective value

management) high levels of teamwork esprit de corps and empowerment client satisfaction outstanding key performance indicators (KPIs) quality attainment on time performance and at or under budget

In addressing the functioning of alliance and relational contracts it isimportant to bear in mind what members of the project wish to strive toachieve personally in order to cultivate commitment and a culture ofcollaboration and innovation It has to be recognised at the very outset ofthe project and proactively managed through facilitation that manychallenges must be faced and dealt with throughout the duration of a pro-ject such as

Barriers between design and construction organisations and processeswhich often result in frustration and miscommunication In order toaddress these key issues particularly the problem of lsquobuy-inrsquo byconsultants it is necessary to implement initiatives such as team-buildingworkshops proximity of the workplace information- and problem-sharing and dispute-resolution

The number of companies and procedures which may mean it istime-consuming and conflict-inducing to standardise systems andprocedures for the project Often the chosen system will result in asteep learning curve for both project team members and their homeoffice ndash an inevitable source of both inter- and intra-organisationalconflict and

The decision-making process will be time-consuming which isparadoxically incompatible with the fast pace of the project This is nota new phenomenon the introduction of matrix organisations in theearly 1960s faced a similar situation enabling people to change theirattitudes and accept this multi-organisational multi-tasking environmentas an essential pre-requisite for success

300 Rowlinson et al

All collaborative alliance type organisations face future challengessuch as

maintaining the momentum of the project and the project team withinand between projects

commitment of parent organisations The pulling out of key teammembers back to the parent organisation before completion is a seriousproblem in many projects and generates both transaction costs anduncertainty and

the assimilation of members back into their own organisation once theproject or series of projects come to an end People become used to andlsquoenjoyrsquo the new culture of collaboration and innovation and return tolsquohome basersquo with new expectations and agendas making re-assimilationdifficult

Chapter summary

This chapter builds upon the discussion of how trust and commitment arecore elements that affect the manifestation of national and organisationalculture We discussed the concepts of trust and commitment in depth asthese formed the focus to link what may be considered a lsquogeneralmanagementrsquo topic to project management theory and PM procurement ndashthe link being the impact of culture upon designing developing and makingprocurement choices We also provided insights from practice morespecifically our research on project alliancing

A useful way to conclude this chapter is by indicating the benefits ofrelational contracting Well-run relational contracting projects are satisfyingto work in they make work enjoyable and lead to enhanced professionaldevelopment However not everyone is suited to relational contractingGetting the right mix of people in a project team has been identified as oneof the most crucial elements for the success or failure of a relationalcontract In order to maintain harmony and an effective working atmos-phere senior management andor the parent organisation must be preparedto remove unsuitable member(s) from the project team Through a structuredcontext relational contracting increases both formal and informal commu-nications amongst team members Higher frequency of communicationdoes not necessarily lead to better team relationships or more collaborativeproblem-solving behaviour Instead good team relationships and collab-orative behaviour are found where respect and acknowledgement areexpressed amongst team members The range of participants from acrossthe organisation who take part in meetings in relational contractingprojects has a positive impact on the quality of communication andinformation flow and is a stimulus to timely and appropriate action

Culture and project procurement 301

Informal communication is essential for relational contracting but it needsto be undertaken in an appropriately structured environment withappropriate procedures

The degree of match and mismatch between organisation culture andstructure has an impact on commitment levels The fundamental criterionfor successful implementation of changes is strong buy-in from topmanagement but buy-in is not only crucial at the senior managementlevel but at all levels for successful implementation Indeed the relationalcontracting concept needs to filter down to all levels in the project teamif team members are to retain commitment and buy-in to relationalcontracting There are multiple levels at which relational contractingneeds to operate and that each level has its own issues which mustbe reflected upon Findings show that a lack of prompt follow-up actionsor not closing up issues leads to downturn or failure in relationalcontracting

In addition mismatches between organisation and project (temporaryintra-organisation) cultures must be recognised and accepted byorganisation staff The parent organisation influences project culturecommitment to the goals and objectives of an organisation is crucialin facilitating successful implementation of relational contracting ororganisational changes

Relational contracting should not be seen as a one-off approach whichcan be switched on and off as one wishes It is an overriding philosophy andsea-change in the industry culture The basic concepts of relational con-tracting should be promoted as lsquobusiness as usualrsquo Relational contractingneeds to be constantly maintained and facilitated to retain effectiveness Arelational contracting maintenance and review process should be set upbefore a project begins Facilitation is needed to enable open blame-freecommunication and this facilitation must be ongoing throughout the life ofa project The role of facilitator in achieving a relational contracting cultureis highlighted in this research

The involvement of subcontractors in the relational contracting processhas been proven to be highly valuable for knowledge exchange andinnovations (see the Wivenhoe case study discussion in Chapter 13)Major subcontractors should be introduced to the relational contractingprocess and be formally engaged in the project organisation structureThus all project parties need to be familiar with relational contractingprinciples and relational contracting in practice for effective integrationSo education and training are crucial elements for achieving effectiverelational contracting A relationship management culture must bechampioned in organisations through in-house workshops Relationshipmanagement culture and principles should be embedded in peoplersquosmindset at an early stage

302 Rowlinson et al

Culture and project procurement 303

Vignette scenario

Borat Industries a recently privatised company formed through theamalgamation of a spin-off oil and gas field development organisationpreviously owned by a former Soviet Republic Government agency witha US logistics provider formed an alliance with a major oil companybased in Europe together with a major German-owned constructiongroup and a US steel producer operating from its Argentinean subsidiary

The alliance was established with the aim of negotiating andfinalising an agreement to develop a pipeline and a series of pumpingstations to transport oil from newly developed oil fields in south-westSiberia and several former Soviet republics to serve the Europeanmarkets The project or rather programme of projects required state-of-the-art ICT development of remote controls and monitoring sys-tems that would specifically be aimed to detect earth movementscaused by seismic sabotage or terrorist activity The security systemspart of the project required links with government agencies in a num-ber of countries to be crossed by the pipeline

The lsquoblue skyrsquo nature of the project required mitigation of politicaldesign development and marketing risks For this reason the principalparticipants decide that a project alliance would offer the bestenvironment to encourage innovative thinking appropriatelydesignated risk management and operational effectiveness The timeframe of completion by 2015 at the latest was considered tobe extremely tight and so given its complex and politically sensitivenature an alliance seemed to offer the greatest chance of success

The first set of alliance workshops was planned to take place inMarch 2008 in Dubai UAE and all parties have pledged their totalcommitment to the workshops The alliance acknowledged thatlsquoProject Glorious Boratrsquo would be the focal point of the programmersquosidentity and a US public relations firm prepared a presentation toillustrate how the project could present itself with its icons andsymbolic artefacts that might be used to form a single project cultureAll partners also agreed that the project would need an educationalproject to be developed in which systematic training and personaldevelopment would help participants and employees to know how towork within this alliance The first educational project was trainingfor the alliance executive board which would be convening in Dubaiin March 2008 The initiation of the project lsquoidentityrsquo was seen asbeing a key to setting the cultural environment This vignette is

Vignette

Note1 For a web site with translation of his writing see wwwconfuciusorg

References

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Angle H L and Lawson M B (1994) Organizational Commitment andEmployees Performance Ratings Both Type of Commitment and Type ofPerformance Count Psychological Reports 75 1539ndash1551

Argyris C (1973) On Organizations of the Future Beverly Hills CA SageAshforth B E and Saks A M (1996) Socialization Tactics Longitudinal Effects

on Newcomer Adjustment Academy of Management Review 39 149ndash178Ashkanasy N M Trevor-Roberts E and Earnshaw L (2002) The Anglo Cluster

Legacy of the British Empire Journal of World Business 37(1) 28ndash39Barney J B and Hansen M H (1994) Trustworthiness as a Source of Competitive

Advantage Strategic Management Journal 15(Winter) 175ndash190 [Special Issue]Bodley J H (1994) Culture Anthropology Tribes States and the Global System

Mountain View CA Mayfield

304 Rowlinson et al

concerned with the lsquoprojectrsquo of mounting the initial Dubai workshopsin which the senior executives and organisational sponsors will startto develop a single lsquoprogrammeprojectrsquo culture that will be critical inestablishing the cultural environment in which the programme ofprojects will be delivered

Issues to ponder

1 Discuss three key national culture issues that may presentproblems with the lsquoProject Glorious Boratrsquo programme thatwould need to be addressed in this first workshop

2 Discuss three key organisational culture issues that may presentproblems with the lsquoProject Glorious Boratrsquo programme thatwould need to be addressed in this first workshop

3 What three top priorities for the education programme do yourecommend should be addressed Justify your choice

4 What three key issues do you think will need to be considered inpreparing the alliance to present its programme plan to its majorstakeholders

5 Present three key performance measures that you think would beappropriate for assessing the impact of the first stage of thisprogramme the initiating workshops in Dubai

Brenkert G G (1998) Trust Morality and International Business Business EthicsQuarterly 8(2) 293ndash317

Bresnen M (1990) Organising Construction London RoutledgeBresnen M and Marshall N (2000) Partnering in Construction A Critical Review

of the Issues Problems and Dilemmas Construction Management andEconomics 18(2) 229ndash238

Brown A (1998) Organisational Culture 2nd Edition Harlow UK FinancialTimes-Prentice Hall

Bycio P Hyackett R D and Allen J S (1995) Further Assessments of Bassrsquos(1985) Conceptualization of Transactional and Transformational LeadershipJournal of Applied Psychology 80 468ndash478

Cheung F Y K (2006) Determinants of Effectiveness in Relational ContractingMaster of Applied Science by Research Faculty of Built Environment andEngineering Brisbane Queensland University of Technology

Cunningham I and Hyman J (1999) The Poverty of Empowerment A CriticalCase Study Personnel Review 28(3) 192ndash207

Das T K and Teng B S (1998) Resource and Risk Management in the StrategicAlliance Making Process Journal of Management 24(1) 21ndash42

Davis P R (2006) The Application of Relationship Marketing to Construction PhDThesis School of Economics Finance and Marketing Melbourne RMIT University

Deal T and Kennedy A (1982) Corporate Cultures The Rites and Rituals ofCorporate Life Reading MA Addison-Wesley

Deming W E (1994) The New Economics for Industry Government Education2nd Edition Cambridge Massachusetts Institute of Technology Center forAdvanced Engineering Study

Dirks K T (1999) The Effects of Interpersonal Trust on Work GroupPerformance Journal of Applied Psychology 84 445ndash455

Earle T C and Cvetkovich G (1995) Social Trust Towards A CosmopolitanSociety Westport CT Praeger

Fang T (2001) Culture as a Driving Force for Interfirm Adaptation A ChineseCase Industrial Marketing Management 30 51ndash63

Fawcett S B White G W Balcazar F E Suarez-Nalcazar Y et al (1994) AContextual-Behavioral Model of Empowerment Case Studies Involving Peoplewith Physical Disabilities American Journal of Community Psychology 22(4)471ndash496

Fisher R and Ury W (1983) Getting to Yes Negotiating an Agreement WithoutGiving In London Penguin Books

Flores F and Solomon R C (1998) Creating Trust Business Ethics Quarterly8(2) 205ndash232

Foster-Fishman P G and Keys C B (1997) The PersonEnvironment Dynamics ofEmployee Empowerment An Organizational Culture Analysis American Journalof Community Psychology 25(3) 345ndash369

Fukuyama F (1995) Trust The Social Virtues and the Creation of ProsperityHarmondsworth Penguin Books

Galbraith J (1995) Choosing an Effective Design ndash Designing Organisations SanFrancisco Jossey-Bass

Galbraith J (2002) Designing Organizations ndash An Executive Guide to StrategyStructure and Process San Francisco Jossey-Bass

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Gambetta D (1998) Trust Making and Breaking Cooperative Relations BasilBlackwell

Ganesan S (1994) Determinants of Long-Term Orientation in Buyer-SellerRelationships Journal of Marketing 58(April) 1ndash19

Gibson C B and Zellman-Bruhn M E (2001) Metaphors and Meaning AnIntercultural Analysis of the Concept of Teamwork Administrative ScienceQuarterly 46(2) 274ndash303

Goodman R and Chinowsky P (1996) Managing Interdisciplinary Project Teamsthrough the Web Journal of Universal Science 2(9) 597ndash609

Goodstein L and Boyer R (1972) Crisis Intervention in a Municipal Agency AConceptual Case Study Journal of Applied Behavioral Science 8 318ndash340

Green S (1999) Partnering The Propaganda of Corporatism Journal ofConstruction Procurement 5(2) 177ndash186

Greene R and Elfrers J (1999) Power the 48 Laws London Profile BooksGriffin A and Hauser J R (1996) Integrating Mechanisms for Marketing and

RampD Journal of Product Innovation Management 13(3) 191ndash215Grisham T (2006) Cross Cultural Leadership Doctor of Project Management

School of Property Construction and Project Management Melbourne RMITGruber J and Trickett E J (1987) Can We Empower Others The Paradox of

Empowerment in the Governing of an Alternative Public School AmericanJournal of Community Psychology 15 353ndash371

Gupta V Hanges P J and Dorfman P (2002) Cultural Clusters Methodologyand Findings Journal of World Business 37(1) 11ndash15

Gupta V Surie G Javidan M and Chhokar J (2002) Southern Asia ClusterWhere the Old Meets the New Journal of World Business 37(1) 16ndash27

Handy C (1985) Understanding Organisations 3rd Edition London PenguinHarrison R and Stokes H (1992) Diagnosing Organizational Culture San

Francisco PfeifferHofstede G (1991) Culture and Organizations Software of the Mind New York

McGraw-HillHofstede G H (1980) Culturersquos Consequences International Differences in

Work-Related Values Beverly Hills CA SageHosmer L T (1994a) Strategic Planning as if Ethics Mattered Strategic

Management Journal 15 17ndash34Hosmer L T (1994b) Why be Moral A Different Rationale for Managers

Business Ethics Quarterly 4(2) 191ndash204House R Javidan M Hanges P and Dorfman P (2002) Understanding Cultures

and Implicit Leadership Theories Across the Globe An Introduction to ProjectGLOBE Journal of World Business 37(1) 3ndash10

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd Phillips Fox Lawyers p 33

Ingram T N Lee K S and Skinner S (1989) An Empirical Assessment ofSalesperson Motivation Commitment and Job Outcomes Journal of PersonalSelling and Sales Management 9 25ndash33

Jackson T (1993) Organizational Behaviour in International ManagementOxford Butterworth-Heinemann

Jassawall A R and Sashittal H C (1998) An Examination of Collaboration inHigh-Technology New Project Development Processes Journal of ProductInnovation Management 15 237ndash254

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Javidan M Stahl G K Brodbeck F and Wilderom C P M (2005) Cross-Border Transfer of Knowledge Cultural Lessons from Project GLOBE Academyof Management Executive 19(2) 59ndash76

Jenks C (1993) Culture London RoutledgeJohnson D W and Johnson R T (1989) Cooperation and Competition Theory

and Research Edina Interaction Book CompanyKonovsky M A and Cropanzano R (1991) Perceived Fairness of Employee Drug

Testing as a Predictor of Employee Attitudes and Job Performance Journal ofApplied Psychology 76 698ndash707

Kroeber A L and Kluckhohn C (1952) Culture A Critical Review of Conceptsand Definitions Boston Harvard University

Lau E and Rowlinson S (2005) The Value Base of Trust for the ConstructionIndustry Journal of Construction Procurement 11(1) 19ndash39

Lau H L (1999) Trust as a Human Factor in Management in General and inConstruction CIB W92TG23 Symposium Thailand Ogunlana S O EampFNSpon pp 117ndash126

Laurent A (1986) The Cross-Cultural Puzzle of International Human ResourceManagement Human Resource Management 25(1) 91ndash102

Leong S M Randall D M and Cote J A (1994) Exploring the OrganizationalCommitment-Performance Linkage in Marketing A Study of Life InsuranceSalespeople Journal of Business Research 29 57ndash63

Lewicki R Saunders D and Minton J (1999) Negotiation Boston McGraw-HillLewicki R J Litterere J A Minton J W and Saunders D M (1994)

Negotiation 2nd edn Sydney IrwinLiu A M M and Fellows R F (1996) Towards an Appreciation of Cultural

Factors in the Procurement of Construction Projects CIB W92 SymposiumDurban South Africa Taylor R pp 301ndash310

Liu A M M and Fellows R (2001) An Eastern Perspective on PartneringEngineering Construction and Architectural Management 8(1) 9ndash19

Luhmann M (1979) Trust and Power Chichester WileyMcAllister D J (1995) Affect- and Cognition-Based Trust as Foundations for

Interpersonal Cooperation in Organizations Academy of Management Journal38(1) 24ndash59

McDonough III E F (2000) An Investigation of Factors Contributing to theSuccess of Cross-Functional Teams Journal of Product Innovation Management17(3) 211ndash235

McDonough III E F and Barczak G (1991) Speeding up New ProductDevelopment The Effects of Leadership Style and Source of Technology Journalof Product Innovation Management 8(3) 203ndash211

Magee B (1988) Men of Ideas London BBC BooksMayer R C and Davis J H (1999) The Effect of the Performance Appraisal

System on Trust in Management A Field Quasi-Experiment Journal of AppliedPsychology 84(1) 123ndash136

Mayer R C Davis J H and Schoorman F D (1995) An Integrated Model ofOrganizational Trust Academy of Management Review 20(3) 709ndash735

Mead R (1998) International Management Cross-Cultural Dimensions OxfordBlackwell

Meyer J P and Allen N J (1991) A Three-Component Conceptualization ofOrganizational Commitment Human Resource Management Review 1(1) 61ndash89

Culture and project procurement 307

Meyer J P Paunonen S V Gellatly I H Goffin R D et al (1989)Organizational Commitment and Job Performance Itrsquos the Nature of theCommitment that Counts Journal of Applied Psychology 74 152ndash156

Misztal B A (1996) Trust in Modern Societies Cambridge The Polity PressMittal B (1996) Trust and Relationship Quality A Conceptual Excursion In

Contemporary Knowledge of Relationship Marketing Center for RelationshipMarketing Parvatiyar A and J N Sheth (Eds) Atlanta GA Emory Universitypp 230ndash240

Moenaert R K Souder W De Meyer A and Deschoolmeester D (1994) RampD-Marketing Integration Mechanisms Communication Flows and InnovationSuccess The Journal of Product Innovation Management 11 31ndash45

Mohamed S (2003) Determinants of Trust and Relationship Commitment inSupply Chain Partnerships Unpublished Working Paper School of EngineeringGriffith University Brisbane Australia

Moorman C Deshandegrave R and Zaltman G (1993) Factors Affecting Trust inMarket Research Relationships Journal of Marketing 57(January) 81ndash101

Morrill R L (1980) Teaching Values in College San Francisco Jossey BassMunns A K Aloquili O and Ransay B (2000) Joint Venture Negotiation and

Managerial Practices in the New Countries of the Former Soviet UnionInternational Journal of Project Management 18(6) 403ndash413

Nevis E C (1983) Using an American Perspective in Understanding AnotherCulture Toward a Hierarchy of Needs for the Peoplersquos Republic of China TheJournal of Applied Behavioral Science 19 (3) 249ndash264

Oakland J S (1993) Total Quality Management 2nd Edition OxfordButterworth-Heinemann

Owens R (1987) Organisational Behaviour in Education Eaglewood Cliffs NJPrentice Hall

Parson T and Smelser N J (1984) Economy and Society A Study inthe Integration of Economic and Social Theory London Routledge ampKegan Paul

Perry R B (1954) Realms of Value Cambridge Harvard University PressPirsig R M (1974) Zen and the Art of Motorcycle Maintenance London The

Bodley HeadPrabhu V B and Robson A (2000) Achieving Service Excellence ndash Measuring the

Impact of Leadership and Senior Management Commitment Managing ServiceQuality 10(5) 307ndash317

Punnett B J (1998) Cross-National Culture In The Handbook of HumanResource Management Poole M and M Warner (Eds) London InternationalBusiness Press pp 9ndash26

Randall D M Fedor D B and Longenecker C O (1990) The BehaviouralExpression of Organizational Commitment Journal of Vocational Behaviour 36210ndash224

Robinson J (1964) Economic Philosophy Middlesex Penguin BooksRogers C R and Stevens B (1967) Person to Person The Problem of Being

Human A New Trend in PsychologyWalnut Creek CA Souvenir PressRoot D S (2000) The Influence of Professional and Occupational Cultures on

Project Relationships Mediated Through Standard Forms and Conditions ofContract PhD Thesis University of Bath

308 Rowlinson et al

Rousseau D M and Parks J M (1993) The Contracts of Individuals andOrganizations Research in Organizationsrsquo Behaviour 55 1ndash43

Rowlinson S (2001) Matrix Organisation Structure Culture and Commitment ndashA Hong Kong Public Sector Case Study of Change Construction Managementand Economics 19(7) 669ndash673

Rowlinson S (2005) Implementation of Relational Management CRC CI ReportBrisbane 2002ndash022-A-41 33

Rowlinson S Cheung F Y K Simons R and Rafferty A (2006) Alliancing inAustralia ndash No Litigation Contracts A Tautology ASCE Journal of ProfessionalIssues in Engineering Education and Practice 132(1) 77ndash81 [Special Issue onLegal Aspects of Relational Contracting]

Ruppel C P and Harrington S J (2000) The Relationship of CommunicationEthical Work Climate and Trust to Commitment and Innovation Journal ofBusiness Ethics 25 313ndash328

Sako M (1992) Prices Quality and Trust Interfirm Relations in Britain andJapan Cambridge Cambridge University Press

Schein E H (1985) Organisational Culture and Leadership San FranciscoJossey Bass

Serrano-Garcia I (1984) The Illusion of Empowerment Community DevelopmentWithin a Colonial Context In Studies in Empowerment Steps TowardUnderstanding and Action Rappaport J C Swift and R Hess (Eds) New YorkHaworth pp 9ndash35

Shaw R B (1997) Trust in the Balance San Francisco Jossey-Bass PublishersSzabo E Brodbeck F C Den Hartog D N Reber G et al (2002) The

Germanic Europe Cluster Where Employees Have a Voice Journal of WorldBusiness 37(1) 55ndash68

Terpstra V and David K (1985) The Cultural Environment of InternationalBusiness 2nd Edition Southwestern Publishing

Thompson L (1998) The Mind and Heart of the Negotiator London PrenticeHall International

Thorsdottir T (2001) Merging Organizational Culture Lessons for InternationalJoint Ventures In International Business Partnership Issues and ConcernsTayeb M H (Ed) New York Palgrave

Tierney W (1988) Organisation Culture in Higher Education Journal of HigherEducation 59(1) 2ndash21

Ting-Toomey S and Kurogi A (1998) Facework Competence in InterculturalConflict An Updated Face-Negotiation Theory International Journal ofIntercultural Relations 22(2) 187ndash225

Trompenaars F (1993) Riding the Waves of Culture Understanding CulturalDiversity in Business London Economics Books

Van de Ven A H and Ferry D H (1980) Measuring and Assessing OrganizationsNew York Wiley

Vecchio R P Hearn G and Southey G (1992) Organisational Behaviour Lifeat Work in Australia Sydney Harcourt Brace Jovanovich

Walker D H T and Hampson K D (2003a) Developing Cross-TeamRelationships In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishingchapter 7 169ndash203

Culture and project procurement 309

Walker D H T and Hampson K D (2003b) Procurement StrategiesA Relationship Based Approach Oxford Blackwell Publishing

Walton R (1985) From Control to Commitment in the Workplace In ManagePeople Not Personnel Motivation and Performance Appraisal Boston HarvardBusiness Review 63(2) 77ndash84

Westwood R I (1993) Organisational Behaviour South East Asian PerspectivesHong Kong Longmans Asia

Williams G A and Miller R B (2002) Change the Way You Persuade HarvardBusiness Review 80(5) 65ndash73

Williamson O E (1975) Markets and Hierarchies Analysis and AntitrustImplications A Study in the Economics of Internal Organization New York TheFree Press

Williamson O E (1985) The Economic Institutions of Capitalism FirmsMarkets Relational Contracting New York The Free Press

Williamson O E (1993) Calculativeness Trust and Economic OrganizationJournal of Law and Economics 36(April) 453ndash486

Wolfe R N (1976) Trust Anomie and the Locus of Control Alienation of USCollege Students in 1964 1969 1974 Journal of Social Psychology 100151ndash172

Wong E S Then D and Skitmore M (2000) Antecedents of Trust in Intra-Organizational Relationships Within Three Singapore Public Sector ConstructionProject Management Agencies Construction Management and Economics 18(7)797ndash806

Wood G and McDermott P (1999a) Building on Trust A Co-OperativeApproach to Construction Procurement Journal of Construction Procurement7(2) 4ndash14

Wood G and McDermott P (1999b) Searching for Trust in the UK ConstructionIndustry An Interim View CIB W92TG23 Symposium ndash Profitable Partneringin Construction Procurement Thailand Ogunlana S O EampFN Sponpp 107ndash116

Wood J Wallace J and Zeffane R M (2001) Organisational BehaviourA Global Perspective Australia John Wiley amp Sons Australia Ltd

Zineldin M and Jonsson P (2000) An Examination of the Main Factors AffectingTrustCommitment in Supplier-Dealer Relationships An Empirical Study of theSwedish Wood Industry The TQM Magazine 12(4) 245ndash265

310 Rowlinson et al

Chapter 10

Project procurement and thequest for talent

Beverley-Lloyd-Walker Helen Lingard and Derek HTWalker

Chapter introduction

This book has focused much of its content in one form or another on issuessurrounding project outsourcing In this chapter we concentrate on lookinginside project organisations to discuss how they may better presentthemselves as an employer of first choice This is entirely applicable to bothoutsourced and in-house project procurement We focus our attention onoutsourced project procurement strategies from the perspective of theprocurement aim as being the supply chain partner and team member offirst choice In our discussion of in-house project recruitment we will alsotackle this from the perspective of addressing the value proposition ofpotential team members We stress throughout this book that projects aredelivered by people A key procurement issue addressed in this chapter isdiscussing how organisations can attract and retain talented people who arecommitted motivated and highly competent to work on projects The keyquestion raised is how do we attract and retain such people to be projectteam members Also how do we present our project as being attractive toour supply chain partner teams

Figure 101 illustrates the main thrust of this chapter It starts with theprocurement decision in Chapter 1 that discussed the make or buyinsourcendashoutsource decision It then follows with the influence that negoti-ation makes as discussed in Chapter 9 Organisational internal labourmarket policy also has an impact upon how staff are recruited and madeavailable as well as terms and conditions of employment

This chapter also links with engaging with stakeholder (Chapter 3)particularly project team members making sense of how ethics andgovernance may influence procurement choices (Chapter 4) comprehendingthe importance of adopting a strategic approach to explore procurementdecisions (Chapter 5) developing and enforcing a performance measuresystem that is relevant and fair (Chapter 6) how to encourage valuegeneration through innovation (Chapter 8) and understanding the organi-sational culture and how cross-cultural teams can best complement what

each team member has to offer (Chapter 9) It also specifically links wellwith the Chapter 13 case study The main issue whether projects are deliv-ered in-house or outsourced in maximising the chances for project successstill rests to a major extent with attracting and acquiring the best projectteam (and supply chain teams) possible with a favourable combination ofskills abilities and commitment to successfully deliver the project Whenlooked at from this perspective strategic human resource management(HRM) is a vital component of gathering together the best project resourcesto contribute to a successful project Three factors identified in Figure 101are discussed substantially in Chapter 9 from an organisational cultureperspective these are the industry environment (its culture) the workplaceenvironment (its culture) and the organisationrsquos environment (its culture andalso its ethical and governance stance as discussed in Chapter 4) Rewardsand workplace conditions will also be more deeply explored These factorsthen impact upon the individualrsquos value proposition and the match betweenthat lsquowantrsquo and what is lsquoon offerrsquo as influenced by the industry organisationand workplace environments determines the attractiveness of the project toindividual and teams While getting the best talent does not ensure projectsuccess it does provide a strong potential contribution

The chapter is structured in three parts The introduction section posesthe question how can project leaders attract the best team to deliver theirproject The second section provides some fundamental issues surrounding

312 Lloyd-Walker et al

Outsourced

Influenced through tenderconditions and negotiations

External market viatender or negotiation

Industry environmentnorms culture

Rewards conditions

Sourced in-house

Beg borrow or steal

Acquire best team possiblewith right mix of skills

abilities and commitment

Workplace environmentnorms culture

The individualrsquos valueproposition Attractiveness

match

Organisationrsquosenvironment norms

culture

Potentialoutcome

Internal marketassignment or recruitment

Figure 101 Link between value proposition and job attractiveness

what the value proposition is for people and the way that people arerecruited integrated into project teams and their talents effectivelymarshalled Following that in the third section we then explore how astrategic HRM approach can best deliver the best potential for effectiveparticipation in project teams We will end the chapter with a vignette

Attracting talent ndash a people-centric value proposition

In Chapter 8 an alliance model was offered and illustrated (Walker 2005)in which the need was stressed for high-level strategic human capitaldevelopment so that a network of willing high achieving PM team memberscould be readily sourced for projects as and when the need arises Thismodel assumed outsourcing many PM functions and so many of the PMteam members would be contractors ndash this is the case currently in the ITindustry where expert specialists as well as generalists are hired to convergeon a project This situation is typical in the film TV and entertainmentindustries (DeFillippi and Arthur 1998 Hartman et al 1998) So from ahigh-intensity outsourced talent acquisition perspective there is a criticalneed to be able to source talent and key staff at very short notice This isbecause many project authorisations seem to drag on interminably whilelsquodetails are sorted outrsquo and then its all-systems-go and project managershave to magically create a team of top talent In these cases it is likely thatthe potential team members who can be recruited are known to the projectmanager and trust the project senior team and the organisation as well aswanting to work with them This requires affective (want to) commitment(see Chapter 3) (Meyer and Allen 1991) Such people may have motivationthrough a value proposition that includes experience or an opportunity togain further trust with a team as part of building their portfolio ofexperience (Handy 1997)

A similar situation occurs in many organisations that undertake in-houseprojects where the project manager may have to beg borrow and scroungea team that heshe wants to work on the project (Ensworth 2001) In thiscase the challenge facing project managers is to persuade employees withmany competing commitments to agree to be part of a particular projectSometimes a project manager may be fortunate and have carte blanche todemand resources but even then the issue is gaining affective rather thancontinuance (need to) or normative (ought to) commitment or evencompliance (must) commitment (Meyer and Allen 1991) Howeveranecdotal evidence suggests that many project managers assembling teamsinternally to work on projects that may be seen merely as lsquoinitiativesrsquo arefaced with the beg-borrow-steal model of team recruitment This makes thetask of project managers understanding a team memberrsquos value propositioneven more important than is most likely currently understood

Procurement and the quest for talent 313

Further as illustrated in Figure 84 in Chapter 8 current leading edge andfuture models of sourcing workplace talented staff requires excellence inHRM and human capital development that addresses a more sophisticatedvalue proposition for talented potential staff (Walker 2005)

Workndashlife balance ndash an employee value proposition perspective

Employers naturally seek employees who are highly skilled and specialised orat least highly experienced More forward thinking organisations supportemployeesrsquo personal and professional growth so this places another level ofexpectation the ability and desire to become more resilient flexible and inde-pendent (Waterman et al 1994) They are making demands about the levelof commitment in terms of hours worked notice potential travel disruptionsto life and they may well be trying to do this through persuasion or at worstintimidation to the extent that onersquos lsquocareer may depend on thisrsquo For exam-ple in a recent UK construction industry study of a major national construc-tion company using an in-depth case study approach interviewing 15 seniormanagers and 35 employees at a range of levels within the organisation byRaideacuten et al (2006 889) they state that formal written contracts of employ-ment required a 42 12 hour work week for site-based employees and 37 12for senior office staff though in practice many of these worked far longerhours as unpaid overtime This is consistent with an Australian study of simi-lar organisations where 85 of those surveyed worked on average more than40 hours per week and 40 worked more than 50 hours a week this has ledto a form of discrimination biasing those in the industry (predominantlymale) prepared to work long hours (Lingard and Francis 2005a) It is againstthis backdrop that some industries such as construction are fighting to remainattractive to the workforce as there are more employees in the generationnow in their twenties or early thirties who are more concerned about achiev-ing a workndashlife balance (Lingard and Francis 2005a Raideacuten et al 2006)

The changing workforce

Since the middle of the twentieth century demographic trends and attitu-dinal changes have had a dramatic impact upon the needs and aspirationsof the workforce One of the biggest shifts has been the entry of women intothe paid workforce For example in Australia womenrsquos overall participa-tion in the paid work force in Australia has risen from 437 in 1978 to555 in 2004 (Australian Bureau of Statistics 2004b) The most commonfamily form in most industrialised countries comprises two adults in thepaid workforce In 575 of Australian two-parent families (with childrenunder 15) both parents were in paid employment in 2003 (AustralianBureau of Statistics 2004a) Traditional work practices and career pathswere predicated upon the gendered notion of a full-time (usually male)

314 Lloyd-Walker et al

breadwinner supported by a full-time (usually female) home-makerJacobs and Gerson (2004) note that while individual workers in the USAare actually working fewer hours per week than they have in the past thefact that in most relationships both partners are employed outside thehome has created an intense time squeeze on American familiesSimilarly a report prepared by the Australian Bureau of Statistics foundthat in dual income couples 70 of all mothers and 56 of all fathersreported that they alwaysoften felt rushed or pressed for time Moen andSweet (2004) describe a lsquopolicy lagrsquo in which there is a mismatchbetween outdated work and career structures and the contemporaryreality of dual earner couples

This policy lag highlights an important gap in PM procurement practicesPerhaps as a result of these changes in family type there has also been asubstantial shift in the expectation of fathersrsquo involvement in parentingRussell and Bowman (2000) report that Australian fathers are spendingmore time with their children than they were 15 years ago and that therelationship between fathers and children is closer At the same time 68of the Australian fathers in the study felt that they did not spend enoughtime with their children and 57 identified work schedule demands andinflexibility as preventing them from being the kind of fathers they wouldlike to be

There also appears to be some generational change in workersrsquoexpectations with younger workers no longer being motivated by the samerewards as their parentsrsquo generation instead placing greater value onlsquonon-standardrsquo work models that enable them to enjoy a more satisfactoryworkndashlife balance (Loughlin and Barling 2001) In the words of oneparticipant in a recent Australian research study of construction industryemployees lsquoI find it hard to see myself staying in this field if I intend to starta family Not only do I feel drained each day it affects my relationshipsdramatically It seems as if you donrsquot have the view that you ldquolive to workrdquoyou are not committed to your job Todayrsquos generation are looking forself-fulfilment in a job rather than loyalty to a company and security Abalance needs to be kept and at present I donrsquot think that view is easilyacceptedrsquo (Francis et al 2006)

In addition the population is ageing and many couples are delayingchildbearing creating a situation in which many workers now face the situa-tion where they have simultaneous responsibilities for the care of dependentchildren and elderly family members ndash the so-called sandwich generationIndeed Gorey et al (1992) predict that between 1996 and 2041 the numberof aged dependants per 100 workers will increase from 181 to 348

Conflicting roles

Most employees in the twenty-first century are trying to lsquohave it allrsquocombining multiple roles in an attempt to achieve happiness fulfilment and

Procurement and the quest for talent 315

life satisfaction However there is considerable potential for roles toconflict Kahn et al (1964 19) described inter-role conflict as lsquothe simul-taneous occurrence of two or more sets of pressures such that compliancewith one would make more difficult compliance with the otherrsquo For manyadults paid work and family are central areas of life Workndashfamily conflicthas been defined as lsquoa form of inter-role conflict in which role pressuresfrom the work and family domains are mutually incompatible in somerespectrsquo (Greenhaus and Beutell 1985 77) They also identify threedimensions of workndashfamily conflict

1 Time-based conflict ndash this occurs when time spent on activities in onerole prohibits the fulfilment of responsibilities in another role

2 Behaviour-based conflict ndash this occurs when behaviour in one rolecannot be adjusted to be compatible with behaviour patterns inanother role

3 Strain-based conflict ndash this occurs when pressures from one roleinterfere with fulfilling the requirements of another role

Workndashfamily conflict is also known to occur in two directions from workto family and from family to work with research suggesting the former isstronger than the latter Workndashfamily conflict is consistently linked withdysfunctional attitudinal physical and psychological outcomes which havethe potential to cause serious harm to organisations individuals andfamilies For example research has demonstrated work interference withfamily life to be associated with job dissatisfaction life dissatisfactionintention to turnover general well-being psychological strain psychiatricdisorders and substance abuse and problem drinking (Netemeyer et al1996 Allen et al 2000 Frone 2000 Grzywacz and Marks 2000 Grant-Vallone and Donaldson 2001 Boyar et al 2003 OrsquoDriscoll et al 2003Hammer et al 2004) One recent Australian study reports that project-based employees in the construction industry suffer much higher levels ofwork-to-family conflict than their counterparts who work in the head orregional office suggesting unique pressures experienced by project personnel(Lingard and Francis 2004)

Why should organisations care about workndashfamily conflict

Traditional management strategies were predicated upon a separation ofwork and family life Conflict between work and family has been cast as aprivate matter for individual workers (and their families) to resolve Thereis now compelling evidence to indicate that work and family roles shouldbe understood as interlinked experiences in one domain affecting moodbehaviour and performance in the other For this reason the interface

316 Lloyd-Walker et al

between work and home life is increasingly a concern for organisationsseeking to recruit retain and motivate a talented workforce

Research consistently shows work-to-family conflict to be associatedwith less positive attitudes towards work For example work-to-familyconflict is negatively associated with affective organisational commitment(Netemeyer et al 1996 Thompson et al 1999) and job satisfactionreflecting the fact that workers who perceive their work to negativelyimpact upon their family life are resentful of this interference Greenhauset al (2001) suggest that when work and family life conflict a logicalresponse is to try to eliminate this conflict by withdrawing from its sourceTwo forms of withdrawal behaviour that are of interest to organisations areturnover and absenteeism from work Greenhaus et al (2001) provideevidence that employees who are dissatisfied with the balance between workand family life think more about quitting their jobs Similarly Batt andValcour (2003) report work interference with family to be significantly andpositively related to turnover intentions and employeesrsquo perceptions ofcontrol over managing work and family to be significantly negativelyrelated to turnover intention Boyar et al (2003) also found that both direc-tions of workndashfamily conflict predicted turnover intention Thus there issubstantial evidence to suggest that turnover which is extremely costly fororganisations may be reduced through providing workplaces that are sup-portive of workersrsquo family lives Workndashlife balance initiatives are alsoreported to improve organisationsrsquo competitiveness by increasing theirability to attract employees (Casper and Buffardi 2004) induce employeesto exercise discretionary effort in performing their work (Konrad andMangel 2000) and help employees to be more productive (Eaton 2003)Further Arthur (2003) reports a positive relationship between theannouncement of organisational workndashlife balance initiatives and share-holder returns indicating that investors view family-friendly firms morefavourably Grover and Crooker (1995) found that employees in companieswith organisational workndashlife balance benefits had higher levels of organi-sational commitment to the organisation and expressed lower turnoverintentions regardless of whether the employee individually benefited fromthe policy Thus it seems that workndashlife balance benefits have a positiveinfluence on employeesrsquo attachment to an organisation because they signifycorporate concern for employees and their families

Burnout

One widely reported outcome of workndashfamily conflict is employee burnoutThe most widely accepted definition of burnout conceptualises thephenomenon as a syndrome of emotional exhaustion cynicism and reducedprofessional efficacy (Maslach et al 2001) Burke and Mikkelson (2006 65)

Procurement and the quest for talent 317

describe burnout as lsquoa process in which the individualrsquos attitudes andbehaviours change in negative ways in response to job stresses It is aprocess of progressive disillusionmentrsquo Like workndashfamily conflict burnouthas been associated with the experience of psychological distress anxietydepression and reduced self-esteem To make matters worse some researchsuggests that burnout is contagious spreading to affect colleagues of thosewho experience it A recent large-scale survey of the employees of one largeprivate sector construction contracting organisation and one large govern-ment construction client organisation was undertaken in QueenslandAustralia The results of this survey (Francis and Lingard 2004) indicatealarmingly high levels of burnout in the employees of both organisations

The survey results indicate that employees in both the public and privatesector construction industry organisations experience higher levels ofburnout than international lsquonormsrsquo The mean burnout scores for the sur-vey respondents are provided in Table 101 along with a sample of meanburnout scores from a range of different occupations in internationalresearch (Maslach et al 1996) The data reveals that respondents in theconstruction sample experience higher levels of emotional exhaustion thanrespondents in the military technology and management fields The onlyoccupational group indicating a higher level of emotional exhaustion thanthe construction employees was nursing The construction employees alsoreported higher levels of cynicism and lower levels of professional efficacythan respondents in all other occupational groups

Lingard and Francis (2005b) explored workndashfamily conflict as a linkingmechanism between the job schedule demands and lack of schedule flexibilityexperienced by many employees and burnout They report that the relation-ship between job schedule demands and burnout is actually better cast as anindirect relationship because the perception that work interferes with familyor home life acts as a significant pathway link between job schedule demandswith burnout These results have important implications for the preventionof employee burnout because they suggest that job schedule demandscreate workndashfamily conflict In the context of this workndashfamily conflictemployees have less opportunity to recover from the physical and psycholog-ical impact of work during non-work hours leading (over time) to burnout

318 Lloyd-Walker et al

Table 101 Cross-occupational comparison of mean burnout scores

Construction Military Technologist Management Nursingmean (SD) mean (SD) mean (SD) mean (SD) mean (SD)

EE 276 (15) 205 (123) 265 (131) 255 (140) 298 (138)CY 225 (15) 163 (135) 172 (114) 132 (106) 180 (124)PE 429 (10) 460 (093) 454 (103) 473 (088) 441 (099)

Source Francis and Lingard (2004)

EE = Emotional exhaustion CY = cynicism PE = reduced personal efficacy

Thus organisations interested in reducing the risk of employee burnoutshould consider ways of preventing workndashfamily conflict for examplethrough the implementation of family-responsive management interventions

Workndashlife balance initiatives

A distinction is drawn between formal workndashlife balance benefits andinformal workndashlife support The former are mandated or proscribed by formalorganisational policies or programmes while the latter are less tangible andclosely related to aspects of the organisational culture (Behson 2005) Thereis considerable evidence to suggest that formal workndashlife benefits althoughvery important can be lacking in effect when organisational cultures discouragetheir use Workndashfamily cultures have been defined as lsquothe shared assumptionsbeliefs and values regarding the extent to which an organization values theintegration of employeesrsquo work and family livesrsquo (Thompson et al 1999 394)and lsquothe global perceptions that employees form regarding the extent to whichthe organization is family-supportiversquo (Allen 2001 416) Workndashlife culturesare said to be multi-dimensional comprising the following

Organisational time demands and the expectation that employeesprioritise work over family time

Managerial support and sensitivity to employeesrsquo non-workresponsibilities and

The perception of negative career consequences associated withutilising formal workndashlife benefits

Within project teams norms about the working hours that are expected ofemployees develop In some cases long hours spent at the workplace areseen to reflect high levels of commitment and productivity An example ofthis is vividly described by Perlow (1998) who investigated the workndashlifeculture of a product development team working in a large US-basedsoftware company Perlow describes how sacrificing family time for workwas considered to be an indication of commitment and one lsquostarrsquo employeeroutinely started work at 2am and worked through until 530pm each dayWithin the development project teams Perlow also reports a culture oflsquopresenteeismrsquo in which leaving work on time created a bad impression andannual pay increases were always justified in terms of hours spent at workIn performance reviews top-ranked employees were those who spentbetween 80 and 100 hours a week at work

Secret (2000) classifies formal workndashlife benefits into four categories

1 Alternate work arrangements2 Leave time policies3 Child care services and4 Mental health and wellness services

Procurement and the quest for talent 319

Alternate work arrangements include things like teleworking offeringpermanent part-time work options compressing the work week (see casestudy below) and the modification of start and stop times (sometimesknown as flexitime) and job-sharing Research strongly supports thepositive impact of alternate work arrangements on employeesrsquo workndashlifebalance Leave time policies are largely dictated by legislative provisions formaternity parental and carersrsquo leave and consequently vary from country tocountry It is noteworthy that Australia and the USA are the only industri-alised OECD countries that do not require organisations to offer paidmaternity leave to women However it is noteworthy that some Australianorganisations are offering paid maternity leave in an attempt to recruit andretain high calibre female workers Childcare services are more controver-sial than other categories of workndashlife initiative because they can be utilisedonly by people with children They can include on-site childcare or otherchildcare services like joint venture childcare centres employer-sponsoredplaces in local childcare centres pre-tax credits for childcare assistancesubsidies for childcare costs or childcare information and referral servicesIncreasingly as the population ages care for elderly dependants is likely tobecome an issue for workers For this reason some organisations areintroducing elder care services in addition to childcare supports The finalcategory of formal workndashlife benefit is mental health and wellness servicesThese include things like employee assistance programmes offeringcounselling to employees with work andor family difficulties

Lingard and Francis (2005a) report that employeesrsquo preferences forworkndashlife initiatives depend on their family structure (eg whether they arepartnered or single parents or child-free) and their age Younger workers(aged between 20 and 29) were more interested in wellness and personaldevelopment initiatives while workers aged between 30 and 49 were moreinterested in childcare services than older or younger workers Unsurprisinglychildcare services were valued more highly among couples with dependantchildren than single or child-free couples Crisis assistancesupport was alsomore highly valued by parents of dependant children than employees in otherfamily structures These findings are consistent with the view that workndashlifeexperiences change over employeesrsquo life course with an individualrsquos prioritiesand preferences changing as they move through different life stages (Moen andSweet 2004) The practical implication of the life course perspective is that nolsquoone size fits allrsquo solution to employeesrsquo workndashlife balance is likely to be foundInstead organisations need to be flexible enough to adapt and respond todiverse and changing needs of their employees as they move through the lifecourse Some organisations are for example recognising the value of alsquocafeteriarsquo style reward package in which employees can select the salary andbenefits combination that best suits their needs

However although the introduction of formal workndashlife benefits isrecommended these benefits will only help organisations to recruit retain

320 Lloyd-Walker et al

and motivate workers to the extent that they are used (Eaton 2003) Thereis evidence to suggest that in some organisational contexts workers arereluctant to use formal workndashlife benefits fearing negative careerconsequences or stigmatisation Veigaa et al (2004) suggest the fear thatusing workndashlife benefits will result in being seen as lacking in commitmentto onersquos job and a negative assessment by others is a major factor in thelow take-up of benefits in some organisations Butler et al (2004) reportemployees who anticipate negative work outcomes are less likely to useworkndashlife policies In certain masculine work cultures female employeesmight be more sensitive to the impact of benefit usage on careerconsequence For example in a study of female construction professionalsin Australia 495 of a sample of 109 indicated that they thoughttaking maternity leave or utilising part-time work options would have anegative impact on their career (Lingard and Lin 2003) Althoughas Bittman et al (2004) note gendered stereotypes about the characteristicsof an lsquoideal workerrsquo are equally likely to prevent men from using workndashlifebenefits

A project alliance case study

Chapter 13 describes innovative project management strategiesimplemented at the Wivenhoe Alliance Project in Queensland AustraliaBelow is an example of how innovative workndashlife practices were imple-mented in this case study project The case study presents evaluation datarelating to some of these work practices This case study reproduces datafrom a paper by Lingard et al (2007)

The Australian construction industry is characterised by traditional workpatterns There is a strong culture of long hours and weekend workespecially among site-based employees The industryrsquos rigid adherence tolong hours and inflexible work schedules is also believed to hinder its abilityto attract and retain talented employees The Australian construction indus-try is facing a critical shortage of skilled workers It is estimated that if theconstruction industry is to replace its retiring workers and meet growthdemands between 40000 and 50000 new skilled workers will be neededin the next five years (Anon 2005) The industryrsquos failure to respond toemployeesrsquo workndashlife balance expectations threatens to substantially reducethe industryrsquos long-term performance and competitiveness

There is a growing realisation that an organisationrsquos human resourcesare a primary source of competitive advantage because unlike capitaltechnology and other infrastructure workforce capability cannot easily beimitated by other organisations Management theorists argue that employ-ees are capable of performing at high levels when motivated to do so(Pfeffer 1998) Transformed workplaces in which decision-making poweris devolved information flows are increased and employees strongly

Procurement and the quest for talent 321

identify with the organisationrsquos goals have been called lsquohigh performancersquowork systems

These work systems are believed to arise as a result of a number ofhuman resources practices that enable organisations to recruit developmotivate and retain talented employees (Way 2002 Wood and Wall 2002)High-performance work systems are believed to develop when employeesare treated with respect enhancing commitment to the organisation andincreasing trust in management Higher levels of commitment and trust inturn lead to improved individual (and thereby organisational) performance(Wheatley 1997) High-quality work is a feature of high-performance worksystems Factors influencing the quality of work include the extent to whichemployees enjoy job decision latitude (Karasek and Theorell 1990) andautonomy (Parker and Wall 1998)

This case study explores the question of whether human resourcepractices implemented to support employeesrsquo workndashlife balance yield bene-fits for individuals and organisations In particular the paper evaluates theeffect of the introduction of a compressed work week in a prominent casestudy construction project the upgrade of an existing dam in QueenslandAustralia The impact of the compressed work week upon project-basedemployeesrsquo well-being satisfaction and workndashlife balance was evaluatedThe performance of the construction project using the traditional metrics oftime and cost was also subject to post hoc evaluation

The case study construction project the upgrade of an existing dam inQueensland Australia was delivered by means of a project alliance Themajor tasks involved in the project were building an additional spillway forthe dam and strengthening the existing concrete spillway by undertakingpost-tensioning works Over 425000 cubic meters of material wereexcavated for the new spillway The project also entailed the constructionof a five-span traffic bridge and placement of embankment materials withinthe additional spillway structure

The case study construction project was delivered by means of a projectalliance (see Chapter 12) The core principle of project alliancing is theachievement of positive outcomes for all alliance members through sharedcommitment to common project goals (Halman and Braks 1999 Walkeret al 2002) One defining feature of project alliancing is that participantsare selected on the basis of their capability approaches and systems as wellas their commitment chemistry and the likelihood of their deliveringoutstanding results (Hutchinson and Gallagher 2003)

Unlike traditional selection processes in project alliancing participantsare selected before a price is considered Typically project allianceobjectives extend beyond the traditional emphasis on price to includethe ability to innovate and manage relationships within and betweenalliance participants According to Walker et al (2002) there is an important

322 Lloyd-Walker et al

difference between project alliancing and partnering In partnering projectgoals are jointly agreed and dispute resolution procedures are established inan attempt to minimise litigation but participating firms remain indepen-dent entities and it is therefore possible for one organisation to gain whileanother suffers in the same project In contrast alliance participants form acohesive entity which jointly shares the risks and rewards arising duringand as a result of the project As such poor performance results in penaltyto all alliance participants and conversely rewards for excellent perfor-mance are shared between the participants Put simply lsquoa fundamentaldesign principle of a project alliance commercial framework is that if oneparticipant wins all win or if one loses all losersquo (Hutchinson andGallagher 2003 18)

The compressed work week which involved reducing the length of theworking week but increasing the length of the working day was introducedpart way through the construction phase of the Wivenhoe Dam project At thecommencement of the construction project the site was operating on (approx-imately) a 58-hour week spread over six days This comprised five 10-hourdays (Monday to Friday) plus an 8-hour day on Saturday Shortly before datacollection commenced in March 2005 the site moved to a 5-day week withworking hours extended to 115 hour per day on week days Weekend workwas no longer required By May 2005 the site was operating on winter hoursreducing work hours further to 105 hours per day

Questionnaires were administered to employees at the site in June 2005The questionnaires were designed with the objective of evaluatingemployeesrsquo reactions to the move from a six to a five-day week

Employees at the case study project rated their preferences for thecompressed work week on a seven point scale where lsquo1rsquo lsquovery stronglyprefer five-day weekrsquo and lsquo7rsquo lsquovery strongly prefer six-day weekrsquo Themean score was 179 (sd 155) indicating a strong collective preferencefor the five-day week The numbers of workers for each response option areindicated in Table 102 and indicates that the majority of both wages andsalaried employees expressed a preference for a five-day week However asmall number of wages staff indicated that they either had no preference orpreferred to work a six-day week

Employees were also asked to indicate the extent to which they believedtheir workndashlife balance had changed since the introduction of the compressedweek The change was rated on a seven point scale (from lsquo1rsquo lsquogreatly wors-enedrsquo to lsquo7rsquo lsquogreatly improvedrsquo) The average rating for salaried employeeswas 594 (sd 139) and for wages employees was 587 (sd 132)indicating that overall most employees felt their workndashlife balance hadlsquomoderately improvedrsquo since the introduction of the compressed work week

At the end of the questionnaire both wages and salaried employees wereinvited to lsquoadd any further commentsrsquo about workndashlife balance at the case

Procurement and the quest for talent 323

study project More comments were provided by salaried employees(n 15) than wages employees (n 2) In general the additional commentsprovided by respondents strongly supported the introduction of thecompressed work week Most salaried employees who provided additionalcomments expressed their satisfaction with the compressed work week Forexample one respondent wrote lsquoHave enjoyed the five day week ndash wouldprefer to put in extra hours during the week if it means having everyweekend offrsquo Another commented lsquoThe five day week is fantastic This isthe way the whole industry should operatersquo

Many salaried respondents also identified lsquoknock-onrsquo effects for work(eg productivity and loyalty to the organisation) and non-work activities(eg family activities and domestic duties) For example one wrote lsquoIn thelast (x) years Irsquove always worked a six day week and was often stressed andtired by Saturday On this job Irsquove felt very relaxed on the weekend Irsquovealso been able to complete all my jobs around the house Our crew ishappier because their money hasnrsquot changed much and they have a life I personally think that productivity has been excellent because everybody isfresh and happyrsquo

Several salaried employees directly linked the five-day week to employeeretention For example one commented lsquoA commitment to pursue a fiveday week across the business would help people make loyal decisions atproject completion rsquo and another wrote lsquoA five day week is what I andmy family now demand I will not work six days again even if it meanschanging to another industryrsquo

The interview data also supported the survey data in indicating that thecompressed work week was perceived to improve Wivenhoe employeesrsquoworkndashlife balance Example comments were lsquoThe five day week has justmade it incredible Irsquove talked to the workers out on site I mean they getto spend a whole weekend with their kids and their families now not justone dayrsquo (salaried staff) and lsquosince Wivenhoe has gone to a five day week ithas increased my enjoyable lifestyle substantiallyrsquo (wages staff)

324 Lloyd-Walker et al

Table 102 Employeesrsquo preference for five- or six-day week

Numbers of staff

Combined Wages only Salary only

Very strongly prefer 5 day 30 14 16Prefer 5 day 4 3 1Slightly prefer 5 day 2 1 1No preference 3 2 1Slightly prefer 6 day 0 0 0Prefer 6 day 2 2 0Very strongly prefer 6 day 1 1 0

The link between work hours workndashlife balance and productivity alsoemerged as an important theme in the interview data from Wivenhoeparticipants One salaried employee expressed his appreciation of the com-pressed work week in the following way lsquoI was actually contemplatingwhether the construction industry was not for me And I was becomingactive in seeking other roles And then the elimination of the Saturdaywork ndash really saved that So if it wasnrsquot for that [I] probably wouldnrsquot behere at the moment And not only had I felt the change and the huge ben-efit ndash my wife has as well She immediately saw a totally different personon the weekend So that was really positive But now I am much happiermuch more energetic at work So I concentrate for longer ndash well for theentire time I am here Whereas before there were times that were non-productiversquo

In the Australian construction industry a six-day week is the norm andthe move to a five-day week at Wivenhoe was an innovative and unusualmeasure Many of the employees interviewed suggested that undertraditional project delivery arrangements the introduction of the five-dayweek would be unlikely Reasons for this include the fact that undertraditional arrangements the risk associated with the move to a five-dayweek during the construction stage of the project would be borne entirelyby the construction contracting organisation In this situation if the five-day week improved performance the contracting organisation would reapthe benefit However if the five-day week hindered performance thecontracting organisation would stand to be heavily penalised For exam-ple a contractor would incur liquidated damages in the case of time over-runs As the outcome of different alternative work schedules is currentlyunknown in the construction context there is considerable uncertaintyabout the impact of a five-day week on project time performance undertraditional arrangements a contracting organisation may be unwilling totake such a risk However the commercial arrangement underpinning aproject alliance is based upon the sharing of risks and rewards Wheninterviewed the Wivenhoe Alliance Project Manager expressed this as fol-lows lsquo Then I guess the key for alliancing from that point on ndash everyoneshares in the pain or the gain So you havenrsquot got a clientcontractor men-tality where one wins one loses that sort of thing So if we all go welleveryone benefits all share in savings If things go badly and off the railswe will lose Obviously when it comes to decision time ndash yoursquove got a lotof decisions to make obviously throughout the course of the project Ithelps to align peoplersquos thinking to come up with the ldquobest for projectrdquosolutionrsquo

In the context of shared risk the likelihood that innovative solutionsto problems will be identified and implemented is greatly increased(Walker et al 2002 Hutchinson and Gallagher 2003) Thus at Wivenhoethe risk associated with implementing the compressed work week was

Procurement and the quest for talent 325

shared between participants who also all stood to gain if the measuresimproved productivity and performance

The construction work on the case study project was officially completedon 22 September 2005 six months ahead of the scheduled completion dateThe project also cost less to construct than originally estimated Thus tak-ing the traditional metrics of cost and time the project was a remarkablesuccess Owing to the fact that the introduction of the compressed workweek on the case study project was subject to a post hoc evaluation it isimpossible to determine to what extent the introduction of the compressedwork week caused the projectrsquos good performance in terms of cost and timeIn the absence of a rigorous experimental design inferences about cause andeffect cannot be made However the evidence suggests that the site-basedemployees perceived the compressed work week as being a very importantbenefit which the employees linked to productivity benefits Coupled withthe projectrsquos objective performance data this provides prima facie evidencethat alternative work schedules designed to help employees to achieve abetter workndashlife balance are not incompatible with the attainment of timeand cost objectives in the context of a construction project

This section on workndashlife balance issues provides convincing evidencethat current work arrangements have a significant impact upon commitmentand productivity levels and also strongly influences the organisationalculture We also highlighted a significant gap in PM procurement practicesfor sourcing talent

Strategic HR and the quest for talent

Whether staffing a project internally from the project-originatingorganisation or externally selecting employees to become members of a newproject team the principles are the same and driven by the knowledge thatpeople are an organisationrsquos greatest asset Indeed people are the primesource of competitive advantage today (Kaufman 1999 Ruona andGibson 2004 DiVanna and Rogers 2005) People and their competenciesknowledge and experience are vital for organisational success in this erawhen intangible knowledge-based resources that which only people canprovide are the most likely source of sustainable competitive advantage(Pringle and Kroll 1997 Chan et al 2004) The challenge is to attractdevelop motivate and retain talent (Frank and Taylor 2004) and the pres-sure to do so will increase with acute skills shortages already occurring insome professions and trades

Planning for the right people

Planning for people to ensure the needed skills and knowledge are availableacross the organisation when they are required is important Human

326 Lloyd-Walker et al

resource planning has been used to identify staffing needs at the level ofnumbers and skill types Today workforce planning and workforceprofiling are used to gain a greater level of understanding of the current andfuture availability of employees or potential employees In the pastsuccession planning was used to identify potential replacements for themost senior roles in an organisation Today succession planning is requiredat all levels of the organisation

In project environments the source of team members may be internalexternal with all or some team members provided by a specialist staffingorganisation met through forming strategic alliances with organisationsthat employ people with the required skills or the project or parts of it maybe outsourced With human resources being the key to project success it isimportant that current and future supply and demand of this vital resourcebe constantly tracked Industry-wide or profession-specific data may beavailable For instance in the USA a report by the University of Texas atAustin used workforce profiles to map likely retirement of engineers andpredicted supply to meet demand for engineers in the coming yearsAlthough only 15 of the current workforce was over 55 their workforceprofile showed that the industry had a window of about five years duringwhich the knowledge and social networks of the most senior engineerscould be transferred to younger employees before the retirement of thelargest portion of the workforce (Davis-Blake et al 2001) This informa-tion provided advance notice of a possible shortage in professional projectengineers and the time in which to address the shortfall Succession plan-ning can now occur not just at the senior executive level but in a mannerthat ensures that sufficient numbers of people are available across the rangeof technical and professional jobs in the organisation to replace those leav-ing and to meet future project needs This enables gaps in skills and knowl-edge to be avoided or at least reduced

When choosing members for project teams over the next 5ndash10 yearsstrategically positioning less experienced staff members with experiencedproject managers could assist in the transfer of knowledge and provide linksto social networks Researching current enrolment numbers at localuniversities and colleges would reveal whether there will be sufficientgraduates to replace those expected to leave in the coming years Otherplans may be required if over the coming years the number of graduateswill be insufficient to replace departing staff We will suggest other possibleapproaches to ensuring supply for projects throughout this chapter

Project workforce planning

Workforce planning is required to ensure that current and future knowl-edge skills abilities and other attributes (KSAO) needs are met Whenplanning reveals for instance that the supply of engineers accountants or

Procurement and the quest for talent 327

computer programmers will not meet future demand action can be takento address the situation before it adversely affects organisational performanceThis information can quite easily be gained by accessing university andcollege enrolment data With a 3ndash5 year time lag to qualification and expe-rience required to develop high-level skills it may be necessary to considerworking with preferred contractors or alliance partners to ensure thecontinuing supply of high-quality personnel This may involve sponsoringstudents via scholarships providing work experience opportunities toaccelerate learning and on-the-job experience to ensure supply

Alternative approaches may involve rethinking future projects ndash if thesupply of structural engineers is currently limited and university and collegeenrolments indicate that new entrants will not cover those expected to exitthe profession it may be necessary to reconsider the building technologiesto be used on a project

Global competitiveness comes from having world-best staff Majorprojects will require consideration of the current and future supplydemandsituation Recent examples demonstrate this The world-wide move to SAPin the petroleum and chemical industries created a high demand forspecialised IT staff Some of these technicians saw the opportunity toincrease their income and moved from one organisation to another wooedby increased financial rewards and responsibility They took with them notonly their skills but organisational knowledge much of which couldprovide competitive advantage Job changes here were usually betweencompeting organisations meaning business information could be lost to acompetitor Once the major required SAP installations were completed thedemand for SAP experts reduced and has now plateaued

As the new millennium approached we had the Y2K projects acrossindustries Again IT workers were in high demand After New Yearrsquos day2000 the demand for Y2K experts ceased to exist

Some reduction in enrolments in IT-related courses has occurred acrossuniversities and colleges because these changes in demand have beendiscussed in the media But there are other major projects which do nowand others that will in the future require specialised IT skills London haswon the right to stage the 2012 Olympic Games Many of the stadiums andother facilities required are already in existence or require upgrading onlyOthers need to be built One need that will require specialist staffing is thatof security With the current threat of terrorism around the world highlyskilled intelligence staff and IT staff with skills in surveillance technologiesand transaction tracking will be required

A similar situation exists for example in the construction industryWhen a project is nearing completion and this is obvious to all teammembers ndash how to retain people until the project is delivered then becomesa quandary We discuss this situation further under retention and rewards

328 Lloyd-Walker et al

By careful design of retention and reward strategies and plans workforceplanning is supported

Organisations that do not plan for their most important resource ndash people ndash will not be able to compete into the future Whether it is internalskills skills normally supplied via preferred or occasional contractors orthose usually provided through alliances how these needs are going to bemet has to be included in long-term planning

This situation highlights why retaining critical or key people isextremely important Job design management style and rewards systemscan assist in retaining key staff These people-management activities canalso address retention of those working in areas predicted to be in shortsupply in the future These people will be in high demand and others willattempt to lure them away It will be too late when the shortage beginsaffecting all organisations to begin re-training schemes or to developreward systems targeting workers in areas of skills shortages

Attracting and recruiting quality employees

Ensuring that teams contain the right mix of knowledge skills and abilitiesrequires superior selection skills whether team members are being chosenfrom within the organisation or recruited into the firm A clear statementof the job and of the philosophy of the organisation within which theincumbent will be working will be needed to guide appropriate attractionrecruitment and selection activities

Recruitment has in the past been viewed as initiating the employmentrelationship but with the skills shortages today attraction is where itbegins Organisations have to consider how attractive they appear to thepublic all the time Many potential employees and especially those soon tograduate have in mind the type of organisation they would like to workfor and take the initiative to locate a suitable position with one of their cho-sen organisations rather than waiting for jobs to be advertised The organ-isationrsquos culture its human resource strategy and people-managementphilosophy are a large part of its public image How the organisation doesbusiness whether it is viewed as socially responsible and as having a com-mitment to sustainability will impact on its image Potential employees arelooking for a personal valuesorganisation values match

Employer of choice

The motivation for organisations to become an lsquoemployer of choicersquo or lsquobestemployerrsquo drives the need to present a desirable image to the public andespecially to potential employees Shellenberger (1998) claims that bestemployers or employers of choice provide higher returns for shareholders

Procurement and the quest for talent 329

This is not surprising when increased productivity retention of top talentand overall retention rates are common for workplaces which could bedescribed as lsquosimply the bestrsquo (Hull and Read 2003)

Becoming a lsquogreat place to workrsquo or lsquobest company to work forrsquo (vanMarrewijk 2004) requires strong commitment from senior management ofthe organisation and support for a lsquopeople firstrsquo strategy Two-waycommunication between employees and management where the flow ofnegative information may occur without fear and where the divisionbetween management and employees is minimised are also features of bestcompanies to work for As a result employees take pride in their work theirteam and the company Van Marrewijk (2004) cites recent researchreporting that the top 100 Best Companies to Work for in the USA achieveextraordinarily good financial results These organisations achievedconsistently superior results to other organisations across a range ofmeasures Credibility integrity respect fairness pride and camaraderie areall present in Great Places to Work These organisations are consideredsocially responsible and have the reputation of being lsquogood employersrsquo

Reputation

What attracts a quality potential employee to an organisation It isnecessary to consider the organisationrsquos culture and its employmentphilosophy in order to become an employer of choice The culture of theorganisation is important Employees seek a match between their valuesand the culture and values of the organisation They want to feel proud ofthe company they work for (Rushton 2002) The reputation of anorganisation is important when seeking to attract and select high-qualityemployees high calibre employees seek to work in companies with highstandards (Lipman 2002) Employees are more likely to remain with anorganisation they are proud to work for and whose values are in line theirown values Corporate reputation has become vital for organisationalsuccess and survival a good reputation will attract creative employees whowant to work for an employer whose values are in harmony with their ownvalues (Dolphin 2004)

The employee value proposition

Research demonstrates that people are attracted to different professionsand trades according to at least to some extent their personality typeHollandrsquos Typology of Personality (1985) identifies personality characteristicsand congruent occupations for each personality type Using Hollandrsquostypology a better understanding can be gained of the type of person whowould best perform a particular job

330 Lloyd-Walker et al

It is necessary to consider what the employee value proposition (EVP) isor what an employee desires (values) in a job and in the organisation inwhich the job is performed Value in all contexts is defined by the receivernot the giver (Ulrich and Brockbank 2005) For this reason it is importantto listen to what employees want and in particular to what the type ofemployee you desire wants It is necessary to identify the knowledge andskills required to perform the job and the other attributes that will enablethe person to lsquofit the work grouprsquo For instance what engineers desire froma job and what nurses desire from a job may differ greatly Unless a deepunderstanding is gained of what it is that each of these employee groupsdesires and action is taken to develop a workplace environment thataddresses the specific EVP of the desired group efforts to attract motivateand retain these employees may be misdirected and ineffective

Understanding the EVP and using the knowledge from that understandingassists in attracting motivating and retaining employees

Employer branding and becoming an employer of choice

Competition is driving the need for organisations to develop a strategy tolocate and retain employees who will enable them to succeed into the futureIn an era of skills shortages the way that organisations manage humancapital has become the most critical strategic decision they make Thesepressures have created the need for organisations to consider new anddifferent ways of attracting recruits Increasingly employer branding isbeing used by organisations for this purpose

The staffing process now begins with attraction followed by therecruitment process and then selection where the best applicant is selectedThe quality of the attraction effort will affect the quality of the pool ofapplicants from which the selection choice is made The best person chosenfrom a poor pool of applicants will not be good enough today This is whythe quality of attraction activities strongly supported by employerbranding is extremely important It influences the quality of the overallstaffing of the organisation

Creating an employer brand is part of the process of becoming recognisedas a good employer It is about developing a way of defining and promotingan organisationrsquos employment attributes to prospective employees toattract them to apply for vacant positions It is also a retention tool It canmake current employees aware of the advantages of working for theorganisation and demonstrate that they can be proud to say they work forthe organisation (Dessler et al 2007) Employer branding thereforesupports both attraction and retention

Employer branding is used to establish an image that reflects what theorganisation stands for by projecting an image of a desirable workplace toattract quality employees This is done in a way that will ensure that there

Procurement and the quest for talent 331

will be a pool of suitable potential applicants waiting to apply when aposition becomes vacant Suitability is guided by an understanding ofpersonality types and their link to occupations

Research conducted in Canada found that in the hospitality industryprofessionals were attracted by messages that stressed issues such as theorganisationrsquos growth and diversity For frontline service employees themessage required to attract suitable applicants was one that emphasisedtheir personal role in delivering quality service (Vu 2006) We need toconsider the type of person who is likely to wish to perform the role whenattempting to target candidates for different roles What is required will varyaccording to group or in marketing terms according to market segment

Firms attempt to differentiate themselves from competitors by highlightingtheir characteristics as an employer through their employer brand Theorganisationrsquos values and the way in which they manage their employmentrelationship are conveyed through words signs symbols or a combinationof all of these (Backhaus and Tikoo 2004) The development of anemployer brand begins with the value proposition which is to be embodiedin the brand

The organisationrsquos web site can provide the ideal setting for establishingthe employer brand it is here that statements about values and the organi-sationrsquos philosophy in relation to its employees customers and suppliers canbe stated Details of the advantages of working for the organisation mayinclude flexible work arrangements providing career opportunities andother benefits which make it a great place to work Living up to theseclaims may not be as easy as making them Loss of trust follows if currentemployees or new recruits feel that the statements are hollow or if theirexperience of the organisation does not match the claims made Newemployees are likely to be disappointed and experience disillusionmentThis has been found to lead to an increase in employee turnover during thefirst year of service What this highlights is the need for organisations totake care in the development of their employer brand The organisationshould truly represent what it stands for and how it treats its employees

Employer branding can include statements that are extremely effective atattracting applicants however at times this may lead to too wide a groupof potential applicants It has been found that after several years of workinghard at becoming an lsquoemployer of choicersquo some organisations in Canadaencountered negatives attached to this label In particular being viewed aslsquothe organisation to work forrsquo was found to lead to organisations beinginundated with applicants including unsolicited applications As a resultconsiderable time and effort was required to screen and select from anincreased number of applicants (Vu 2006) In addition after enjoying thebenefits of working for an employer of choice employees didnrsquot want toleave their lsquobest employerrsquo Low turnover rates are good no turnoverthough can lead to stagnation and lack of new ideas Good selection

332 Lloyd-Walker et al

decisions using valid and reliable selection methods will be important whenselecting the best from a large pool of applicants Adequately inducting andtraining then managing the performance of new recruits will also berequired Applicants may be attracted to what the organisation has to offerbut not possess the knowledge and skills required for the jobs to be filledAs a result organisations are realising that they must become lsquothe employerof choice for employees of their choicersquo (Vu 2006 4) The way in which adesirable employer brand image is crafted is important (Backhaus andTikoo 2004)

Employees become quickly disenchanted with workplaces which claim tobe one thing but are experienced by their employees as anotherOrganisations that successfully use employer branding and gain the right tocall themselves lsquoemployer of choicersquo ensure that what they claim to be iswhat they are In this way the brand they use truly reflects the type oforganisation they are and new employees do not become disillusionedbecause they were attracted by a statement on the employerrsquos web sitewhich proves not to be the factual experience of employees

Selecting staff

It is said that retention begins with selection In the past recruitment andselection processes were designed to ensure personndashjob match In fact itwas often said that employees were hired for their ability to perform the jobbut terminated (fired) for lack of fitness for the job ndash because their valuesand those of the organisation did not match

General selection principles

Robertson and Smith (2001) rated selection methods accuracy The mosteffective methods were cognitive ability and integrity tests and structuredinterviews closely followed by work sample and job knowledge testsPersonality tests are less effective but importantly may enable reliableassessment of ability to work in a team

Assessment centres can be used for selection as a basis for promotiondecisions to identify training and development needs or to select suitableteam members to ensure a balanced and productive team Assessmentcentres incorporate a range of activities and tests Cognitive ability andintegrity tests combined with structured interviews and work-relatedactivities (a work sample test) and job knowledge tests can provide valuableinformation for good selection decision making

Personality tests or activities which assist in measuring leadershipand team skills when incorporated in an assessment centre will helpidentify people suited to working in project teams As with work sampletests this information can also be used to identify training needs of current

Procurement and the quest for talent 333

employees or development required in preparation for promotion to anew role

Assessment centres offer the opportunity to observe how potential orcurrent employees handle a range of situations that could occur in theiractual jobs (Applebaum et al 1998) Project managers are probably notgoing to have access to or be trained in the use of the range of tests requiredto make an effective selection and incorporated in an assessment centreIncreased emphasis on the management of people for organisational successhas led to each manager or supervisor becoming involved in an increas-ingly wide range of people-management activities formerly performed bythe HR department Initially some questioned whether this would signalthe end of the HR department as we knew it (Cunningham and Hyman1999) HRrsquos role has changed Involvement in such activities as promotiondecisions performance management coaching employee discipline andtermination decisions job design career planning and development andrecruitment and selection by project managers and line managers is nowgreater than is HRrsquos (Kulik and Bainbridge 2006) Policies and proceduresto guide the conduct of these activities are developed by HR Managers willwant to be directly involved in the interview process and therefore mayneed to be trained in structured interviewing skills

Project managers will be more directly involved in recruiting andselecting team members than perhaps in the past but they should make useof the expertise HR officers possess in this area to assist in making goodselection decisions

Employee referrals can provide a cheap source of job candidates andenable the staffing process to be quickly completed Current employeeswill not risk recommending a poor performer or an unreliable personthis would reflect poorly on them and perhaps hinder their personalcareer progress Project managers and other project team members mayrecommend to one another people to fill all remaining team rolesHowever this seemingly ideal method of recruiting and selecting newemployees or team members does have some drawbacks If all new jobcandidates have been referred by employees it may result over time in alack of diversity and creativity People who think or act differently willnot be recommended Indeed this can be one of the issues to watch forwhen using the personndashorganisation fit to select employees (discussedbelow) Though employing people who quickly fit into the establishedculture and do not question any of the norms and practices in the organ-isation may sound attractive there is no doubt that some questioning ofthe status quo can be healthy for organisations Employing people whohave had different experiences worked in different organisations andindustries can lead to more innovative and creative solutions being foundto problems for instance

334 Lloyd-Walker et al

Employee referrals can be the quickest and cheapest way of filling vacantpositions and of selecting team members however these advantages shouldbe weighed against the potential disadvantages of this practice over time

Personndashjob and personndashorganisation fit

The concentration in the past was on ensuring that the applicant couldperform the clearly defined role More recently it has been recognised thattodayrsquos workplace requires personndashorganisation fit The use of employerbranding is important here It can convey a true picture of the organisationand attract the type of person required to fit both the job to be performedand the culture of the organisation This suggests that it is important toclearly state both the values of the organisation and the role to be per-formed But in todayrsquos workplace especially one where project teams areregularly formed and disbanded this is not always possible Employees arenow selected to work in groups to form part of different project teams andare expected to frequently change roles (Lievens et al 2002) Here it isimportant to select people who are flexible those who will be willing totake on a range of roles over time They will though need to ft into theorganisationrsquos culture

Selecting team members

As mentioned before the value proposition of the employee will need tomatch that of the organisation Research has found that a closer matchbetween the values of a person and those of the organisation is linked to longertenure increased organisational commitment and improved job performance(OrsquoReilly et al 1991 Kristof-Brown et al 2005) Importantly the preferencesof newcomers should match those of their supervisor Recent research hasshown that where concern for people is high for both the employee and theirsupervisor newcomers will remain settle in to the organisation and be pro-ductive (Van Vianen 2000) Personndashenvironment fit occurs when the individ-ualrsquos characteristics are compatible with those of their work environment(Kristof-Brown et al 2005) Four components can be seen as present herepersonndashjob personndashorganisation personndashgroup and personndashsupervisor fitJob satisfaction and organisational commitment have been found to be strongfor personndashjob fit and personndashorganisation fit and to a lesser extent presentwhen personndashgroup fit and personndashsupervisor fit were present

Personndashgroup and personndashsupervisor fit

Selection processes traditionally include an emphasis on personndashjob fit andmore recently on personndashorganisation fit through the use of personality and

Procurement and the quest for talent 335

related tests Rarely is the same emphasis placed on personndashgroup andpersonndashsupervisor fit however these may be areas which need to beincluded if a project team performance is to be maximised When selectingpeople for team settings it has been found that social skills personality andteamwork knowledge should be assessed Measures of ability to workeffectively with others could be useful for assessing social skills Personalityassessment should include characteristics such as conscientiousnessextroversion agreeableness and emotional stability Effective team mem-bers are likely to possess knowledge and skills on how to function in a teamsetting or to possess team competencies (Morgenson et al 2005) Researchconfirmed that the use of structured interviews and tests to measure thepersonality characteristics of conscientiousness extroversion agreeablenessand emotional stability could increase team selection success In additionusing situational judgement tests to measure teamwork knowledge couldalso be beneficial (Morgenson et al 2005)

Using rewards to attract and retain employees

Rewards are strongly linked to retention Rewards include salary or wagesincentives benefits and the work environment in general ndash is it trulyrewarding Is the work environment friendly Is a lsquocontrollingrsquo or alsquocommitmentrsquo management style used Are employees valued Are theirefforts recognised Is employee health and safety a high priority Canemployees proudly state who they work for Money alone will not attractand retain good employees but paying poorly and not valuing employeeswill lead to increased employee turnover and failure to attract qualityapplicants

An understanding of motivation theories and their implications foremployee retention is not only of importance to HR professionals it isimportant for every manager in an era where an increasing range of HRactivities are being devolved to line managers and supervisors Linemanagers project leaders and supervisors now find they need to use theirunderstanding of people and what motivates them to get the best from theirdirect reports

Retention

In 1998 turnover in the USA stood at 13 per month (Ramlall 2004) Atthis rate an organisation could experience a 100 staff turnover in six anda half years Knowledge experience contacts and relationships are lostwhen people leave Vital roles on project teams may no longer be able to befilled by skilled and experienced people However deeper analysis mayreveal a different picture Waldman and Arora (2004) advocate focusing onmeasuring retention rather than turnover This involves analysing which

336 Lloyd-Walker et al

employees remain and which employees leave the organisation If it is thevaluable employees who are remaining for several years even if theturnover rate is higher than desired the right people are being retainedthose who will enable the organisation to achieve its goals What suchanalyses usually reveal is areas for improvement within the staffing processIf 30 of new recruits each year are leaving in their first year of employ-ment but the other 70 are remaining for three or more years this mayindicate problems with the recruitment and selection process especially ifthey were the group receiving the lowest performance ratings Why havepeople who are unable to perform to the required level or who donrsquot wishto work in the area been hired Attraction recruitment and selectionprocesses need to be better targeted to avoid hiring unsuitable people

When key players leave the effect on the organisation is greater stillClient and working relationships are broken important customer informationand organisational knowledge may be lost The costs of turnover are greatFitz-enz (1997) estimated that organisations lose approximately US$1 mn forevery 10 managerial and professional employees who leave The cost ofreplacing other members of staff including recruiting and training thereplacement and time to full effectiveness is somewhere around one yearrsquoswages Cost alone is great Loss of knowledge and impact on organisationaleffectiveness especially during the replacement period can result in largercosts in the long term

Retention is an important issue in an era of skills shortages Skillsshortages can occur even when there are large numbers of people seekingwork Skills shortages relate to the KSAOs which an employee brings to ajob A person without the necessary KSAOs may be able to develop thedesired skills gain the knowledge required or learn to take new anddifferent approaches to for instance customer service However this is notalways the case and it may take too long to reach the required level ofexpertise

Retaining staff in project-based industries

We mentioned earlier that retaining high-quality project team employeesuntil project completion can present challenges The tendency has been forhighly skilled staff to commence negotiations for a new role prior to projectcompletion Indeed if they have high-level skills they will be sought after byothers who are aware that the project is nearing completion The desire toobtain continuing employment is understandable Research has shown thatprofessionals willing to relocate to provide the flexible workforce desired inthe USA and other parts of the world today do tend to benefit with anincrease in income six years after moving of approximately 20 over thatwhich could have been expected if they had remained at their former site(Rodgers and Rodgers 2000) But this is not the case in all industries

Procurement and the quest for talent 337

Relocation for construction professionals is likely to mean moving to a rolewith a similar rate of pay the benefit of relocation being continuingemployment at the expense of uprooting their family Relocation willpresent family and financial pressures for some so shoring up a positionthat does not require the family to relocate can be attractive

Staff who leave before completion of the project especially those whohave been involved in the project from the outset will lead to loss of tacitknowledge As with the SAP example provided above someone withoutthe embedded knowledge will not be able to understand the context ofmany of the problems facing the project team because they have notexperienced them

Skills shortages and these exist across a range of specialist areas lead topower issues Those in demand will find it easier to locate a new role inorder to avoid a period of unemployment between projects To avoid thenegative consequences outlined the employer may feel the need to offerfinancial bonuses to those who remain to completion But how much isenough to retain a high-quality employee whose skills are in high demandThree months employment and an extra $10000 for example may notequate to three years employment on a new project A gap in employmentis a strong possibility for the employee who chooses to remain tocompletion In addition with construction projects as opposed to IT andother projects the need for geographic relocation is more likely to exist

Experience has seen financial bonuses paid to retain people tocompletion however there may be alternatives that could be consideredThe cost of losing a key performer three months prior to completion of athree-year project may be far greater to the employer than paying onemonth of salary for the high performer to take leave and return for the nextmajor contracted project Another approach may involve working out aplan with the person most likely with associated employee developmentcosts to retain the services of this identified key contributor thusaddressing both the organisationrsquos and the employeersquos value proposition

Research in the high-technology manufacturing industry in the USAfound that employee development was used both as a retention tool and asa benefit (Benson 2006) By providing tuition-reimbursement the organisa-tion encouraged employees to undertake formal qualifications In compar-ison to on-the-job training and company-run courses completion of atransportable qualification recognised by other organisations meant thatthese employees would have lsquomarketable skillsrsquo Qualifications gainedthrough tuition-reimbursement were viewed as increasing their careeradvancement opportunities within the organisation and their employabilityshould the company not be able to provide ongoing employment Employeecommitment was found to be more closely linked to tuition-reimbursementprogrammes if promotion followed within 12 months of completion ofstudies Gaining a transportable qualification one attractive to other

338 Lloyd-Walker et al

employers increased the likelihood of the employee leaving theorganisation if career advancement was not linked to completion of formalqualifications (Benson 2006) This highlights the need for an integratedapproach to workforce planning employee development and retention andrewards planning

Some organisations require tuition fee pay back with the percentage tobe returned to the employer reducing over time until there is no lsquodebtrsquo aftersay three years However contractual lsquohand cuffsrsquo as this practice is termed(Associates 1999) are not commonly used Baruch (2001) found HRmanagers did not believe that offering employees lsquoemployabilityrsquo as part ofthe new psychological contract would succeed in improving loyalty andcommitment and there was some questioning among HR managers of thecost involved Baruch questioned the feasibility of the lsquoemployabilityrsquopromise replacing the former loyalty-based relationship However evidencealready provided in this chapter that generations X and Y donrsquot expectlong-term employment may explain why Bensonrsquos (2006) more recentresearch demonstrated that better planning by linking developmentprogrammes to career path planning may make them more attractive to theworkforce of the future

People management

Human resource practices can be categorised as either lsquocontrolrsquo or lsquocom-mitmentrsquo practices (Wood and de Menezes 1998) two very differentapproaches that attempt to shape employee behaviour and attitudesControl human resource practices are commonly used to increase efficiencyand reduce labour costs This is achieved by introducing strict work rulesand procedures In these situations rewards are commonly linked tomeasurable outputs (Walton 1985) similar to piecework plans ndash employeesare paid per item produced or transaction completed

High commitment HR practices are designed to maximise commitmentand employee empowerment with the goal of increasing productivity andeffectiveness This is achieved through a range of linked HR practicesIncreasingly employees are being involved in decision making jobs arebeing re-designed to make them challenging and interesting and rewardssystems are being designed to encourage employees to identify with theorganisationrsquos goals (Whitener 2001) for instance through employee shareschemes The belief here is that employees will work harder to achieve goalsthey have been involved in setting and where they will directly benefit fromthe organisationrsquos success These efforts are all about developing committedemployees and mutual trust High commitment HR practices supportretention efforts

The control or commitment approach can also be applied to ensuringfuture staffing needs in a project environment On the one hand it is possible

Procurement and the quest for talent 339

to build into contracts a requirement that contractors guarantee the supplyof specified specialist skilled staff in order to be able to tender for a jobThis is the control approach On the otherhand it is possible to take thecommitment approach and work with preferred suppliers to ensure thatthey will be able to meet staffing requirements into the future Retrainingof current staff supporting university students through their studiesindeed attracting them into studies in an identified future high-demandarea in partnership with your supplier may yield better results along witha more co-operative long-term working relationship Trust commitmentand loyalty are important between partners in projects just as they arebetween employers and employees There is a mutual dependence in eachinstance

Rather than seeing people as a resource to be used and then disposedof when needs change high-commitment HR practices focus on theorganisationrsquos long-term needs and future success That is why employeesare viewed here as resources for achieving business goals and shouldbe developed to meet the changing needs of the business The IT andconstruction industries commonly employ large numbers of people tocomplete discrete projects and on completion of the project may no longerrequire the services of some or all of those employed for the project Thepeople employed to form the project team possess specialised skills requiredfor successful project completion However it is these skilled employeeswho expect to work for a range of organisations over their careers (Benson2006) Commitment to the one employer is not viewed as possible becauseof the short-term nature of the projects or in other industries becauseemployees wish to make their own career decisions using their high level ofskill to locate new roles thus avoiding the betrayal of trust experienced bytheir parents (Loughlin and Barling 2001)

In project-based industries forming an alliance may reduce this needwith specialist skills being provided from a constant pool available fromorganisations which work only in that specific area ndash computer program-ming web design site management quantity surveying civil engineering orothers The view that preferred sub-contractors will be able to continue toprovide the type and quality of staff required without discussing futurelong-term needs with them and considering together the relatedsupplydemand situation is one that could lead to disaster

Whether or not partners or contractors are involved planning futurestaffing needs is an important activity and part of overall strategic planningBrockbank (1999) sees HR activities as belonging to four possibledimensions of competitive advantage

Operational reactive Here the basics are implemented and in HR a lotof these will relate to legal compliance Paying the correct amountproviding safety training and equipment and so on

340 Lloyd-Walker et al

Operational proactive These activities involve doing the basics betterFinding easier cheaper quicker and better ways of doing what must bedone

Strategic reactive Though often seen as going far enough strategicreactive indicates that HR people are merely reacting to the strategicdirection set by others rather than helping to set a new and differentstrategic direction

Strategic proactive HR people will propose new and excitingopportunities for competitive advantage here and back them up byensuring the necessary human resources to deliver are available

Consider the following scenario in Box 101 as an illustration of anengineering and architectural design solutions organisation which wasnrsquotappropriately staffed

Procurement and the quest for talent 341

A skills gap continues to exist The client for example the governmentsays the train system isnrsquot working new trains tracks and signallingsystems are required After considerable expense driverless trainswere introduced six months ago but there have been a range ofproblems and the advantages expected from their introduction havenot been gained Worse still the public transport users are complain-ing bitterly about reduced and disrupted services and the governmentis feeling under pressure from these and other highly vocal groups inthe community

An investigation revealed that driverless trains require state-of-the-art signalling systems which were not installed in preparation forthe changeover The new signalling systems which will have to beinstalled quickly now to solve the problems created by the introduc-tion of driverless trains require highly specialised skills andknowledge to design implement and operate To this point HR havenot been involved in any of the discussions They were involved indeveloping the redundancy packages for the drivers who were maderedundant as a result of the introduction of the driverless trains butthey are no more aware of the causes of the current problems than isthe general public

A proactive strategic approach applied to the procurement system wouldhave avoided this problem in the first place Instead of involving HR onlyin a reactive operational role if HR had been involved in the planningfrom the beginning they would have asked questions and helped to narrowdown the total resource base including describing the people required in all

Box 101 Scenario

areas to support the new trains This would have required HR to writeposition descriptions describing all new roles required to support thedriverless train system outlining in detail all KSAOs The need to procurethe highly specialised skills would have then been identified and HRcould consider in discussions with other members of the strategic plan-ning team whether these services should be provided by a specialisedorganisation ndash outsourced ndash or whether appropriate employees should beattracted recruited and inducted in time for the introduction of the newtrain system

Working with the supplier of the new trains instead of being underpressure now to procure the new signalling system and the staff to supportit it would have been possible during the initial procurement stages toidentify all related needs By forming a team to cover all contingencies anddeliverables within the supply chain predicaments such as that experiencedhere can be avoided Using the new advanced rail system as an example itbecomes obvious that the project manager has a range of areas of expertiseto address as well as a complex supply chain to manage Experience wouldindicate that rarely are all complex components of the supply chainstrategically thought through to the extent that issues such as a signallingsystem required supporting operation of the new and expensive trainsystem being addressed It may have been possible to negotiate with thesupplier of driverless trains the best deal possible on the signalling systemand for it to be delivered with time for testing so it could be operational whenthe driverless trains were delivered By forming a team to cover all contin-gencies and deliverables within the supply chain during the pre-qualificationstage there would have been time to examine which organisations couldbest develop deliver and operate the signalling system

Pulling together a group of people from a range of areas from outside theorganisation when working in an alliance or with other contractorsrequires consideration of personality ndash Will these people work welltogether ndash and combined does the team contain the knowledge skillsabilities and other attributes required to achieve success There will not betime now for the signalling staff to be chosen using all these criteria andthe likely repercussions of this are reduced productivity decreased servicequality and increased turnover

Rewards

Rewards in a project environment need to attract motivate and retain topperformers at the individual and team level Recent research has revealedthat potential employees are seeking employers who offer a range of bene-fits and a higher than average salary wonrsquot make up for not addressingsome of their wants Job security is desired (Rabey 2005) and for youngworkers in particular lsquopoor qualityrsquo employment which lacks a career path

342 Lloyd-Walker et al

or learning opportunities has been found to be de-motivating (Loughlinand Barling 2001)

Total rewards

Rewards are part of the value proposition that the employer offers theemployee and are made up of remuneration including pay and short- andlong-term incentives benefits including worklife programmes and careersencompassing employee development linked to career opportunities(wwwmercerhrcomau)1 (Gross and Friedman 2004) For success totalrewards strategies should be aligned with the business strategy This isespecially so when the rewards plan has been lsquocreated to support anorganisationrsquos unique human capital strategyrsquo (wwwmercerhrcomau)They must also match the employeersquos value proposition so organisationsmust be able to understand the wants and needs of the type of people whocan help them achieve their objectives Project managers need to considerthe combination of knowledge skills abilities and other attributes that willbe required to deliver their project on time and on budget Motivatingthe team to perform becomes the next challenge For project teamsthis may mean considering individual or team or combined individual andteam rewards

Team or individual rewards

Cacioppe (1999) states that team rewards and recognition may be awardedeither on individual behaviour and performance or on whole teamperformance with the rewards being equally divided between the membersof the team If all members of a team are to share equally a reward ndash mostcommonly financial or exchangeable for money ndash the assumption is that allhave equally contributed If individuals only are rewarded the assumptionis that people have contributed in different ways or at a different level Thisis perhaps not always the way things happen in a team In particular withlong projects the level of contribution or involvement may vary duringdifferent stages of the project depending on the contribution each chosenmember has to make to the total project

More recent research by Benson (2006) has revealed as alreadymentioned that well-managed employee development plans can assist inretaining staff Employees do appreciate support from their employer todevelop their knowledge and skills base and employees are reluctantto leave employers who provide such benefits (Benson 2006) Howeverthere is a need for these plans to be linked to succession planning and careerpath planning Those who are supported to gain non-company-specificqualifications expect to be rewarded by advancing their careers If theorganisation sponsoring their studies does not also develop a career plan for

Procurement and the quest for talent 343

those employees who have had their tuition fees refunded the investmentmade may be lost

In a project environment general skills such as those gained byemployees enjoying tuition-reimbursement schemes may be able toadvantage the employer as well as the employee Project managers and teammembers may now be well prepared to perform a range of permanentpositions within the organisation albeit only temporarily between projectsThe advantage for the organisation is that they have a knowledgeable andexperienced employee group to call on to assemble highly talented teams toensure project success in the future For individuals it means that theiremployment is more secure and that they enjoy the challenge of new anddifferent roles the learning that comes from this and the variety ofexperiences that these changes in role inevitably provide

Work design

Employees seek challenging and interesting work (Rodrigues 2001) that islsquorewardingrsquo Performing challenging work and different roles enablesemployees to demonstrate their potential to work in higher-level rolesEmployment security and a clear career path can be seen as providing alsquofuture valuersquo a reason for staying with the organisation This will need tobe linked to opportunities to learn grow and for career advancement In aproject environment project placements providing new and different tasksto perform enabling people to work with experienced successful projectmanagers and being supported to gain new skills and knowledge can forma large part of the individualrsquos total rewards For many employees theseopportunities for new experiences and to gain new skills and knowledge toadvance their career may be seen as more important than higher levels of pay(Gross and Friedman 2004) This is especially so for early career employees

Job security

Attraction and retention are not major issues only because skills shortagesalready exist in some areas and others are predicted in the future Theemployment relationship has changed Job security a component of thetraditional employment relationship was undermined by downsizingefforts in the late 1980s and early 1990s and a range of mergers andacquisitions which have occurred

The effects of this trend towards temporary employment and theaccompanying feeling of job insecurity are being felt today by organisationsResearch has shown that childrenrsquos and younger adultsrsquo understandingsof work and employment are shaped by their parentrsquos employment experi-ences (Loughlin and Barling 2001) Having formed work attitudes andbehaviours that convey a sense of betrayal younger workers are not

344 Lloyd-Walker et al

committing to their employers in the way their parents did Having seentheir parents family and friends made redundant after years of faithfulservice Generations X and Y are planning their careers around the beliefthat they cannot count on their employer providing them with long-termemployment (Baruch 2001)

The level of trust and commitment of employees has fallen As a resultorganisations are looking at ways they can re-establish a level of trust withits accompanying commitment and loyalty to combat the negative impactof the current and future skills shortages This has led to the developmentof lsquohigh commitment work practicesrsquo The psychological contract alsodescribes the employeendashemployer contract and relates to lsquothe unwrittenpromises mutual expectations and obligations that exist betweenemployees and their organisationsrsquo (Winter and Jackson 2006 422) Thepsychological contract has long been seen to include the expectation thateach employee will exert a level of effort commensurate in the employeersquosview with the total rewards ndash financial and non-financial ndash being offered bythe organisation for doing so (Nicholson and Johns 1985)

Project work inevitably involves temporary employment which can leadto lack of job security There may be no guarantee of continued employ-ment on completion of the current project Research has found that limitedterm employees have reduced levels of commitment to managerial goalsand are likely to demonstrate lower levels of effort and cooperation(Boswell 2006) This can be because they feel like lsquooutsidersrsquo There is someevidence that lack of job security is linked to a reluctance to share knowl-edge Here the employee fearing their employment may not continue feelsthat their knowledge is critical to maintaining their value as an employeeIn addition learning that comes from sharing knowledge of mistakes madeand which leads to the development of new ways of operating in the futureis unlikely to occur when employees feel their job is under threat(Davenport et al 1997) Rewards and recognition plans will need to bedesigned so as to encourage willingness amongst all employees to discussfailures and to develop plans to avoid them in the future We discuss laterthe possible combination of individual and equally distributed teamrewards Careful design of both components may assist here Project leadersshould be rewarded for encouraging discussions individuals should berewarded for contributing examples of failures A lsquono blamersquo culture will berequired for this to succeed

Development of this new approach to rewards and recognition planningis particularly important because the incidence of temporary employmenthas increased in particular in Europe (Brewster et al 1997) and otherdeveloped countries such as Australia have also experienced increases incasual employment in recent years (Lowry 2001) Feelings of insecurity arelikely to be accompanied by lower levels of job satisfaction andorganisational commitment (De Cuyper and De Witte 2006) however this

Procurement and the quest for talent 345

did not lead as might have been expected in the past to reduced satisfactionin life in general or feelings of personal performance failure Again thiswould appear to support the research quoted throughout this chapter thatthe next generation of managers and those currently performing strongsupport roles ndash the Generations X and Y employees ndash have a differentoutlook on career and the employment relationship in general

Some basic components of good rewards planning remain Internalequity fairness between employees according to level of responsibility andeffort and external equity linked to the current market rate for the profes-sion or trade cannot be ignored Rewarding individual contribution andalso encouraging team co-operation and performance is required for projectsuccess and the type length and complexity of the project will have to betaken into consideration when developing a rewards plan that will supportachievement of the desired outcome

Sarin and Mahajan (2001) investigated rewards planning processes thatsupport successful new product development projects Here project teamsmay be required to work together for a prolonged period of time to producethe desired outcome in other circumstances the project may be ofconsiderably shorter duration They considered the commonly asked questionShould rewards be equally distributed amongst team members according tothe level of success of the project or should the position or status of theteam member within the organisation or in relation to their role on theproject team be used as the basis upon which rewards are distributed

The requirement here is that rewards be allocated in a manner thatsupports successful completion of the project However as alreadydiscussed it is necessary to bear in mind issues such as equity and justicebeing viewed as a lsquogood employerrsquo and ensuring that key talent is attractedto and retained in the organisation What Sarin and Mahajanrsquos (2001)research revealed was that a range of issues surrounding the project itslength and objectives had to be considered in order to develop a supportiverewards plan Ease of ability to evaluate individual performance was afactor Where ease of evaluation was high position-based rewards could bepositively related to the internal dimensions of team performance and there-fore deliver a fair means of rewarding performance In these circumstancesteam member satisfaction levels in relation to allocation of rewards werehigh In situations where ease of individual evaluation was low distributingrewards equally was found to positively relate to internal dimensions ofteam performance

Sarin and Mahajan (2001) also analysed rewards performance and teammember satisfaction in relation to the length of time taken in productdevelopment that is relevant here A process-based reward structure wasexpected to be positively related to the external dimensions of teamperformance for long product development cycles Process rewards werefound to relate negatively to timespeed to market When the process ofdeveloping the new product and stages within this were rewarded rather

346 Lloyd-Walker et al

than for the whole project or product delivery speed to market wasnegatively impacted It took longer for the team to deliver the productOutcome-based rewards only marginally improved time to market or timetaken to deliver the project but had a positive effect on performance of longor less complex projects

What Sarin and Mahajanrsquos (2001) research reveals is that culture is a factorthat needs to be considered when developing project team rewards A posi-tion-based differential reward structure was found to be more effective andto support greater team member satisfaction when individual performancecould be easily evaluated This approach recognises that different levels ofcontribution and risk responsibility are demanded of different members of aproject team Nahavandi and Aranda (1994) have argued team-basedapproaches to rewards planning must be adapted when they are being usedwithin Western cultural values systems Here we are working with teammembers who come from individualistic cultures individual rewards musttherefore at least play a role within the total rewards plan Manyorganisations have developed highly effective rewards plans which incorpo-rate both individual and group measures against which rewards are allocatedIt is necessary to consider culture desired outcome and expected length of theproject when deciding how much emphasis should be placed on each of thesetwo elements when designing rewards plans

To conclude this section

The change from temporary roles being seen as problematic and leading toproject-based organisations having to settle for poorer quality employees orreduced levels of commitment and performance to a new psychologicalcontract where expectations have shifted may provide considerable advan-tage for those organisations that regularly form and disband project teamsto achieve their goals Generations X and Y employees donrsquot expect con-tinuing employment to the extent that their parents or grandparents didAttracting motivating and retaining key talent may not present the samechallenges in the future as they did in the past as a result of overall changesin the employment relationship and employee expectations However com-placency will not provide competitive advantage Understanding the com-plex relationship between all interacting areas of the employmentrelationship and ensuring that they are well coordinated will play a vitalrole in sustainability for project-based organisations in the future

Rewards and recognition plans must be aligned with the organisationrsquosstrategy project goals and type for a truly successful project outcome

Chapter conclusion

In this chapter we posed the question how do we effectively attract andretain valuable and skilled people to be project team members We

Procurement and the quest for talent 347

discussed the value proposition of key talented staff and how organisationsneed to align their HR policies with attracting retaining and maintaininglinks with past employees who while moving on to projects outside thatorganisation nevertheless may be able to return and be valuable anddesirable contributors on future projects

We also posed the question how do we present our project as beingattractive to our supply chain partner teams We argue that in addressingthe strategic HR issues associated with in-house staff and also applyingthese principles to strategic supply chain partners can help make anorganisation attractive as a partner of prime choice This together with eth-ical and governance as well as learning organisation strategies can reinforcean organisationrsquos attractiveness

The lesson that we argue can and should be learned from the literatureand ideas presented in this chapter is that procurement strategies shouldaddress issues relating to attracting talent This is because a talentedworkforce is a pivotal part of the resource mix that provides a better chancefor project success and business sustainability

Vignette

348 Lloyd-Walker et al

Vignette scenario

PeaceOfMind Inc (POM) is a USAUK jointly-based health careindustry service provider that recently embarked upon an ambitiousexpansion programme The business model envisaged a series of high-technology health diagnostic services in which referred patients wouldreceive the kinds of expensive and not widely available tests requiringcomputerised axial tomography (CAT) scans ultrasound imaging anda range of other diagnostic tools requiring specialised equipment andclinical facilities A lsquocookie-cake cutterrsquo approach to design of thephysical facilities would be developed with state-of-the-art IT systemsto complement the concept of excellence in service delivery workingon the basis of a 247 model Patients would make appointmentschoosing a phone-in or e-booking system medium that would guar-antee and automatically send confirming emails andor text messagesto patients in the event of a greater than 20 minute wait for servicePOM began its business with the development of 10 trial sites inmajor US Canadian and UK cities by commissioning the physicalfacilities to be constructed and adapting existing medical IT systemsThese include not only adding some novel features that linked to anexisting customer relationship management (CRM) system to beadapted to manage not only the patients and doctors who referred

Procurement and the quest for talent 349

them but also to manage a growing network of diagnostic specialistswhose role was to interpret the images produced by the scanningequipment and be in a position to be on-demand as soon as the scanwas taken The CRM system would match patient doctor and diag-nostic specialists to ensure that the preferred language could be usedin reports and communications This required linking a global net-work of these specialists so that an appropriate person was availableto take a lsquojobrsquo at a momentrsquos notice The concept involved using anapproach much like the radio taxi operators that contact taxis anddirect them to customers however it also included access and devel-opment of a community of practice (CoP) so that specialists were ableto feel that they were in a virtual lsquoclinicrsquo space in which they couldwork interact with colleagues and develop and maintain their spe-cialised diagnostic skills through the CoP which also held online con-ferences Further the CoP was to be linked to several universities sothat participants could undertake academic courses and engage inmentoring and coaching and undertake research degrees This pro-gramme of projects therefore comprised several types of project Theyrange from the very physical building project type (building the facil-ities) to the adaptive IT-type project that took well-known existingsoftware tools but configured them in novel ways It also included ele-ments of totally ephemeral projects such as establishing the CoP anddeveloping the specialist networks

The first 10 clinics were to be built concurrently over a 6-monthperiod preceded by a 6-month design finalisation and advanced equip-ment procurement stage Much of the software part of the programmehad been developed by several of POMrsquos start-up participants Thelinking software development component was estimated to take 12months to complete and the CoP project was already enthusiasticallyendorsed by an informal CoP that had at its core two of POMrsquos med-ical specialist directors who were original start-up participants in thecompany

It would be possible for example to use global time zonedifferences for a patient in the US mid-west region to have undertakentheir diagnostic tests at say 8pm and the results to be accessed viaemail by a diagnostic analyst with the necessary specialisedknowledge in Adelaide Australia in early afternoon local timeResults could be expeditiously returned with minimum elapsed timebeing experienced between testing and advising medical specialistsand their patients of results Many of the diagnosis specialists arepeople with young families It could suit them to work intensivelyfrom home for several hours in the late morning and early afternoon

350 Lloyd-Walker et al

and to fit this in with child-rearing activities Another demographic ofexperts are recently retired lsquogrey nomadsrsquo who have retired from full-time work and are travelling in mobile homes with extensive internetconnections so that they could if recruited combine targeted part-time work while travelling A camp site in lsquoWoop Wooprsquo with inter-net access could become part of a virtual clinic where CoP anddiagnostic activities both could be enjoyed The HR business modelenvisaged engaging many specialists who otherwise would not be con-sidered as potential employees or contracted specialised serviceproviders

The plan was expected to pass its proof of concept phase within thesecond year and a large investment agency had committed to fundexpansion from 10 locations to 100 within the next two years andfrom that exponential growth was envisaged

This ambitious plan required a massive recruitment and selectionexercise if it were to fulfil its promise POMrsquos start-up owners hadbranded the company name based on the customer value propositionof getting a rapid and accurate response to diagnose their medicalcondition as well as providing those working for POM a workndashlifebalance that fits their family and social commitment patterns to notonly encourage them to participate in this bold venture but to alsomake their work more interesting and rewarding The CoP wasplanned to address linking far-flung individuals into a virtual clinic aswell as provide them with on-the-job opportunities for professionaland research development Part of POMrsquos mission was to develop astrong relationship with a construction contracting organisation thatwould guarantee a workndashlife balance plan for its on-site and headoffice staff when working on POM clinic projects They had alreadyengaged in discussion with six global construction organisations thathad enthusiastically embraced relationship contracting and POM waspresently drafting the pre-qualification criteria to choose threeorganisations that could work with POM for the first decade indeveloping the clinics in a projected 1000 cities across the globe

Issues to ponder

1 Discuss three issues raised here that appears to radically challengethe way that the procurement process addresses attracting talent

2 POM envisages a relationship contracting approach to constructionof the clinics Discuss three advantages and disadvantages to thisapproach in terms of obtaining a competitive solution to aprocurement quandary of achieving best value

Note1 Mercer Human Resource Consulting Pty Ltd lsquoAligning Total Rewards Strategy

with Business Successrsquo 31 July 2006 accessed from wwwmercerhrcomauAlso published in Human Resources the Human Resources Institute ofNew Zealandrsquos magazine AprilMay 2006

References

Allen T D (2001) lsquoFamily-Supportive Work Environments The Role ofOrganizational Perceptionsrsquo Journal of Vocational Behavior 58(3) 414ndash435

Allen T D Herst D E Bruck C S and Sutton M (2000) lsquoConsequencesAssociated with Work-to-family Conflict A Review and Agenda for FutureResearchrsquo Journal of Occupational Health Psychology 5 278ndash308

Anon (2005) Modular approach helps the industry deal with shrinking workforceThe Australian Sydney 43

Applebaum S H Harel V and Shapiro B (1998) lsquoThe DevelopmentalAssessment Centre The Next Generationrsquo Career Development International3(1) 5ndash12

Arthur M M (2003) lsquoShare Price Reactions to Work-Family Initiatives AnInstitutional Perspectiversquo Academy of Management Journal 46(4) 497ndash505

Associates H (1999) Survey Findings Design and Administration of EducationalReimbursement Programs Lincolnshire IL Hewitt Associates

Australian Bureau of Statistics (2004a) Australian Social Trends CanberraAustralian Government printing Service ABS Catalogue No 4102

Australian Bureau of Statistics (2004b) Labour Force Australia SpreadsheetsCanberra Australian Government printing Service ABS CatalogueNo 6202055001

Procurement and the quest for talent 351

3 There are at least three types of project that comprise thisprogramme Compare and contrast the lsquotalentrsquo market with likelyavailability and demand for each type You are unlikely to befamiliar with more than one of these so you should not be afraidto speculate what you think may be valid Through groupdiscussion compare perceptions of the scope and scale of the HRattracting talent issues raised

4 The POM business plan could be envisaged as revolutionaryDiscuss three key issues that you have gleaned from this chapterand the cited literature that you think will be the most challengingfor POM to deal with and

5 What would rank as the three most important workndashlife balanceissues that POM have attempted to address in their business planHow do you propose that these can be implemented

Backhaus K and Tikoo S (2004) lsquoConceptualizing and Researching EmployerBrandingrsquo Career Development International 9(5) 501ndash517

Baruch Y (2001) lsquoEmployability A Substitute for Loyaltyrsquo Human ResourceDevelopment International 4(4) 543ndash566

Batt R and Valcour P M (2003) lsquoHuman Resources Practices and Predictorsof Work-family Outcomes and Employee Turnoverrsquo Industrial Relations 42189ndash220

Behson S J (2005) lsquoThe Relative Contribution of Formal and InformalOrganizational Work-Family Supportrsquo Journal of Vocational Behavior 66(3)487ndash500

Benson G S (2006) lsquoEmployee Development Commitment and Intention toTurnover A Test of EmployabilityTM Policies in Actionrsquo Human ResourceManagement Journal 16(2) 173ndash192

Bittman M Hoffman S and Thompson D (2004) Menrsquos Uptake of Family-Friendly Employment Provisions Policy Research Paper Canberra AustralianGovernment Department of Family and Community Services 22 24

Boswell W (2006) lsquoAligning Employees with the Organizationrsquos StrategicObjectives Out of ldquoLine of Sightrdquo Out of Mindrsquo International Journal ofHuman Resource Management 17(9) 1489ndash1511

Boyar S L Maertz Jr C P Pearson A W and Keough S (2003) lsquoWork-FamilyConflict A Model Of Linkages Between Work and Family Domain Variables andTurnover Intentionsrsquo Journal of Managerial Issues 15(2) 175

Brewster C Mayne L and Tregaskis O (1997) lsquoFlexible Working in EuropersquoJournal of World Business 32(2) 133ndash151

Brockbank W (1999) lsquoIf HR Were Really Strategically Proactive Present andFuture Directions in HRrsquos Contribution to Competitive Advantagersquo HumanResource Management 38(4) 337ndash352

Burke R J and Mikkelsen A (2006) lsquoBurnout Among Norwegian Police OfficersPotential Antecedents and Consequencesrsquo International Journal of StressManagement 13(1) 64ndash83

Butler A Gasser M and Smart L (2004) lsquoA Social-Cognitive Perspective onUsing Family-Friendly Benefitsrsquo Journal of Vocational Behavior 65(1) 57ndash70

Cacioppe R (1999) lsquoUsing Team-individual Reward and Recognition Strategies toDrive Organizational Successrsquo Leadership and Organization DevelopmentJournal 20 (6) 322ndash331

Casper W J and Buffardi L C (2004) lsquoWork-life Benefits and Job PursuitIntentions The Role of Anticipated Organizational Supportrsquo Journal ofVocational Behavior 65(3) 391ndash410

Chan L L M Shaffer M A and Snape E (2004) lsquoIn Search of SustainedCompetitive Advantage The Impact of Organizational Culture CompetitiveStrategy and Human Resource Management Practices on Firm PerformancersquoInternational Journal of Human Resource Management 15(1) 17ndash35

Cunningham I and Hyman J (1999) lsquoDevolving Human ResourceResponsibilities to the Line Beginning of the End or a New Beginning forPersonnelrsquo Personnel Review 28(12) 9ndash27

Davenport R H De Long D W and Beers M C (1997) Managing theKnowledge of the Organization Working Paper Ernst amp Young LLP Center forBusiness Innovation 24

352 Lloyd-Walker et al

Davis-Blake A Gibson G E J Dickson K E and Mentel B (2001) WorkforceDemographics Among Engineering Professionals a Crisis Ahead A Report of theCenter for Construction Industry Studies The University of Texas at AustinUnder the Guidance of the OwnerContractor Organizational Changes ThrustTeam Austin Texas October 2001 Austin Texas Consruction Indiustry Institute(CII) and The University of Texas at Austin 54

De Cuyper N and De Witte H (2006) lsquoThe Impact of Job Insecurity and ContractType on Attitudes Well-Being and Behavioural Reports A Psychological ContactPerspectiversquo Journal of Occupational and Organizational Psychology 79395ndash409

DeFillippi R J and Arthur M B (1998) lsquoParadox in Project-Based Enterprise TheCase of Film Makingrsquo California Management Review 40(2) 125ndash139

Dessler G Griffiths J and Lloyd-Walker B M (2007) Human ResourceManagement 3rd Edn Frenchs Forest NSW Australia Pearson EducationAustralia

DiVanna J A and Rogers J V (2005) People The New Asset on the BalanceSheet New York Palgrave Macmillan

Dolphin R R (2004) lsquoCorporate Reputation ndash A Value-Creating StrategyrsquoCorporate Governance International Journal of Business in Society 4(3) 77ndash92

Eaton S C (2003) lsquoIf You Can Use Them Flexibility Policies OrganizationalCommitment and Perceived Performancersquo Industrial Relations 42(2) 145ndash167

Ensworth P (2001) The Accidental Project Manager Surviving the Transitionfrom Techie to Manager New York John Wiley amp Sons

Fitz-enz J (1997) lsquoItrsquos Costly to Lose Good employeesrsquo Workforce 76(8) 50ndash51Francis V and Lingard H (2004) A Quantitative Study of Work-life Experiences

in the Public and Private Sectors of the Australian Construction Industry FinalReport Brisbane Construction Industry Institute Australia 142

Francis V Lingard H and Gibson A (2006) A Qualitative Study of Work-lifeExperiences in the Ppublic and Private Sectors of the Australian ConstructionIndustry Final Report Brisbane Construction Industry Institute Australia 142

Frank F D and Taylor C R (2004) lsquoTalent Management Trends that Will Shapethe Futurersquo Human Resource Planning 27(1) 33ndash41

Frone M R (2000) lsquoWork-family Conflict and Employee Psychiatric Disorders TheNational Comorbidity Surveyrsquo Journal of Applied Psychology 85(6) 888ndash895

Gorey K M Rice R W and Brice G C (1992) lsquoThe Prevalence of Elder CareResponsibilities Among the Work Force Populationrsquo Research on Aging 14399ndash418

Grant-Vallone E J and Donaldson S I (2001) lsquoConsequences of Work-familyConflict on Employee Well-being Over Timersquo Work amp Stress 15(3) 214ndash226

Greenhaus J H and Beutell N J (1985) lsquoSources of Conflict Between Work andFamily Rolesrsquo Academy of Management Review 10(1) 76ndash88

Greenhaus J H Parasuraman S and Collins K M (2001) lsquoCareer Involvementand Family Involvement as Moderators of Relationships Between Work-familyConflict and Withdrawal from a Professionrsquo Journal of Occupational HealthPsychology 6 91ndash100

Gross S E and Friedman H M (2004) lsquoCreating an Effective Total RewardStrategy Holistic Approach Better Supports Business Successrsquo BenefitsQuarterly 20(3) 7ndash12

Procurement and the quest for talent 353

Grover S L and Crooker K J (1995) lsquoWho Appreciates Family-ResponsiveHuman Resource Policies The Impact of Family-Friendly Policies on theOrganizational Attachment of Parents and Non-parentsrsquo Personnel Psychology48(2) 271ndash288

Grzywacz J G and Marks N F (2000) lsquoFamily Work Work-family Spillover andProblem Drinking During Midlifersquo Journal of Marriage and the Family 62(2)336ndash348

Halman J I M and Braks B F M (1999) lsquoProject Alliancing in the OffshoreIndustryrsquo International Journal of Project Management 17(2) 71ndash76

Hammer T H Saksvik P Oslash Nytroslash K Torvatn H and Bayazit M (2004)lsquoExpanding the Psychosocial Work Environment Workplace Norms andWork-family Conflict as Correlates of Stress and Healthrsquo Journal ofOccupational Health Psychology 9(1) 83ndash97

Handy C (1997) The Hungry Spirit London Random HouseHartman F Ashrafi R and Jergeas G (1998) lsquoProject Management in the Live

Entertainment Industry What is Differentrsquo International Journal of ProjectManagement 16(5) 269ndash281

Holland J L (1985) Making Vocational Choices A Theory of VocationalPersonalities and Work Environments 2nd Edn Englewood Cliff NJPrentice-Hall

Hull D and Read V (2003) Simply the Best Workplaces in Australia AcirrtWorking Papers Working Paper Sydney University of Sydney acirrtwwwacirrtcom 88 41

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd Phillips Fox Lawyers 33

Jacobs J A and Gerson K (2004) The Time Divide Work Family and GenderInequality (The Family and Public Policy) Boston Harvard University Press

Kahn R L Wolfe D M Quinn R P Snoek J D and Rosenthal R A (1964)Organizational Stress Studies in Role Conflict and Ambiguity New York JohnWiley

Karasek R A and Theorell T (1990) Healthy Work Stress Productivity and theReconstruction of Working Life New York Basic Books

Kaufman B E (1999) lsquoEvolution and Current Status of University HR ProgramsrsquoHuman Resource Management 38(2) 103ndash110

Konrad A M and Mangel R (2000) lsquoThe Impact of Work-life Programs on FirmProductivityrsquo Strategic Management Journal 21(12) 1225ndash1237

Kristof-Brown A Zimmerman R D and Johnson E R (2005) lsquoConsequences ofIndividualrsquos Fit at Work A Meta Analysis of Person-job Person-organizationPerson-group and Person-supervisor Fitrsquo Personnel Psychology 58 281ndash342

Kulik C and Bainbridge H (2006) lsquoHR and the Line The Distribution of HRActivities in Australian Organisationsrsquo Asia Pacific Journal of Human Resources44(2) 240ndash256

Lievens F van Dam K and Anderson K (2002) lsquoRecent Trends and Challengesin Personnel Selectionrsquo Personnel Review 31(5) 580ndash601

Lingard H and Francis V (2004) lsquoThe Work-life Experiences of Office andSite-based Employees in the Australian Construction Industryrsquo ConstructionManagement amp Economics 22(9) 991ndash1002

354 Lloyd-Walker et al

Lingard H and Francis V (2005a) lsquoThe Decline of the ldquoTraditionalrdquo FamilyWork-life Benefits as a Means of Promoting a Diverse Workforce in theConstruction Industry of Australiarsquo Construction Management and Economics23(10) 1045ndash1057

Lingard H and Francis V (2005b) lsquoDoes Work-family Conflict Mediate theRelationship Between Job Schedule Demands and Burnout in Male ConstructionProfessionals and Managersrsquo Construction Management amp Economics 23(7)733ndash745

Lingard H and Lin J (2003) lsquoManaging Motherhood in the AustralianConstruction Industryrsquo Australian Journal of Construction Economics andBuilding 3(1) 15ndash24

Lingard H Brown K Bradley L Bailey C and Townsend K (2007) lsquoImprovingEmployeesrsquo Work-life Balance in the Construction Industry A Project AllianceCase Studyrsquo American Society of Civil Engineers Forthcoming

Lipman I (2002) lsquoThe Sears Lectureship in Business Ethics at Bentley CollegeldquoBusiness Ethics in the 21st Centuryrdquorsquo Business and Society Review 107(3)381ndash389

Loughlin C and Barling J (2001) lsquoYoung Workersrsquo Work Values Attitudes andBehavioursrsquo Journal of Occupational amp Organizational Psychology 74(4)543ndash558

Lowry D (2001) lsquoThe Casual Management of Casual Work Casual WorkersrsquoPerceptions of HRM Practices in the Highly Casualised Firmrsquo Asia PacificJournal of Human Resource Management 39(1) 42ndash62

Maslach C Jackson S E and Leiter M P (1996) Maslach Burnout InventoryManual 3rd Edn Palo Alto CA Consulting Psychologists Press

Maslach C Schaufeli W B and Leiter M P (2001) lsquoJob Burnoutrsquo AnnualReview of Psychology 52(1) 397ndash422

Meyer J P and Allen N J (1991) lsquoA Three-Component Conceptualization ofOrganizational Commitmentrsquo Human Resource Management Review 1(1)61ndash89

Moen P and Sweet S (2004) lsquoFrom ldquoWork-Familyrdquo to ldquoFlexible Careersrdquo A LifeCourse Reframingrsquo Community Work amp Family 7 209ndash226

Morgenson F P Reider M H and Campion M A (2005) lsquoSelecting Individualsin Team Settings The Importance of Social Skills Personality Characteristics andTeamwork Knowledgersquo Personnel Psychology 58 583ndash611

Nahavandi A and Aranda E (1994) lsquoRestructuring Teams for the Re-EngineeredOrganizationrsquo Academy of Management Executive 8(4) 58ndash68

Netemeyer R G Boles J S and McMurrian R (1996) lsquoDevelopment andValidation of Work-family Conflict and Family-work Conflict Scalesrsquo Journal ofApplied Psychology 81 400ndash410

Nicholson N and Johns G (1985) lsquoThe Absence Culture and PsychologicalContract Whorsquos in Control of Absencersquo Academy of Management Review10(3) 397ndash407

OrsquoDriscoll M P Poelmans S Kalliath T Allen T D Cooper C L and SanchezJ L (2003) lsquoFamily-responsive Interventions Perceived Organizational andSupervisor Support Work-family Conflict and Psychological StrainrsquoInternational Journal of Stress Management 10 326ndash344

Procurement and the quest for talent 355

OrsquoReilly C A Chatman J and Caldwell D R (1991) lsquoPeople andOrganizational Culture A Profile Comparison Approach to Assessing Person-organisation Fitrsquo Academy of Management Journal 34 487ndash511

Parker S and Wall T (1998) Job and Work Design Organizing Work to PromoteWell-being and Effectiveness Thousand Oaks CA Sage Publications Inc

Perlow L A (1998) lsquoBoundary Control The Social Ordering of Work and FamilyTime in a High-tech Corporationrsquo Administrative Science Quarterly 43(2)328ndash358

Pfeffer J (1998) lsquoThe Real Keys to High Performancersquo Leader to Leader 8 23ndash29Pringle C D and Kroll M J (1997) lsquoWhy Trafalgar was Won Before it was

Fought Lessons from Resource-based Theoryrsquo Academy of ManagementExecutive 11(4) 73ndash89

Rabey G (2005) lsquoThe Power Withinrsquo Industrial and Commercial Training 37(2)106ndash110

Raideacuten A B Dainty A R J and Neale R H (2006) lsquoBalancing Employee NeedsProject Requirements and Organisational Priorities in Team DeploymentrsquoConstruction Management and Economics 24(8) 883ndash895

Ramlall S (2004) lsquoA Review of Employee Motivation Theories and theirImplications for Employee Retention Within Organizationsrsquo The Journal ofAmerican Academy of Business Cambridge 5(12) 52ndash63

Robertson I and Smith M (2001) lsquoPersonnel Selectionrsquo Journal of Occupationaland Organizational Psychology 74 441ndash472

Rodgers J R and Rodgers J L (2000) lsquoThe Effect of Geographic Mobility onMale Labor-Force Participants in the United Statesrsquo Journal of Labor Research211 117ndash132

Rodrigues C A (2001) lsquoFayolrsquos 14 Principles of Management Then and NowA Framework for Managing Todayrsquos Organizations Effectivelyrsquo ManagementDecision 39(10) 880ndash889

Ruona W E A and Gibson S K (2004) lsquoThe Making of Twenty-first-centuryHR An Analysis of the Convergence of HRM HRD and ODrsquo Human ResourceManagement 43(1) 49ndash66

Rushton K (2002) lsquoBusiness Ethics A Sustainable Approachrsquo Business EthicsA European Review 111(2) 137ndash139

Russell G and Bowman L (2000) Work and Family Current Thinking Researchand Practice Report Canberra Department of Family and Community ServicesCommonwealth of Australia ISBN 0 642 43249 X 58

Sarin S and Mahajan V (2001) lsquoThe Effect of Reward Structures on thePerformance of Cross-functional Product Development Teamsrsquo Journal ofMarketing 65(2) 35ndash53

Secret M (2000) lsquoIdentifying the Family Job and Workplace Characteristicsof Employees Who Use Work-family Benefitsrsquo Family Relations 49(2) 217ndash225

Shellenbarger S (1998) lsquoThose Lists Ranking the Best Places to Work for are Risingin Influencersquo Wall Street Journal New York

Thompson C A Beauvais L L and Lyness K S (1999) lsquoWhen Work-FamilyBenefits Are Not Enough The Influence of Work-family Culture on BenefitUtilization Organizational Attachment and Work-family Conflictrsquo Journal ofVocational Behavior 54(3) 392ndash415

356 Lloyd-Walker et al

Ulrich D and Brockbank W (2005) The HR Value Proposition Boston MAHarvard Business School Press

van Marrewijk M (2004) lsquoThe Social Dimension of Organizations RecentExperiences with Great Place to Work Assessment Practicesrsquo Journal of BusinessEthics 55(2) 135ndash146

Van Vianen A E M (2000) lsquoPerson-organization Fit The Match BetweenNewcomersrsquo and Recruitersrsquo Preferences for Organizational Culturesrsquo PersonnelPsychology 53 113ndash149

Veigaa J F Baldridge D C and Eddleston K A (2004) lsquoToward UnderstandingEmployee Reluctance to Participate in Family-friendly Programsrsquo HumanResource Management Review 14(3) 337ndash351

Vu U (2006) Ethics Branding Top Issues of Interest for HR Canadian HRReporter

Waldman J D and Arora S (2004) lsquoMeasuring Retention Rather than TurnoverA Different Complementary HR Calculusrsquo Human Resource Planning 27(3)6ndash9

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T Hampson K and Peters R (2002) lsquoProject Alliancing vs ProjectPartnering A Case Study of the Australian National Museum Projectrsquo SupplyChain Management 7(2) 83ndash91

Walton R E (1985) Toward A Strategy of Eliciting Employee Commitment Basedon Policies of Mutuality In Human Resource Management Trends andChallenges Walton R E and P R Lawrence Eds Boston MA Harvard BusinessSchool Press 35ndash65

Waterman R H J Waterman J A and Collard B A (1994) lsquoToward a Career-Resilient Workforcersquo Harvard Business Review 72(4) 87ndash96

Way S A (2002) lsquoHigh Performance Work Systems and Intermediate Indicators ofFirm Performance Within the US Small Business Sectorrsquo Journal of Management28(6) 765ndash785

Wheatley M (1997) lsquoGoodbye Command and Controlrsquo Leader to Leader 521ndash28

Whitener E M (2001) lsquoDo ldquoHigh Commitmentrdquo Human Resource PracticesAffect Employee Commitment A Cross-level Analysis Using Hierarchical LinearModelingrsquo Journal of Management 27(5) 515ndash535

Winter R and Jackson B (2006) lsquoState of the Psychological Contract Managerand Employee Perspectives Within an Australian Credit Unionrsquo EmployeeRelations 28(5) 421ndash434

Wood S and de Menezes L (1998) lsquoHigh Commitment Management in the UKEvidence from the Workplace Industrial Relations Survey and EmployersrsquoManpower and Skills Practices Surveyrsquo Human Relations 51(4) 485ndash515

Wood S and Wall T D (2002) Human Resource Management and BusinessPerformance In Psychology at Work Warr P Ed London Penguin 351ndash374

Procurement and the quest for talent 357

Chapter 11

Case study ndash developing acentre of excellence (CoE)

Chris Cartwright and Derek HTWalker

Introduction

Chapters 1 through 10 provided a solid and broad PM perspective on projectprocurement practices These aspects are further discussed and focusedupon through case studies presented in the next four chapters that providedetailed discussion reflecting relevant theory and practice ndash focusing upona single organisation and a single aspect In this case the organisation wasEricsson PL and the focus of discussion is on the procurement process(mainly internally) of the skills resources and expertise necessary thatresulted in developing a successful PM centre of excellence (CoE)

This CoE development task which links well to chapters in this bookwas not outsourced to consultants but was organically grown from withinthe organisation (links with Chapter 1) It was a highly lsquoexperimentalrsquoproject type and while a lsquotenderrsquo was not called for iterations of a highlyrigorous business plan were required to gain top management support andadequate resourcing ndash the business case was scrutinised and evaluated indepth (links with Chapter 1) The project also involved careful identificationand management of key stakeholders together with consideration of Ericssonas part of a supply chain delivering value to customers (links with Chapter 3)While the CoE did not explicitly address ethical issues dealt with inChapter 4 it did require that corporate governance measures be designed-into the way that the CoE would operate In terms of strategy it wasemergent with an entrepreneurial flavour and a transformational impact(links with Chapter 5) The CoE was appreciated and evaluated using anotional CMM with some development of BSC and tangiblendashintangiblemapping being explicated in a formal way The CoE extensively developed aportal tool for e-business and so it is of immediate relevance to Chapter 7Similarly the initiative was of itself an organisational learning exercise Thisclosely links to Chapters 8 and 9 because this required an organisationalculture appreciation to enact transformational change A CoE is aimedto develop key staff as well as upskill staff generally and so links closelyto Chapter 10

Developing a centre of excellence 359

This chapter is structured as follows The next section will outline thecontext and background history of the CoErsquos development ndash its raisondrsquoecirctre This is followed by a discussion of the underpinning theory that thecase study illustrates and tests ndash the lsquowhatrsquo issues The following sectionexplains the lsquohowrsquo and lsquowhyrsquo issues The last section provides an evaluationand discussion of implications for PM procurement practice

Context and history

This case study investigates how the local arm of the internationaltelecommunications company1 developed a project management office(PMO) which was rated by Ericssonrsquos global head office in October 2005as lsquobest in classrsquo The rating was accomplished using a measurementinstrument the Corporate Practices Questionnaire (CPQ) from HumanSystems Ltd the same process was conducted across 52 countries within theorganisation The PMO was established in 1999 at a time when the wholeInformation Technology and Telecommunication (ITampT) industry was ina state of turmoil The led to disruptive change and risk events (such asY2K and an explosion in (ITampT) company share prices) that triggeredexpectations for the need for fundamental change to respond to identified newbusiness opportunities Digital electronics technology was also continuing todrive convergence between computers and telecommunication Each sideof the information technology (IT) and computerised multimedia digitalcommunication divide was positioning itself for the future

There was also fundamental change occurring at a political level Freemarket economic policies adopted by the Australian government resulted inthe sale of 49 as the beginning of a long drawn-out privatisation processof Telstra PL (Australiarsquos government-owned telecom) This meant thatthe government could no longer use its ownership position as a lever foreconomic development of local industry and Telstra was no longer forcedto specify local content as a criterion for equipment purchasing decisions

Many countries in the Asia-Pacific region were also using their taxregimes to attract local manufacturing ndash 10-year tax-free windows werebeing negotiated for companies establishing a new factory in for exampleMalaysiarsquos Multi Media Corridor The need to compete with economicmodels used by the computer industry was forcing a major reorganisationon Ericsson It was planned to close more than 30 of its 50 manufacturingfacilities globally The global manufacturing model much of it outsourcedmeant that the Australian factory though recognised as being one ofthe best in the country was to be gradually phased out This closure meanta complete change in the way the local company did business Until then alarge automated factory delivered product directly to Telstra which wassubsequently installed and commissioned by Telstra personnel The changesbeing driven by senior management in Telstra meant that they were also

looking at how they could more effectively meet the needs of their customersand shareholders Telstra needed equipment to be procured with designservices installation commissioning and even in some cases operation Theopportunity became obvious for a telecommunication product provider tobecome a services provider The term lsquototal solutionrsquo became a part ofEricssonrsquos vocabulary and the need became apparent for a provider to managethe end-to-end activity Project management was seen as the mechanism toeffectively manage the end-to-end delivery

The transition from a product-based company to a service-based companywas a major cultural change (which continues six years later) the Australianand New Zealand Ericsson company (ANZA) was leading this globalorganisation down a services-focused path Senior management set targets toachieve a certain percentage of income to be derived from services ndash typicallyANZA achieved double the percentage of the grouprsquos average In 2004 amajor milestone was achieved when ANZA achieved 50 of sales incomefrom services These services included consulting education design instal-lation integration commissioning operation and project management(PM) The global management team nominated three key issues for thefuture as part of the cultural change needed ndash leadership sales competenceand PM competence The local CEO nominated PM as one of three keyenablers in their local strategy

In 1996 a movement started within the organisation to establish a PMOand consequently a number of business cases were regularly put to themanagement team The breakthrough came in 1999 when the Director ofServices agreed to fund a PMO for 12 months to test the feasibility of theconcept The rationale included the following

Because it is what we do ndash by 1999 the factory was closing and morethan 70 of the income came from delivering projects

Primary customer interface ndash once products and services were sold thecustomer saw the project manager as the face of the organisation

It provides our primary opportunity to improve profitability andcustomer satisfaction ndash cost control and good stakeholder managementfundamental parts of project management drive profitability andcustomer satisfaction

Project management facilitates risk management ndash organisational andfinancial risk can be managed in a more systematic way using projectmanagement Deciding how the organisation selects opportunities thatbecome projects was built into the new sales process

Project management facilitates knowledge management ndash projectclosure and the collection and dissemination of lessons learned are keyparts of the project management methodology used

It ensures governance ndash consistently using a project methodology providescertainty and visibility for organisational and financial governance

360 Cartwright and Walker

Project management drives process improvements in order to enhanceorganisational effectiveness and efficiency ndash as the project managementdelivers a project horizontally across the organisation they can see thedisconnects and inefficiencies initially they were tasked with highlightingthese and

It must be leveraged to increase sales opportunities ndash the projectmanagement team is in a unique position within the customerrsquos organ-isation they are seen more positively than the sales team They may seeopportunities that the sales team may not be aware of or they may beable to include a change process to add value to the project

What is a PMO and why have one

Chapter 5 discussed aspects of what a PMO might look like In the early1980s Naisbitt (1982) predicted the transition from an Industrial age to anInformation age would occur through 10 major trends ndash the lsquomegatrendsrsquoas he called them Haldane (1999) focuses on one High TechHigh Touch asit applies today in the discipline of project management making the pointthat a projectised workforce drives PMO growth A particular managementstructure is needed if as is currently the case in many companies projectdelivery outcomes present a risk to a major proportion of an organisationrsquosfinances Most organisations in the 21st century rely on some form ofmatrix structure to manage the functional and project dimensions(Pettigrew and Fenton 2000) With an accelerating shift from manufacturingto services delivery the type of manager that focuses on cost control is beingregarded as lacking an ability to also focus on strategic business developmentissues The formation of a PMO can fill this void and ensure that bothcommercial and strategic project success become major organisationaldrivers The PMO resides at the cutting edge of the organisationalmanagement matrix

The term PMO is used to describe many different types of organisationIn most large single projects there will be a level of administration within theproject to ensure effective delivery this may be called a PMO and as a resultthere is a view that a project office is responsible for mainly administrativetasks KPMG in their PM survey describe a PMO as having a broader man-date including many internal and external projects As an organisationmatures there will be a changing role for the project office from an admin-istrative focus through people development then a business focus followedby a strategic role The definition of KPMG put forward for a PMO in thefuture is lsquoA strategic function responsible for coordinating prioritising plan-ning overseeing and monitoring an organisationrsquos projects to achieve busi-ness strategy and benefitsrsquo (KPMG 2003 3) By 2005 this was certainly therole that the ANZA PMO was required to fulfil Whether one uses the ter-minology project office PMO programme management office enterprise

Developing a centre of excellence 361

PMO or portfolio management office it describes the management functionthat oversights an organisationrsquos projects and is responsible for project man-agement performance Miranda (2003) makes the point that the support aPMO provides may range from acting as a repository for PM informationthrough to being totally accountable for project performance

The Gartner Group (Light and Berg 2000) puts forward three roles forthe maturing PMO

1 The PMO as a repository ndash custodian of the project methodology andnot involved in the decision-making process

2 The PMO as a coach ndash provides guidance on projects performs projectreviews on request may establish and support project planning monitorsand reports on projects but does not order corrective action and

3 The PMO as manager ndash operating as an agent of senior managementmanages the project portfolio manages the master resource plan reviewsproject proposals and is accountable for the portfolio

While a mature PMO may take a management role it must also continue toprovide the roles of knowledge repository and coach ndash while many activitiesmay be added to the role few if any will be deleted Kerzner (2003)describes three slightly different PMO types

1 Functional ndash mainly responsible for managing a resource pool2 Customer groups ndash focused upon projects in common customer groups

to better manage customer relationships and3 Corporate ndash focused on corporate and strategic issues

The merger of Hewlett Packard and Compaq provided an opportunity toselect the best in class PMO from the two organisations Levine (2005)summarises four main focus areas where the PMO is defined as having thebroadest impact

1 Project management expertise ndash raising the level of project managementcompetence and achieving competitive advantage with an industry-leading success rate

2 Best-in-class methodology ndash implementing a standard methodologyusing best practices to ensure repeatable success

3 State-of-the-art enterprise project management system ndash adoptingEricsson Project Management Institute (EPMI) tools to provideemployees with a world-class system that enables knowledge-sharingand visibility of all work on one common database and

4 Portfolio management ndash business strategy aligned and interlockedthrough active reporting tracking and analysis of projects andprogrammes

362 Cartwright and Walker

Bergmann (2002) presented a PMO governance model in 2002 at a conferencein Stockholm as a standard for the Ericsson group Figure 111 illustratesthe organisational structure and how the PMO links the organisation todelivered projects Bergman is an EPMI and one of the founders of theEricsson PM Project Model for PROPS The method developed in 1989 isnow into its fourth revision

The defined model placed the PMO at the centre of the services worldall projects having oversight with PMO links to senior management andthe portfolio Each project is able to draw on suppliers or internalresources to deliver the required outcomes Project governance is ensuredthrough a gating2 process buried in the PROPS methodology The projectsteering function consists of a project sponsor owning each project andfollowing the gating process Only one individual owns accountabilityand ultimate responsibility for the complete project portfolio this maybe the CEO who may delegate the accountability to the manager ofthe PMO

The PMO form that Ericsson has evolved into now is illustrated inFigure 112 it includes the following tasks

New assignment handling ndash acting as the central desk for projectsproviding estimates where requested providing structure and substanceto the bid and initiation process ensuring a governance process is inplace followed for each sales opportunity

PM staffing and competence development ndash as capability ownerfor project management ensuring there are sufficient suitablycompetent project managers available on an as-needs basis This wassupported by both internal and external certification processes

Developing a centre of excellence 363

Figure 111 Ericsson EPMI model

Suppliers

Project

Project portfolio owner

ProjectofficeResource

owners

Project steeringfunction

Customers

Methods tools and support ndash providing access and training in bestof breed methods tools and processes providing help and trainingwhere required

Continuous improvement ndash monitoring processes for quality suitabilityand adherence and providing feedback to management on any oppor-tunities for improvement

Project monitoring and tracking ndash Providing accurate meaningful reportsto management on progress for outcomes schedule cost margin andrisk on projects programmes and the complete portfolio and

Project portfolio handling ndash Supporting senior management to achievetheir strategy by managing organisational resources providing synergiesbetween projects and proactively monitoring portfolio performance

The purpose of having a PMO is to make available existing PM skill setsacross the organisation and to grow PM maturity As the PMO develops itsown maturity in providing greater strategic PM influence and developingPM expertise tools and talent it increases the efficiency of an organisationrsquosPM activities and also increases its effectiveness by providing expert adviceto strategically select and prioritise projects to be undertaken These are inline with a shift from skill-development towards reflection knowledgetransfer and sensemaking that is in line with the concept of a centre ofexcellence (Walker and Christenson 2005) Further the Ericsson case studyexample matches emerging trends in advanced PMOs that have beenreported upon in North America (Rad and Levin 2002) and in some globalorganisations operating in Europe (Andersen et al 2006) to an extent that

364 Cartwright and Walker

Figure 112 More advanced PMO model

SuppliersNew

assignmenthandling

PM staffing andcompetencedevelopment

Projectportfoliohandling

Project portfolio owner

Techniques tools and supportcontinuous improvements

Resow

Projectmonitoring and

tracking

Project

Steeringction

Customers

when compared the Ericsson example is indeed at the cutting edge ofadvanced PMOs If we accept that the model above reasonably representsa CoE concept then it is interesting to trace the journey that led EricssonAustralia to this destination

The journey to best-in-class

There were three major reorganisations of the ANZA PMO during theperiod 1999ndash2005 that looking back followed the Gartner model Theywere to provide the functions of the Project Manager Support Office theOrganisation Project Support Office and the Business Delivery PMO

The establishment of the PMO in 1999 followed a push from across theorganisation to provide some structure behind the growth of PM Therehad been for a couple of years a business case developed to establish aPMO but the senior management still saw this as another level of adminis-tration The organisation was a strong functional organisation that eitherdid not see the need or may have felt threatened by the strengthening ofthe PM function In the second half of the 1990s two major projects hadfailed and this further reinforced the need for action There was a generalbelief within the executive team that the projects failed because of poor PMpractices In 1999 the Director of Services signed off on the business caseand agreed to fund the PMO for 12 months

Project manager support office

Figure 113 illustrates the impact that the PMO exerted upon the organisationTo achieve project success there were two streams that needed to functioneffectively the project stream to provide competent project managers whoperformed well and the organisational stream that needed to select suitableprojects and then provide the required level of governance Every presentation

Developing a centre of excellence 365

Figure 113 PM support office model ndash Stage 1

Projectmanagementcompetence

Projectperformance

Projectsuccess

Project manager supportoffice

Organisationalperformance

Organisationalcompetence

by the manager of the PMO started with this graphic reinforcing of whatneeded to be addressed

The Project Manager Support Office was established to be responsiblefor the following activities

1 Own the project management process ndash EPMI the department responsibleglobally for PM processes had developed their model for projectsPROPS and this was used intermittently across ANZA the PMOinstitutionalised the use through further training and coaching

2 Set benchmarks and standards ndash PROPS nominated particular documentsto be used and processes to be followed Templates were developed andthe discipline was imposed to ensure that project managers followedthis process

3 Benchmarking ndash the organisation needed to understand and track thelevel of competence and process maturity in project management Thedecision was made to join a benchmarking ring conducted by HumanSystems Ltd Dr Terry Cooke-Davies had been running a benchmarkingring in Europe for a number of years and was looking to establishHuman Systems in the Asia-Pacific region Ericsson was a foundingmember of PACRIM 1 a benchmarking ring managed by Dr LynCrawford representing Human Systems from the University ofTechnology in Sydney The main tool that Human Systems use tomeasure maturity is the CPQ a forerunner of the Project ManagementInstitutersquos (PMI) Organisational Project Management Maturity Model(OPM3) The CPQ measures the organisationrsquos approach to projectmanagement processes and then the deployment of that approachANZA PMO approached EPMI to adopt the tool across the Ericssongroup and it was adopted in 2002 The tool was modified to meetEricssonrsquos needs and renamed the Project Environment MaturityAssessment (PEMA) This was the tool used for assessment in 2005The CPQ was conducted at ANZA in 1999 and showed a level of15ndash20 across most PM processes There was also a major discrepancybetween the approach and the deployment scores showing we were notconsistently applying our own processes

4 Centralise and develop project managers ndash a critical decision was takento centralise all project managers within the PMO and manage them asa key resource Previously project managers were distributed throughoutthe organisation and support and development was very uneven Bringingthe project managers together not only allowed Ericsson to developa team spirit and facilitated imposing discipline and providing therequired level of support Continuous skill development was one of thefoundations for improvement The PMO approached the RoyalMelbourne Institute of Technology (RMIT) to provide structured PMtraining modules and a number of the team used the opportunity to

366 Cartwright and Walker

complete formal PM qualifications The organisation was undergoinga change towards a performance-based culture through a processcalled Competence and Performance equals Reward (CaPeR) ThePMO developed a set of behaviourally based competencies for projectmanagers to support the CaPeR process Competency mapping wasused to understand individual and organisational development needsThis information was used to source training to allocate projectmanagers to particular projects and to develop reward strategies Roledescriptions were put in place for Project Managers Senior Projectmanagers and Principal Project Managers

5 Own the profession ndash there was an understanding that the organisationneeded to become more professional in project management across theworld PM was starting to develop as a profession The PMO assumedthe role of Project Central for information on projects for the supplyof project managers and became the PM organisational home

6 Certification of project managers ndash the PMI had established theirProject Manager Professional PMPreg examination-based certificationprogramme and as it was a globally recognised programme thedecision was taken to encourage project managers within the PMO tobecome certified as PMPregs In 1999 the first four PMs became certifiedand by 2005 more than 50 members of the organisation had becomecertified As part of the reward strategy all costs including annualmembership fees were paid by the organisation

7 Must do process ndash the sales departments established their targets forthe following year each September part of this process being to studythe market place and nominate which major opportunities they neededto be successful in to achieve their sale budgets this created the lsquoMustWin listrsquo The PMO then took responsibility to deliver each opportunityonce a contract was signed The PMO coined the term lsquoMust Do listrsquothe terminology linked the PMO with the business and resulted ininvitations for the PMO Manager to attend the sales Must Win meetingshence the PMO had a clearer view of the sales funnel The term MustDo became part of the organisation jargon The CEO would begin hisquarterly leadership meetings with an overhead on financials and thesecond overhead was the traffic lights for the Must Dos A monthlyMust Do meeting was held where the CEO reviewed the Must Doprojects that had red traffic lights It was during some of these meetingsthat many of the functional managers resented some of the stones beinglifted in front of the CEO It was also the first time that the CEO andmany of the management team saw the project managers running whatwere quite major projects

While not an activity one of the ongoing requirements for the PMO atthis time was to continually justify its position within the organisation

Developing a centre of excellence 367

The establishment of a PMO was seen by many middle managers as athreat to their power There were many other agendas and power playsthat make up the day-to-day turmoil of everyday business life and themanager of the PMO needs to be politically aware and savvy to under-stand what the current issues and pitfalls are One of the strategies fromthe PMO was to consistently communicate the same message to the rest ofthe organisation

Organisation project support office

During the first three years of the PMO there was continual questioningfrom the management team lsquoDo we really need a project officersquo Thiswas especially true once the initial version of portfolio management wasestablished and when the PMO staff (in the language of the organisation)lsquostarted lifting some of the stones in the organisationrsquo The PMO high-lighted issues that some managers would have preferred remained hiddenIt now had a set of Balanced Scorecard (BSC) measures that linked directlyto the company BSC The triple constraint of budget time and customersatisfaction were all improving in 2002 the targets were

Projects on Budget 80Projects on time 80Customer satisfaction 80

Figure 114 illustrates the growing impact that the PMO exerted upon theorganisation to push further into project performance and impinge uponorganisational competence

While the responsibilities now assigned to the PMO started to expand nonewere removed the PMO still needed to ensure that it had a team of competentmotivated and available project managers consistently applying established

368 Cartwright and Walker

Figure 114 PM support office model ndash Stage 2

Projectmanagementcompetence

Projectperformance

Projectsuccess

Project manager supportoffice

Organisationalperformance

Organisationalcompetence

global processes The required activities now included the following

Drive adherence to process through reviews and facilitation ndash eachproject was now required to run a customer and internal satisfactionsurvey and a formal wash-up meeting as part of the conclusion phaseThere was also a requirement that a peer review was conducted earlyduring the execution phase to ensure the plan had sufficient rigour andconstraints assumptions and risks were understood The PMO was alsoasked to conduct ad hoc reviews or health-checks when Sponsors feltthere was a need At times the results of these reviews were used toestablish blame and finger-point rather than use them as a fundamentalplank for improvement

On-screen report to management ndash during 2002 the PMO started to takemore responsibility for portfolio management While the Must Do processhad enabled the organisation to restrict problems with out-of-control pro-jects it was only an early version of portfolio management An on-screenreport was developed for the portfolio based on the Must Do traffic lightsand the process was renamed The report was named Key Projects

Key Projects report ndash the on-screen version was available to the wholeglobal organisation with a level of security for sensitive informationA project sponsor was able to drill down for complete financial anddelivery details Figure 115 illustrates a sample of the portal reportinformation provided

Developing a centre of excellence 369

Figure 115 Key projects dashboard

Establish management of projects ndash EPMI referred to lsquoManagement ofProjectsrsquo rather than lsquoPortfolio Managementrsquo to define the managementof the organisationrsquos total load of projects When the PMO took on therole of portfolio manager it gained the responsibility to ensure that thecorrect processes were followed during the sales processes by holdingthe various decisions for a project This ensured that only contracts thatwere deliverable and met the target for margin were signed The secondresponsibility was to ensure the sponsor used the governance built intothe PROPS model toll gates were held and decisions documented

Performance manage PMs ndash initially the PMO provided competentmotivated professional project managers The PMO took on the roleof performance managing the PM team to support the organisation bytaking direct responsibility for project outcomes ndash not just providingsupport to the PMs

Manage forecast load ndash the sales funnel for projects is normally unevenand relatively opaque The PMO in managing forecast load needed tounderstand and plan for future projects by reviewing probabilities andscenarios for PM support needs The organisation needed support notonly in the delivery of projects but also in the selling process wherequick realistic estimates for cost time and risk allowed flexibility inresponding to customer requests In the sales environment speed iscritical the time line tends to be today not next week planning for thistype of response is difficult and it normally tended to be an add-onactivity for a project manager already managing a project

Capability owner for project management ndash the PMO now took on therole of capability owner ndash no longer just being responsible for just PMcompetence The role of capability owner entailed not only proving thecorrect quality of project manager but also the correct quantity Flexibilityin capability level was achieved by using a base of fully employedproject managers supplemented by a small number of contractors

Cross-functional reporting of disconnects ndash the demise of the qualityorganisation during the various restructures had left no accountabilityfor continuous improvement The re-branding of quality as lsquobusinessexcellencersquo provided an opportunity to address the gap The PMs aspart of the horizontal matrix saw where there were disconnects in thedelivery capability and they were asked to highlight as part of theirperformance management activities and progress reporting where theywere This caused some friction within the functional organisation

There was still a need to ensure that the PMO was seen by all stakeholdersto be adding value to them to justify its position in organisation It wasnot until 2003 that there appeared to be an understanding by all seniormanagers that the PMO was a necessary business expense and after thattime there was no request to revisit the PMO business case

370 Cartwright and Walker

Late in 2002 as part of the ongoing benchmarking activities the ANZAPMO conducted a second maturity measurement using the Human SystemsCPQ The results showed there was a major improvement since the firstmeasurement in 1999 with the approach score averaging over 40 and thedeployment score at 33 Around this time the global organisation decidedto use Human Systems and the CPQ as the basis for an audit process ofPMOs across the global organisation The decision was taken that all PMprocesses should be a global responsibility and that they should be appliedlocally the mantra became Global Approach with Local DeploymentThe global organisation took accountability for the approach score and thelocal companies were given accountability for the deployment score TheCPQ tool was re-engineered to include some measures that the global teamneeded but the CPQ was still intact to ensure integrity of the current dataThe ability to benchmark with external organisations was seen as a majoradvantage The new tool was named the PEMA a tool that measures howa local company sells and delivers the Network Rollout product suite

The business delivery PMO

In early 2004 there was another restructuring of the organisation and theopportunity was taken to add to the responsibilities of the PMO The projectscorecard was now looking much better and the opportunity was taken toraise the bar on the targets

Projects on budget 90 (overall total within budget)Projects on time 100Customer satisfaction 80

The PMO now took on a role that tended towards that illustrated inFigure 116

Developing a centre of excellence 371

Figure 116 PM support office model ndash Stage 3

Projectmanagementcompetence

Projectperformance

Projectsuccess

Business deliveryproject management

office

Organisationalperformance

Organisationalcompetence

The PMO was expected to provide all current services plus thefollowing

Accountable to support the sales team ndash the PM was now seen to be anintegral part of the bid team The PMO needed to provide businesssavvy commercially competent project managers

Accountable for estimates ndash the PM now needs to sign off on theestimate and is accountable to deliver the project to this estimateThe estimate will be used to drive the pricing structure and become thebasis for benefit management

Manage order desk and end-to-end delivery process ndash the PMO is nowtotally accountable to deliver projects previously the sales organisationsaw that as a need to oversight the delivery to safeguard their customerrelationship The new order was for the sales team to focus on sellingand for the services team especially the project managers to focuson delivery

One version of the truth ndash one of the major links between the project andthe hosting organisation is the financial performance of the projectMost organisations use a large ERP system for example SAPR3 tomanage and report finances The information within the system isreported to the market as profit andor loss A project was planned andthe planned cost was also entered in the system From then projectmanagers used the Estimate at Completion (EAC) and the Estimateto Completion (ETC) to manage and report on their project Manyfinancial systems have problems reporting estimates so there may bediffering views of the current budget numbers There may appear tobe many versions of the truth At one regular executive meetingthe PMO manager reported two sets of figures one the figures withinthe financial system and the other the total of the EAC figures fromcurrent projects from the PMO database There was a major discrep-ancy the executive team stated that the numbers within SAP werethe ones reported to the market and that they must be correct Thefinancial team supporting SAP was moved into the PMO to providebetter support to the PMs and align the projectrsquos and organisationrsquosfinancial numbers The mantra became lsquoone version of the truth andSAP is Kingrsquo

Train project sponsors ndash each project has according to the PROPSmethodology an internal senior manager who owns the project in abusiness sense The senior manager the sponsor of the project uses thetollgate governance process to ensure the defined business benefits aredelivered By 2004 there was a belief that the role of the sponsor wasnot adding the value it should Many sponsors were not fulfilling theirrole and providing the required support to project teams The PMO

372 Cartwright and Walker

was asked to provide education in the selection of sponsors and theirroles and responsibilities

Provide business support ndash The PMO was now seen as able to addvalue to the bid process and overall governance There were requests tofacilitate risk management sessions planning sessions audits bidmanagement wash ups and lessons learned sessions

Cross-functional process improvement ndash the PMs were now asked totake an active role in removing disconnects within the organisationThey had targets set for process improvements as part of their CaPeRscorecard which drove their reward structure

Accountable to deliver the agreed marginbenefits ndash the PMObecame totally responsible for delivering the margin agreed forthe project when the contract was signed One of the PMs fromthe PMO was involved in the bid to provide estimates high-levelplans and an understanding of associated risks Margin deliverywas included as part of each individual PMrsquos performance managementprocess

During the period 1999ndash2005 there was anecdotal evidence both locallyand globally that the ANZA PMO was doing innovative things and wasamong the best in the group There was a team providing benchmarkingservices within the corporate headquarters that was assessing companies toestablish what their level of deployment maturity was and then helpingthem with improvement plans This team had asked Human Systems tomeasure the maturity of the global approach and had been scored at amaturity level of 42 The audit team was asked to assess the ANZAPMO maturity and visited the company in September of 2005 to conductthe PEMA3 assessment The assessors conducting the audit made thefollowing points

PEMA is a method for measuring project performance maturity in anorganisation by interviewing individuals in the organisation

The organisation is the target of the assessment not the individuals Answers shall reflect the level of deployment of project management

practices not the intended approach The result of a PEMA is delivered as a report in a feedback meeting The PEMA result and the feedback shall be used as a basis for

improvement work in the organisation

The feedback from the audit team was that ANZA scored 412 fordeployment the highest score across the 51 assessments conducted

Developing a centre of excellence 373

lsquoOur general impression of the level of Organisational maturity atANZA is that the organisation is very mature and contributes well toOperational Excellence We have observed several good initiatives tocoordinate and foster good Sales amp Delivery Management We encouragethe MU management team to continue to support these initiativesrsquo (HansLock lead auditor)

Evaluation ndash lessons learned from the journey

1 It has been said many times but it still holds true that a major changeprogramme MUST be driven from the top In the case of the ANZAPMO there was consistent support from the CEO and the managementteam Whenever support including financial support was asked for itwas given and each manager was seen to lsquowalk the talkrsquo During theperiod 1999ndash2005 there were three CEOs each was totally committedto improving the maturity of the PMO

2 The decision to centralise the team of project managers was criticalto the success of the ANZA PMO The need for discipline profession-alism up-skilling teambuilding and general motivation was mademuch easier through co-location and the physical bringing together ofthe team Costs for each project manager were charged back to eachuser as they sourced PMs which appealed to the users as they nolonger had to pay for a PM if they were not directly employed on aproject Access to immediate PM support was available due to thecommon team

3 The PMO is a constantly emerging function there is never a time to sitback and watch The PMO must meet the current needs of the organisa-tion and these needs change daily Stakeholder management is criticalensuring there is an understanding of each stakeholderrsquos needs and howwell they are being met While there were three major reorganisationsof the PMO during the period addressed there was ongoing balancingand alignment of competence and quantity of the project managementcapability Many times signing one contract causes a ripple effect as aparticular PM is assigned to a new project

4 The PMO must be seen to be adding value and be responsive successesmust be communicated and celebrated In the beginning the PMO wasforcing itself on the organisation whether they wanted it or not as theservices provided were seen to add value Then the organisation startedto approach the PMO and ask for services and at times suggest otherservices that could be offered The PMO also ensured that the servicesthey offered were not available from other sources In the early stagesmany of the units selling products and services did much of the upfrontestimating and planning themselves ndash when they asked for support ithad to be provided quickly and professionally ensuring that the unit

374 Cartwright and Walker

avoids falling back into a self-help mode Reinforcement from themanagement team asking where estimates came from if the PMO hadsigned off on the plan and who conducted the risk analysis ensuredthe profile and their commitment to the PMO The PMO must makeit easier for the selling unit to get support so they can then spendmore time on relationship management which is a critical part ofsuccessful selling

5 In todayrsquos business climate it is critical that an organisation has accessto an accurate set of financial data The USA Sarbanes-Oxley laws4

now provide serious penalties if organisations are not providing accu-rate information to the marketplace The adoption of the correct versionof the truth supports this direction Once managers realise they are atrisk they become much more interested in project governance

6 Bring key stakeholders and the organisation along with you In theproject management profession we have created a new jargon and waysof thinking and working Talking to senior managers about CPI andEAC may result in blank faces it is your responsibility to educate thewhole organisation in project management The PMO needs to be instep and one step ahead at the same time ndash in step with the organisationto ensure it is effectively meeting its current needs and one step aheadso that you are anticipating and forming future needs

7 As with any change project it is the people who have to change Therewas a team of people who passionately believed in what they were doingthere were times when it was rocky and some very good people werelost The PMO was able to keep a core of PMs who grew with the PMOin professionalism process knowledge stature and confidence as theANZA PMO matured into a successful PMO

Chapter summary

The purpose of this chapter is to provide a practical case study example ofa project procurement decision and how it links to theory discussed in otherchapters in this book This chapterrsquos focus centres on project governanceand a decision to undertake a project using in-house resources The rationalefor using in-house resources for the CoE development was an emergentstrategy in improving project governance It made sense to rely upon anddevelop in-house expertise for two reasons ndash thus the lsquomakersquo rather thanlsquobuyrsquo procurement decision was appropriate First this was experimentaland lessons learned needed to be internalised Second the CoE projectwas itself an organisational cultural-change and business transformationproject ndash thus it was a typical emergent strategy project

This chapter provides a useful case study on developing governance toolsand processes with evolution of a PMO into a CoE thus it also contributesto PM theory and practice

Developing a centre of excellence 375

Table 111 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash This used an in-house project delivery team in developing the Value proposition CoE over several years using a lsquomakersquo decision Expected value and make-or-buy was learning and businesscultural transformation to highdecision customer focus and service delivery

Chapter 2 ndash The CoE project was akin to a research and development Project type and change management project highly complex and evolving withprocurement high relational and integrated design and deliverychoice

Chapter 3 ndash No formal stakeholder identification management processesStakeholder were followed However close personal contact and interactionmanagement with senior levels of management was maintained Operational

departments were perceived as being the initial key customers of the CoE that in turn serviced paying customers clients andsupply chain partners

Chapter 4 ndash The whole thrust of the initiative was to improve organisationalGovernance governance of PM services within the framework of well-

established organisational ethical standards and normsChapter 5 ndash An emergent strategy of evolving the CoE through a maturity Business strategy process High focus on project portfolio and programme

management to authorise and manage projects CoE seenas integral with business strategy

Chapter 6 ndash A BSC approach with extensive use of a lsquotraffic lightsrsquoPerformance communication tool as part of the CoE developed toolsmeasurement Mapping specific tangible with intangible outcomes was not

specifically developed however an internal view of capabilitymaturity (based on the PMI OPM3 emerging concept) used tojudge CoE development progress

Chapter 7 ndash The CoE substantially used an in-house developed e-portal as itsE-business platform for managing and monitoring projects

Chapter 8 ndash A key CoE purpose was to promote learning and PM excellenceInnovation and The CoE served as a training ground as well as facilitatedorganisational mentoring and knowledge transfer throughout the businesslearning

Chapter 9 ndash The CoE lsquoprojectrsquo was itself a business process changeCultural management exerciseAs a global organisation it necessitated dimensions cross-cultural teams as well as understanding organisational

culture from the perspectives of various business unitsThe CoE performed an increasing cross-organisational portfoliomanagement role for project prioritisation and authorisation

Chapter 10 ndash The CoE project promoted staff development and buildingSelecting and strategic competencies It enabled strategic HRM for thegrowing talented organisationrsquos migration from a predominantly manufacturingpeople firm orientation towards a services delivery organisation

The CoE promoted strategic growth skills developmentand business excellence

Notes

1 Ericsson Australia PL2 For more of project or product stage gates see Cooper (2005)3 Project Environment Maturity Assessment (PEMA)4 See for detail of this act URL httpwwwsoxlawcomindexhtm

References

Andersen B Hendriksen B and Wenche A (2006) lsquoProject Management OfficeEstablishment Best Practicesrsquo Project Perspectives ndash Annual Publication ofInternational Project Management Association XXVIII(1) 30ndash35

Bergmann I (2002) The EPMI project Office Model Ericsson ProjectManagement Institute Stockholm Ericsson

Cooper R G (2005) Product Leadership Pathways to Profitable InnovationNew York Basic Books

Haldane D (1999) The Future of Project Management Newtown Square PAProject Management Institute Research

Kerzner H (2003) lsquoStrategic Planning for a Project Officersquo Project ManagementJournal 34(2) 13ndash25

KPMG (2003) Programme Management Survey ndash Why Keep Punishing YourBottom Line General Report Singapore KPMG International Asia-Pacific 20

Levine H A (2005) Project Portfolio Management ndash A Practical Guide toSelecting Projects Managing Portfolios and Maximizing Benefits SanFrancisco Jossey-Bass

Light M and Berg T (2000) The Project Office Teams Processes and Tools TheGartner Group R-11-1530 30

Miranda E and NetLibrary Inc (2003) Running the Successful Hi-TechProject Office at httpwwwnetLibrarycomurlapiaspactionsummaryampv1ampbookid87747

Naisbitt J (1982) Megatrends Ten New Directions Transforming Our LivesNew York Warner Books

Pettigrew A and Fenton E M Eds (2000) The Innovating Organization SeriesThe Innovating Organization Thousand Oaks CA Sage

Rad P F and Levin G (2002) The Advanced Project Management OfficeA Comprehensive Look at Function and Implementation Boca Raton FLSt Lucie Press imprint of CRC Press

Walker D H T and Christenson D (2005) lsquoKnowledge Wisdom and NetworksA Project Management Centre of Excellence Examplersquo The LearningOrganization 12(3) 275ndash291

Developing a centre of excellence 377

Chapter 12

Trust commitment and mutualgoals in Australian constructionindustry project alliances

Peter Rex Davis and Derek HTWalker

Chapter introduction

Chapter 2 introduced the concept of project alliances Issues relating totrust and commitment which are relevant to this chapter were also raisedand discussed in Chapter 3 and aspects of organisational culture werepresented in Chapter 9 This chapter provides findings relating to projectalliancing on construction projects in Australia based upon interviewswith 49 senior participants involved with 134 relationship-style projects(average value AU$150 million) that was originally published in PeterDavisrsquo PhD thesis (Davis 2006) The prime focus is centred upon how trustand commitment is enhanced under the project alliance procurementapproach during the project team selection stage

This chapter is structured as follows The next section will outline thecontext and background of project alliances in a little more detail thanelsewhere in this book This is followed by a brief outline of the researchmethodology to provide an understanding to the reader of the rigourand depth of the study Following this a discussion on the findings andan evaluation and discussion on implications for PM procurement practiceis provided

Context and theoretical background

This chapter discusses project alliances however it is relevant to reviewsome procurement choices that lead towards a project alliance

The model (Figure 121) shows a continuum of transactional torelationship-based procurement choices and illustrates some of the morecommon procurement choices with the most transactional choice tenderedlowest price at the extreme edge of being non-relational and highlytransactional Joint ventures at the mid-point in the procurement choicesmodel represent a strategic choice where organisations collaborate for mutualbenefit They may do this for strategic reasons as discussed in Chapter 5 orto enhance their competitive advantage Walker and Johannes (2003a)

Australian construction industry alliances 379

reporting upon a study of nine top tier international construction contractorsin Hong Kong1 highlight risk sharing jointly offering complementaryservices and brand identification as motivation behind JV formation OtherJVs may be motivated by a need to learn from their JV partner to stimulateorganisational learning andor innovation as discussed by Walker andJohannes (2003b) and in Chapter 8 of this book The JV relationship isindicated in Figure 121 as partly transactional because JV partners usuallyexpect to benefit from an exchange of value in their joint project deliveryenterprise Doz and Hamel (1998) argue that many JVs are formed as aprecursor to a strategic merger or acquisition or perhaps as a ploy on thepart of one partner to infiltrate the other JV partnerrsquos customer base with aview to exploiting the relationship at some future time

Figure 121 also shows partnering at a similar point along the transactionaland relational continuum Partnering was defined earlier in Chapter 2 Itis highly relational in its intent with partners signing up to a partneringagreement developing a partnering charter and subscribing to an agreedwell-structured dispute resolution mechanism that allows parties to settlemisunderstandings contentious issues and resolve claims for contract claimsDoing so in a responsive and effective manner helps reduce transactioncosts and retains joint enthusiasm for achieving common goals HoweverWalker and Hampson (2003ac) argue that partnering can lead to onepartner making profit while another partner suffers a loss on a project Thissituation is remedied in a project alliance where the relationship is moreencompassing

Generally speaking an alliance is a group of organisations workingtogether in a cooperative arrangement with an aim to reduce overall costsshare project risk and reward and increase profits (Allen 1995 Das and Teng1998a KPMG 1998) Parties have a focus on relationships (Pascale and

Figure 121 Relationship-based procurement choices

Competitiveprice

allianceContinuing

alliance

Projectalliance

Partneringtendered price

Joint venturetendered price

Tenderedlowest price

Low

HighLow

High

Transactionorientation

Relationshiporientation

Sanders 1997) that build on trust in construction business agreements(Kubal 1994) An alliance can link teams more closely than transactionalprocurement approaches or indeed partnering The entities involved seek toalign objectives and collectively develop an appropriate project scope froman early stage An alliance links organisational performance of participatingfirms within the framework of a legally enforceable agreement (KPMG1998) Parties involved in an alliance agreement seek to align objectives andbecome closely involved in the development of the project scope and riskcontingency budgets They plan projects together from the outset andoperate in a system of interdependence and understanding their partnersrsquobusiness drivers (Kubal 1994 Allen 1995 Haimes 1995 Pascale andSanders 1997 Boyd and Browning 1998) Competitive advantage stemsfrom relationships bonded by integrity and trust Once established thesebonds prove to be very strong and resilient to external forces Theserelationships weave a net that will prevent competitorsrsquo entry

Alliance parties jointly set aside profit margins and agree how gains maybe shared before starting the project These profit margins are then placedlsquoat riskrsquo for all parties in the alliance before the project commencement andare released only at the end of the project The lsquoprofit at riskrsquo approachdemands greater active joint commitment This is because if agreed projectmetrics are not met then all parties suffer a loss Similarly they jointly gainif performance metrics are exceeded using an agreed reward structure(Walker and Hampson 2003c) The key point is that rewards or sanctionsare jointly risked based on project results not individual organisationrsquosperformance so this provides the motivation for each party to do its bestto help others in the alliance in other words they all sink or swim together

Three factors must be present for an alliance to be successful

1 The first is alignment of objectives (Kubal 1994 Allen 1995 Pascale andSanders 1997 Boyd and Browning 1998) To realise this participantsattempt to align objectives through scope development targetingrelationships that build trust (Kubal 1994 Pascale and Sanders 1997)

2 The second is winndashwin attitudes (Kubal 1994 Hampson and Kwok1997 Tomer 1998) Relationship contracting (RC) research is punc-tuated with phrases that include lsquowinndashwin outlookrsquo lsquocommon goalattainmentrsquo and a lsquosearch for synergyrsquo These terms whilst not explicitin contract documents developed for alliance projects do form animplicit underpinning theme (Hollingsworth 1988 Hutchinson andGallagher 2003) This RC language is at odds with transactionalprocurement discourse although benchmark documents that havecaptured a change in transactional contracting strategies advocate theuse of RC strategies (Latham 1994 DETR 1998) These reportswhen compared with more recent texts that discuss relationship-basedprocurement show where enhanced value is provided to projectparticipants in an RC environment (Keniger and Walker 2003)

380 Davis and Walker

3 The final factor for a successful alliance is risk allocation and commercialincentives (Scott 1993 Fellows 1998 KPMG 1998) By cooperatingthe participants aim to reduce overall project costs share project riskand reward and increase mutual profits (Allen 1995 Das and Teng1998b KPMG 1998 Hutchinson and Gallagher 2003 Ross 2003Whiteley 2004) Successful alliances are not based on low-bid tenderingAwkward issues such as price and change to the scope are accountedfor by participants at the earliest opportunity (Kubal 1994 Allen 1995Pascale and Sanders 1997 KPMG 1998 Walker and Hampson 2003c)

These three factors are founded on trust cooperative rather than adversar-ial relations collaboration rather than competition problem solving andinnovation rather than sanctions or contractual penalties (Boyd andBrowning 1998) Most importantly an understanding of relationshipdevelopment is required (KPMG 1998 Thompson and Sanders 1998)

A continuing alliance that remains beyond a single project is the mostrelational of all as illustrated in Figure 121 and would apply where acontractor agrees to work with a client (or a client plus other project teammembers) on an agreed and continued basis This may be advantageouswhen the client seeks consistency in delivery methods and approachesacross projects or where the project cost may be a minor part of theprocurement decision In some industry sectors when building a factory fora pharmaceuticals company or some electronic components suppliers forexample speed of construction or the quality of mechanical and electricalservices components may be of a much higher-order importance Some chainstores or restaurants also choose to form longer cross-project allianceswhere their project lsquosignaturersquo style is consistent or where joint learningleading to quick fit-out times is an essential procurement choice criterion

The above provides a framework to test how a number of project alliancesin Australia build trust and commitment before a project commences Ourresults are presented in the section that follows ndash an insight into the researchmethodology

Research methodology and studied allianceprojectsrsquo context

The findings that are discussed in this chapter relate to a recent PhD study(Davis 2006) This study employed an earlier phase involving an extensivesurvey of marketing and tendering practices employed by constructionindustry players in Australia This part of the study established a theoreticalframework with which to test using qualitative research techniques howa number of alliance projects were executed and performed in terms ofrelationship-based characteristics or dimensions

The purpose for presenting this part of the chapter is to indicate the levelof rigour achieved and to highlight the validity of the data-gathering process

Australian construction industry alliances 381

and analysis techniques used As this is a book chapter and not a thesismost readers will not be interested in the details of the methodologicalaspects ndash readers with this interest may refer to the PhD Thesis2 The scopeof a book chapter is naturally constrained compared to that of a PhD thesisso we decided to focus on two key aspects of an alliance relationship-basedprocurement choice These two aspects at the early stage are allianceformation and its subsequent relationship development

Forty-nine project managers were interviewed using a semi-structuredsurvey instrument (questionnaire) Data gathered from these interviewtranscripts were analysed using QSR N6 software Particular industrypractitioners were chosen because they were specifically representative oftypical consortia associated with alliance projects The sample of peopleinterviewed in the PhD research project had considerable experience fromwhich they were able to speak with authority Care was taken to ensurerespondent stratification being balanced across the industry geographiclocation of projects across Australia and the intervieweesrsquo number of yearsexperience in the industry Intervieweesrsquo roles in industry and the projects thatthey were involved with were typical and representative of contemporaryalliancerelationship projects The industry stakeholders comprised consult-ing engineers and project managers contractors and client representativesPersonnel from key infrastructure and nation building projects wereselected as projects worthy of consideration Projects included North SideStorage Tunnel Sydney Woodman Point (WA21) Perth Wahroonga DamQueensland and the National Museum of Australia (NMA) in Canberra

The questionnaire was designed to extract information about relation-ships that respondents have with their associates in the forming of analliance Only open-ended format questions were used in the interview Thesurvey instrument had five sections The list of sections below identifiesthe main grouping questions pertinent to this chapter

1 Background ndash context

a What were the project and respondent characteristics

2 Establishment of the alliance

a What aspects of the alliance establishment were easy to manageand what aspects were hard to manage

b What was your perception of potential benefits and shortcomingsassociated with the alliance establishment process

3 Relationship building

a How was a winndashwin mentality developed

A four-step process was devised as illustrated in Figure 122 Each ofthe four steps included a number of interrelated stages that enabled the

382 Davis and Walker

researcher to understand the complexity of the relatively unstructured rawdata that had been gleaned from the interviews

Interviews varied in length ndash the shortest was 15 minutes and the longestjust over 1 hour generally they lasted for approximately 40 minutesInterviews were conducted on a one-to-one basis and designed to stimulateconversation and break down any barriers between the interviewer and inter-viewee Interviewees were allowed to talk freely without interruption orintervention to deliver a clear picture of their perspective Interviews weremainly conducted in a respondentrsquos head office and occasionally site officeswere used Many of the interviewees were interstate outside ofthe researcherrsquos home base (Perth West Australia) Interstate interviews wereall carried out over the phone at predetermined times to suit intervieweesAll of the interviews apart from one were digitally recorded using anipod(tm) digital recording instrument Transcripts were made checked andconverted to a verbatim word document for manipulation and importationinto QSR N6 a software program designed to enable reduction of dataarising from qualitative interviews

Discussion of research findings

The following outlines some results from the PhD thesis that are relevantto this chapter

Selection of alliance partners

Typically alliance partner selection takes place on the basis of allianceconsortia providing evidence that potential partners can provide the best setof resources skills and capabilities to deliver best-value for a project Thereare some differences however between a pure alliance model and a Target

Australian construction industry alliances 383

Figure 122 Four-step data analysis

Transcription

Individual analysis

Generalisation

Control

Out-turn Cost (TOC) or Cost Competitive Alliance The latter is said toprovide better cost and time certainty to public sector clients According toCowan and Davis (2005) the key elements of the project delivery phase arethe same in both variants and represent similar risk patterns and projectmanagement structures However it is the tension associated with deliveryof price where a departure lies

In a pure alliance for example the NMA tension occurs between theclient and a single non-client consortium after the preferred consortiumselection has been made and work proceeds to develop a TOC This canlead to time and cost uncertainty This uncertainty may be overcome in theprivate sector through commercial drivers and business hurdles that stopa project from proceeding if determined parameters are exceeded In thepublic sector a business case may dictate that a project is almost certain toproceed ndash for Australian examples of this see Cowan and Davis (2005)This actuality may instil a lack of confidence in the commerciality orcompetitiveness of the TOC

Indeed Whiteley and Henneveld (2006) suggest that a cost competitiveselection process is regularly used to overcome an industry perception thatunless there is market tension the target price will be inflated

In a cost competitive alliance alternative a single client team develops acompetitive TOC with two consortia working in parallel and each proponentsubmits their concept design and associated TOC at the end of the devel-opment period The client team will then select the best value offer takinginto account price and non-price criteria (Cowan and Davis 2005) Thecompetitive nature of the process redirects price tension from the client andfocuses it back onto the non-client participants who are in competition untiltheir project alliance agreement is accepted This may have adverse trustand commitment implications as discussed later

The NMA project provides a good example of a pure project alliance andillustrates alliance selection processes The successful NMA alliance teamwas not judged on an estimated tender cost criterion The assumption of theselection panel who recommended the successful consortium was that asuperb team acting as a focused and coherent group with a vision to providean excellent end product would deliver best-value for the project ndash at costtime and quality that is at least equivalent to global best-practice bench-marks Details of the selection process can be found in Walker andHampson (2003c) and follows the process described by several alliancesfacilitators (Hutchinson and Gallagher 2003 Ross 2003)

Initially an open call for expressions of interest was made on the NMAproject with an industry-briefing forum being conducted to explain theconcept and detail evidence required of consortia to support their submis-sion Written proposals were received and the selection panel short-listedseveral leading proponents based in part on their technology innovationresource capability and their understanding of the alliance concept

384 Davis and Walker

The short-listed candidates were interviewed and took part in an extensivetwo-day workshop with each of the short-listed consortia tested on evidencesubmitted in their proposals In addition they worked together with panelmembers to fully flesh-out exactly how the project could proceed Thisinvolved reference to substantive detail regarding target cost and timebudgets Discussion to refine these aspects together with improved team-behaviour and communication developed joint problem solving and builttrusting and committed relationships

The preferred alliance consortium was selected and this group continuedwith a facilitated workshop (with a facilitator who would continue after theworkshop in a lsquocoaching rolersquo3 to help maintain the relationship betweenalliance parties) to establish and agree on performance metrics riskrewardagreements and further develop the project budget (termed from then on asTOC) The successful alliance consortium was then confirmed and thealliance agreement executed and the budgets were subsequently finalised

An important difference between this approach and other procurementchoices (discussed in Chapter 2 of this book) is that the project budget wasrefined only after the alliance was formed so that this group was commit-ted to an out-turn cost Another fascinating innovation was that profitmargins were agreed to be fixed at the participantsrsquo average profit over thepast six years Alliance participants agreed to a probity process of openbook access to verify the average profit margin over the previous six yearsas well as inspection when requested of their accounts during the projectexecution The margins varied between the alliance members because theydiffered by organisation ndash the alliance comprised design consultants a maincontractor and specialised service contractors and each of these had differ-ent profit margin structures Profit margin was quarantined to be placed lsquoatriskrsquo and agreed to be paid on successful completion of the project (basedupon the metrics agreed upon during the selection phase) A rewardpenaltystructure related to improving the TOC was based upon agreed ratios Thedefining element of this process was that it delivered commitment byinvolved parties and clarified many of the up-front issues often left unclearon other procurement forms For example there was a high level of trustgenerated because risks were clearly devolved to those best to bear themand processes and procedures for working collaboratively were establishedand agreed upon The NMA approach was similar to that for many of theproject alliances studied in the (Davis 2006) PhD study

The selection process could therefore be perceived as a risky businessand according to many of the respondents in the research study it requiredcareful planning investigation and forethought

The risk associated with the selection of consortium partners requiredthat they evaluate trust and monitor its development to the best of theavailable methods at the time They would do this mindful of theirlimited information concerning the individuals associated with proposed

Australian construction industry alliances 385

stakeholder organisations In the majority of situations their preferencewould be to work with individuals and organisations with whom theyhad prior favourable experience Previous experience would reduce risk andenable a more tangible assessment of trust and commitment The estab-lished model of alliance relationship development added a burden to thecontractors and was indicated to be unfamiliar territory to them Thisaspect once again moved them into a risk area and trust and commitmentwere evaluated in a workshop environment with appropriate facilitationor coaching to reduce risk-moves Examples of risk-moves include a largeconcession that requires reciprocation a proposal for a compromise aunilateral action of tension reduction or a candid statement about onersquosmotives and priorities (Dwyer et al 1987) The workshop environmentalbeit a manufactured environment that used management gamesselec-tion themes enabled the participants to assess and fast-track experienceover a reduced time frame and achieve a suitable tangible outcome

In the PhD research (Davis 2006) the primary themes of the selectionprocess were described as trust commitment and mutual goals Trustenabled contractors to differentiate themselves or be selected in a differentway from the more traditional and familiar price-alone selection Earlydevelopment of trust engendered harmony within the stakeholder groupThis harmony was found to continue into the implementation phase of theproject Commitment to others in the alliance workshops through resourcesallocation for example generated attitudes that reduced risk for all partiesby moving risk to those parties that could best manage that risk Risk wasintelligently allocated rather than merely being shifted or passed on toothers with less power to resist accepting that risk It enabled a client tohave a better understanding of the process and complexity of the projectthey were generating in more detail than would ordinarily happen Mutualgoals were described as a common understanding or focused alignment ofexpectations in a communicative way The clients used the term lsquoProgressiveengagementrsquo to describe goal development that took place in the earlystages of an alliance project

The data supported the conclusion that alliancing facilitated much broaderappreciation of risk complexity and capabilities of parties to manage risk Italso facilitated better planning and joint problem solving This front-endcapacity and marshalling of skills where and when they can best be deployedset the project team on a potentially higher performance trajectory path asdiscussed in Chapter 1 Project phases and performance figure

Workshops for relationship building and development

The relationships characteristics that the respondents were striving towardwere likened to personal relationships As indicated in the above sectionrespondents would endeavour to identify suitable partners whom they

386 Davis and Walker

could work with and trust Individuals were important and their respectiveorganisations tended to be placed in the background as a secondarycriterion Organisational identity was a selection criterion but individualsfrom favoured organisations were scrutinised in more depth as it was theirknowledge that was in demand This links with the trust models presentedin Chapter 3 particularly trust in phases Caution was counselled withrespect to personnel selection and advice was provided that selection ofindividuals should be based on best-for-project as opposed to selectingpeople for their personal affability or friendship Although study intervie-wees indicated that these traits are often an outcome of the relationshipworkshops and ensuing projects a commitment to alliance principles andrequired skills in specific areas were said to be major selection factorsCommitment and capability were described as the lsquobig onesrsquo when referringto selection criteria Skills displayed by an individual would need tocomplement existing expertise that was a priori in the existing client ornon-client group making the selection

In terms of relationship development participants would have to show theirselectors that they were credible ndash in other words were the statements theymade or actions that they took in the relationship development workshopsbelievable Effective experience and competence were strong indicators ofcredibility Often these were based on their experience with each other onpast projects whether relationship or transactional type projects Seeminglythe respondents were prepared to put faith in the word of those whom theywere dealing with in the relationship development workshops on the basisthat promises made would be delivered Clients would look for opennessand a willingness to share Rational checks for example calling for CVs andcommercial checks were used by some respondents to supplement the lesssubjective measures of credibility A preparedness to provide open bookswas described as showing credibility Some of the respondents were clearlyfar less formal with rational checks than others This aspect reinforces thevalidity of the trust models presented in Chapter 3 particularly the lsquotrustand distrustrsquo model

The relationship development workshops provided a context for therelationships to develop Its structure provided a framework on whichthe relationship would be built The actual process of the relationshipdevelopment would provide in itself value to the project Often howeverthe value created in the process would not be captured in a tangible waythrough for example reflecting and reporting upon benefits derived Thisfailure caused several respondents mainly clients to miss the potentialvalue of these workshops and presume that the relationship developmentafforded little net gain to the overall project Some argue that this positivelydifferentiates a pure alliance over a cost-competitive alliance

Several underlying attributes of the relationship building workshops wereidentified They included from a contractorrsquos perspective trust development

Australian construction industry alliances 387

of bonds and tests of the relationship Because the non-client team wereassessed as a collective entity in any alliance selection exercise it was impor-tant that they were able to show a bond between them that would translateinto a team that was prepared to integrate with the client participants Testingthese bonds with technical issues was part of the relationship developmentworkshops From the respondentrsquos perspective an integrated team was thegoal of the relationship development workshop a team working together asif part of the same organisation solving problems and having preparednessto confront hard issues Collaboration provided focus and alignment tothe team that was to influence the project outcome Trust and commitmentwas said to be a test of collaboration with an example being givenconcerning collaborative decision making The sentiment was expressedthat only when trust and commitment were manifest would positive decisionmaking be possible

Coaches were indicated to have an enormous impact on the relationshipdevelopment process and used to deliver a fair workshop outcome that wasbalanced and objective Both client and contractor respondents made use ofcoaches andor facilitators

The role of trust

Trust was an important concept raised by respondents Trust enabledcontractors to differentiate themselves or be selected in a different way fromthe more traditional and familiar price-alone selection Early developmentof trust engendered harmony amongst the participants More than a thirdof contractors-recorded comments related to trust building Respondentslinked trust with respect in relationship development Relationship devel-opment was designed to deconstruct formality using a mixture of activitiesthat put participants through a combination of scenarios to assess theirreactions for example whether they displayed empathetic behaviours in aparticular circumstance or not

Contextualising this several respondents commented that it was easy forthem to respond from the heart in the alliance development environmentsuggesting that mutual understanding was a key to their relationshipRespondents entered the alliance development with open minds andproceeded with the assumption that they could trust others and hoped forreciprocation

Research results indicated that trust was being assessed in parallel withcommitment Commitment to others in alliance development (throughresources allocation for example) generated attitudes that reduced risk forall parties It enabled a client to have a more detailed understanding of theprocess of the project they were generating than would ordinarily happenThe non-client team (the contractor and supply chain consortium) wereassessed as a collective entity so it was important that they were able to

388 Davis and Walker

demonstrate bonding that would translate into their team being preparedto integrate with other project team participants (ie design and clientrepresentative teams) Testing bonds with technical scenarios was applied aspart of the relationship development workshops

From the respondentrsquos perspective an integrated team was the goal of therelationship development workshop a team working together as if part ofthe same organisation solving problems and being prepared to confronthard-to-solve issues Earlier in the workshop when teasing out underlyingissues clients were noted to assess their personal feelings of trust towardscontractor personnel All respondents indicated that they perceived increasinglevels of trust throughout the alliance development duration When askedif they had any special way of measuring or determining evidence of trustseveral clients indicated that they often use performance measurementsystems The performance measurement systems successfully measured suchthings as communication

Effective communication was said to be indicative of relationships andrelationship building and was accordingly proposed as an appropriatedeterminant closely aligned with trust development Interestingly some ofthe client groups had formalised documentation that provided policy andguidance setting out procedures for measuring attributes of trust andtrust-building behaviours Increasing levels of trust and commitment hada dual purpose It tested the ability of participants to work in a cooperativeand collaborative environment In addition it built relationships theserelationships established rapport between participants before the start ofthe implementation phase of the project ndash in effect by the time the actualcontract was awarded there would be an effective relationship In thiscontext an important link was made between experience and trust

Respondents perceived that they should endeavour to generate experi-ence of participants as quickly as possible This was important as respon-dents were conscious that only through experience were they able togenerate the requisite levels of trust for the continuance of the allianceproject Trust and commitment were said to be a test of collaborationan example given concerned collaborative decision making The sentimentwas expressed that only when trust and commitment were evident wouldpositive decision making aligned to mutual goals be possible

Organisational development

Organisational development of the alliance was a high priority requiringsenior (executive-level) staff to be present at the relationship developmentworkshops Organisational commitments made in meetings could thereforebe relied upon statements by senior staff made or actions that they took inthe relationship development workshops were understood as credible Itwas emphasised that failing to honour these commitments would be badly

Australian construction industry alliances 389

received affecting an organisationrsquos future work It appeared that thissanction would be sufficient penalty from the respondentrsquos perspective

Proven effective experience and competence were strong indicators oforganisational credibility Often these indicators were based on experienceon past projects whether alliance or more traditional construction projectsSeemingly the respondents were prepared to put faith in the word of thosethat they were dealing with in the relationship development workshopson the basis that promises made would be delivered Consensus from therespondents found that reaching agreement prior to establishing a contrac-tual relationship was a definitive test of commitment This emphasised thedefining attributes that differentiate a pure alliance over a target outturncost alliance Examples of commitments were given and several innovativepoints were raised by the respondents One respondent noted a list ofcommercial outcomes that established an organisational commitment tolife skills including training and community relations These outcomeswere afforded to individuals outside the usual recognised boundaries ofalliance personnel

Organisational development clearly focused the minds of the collectiveparticipants All activities that took place were targeted towards strategiesand processes that would benefit their project Mutual goals were describedas a common understanding or focused alignment of expectations in acommunicative way The clients used the term lsquoProgressive engagementrsquo todescribe the goal development that took place in the early stages of analliance project Collaboration provided focus and alignment to the teamthat was to influence the project outcome

Participants argued that trust and openness encouraged participant focuson problem solving and developing innovation that would generate newknowledge in the alliance project organisation More than two-thirds ofcontractors commented on the nature of the alliance management team(AMT) that was formed as an outcome of the relationship developmentAnalysis of interview data indicated that the alliance team would create alife of its own capable of transcending personal and company behavioursThe AMT became integrated with organisational fit from within the newlyestablished hybrid team The team defined their organisational boundaryrather than accept boundaries of individual organisations joining the alliance

Respondents were however concerned about organisational interactionMajor concerns centred on the population of intra-organisational andinter-organisational relationships together with policies on placing suitablepersonnel into the alliance (people-resource allocation issues) It wasclear from responses that intra-organisational alliance relations impactedupon inter-organisational relations and relationships This was describedas a consequence of the relationship building and selection exercises thatwere carried out in the alliance developments Thinking of innovative ideasin an open fashion was one of the ways that the contractor participantsenunciated this sentiment

390 Davis and Walker

Participants often become an integrated team by the end of the alliancedevelopment period This integration became so strong that severalrespondents suggested that it would appear to outsiders that they all camefrom the same organisation sharing assumptions values and team artefactssuch as a project vision and agreed plans and procedures

The process of developing relationships draws together many facets frominitial strategy through commitment to durability and finally enduringrelationship quality These three phases are not mutually exclusive and eachrepresents a collection of iterative macro processes The boundaries referredto in the phases of relationship development are indistinct and dependenton supply chain activities they may change with individual relationshipsfor example Araujo et al (1999) propose four interfaces from standardisedthrough specified and translational to interactive These serve to balance thecosts and benefits of establishing and maintaining relationship interfacesBoundary penetration the degree each organisation partner penetrates theother organisations in a joint action is regular and serves to reducepartitioning of participants (Heide and John 1990) Each phase interactswith subsequent phases through seamless boundaries that are punctuatedwith incremental investments

The three-stage alliance relationship development model illustrated inFigure 123 draws on key papers and 49 interviews focusing onrelationship development (RD) and is based on the relevant literature

Australian construction industry alliances 391

Figure 123 A three-stage alliance relationship model

Assessment

Assessment ofmultiple partners tolessen risk

Judgements aredifficult to make dueto limitedinformation

Relationshipdevelopment

exercisesIncreased

trust

Increased trust

No commitmentcommitment isdifficult to assess Commitment

Risk movesAdaptationsrequired

Enduring

InformalityTrustworthiness

1 Process2 Attributes3 Outcomes4 Interrelationships

Common goalattainmentCommitment

Agreement of groundrulesknowledge transfer

Boundary penetrationNew knowledgeGamebreakinginnovation

Indistinctorganisational andsocial boundaries

(Ford et al 1985 Dwyer et al 1987 Wilson 1995 Pascale and Sanders1997 Ford et al 1998 Donaldson and OrsquoTool 2001 Walker andHampson 2003b) In the first stage objective judgement would be difficultdue to the intangible nature of the construction service and the client wouldbe looking for indicators that would reduce risk associated with decisionmaking (Day and Barksdale 1992 Patterson 1995) Many strategies wereidentified by the respondents essentially a client would be asking the questionlsquoCan you do this for mersquo The question would be seeking informationconcerning resources and technology together with managerial expertise(Ford 1982 Wilson 1995 Ford et al 1998) The thrust of questioning inthe first instance should be directed towards a firm Analysis of individualswould follow in subsequent stages In the first stage there would be limitedcommitment and if commitment was evident it would be difficult to recogniseand evidence

Trust should be initially developed with the use of relationship developmentexercises as the relationship evolves and intersects with the second phaseThis has been shown to fast-track commitment (Davis 2006) The commit-ment in itself would lead towards trust and enhance trust maintenancealbeit relatively limited at this stage in the model At the conclusion of thefirst stage which will permeate the second stage boundary rather thanhappen at any pre-determined time there would be an option for eitherparty to end the relationship This action follows both the literature and therespondentsrsquo comments It is noteworthy to recognise that a predispositiontowards upstream relationship variables of trust has been identified asstronger than downstream and this fact should be accounted for in theworkshops (Davis 2006) At this stage the parties often exhibit guardedinformation transfer and limited trust Trust testing may take the form ofan offer to reconfigure capital items of plant or IT equipment to meetthe needs of a client It is suggested that workshops should take place in thesecond stage of the relationship development model in line with currentpractice in alliance procurement and as described by the respondents(Hutchinson and Gallagher 2003 Ross 2003)

In the second stage illustrated in Figure 123 questions that the parties tothe workshop would be endeavouring to answer would include lsquoWhat areour common goalsrsquo and lsquoHow can we do this project togetherrsquo they wouldalso be looking to establish ground rules The ground rules would not onlybe required for the workshop meetings but also for the project to be carriedout Parties would be thinking about risk Open discussion should revolvearound adaptations required to deliver best-for-project innovation Thesepreceding points lead to deeper trust between the parties and embedcommitments based on propositions about future actions Trust would begrowing through this stage with commitments being increased The processof the relationship development workshop its underlying attributes themeasured goal and commitment outcomes together with organisational

392 Davis and Walker

interrelationship issues are fundamental to success These are addressed inthe alliance relationship development model

Trust and its links to commitment were identified as important attributesof a relationship marketing approach to relationship development this asso-ciation was not missed by the respondents They should not be overlookedin the development of an alliance relationship Effective communication andinformation sharing were shown to increase trust and trust developmentGoal setting and outlining deliverables were indicators of commitmentaligning these commitments with commercial objectives were also providedas examples where trust development in this stage would enhance therelationship The reciprocal nature of trust was explored and practitionersin a construction relationship development programme should be cognisantthat often the reciprocal nature of trust is displayed through knowledgetransfer in what has been described as communities of practice (COPs)Nahapiet and Ghoshal (1998) Wenger (1999) and Wenger and Snyder(2000) describe COPs as groups of people linked together through theirinterests in an environment in which sharing and exchanging knowledge isa primary goal

The third stage of relationship development was referred to in therelationship marketing literature as enduring and variable As indicated inthe literature the relationship would be becoming close to fruition Indistinctorganisational and social boundaries would become less evident as boundarypenetration of actors creates an informal hybrid team that is to be in placefor the duration of the project (Wilson 1995) Cohen and Levinthal (1990)use the term absorptive capacity to describe the acceptance of new knowledgewhich includes a propensity towards openness and tolerance of mistakes Inthis context having a history of gamebreaking ideas suggest absorptivecapacity is important to this stage of the alliance relationship developmentmodel People who have an ability to note an opportunity of an idea trans-ferred from one discipline to another are useful to the relationship at hisstage For example in one of the projects discussed by the respondentsseveral were able to cite an example of technology transfer of a significantnature that was indeed gamebreaking This competency together with otherscited by Maskell (1998) including reliability and trustworthiness cannot bebought and are not readily available to competition in the market placeThey augment the competitiveness of an organisation through their continualreuse in the enduring relationship In the last stage enduring strong tiesthat encompass technical social and knowledge areas are forged Regularevaluations still remain in place to ensure the quality of the relationship

Implications for alliance procurement practice

We argued in this chapter that the relationship development process iscrucial to a successful relationship contractalliance Evidence presented

Australian construction industry alliances 393

from the research (Davis 2006) suggests that there is a recognisable structureto relationship development that is underpinned with specific themes whichshould be considered when managing the relationship development process(see Figure 123) Trust and commitment have been explicitly addressed inthis chapter and are recognised as important implicit elements We stressthat relationship-based procurement is dependent upon and is reinforced byjoint learning from joint problem-solving activities established in therelationship development workshops

Respondents in the study when asked about relationship benefits associatedwith alliance projects were positive They expressed belief that the selectionprocess that included relationship development workshops added significantlyto the benefits that they all accrued from the project Benefits were notlimited to process benefits but flowed into product or relationship benefitsThe alliance development provided a context for the relationships to developit provided a framework or scaffolding from which the relationship wouldbe built upon The actual process of the relationship development in itselfwould provide value to the project Often however value created in theprocess would not be captured in a tangible way through reportingfor example This failure caused several respondents ndash mainly clients ndash tounderrate the value and presume that the relationship development affordedlittle gain to the overall project Maskell (1998) refers to this action as thecodification of tacit knowledge in as much as it may remain tacit whilst itis available only to an individual It is only when information is shared withothers who grasp its significance as they did in the workshops that itbecomes codified The allocation and management of risk in alliance devel-opment follows the work of relationship development by Dwyer et al (1987)Ford (1982) and Wilson (1995) Finally the benefits ascribed to relationshipmarketing from the literature were wholly supported Han and Wilson(1993) and Wilson and Mummalaneni (1986) for example cite exampleswhere relationships between long-term buyerndashsuppliers save inspectioncosts and consequently provide benefits in quality and reduced lead-intimes The primary benefits that all the respondents in the study spokeabout were trust commitment and the development of mutual goals thatwere engendered at an early opportunity and reinforced throughout theproject development stage

From the respondentsrsquo perspectives it appears that the entire process ofrelationship development hinged around commitment trust satisfactionand mutual outcomes From the respondentsrsquo collective perceptions it wasall important and entirely reciprocal regardless of upstream or downstreamengagement Connections that evolved in the team drove the process andenhanced the outcome of the project and as indicated above addedsubstantially to the value that was derived from the project The implica-tions for the above on project procurement using project alliances are thatjoint learning and problem solving is a vital vehicle for developing the trustand commitment required for project alliancing to work The issue of a

394 Davis and Walker

TOC-based selection or a selection on perceived skills aptitudes behavioursand abilities to work collaboratively is a complex one While many clientswith stakeholders who expect some sort of test based upon tender-typeprice may feel pressured to attempt an alliance selection process with pro-ject TOC as a criterion we caution that the study evidence suggests that thismay compromise the achievable levels of trust and commitment unwantedconsequences may result from this

Australian construction industry alliances 395

Table 121 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash This study reviewed relationship-based procurement optionsValue proposition that considered lsquovaluersquo in a wider contextrsquoWhile projectsand make-or-buy were outsourced a best-value proposition drove thedecision procurement choice

Chapter 2 ndash Projects fell into typical tangible construction project typesProject type and though intangible value was expected as a project outcomeprocurementchoice

Chapter 3 ndash The project alliance concept is highly focused upon supplyStakeholder chain advantages gained from greater synergy and bettermanagement clientndashcontractor interactions that reduce transaction costs

Chapter 4 ndash Project alliances have highly developed probity and governanceGovernance structures

Chapter 5 ndash Project alliances are one-off and emergent however these oftenBusiness strategy lead to a more structured arrangement so insights into the

strategy schools can help us understand why some projectalliances remain as project-specific while others develop intoprogramme arrangementsThe dynamic capabilities andcompetitive advantage strategic management aspects arehighly relevant to content in this chapter

Chapter 6 ndash None of the non-traditional aspects of this chapter werePerformance specifically addressed however KPIs and metrics are anmeasurement important part of project alliance probity

Chapter 7 ndash No direct reference to this chapter though in the NMA caseE-business study the availability of a web portal that connected alliance

partners was an important selection issue Communicationand problem solving is an important factor so groupwareprovides vital facilitating tools

Chapter 8 ndash One of the main drivers for alliances is the expectation that itInnovation and can facilitate organisational learning and innovationorganisationallearning

Chapter 9 ndash Trust and commitment that meld organisational identity from aCultural series of individual organisations into one alliance requiresdimensions cultural alignment this is highly relevant to this chapter

Chapter 10 ndash Achieving alliance objectives requires selection and retentionSelecting and of high-value talent with skills and behaviours that requiregrowing talented careful selection and retention strategiesThis is of people concern to alliance partners

396 Davis and Walker

Chapter summary

The purpose of this chapter was to present leading-edge research findingsof an emerging form of project procurement in the construction industry-project alliancing This chapter drew extensively upon relationship marketingliterature and fills a gap elsewhere in the book where it was not appropriateto include ideas from that body of knowledge Further in this chapter wewere able to not only present advanced conceptual models but also throughreporting on the Davis (2006) PhD study present practical first-handexperience of how this form works in practice Implications for practicewere also offered

This chapter argues that developing trust and commitment can effectivelydeliver superior project outcomes but that some of the outcomes are intan-gible (team relationships knowledge transfer improved decision makingpossible waste reductions)

Table 121 indicates how this chapter fits into the first 10 chaptersThis chapter provides a summary of many useful alliance case studies

and so it represents a considerable contribution to the project procurementliterature

Notes

1 See Johannes (2004) for more details follow the link for Johannes thesis onhttpdhtwtcermiteduaudwressuphtm accessed 17 January 2007

2 See httpdhtwtcermiteduaudwressuphtm follow the link to P Davis PhD thesis3 For details about a facilitatorrsquos role in alliance projects and coaching levels

provided contact Andrew Hutchinson through wwwalchimiecomau welcomeand Jim Ross at wwwpci-auscom or Evans and Peck at wwwevanspeckcomau

References

Allen A L (1995) Oil and Gas Greenfield Project Alliances Theory and PracticeReport Presented as Part of the Requirements of the Award for the Degree ofMaster of Project Management Perth Curtin University of Technology

Araujo L Dubois A and Gadde L-E (1999) lsquoManaging Interfaces withSuppliersrsquo Industrial Marketing Management 28(5) 497ndash506

Boyd L and Browning P (1998) lsquoFacilitating Partnering in Local GovernmentrsquoLocal Government Management LGM 32(3) 10ndash13

Cohen W M and Levinthal D (1990) lsquoAbsorptive Capacity A New Perspectiveon Learning and Innovationrsquo Administrative Science Quarterly 35(1) 128ndash152

Cowan B and Davis J (2005) Development of the lsquoCompetitive TOCrsquo Alliance ndashA Client Initiative at httpwwwalliancenetworkcomaupdfsPaper20on20Competitive20Alliances20Ver204pdf 08122006

Das T K and Teng B-S (1998a) lsquoBetween Trust and Control DevelopingConfidence in Partner Cooperation in Alliancesrsquo Academy of ManagementReview 23(3) 491ndash512

Das T K and Teng B-S (1998b) lsquoResource and Risk Management in the StrategicAlliance Making Processrsquo Journal of Management 24(1) 21ndash41

Davis P R (2006) The Application of Relationship Marketing to ConstructionPhD School of Economics Finance and Marketing Melbourne RMIT University

Day E and Barksdale H C (1992) lsquoHow Firms Select Professional ServicesrsquoIndustrial Marketing Management 21(2) 85ndash91

DETR (1998) Rethinking Construction Report London Department of theEnvironment Transport and the Regions

Donaldson B and OrsquoTool T (2001) Strategic Marketing Relationships FromStrategy to Implementation Sussex John Wiley and Sons Ltd

Doz Y L and Hamel G (1998) Alliance Advantage ndash The Art of Creating ValueThrough Partnering Boston Harvard Business School Press

Dwyer F R Schurr P H and Oh S (1987) lsquoDeveloping Buyer-SellerRelationshipsrsquo Journal of Marketing 51(2) 11ndash27

Fellows R F (1998) Construction Projects The Culture of Joint VenturingProceedings of the CIB World Building Congress 1998 Gavle Sweden 7ndash12 June1998 Fahlstedt K 3 1505ndash1512

Ford D (1982) The Development of Buyer Seller Relationships in IndustrialMarkets International Marketing and Purchasing of Industrial Goods AnInteraction Approach Hankansson H Uppsala John Wiles amp Sons

Ford D Gadde L-E and IMP Project Group (1998) Managing BusinessRelationships Chichester New York Wiley

Ford D Hakansson H and Johanson J (1985) lsquoHow Do Companies InteractrsquoIndustrial Marketing and Purchasing 1(1) 26ndash40

Haimes G A (1995) Partnering and Alliancing in Engineering Construction ReportPresented as Part of the Requirements of the Award for the Degree of Master ofProject Management Perth Curtin University of Technology Perth W A

Hampson K and Kwok T (1997) lsquoStrategic Alliances in Building ConstructionA Tender Evaluation Tool for the Public Sectorrsquo Journal of ConstructionProcurement 3(1) 28ndash41

Han S-L and Wilson D D S (1993) lsquoBuyer-Supplier Relationships TodayrsquoInternational Marketing Management 22 331ndash338

Heide J B and John G (1990) lsquoAlliances in Industrial Purchasing TheDeterminants of Joint Action in Buyer-Seller Relationshipsrsquo Journal of MarketingResearch 27(1) 24ndash36

Hollingsworth D S (1988) lsquoBuilding Successful Global Partnershipsrsquo The Journalof Business Strategy 9(3) 12ndash15

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd Phillips Fox Lawyers 33

Keniger M and Walker D H T (2003) Developing a Quality Culture ndash ProjectAlliancing Versus Business as Usual In Procurement Strategies A RelationshipBased Approach Walker D H T and K D Hampson Eds Oxford BlackwellPublishing Chapter 8 204ndash235

KPMG (1998) Project alliances in the Construction Industry Literature ReviewSydney NSW Department of Public Works amp Services 7855-PWS98ndash0809-R-Alliance

Kubal M (1994) Engineered Quality in Construction Partnering and TQMNew York McGraw-Hill

Australian construction industry alliances 397

Latham M (1994) Constructing the Team Final Report of theGovernmentIndustry Review of Procurement and Contractual Arrangements inthe UK Construction Industry London HMSO

Maskell P (1998) Globalisation and Industrial Competitiveness The Process andConsequences of Ubiquitification In Making Connections TechnologicalLearning and Regional Economic Change Malecki E J and P Oinas EdsBrookfield Ashgate Aldershot Hants 35ndash59

Nahapiet J and Ghoshal S (1998) lsquoSocial Capital Intellectual Capital and theOrganizational Advantagersquo Academy of Management Review 23(2) 242ndash266

Pascale S and Sanders S (1997) Supplier Selection and Partnering Alignment APrerequisite for Project Management Success for the Year 2000 The 28th AnnualProject Management Institute 1997 Seminars and Symposium ProjectManagement Institute Project Management Institute 19ndash26

Patterson P G (1995) lsquoChoice Criteria in Final Selection of a ManagementConsultancy Servicersquo Journal of Professional Services Marketing 11(2) 177ndash187

Ross J (2003) Introduction to Project Alliancing Alliance ContractingConference Sydney 30 April 2003 Project Control International Pty Ltd

Scott B (1993) Partnering and Alliance Contracts ndash A Company Viewpoint PerthAustralia Curtin University

Thompson P J and Sanders S R (1998) lsquoPartnering Continuumrsquo Journal ofManagement in Engineering ndash American Society of Civil EngineersEngineeringManagement Division 14(5) 73ndash78

Tomer J F (1998) lsquoBeyond Transaction Markets Toward Relationship Marketingin the Human Firm A Socio-Economic Modelrsquo The Journal of Socio-Economics27 (2) 207ndash228

Walker D H T and Hampson K D (2003a) Developing Cross-TeamRelationships In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Eds Oxford Blackwell PublishingChapter 7 169ndash203

Walker D H T and Hampson K D (2003b) Procurement Strategies ARelationship Based Approach Oxford Blackwell Publishing

Walker D H T and Hampson K D (2003c) Project Alliance MemberOrganisation Selection In Procurement Strategies A Relationship BasedApproach Walker D H T and K D Hampson Eds OxfordL BlackwellPublishing Chapter 4 74ndash102

Walker D H T and Johannes D S (2003a) lsquoConstruction Industry Joint VentureBehaviour in Hong Kong ndash Designed for Collaborative Resultsrsquo InternationalJournal of Project Management Elsevier Science UK 21(1) 39ndash50

Walker D H T and Johannes D S (2003b) lsquoPreparing for OrganisationalLearning by HK Infrastructure Project Joint Ventures Organisationsrsquo TheLearning Organization MCB University Press UK 10(2) 106ndash117

Wenger E C (1999) lsquoCommunities of Practice The Key to Knowledge StrategyrsquoThe Journal of the Institute for Knowledge Management 1(Fall) 48ndash63

Wenger E C and Snyder W M (2000) lsquoCommunities of Practice TheOrganizational Frontierrsquo Harvard Business Review 78(1) 139ndash145

Whiteley D (2004) Project Alliancing an Investigation into the Benefits andAttributes of the Project Alliance Contracting Strategy Masters Faculty of theBuilt Environment Perth Australia Curtin University

398 Davis and Walker

Whiteley D and Henneveld M (2006) A Practical Guide to AchievingOutstanding Performance from Alliance Contracting LexisNexis CommercialLitigation amp Construction Law WA Hyatt Regency Perth WA 20 September2006 Development L P LexisNexis Professional Development 1ndash22

Wilson D (1995) lsquoThe Integrated Model of Buyer-Seller Relationshipsrsquo Journal ofthe Academy of Marketing Science 23(4) 335ndash345

Wilson D and Mummalaneni V (1986) lsquoBonding and Commitment in Buyer-Seller Relationships A Preliminary Conceptualisationrsquo Industrial Marketing andPurchasing 1(3) 45ndash58

Australian construction industry alliances 399

Chapter 13

Innovation management inproject alliances

Steve Rowlinson and Derek HTWalker

Chapter introduction

Chapter 2 introduced the concept of project alliances Issues relating totrust and commitment which are relevant to this chapter were also raisedand discussed in Chapter 3 and aspects of organisational culture werepresented in Chapter 9 Chapter 12 presented PhD findings from a range ofproject alliances and focused on alliance formation at the front-end stage ofa project This chapter provides findings relating to how innovation wasenacted by an innovative organisation in a specific project alliancing casestudy in Australia This links with Chapter 8 and models discussed in thatchapter on how organisations can become innovative This chapterrsquos focusis centred on how alliancing can foster support and enhance innovation Aspart of this focus the work environment is identified as critical and so thislinks with Chapter 10 in which the quest for talent is clearly acknowledged

The specific focus of this chapter is the investigation of how innovationwas enacted within a specific alliance project in Queensland Australia ndash theWivenhoe alliance In order to properly understand the nature of innovationa model for innovation management in organisations is presented Thechapter then goes on to explain the nature of the Wivenhoe alliance andhow innovation was promoted within it The case is then reviewed and thelessons learned and the model used at Wivenhoe compared with theory

Context and theoretical background

Innovation is not limited to the production of new products Van de Ven(1986 590) defines innovation as lsquothe development and implementation ofnew ideas by people who over time engage in transactions with others withinan institutional orderrsquo His definition focuses on four basic factors (newideas people transactions and institutional context) He notes that four basicproblems confront most general managers in encouraging innovation toflourish and become part of the organisationrsquos culture These are (1) a humanproblem of managing attention (2) a process problem in managing new

Innovation and project alliances 401

ideas into good currency (3) a structural problem of managing partndashwholerelationships and (4) a strategic problem of institutional leadership

Innovation and knowledge sharing

Theory about the innovation process links in well with ideas on lsquostickyknowledgersquo as proposed by Szulanski (1996) and how innovation is diffusedThis is discussed further in the context of learning organisations in Chapter 8of this book The models presented by Peansupap (2004) in his PhD thesisand published elsewhere (Peansupap and Walker 2005abc 2006ab)provide deep insights and models of how ICT was diffused within highlycomputer-literate construction organisations This helps inform us aboutfactors affecting the challenges that organisations face when managinginnovation Further the model presented by Maqsood (2006 Maqsoodet al 2007) in Chapter 8 of this book illustrates the critical role played bypeople (individuals groups and an organisations) working in harmony toalign innovation potential with its realisation using their knowledge andskills This was shown as using lsquopushrsquo and lsquopullrsquo forces to drive innovativeorganisations towards becoming learning organisations Procurementchoices can influence the strength and direction of the innovation trajectory

Innovation can be applied to organisation structures and to individualwork practices It can also be applied to business strategy and to businessand operational relationships Figure 131 illustrates such a view ofinnovation that combines elements of factors affecting ICT diffusion fromPeansupap (2004) and (Maqsood 2006) with ideas presented by Prather(2000 18) and also Bucic and Gudergan (2002 13) This also links tothe environmental factor of the organisationrsquos response to gaining a knowl-edge advantage (Walker 2005) as explained more fully in Chapter 6 ofthis book

Many models exist for implementing innovation within an organisationThe model adapted from Prather (2000 18) presents a simple but useful viewof innovation within an organisation and the management of that innovationAt the core of the model is the innovative organisation ndash the goal and direc-tion the organisation intends to move in Prather identified three areas whichcontribute to the creation and maintenance of this innovative culture Theareas of education application and environment overlap to provide three keyelements of innovation management the innovation climate shared problem-solving processes individual thinking tools and practices The modelsdiscussed in Chapter 8 of this book based on Peansupap (2004) and Maqsood(2006) provide a useful way of extending Pratherrsquos model by indicating theknowledge and innovation push-and-pull forces that must be understood andharnessed to create a learning organisation Using this simple model theapproach adopted on the Wivenhoe alliance to influence innovation throughits procurement approach will be analysed within this case study

Education is an important element of the innovation process Innovationsoriginate with individuals not with groups nor organisations Thus educationand training techniques such as brainstorming and lateral thinking are partof the process of developing the individual and individuals in groups inorder to stimulate promote and nurture innovation within the organisationEducation is pulled by existing skills experience absorptive capacity (Cohenand Levinthal 1990) professional development and ability and desire toexchange ideas

Application refers to the way in which the organisation is structured inorder to handle new ideas and to see them through to implementationGroups apply knowledge and are pulled towards innovation by supportingforces such as technical support mentoring discussion forums and timeand ability to reflect and take part in collaborative action where ideas aresocialised reframed and developed This also requires a set of proceduresand protocols which allow ideas to be evaluated developed and thenimplemented Indeed this process continues through to the measurement ofthe impact of the innovation and its subsequent export to other organisationsand other parts of its own organisation For an example of a structuredapproach to this the reader might refer to the Grass Roots Innovation Team(GRIT) at 3M and follow through how the process is developed in thatrenowned innovative organisation1

402 Rowlinson and Walker

Figure 131 Developing an innovative organisation

Individual pull forcesskill experienceabsorptive capacityprofessional developmentsharing ideas

IntrinsicmotivationExtrinsic

motivationCriticalthinking

IndividualthinkingTools amppractices The

innovativeorganisation

Structure-centralisationStructure-formality

Culture-riskCulture-collectivismAbsorptive capacity

Open-minded learning workplacesupportive management mentoringresource support and implementationof a knowledge advantage (see Chapter 6)

Organisationrsquosclimate forinnovation

Communicativejob autonomy

diversity

Technical support monitoringdiscussion amp reflection

collaborative action

Sharedproblem-solving

processes

Pushforces

Organisational pull forces

Group pull forces

Environment

Educ

ation Application

Finally the environment within which the project and the innovationstake place is a key element in determining the successful implementation ofan innovation strategy The culture of organisations is formed by leadershipattitudes to success and failure the facilitation of communication and sharingof information across the organisation and the role of the bureaucracywithin the organisation This includes an open-minded workplace leader-ship that champions questioning and supports reflection and adaptationand mentoring Chapter 6 discusses some tools that can be built into a pro-ject procurement governance system to encourage the effective pursuit of anorganisationrsquos knowledge advantage (Walker et al 2004 Walker 2005Walker et al 2005) Thus all three areas of education application andenvironment combine to provide the infrastructure in which innovation cantake place

The interesting element of this case study is that in many ways theapproach to procurement was an innovative approach and also the projectteam had innovation as a major goal within the project itself Hence thiscan be seen as an example of meta-innovation Thus in this case study wewill examine both the innovative approach to procurement and the way inwhich innovation within the project was managed

There are a number of elements and attitudes (which could be consideredimportant dimensions of the organisational climate for promoting innovation)that create an organisational climate that supports groups and individualsto freely share ideas and collaborate to deliver innovation Together theseelements shape the organisational climate which nurtures innovation Henceone would expect an innovative organisation to adopt a set of values whichreflected those dimensions listed above However creating a set of values isa somewhat intangible issue (see Chapter 9 of this book)

In order to ensure that these values are achieved and maintained there isa need for tangible support which enables these values These supports canbe described as awards as taboos and repetitive reinforcement (Prather2000 21) With the inculcation of values and the provision of thesesupports there is the propensity for actors within the organisation to trustone another and so collaborative and cooperative relationships areestablished a key goal of alliance teams This is particularly importantin an organisation such as the Wivenhoe alliance where many of theproject team members are from different organisations Thus in thisinstance awards were given to team members for actively supporting thealliancersquos values Taboos are seen as actions which have a negative impacton innovation and which are managed by subtly or overtly ensuring thatthese actions do not interfere with the innovation process The repetitivereinforcement in this instance took place through the use of a projectfacilitator an innovation manager an alliance coach and various othermeans discussed later

Innovation and project alliances 403

Alliancing

The concept of alliancing is introduced in Chapter 2 and Chapter 12 alsoprovides detailed discussion on the selection of alliance partners Allianceprojects are initiated in an attempt to overcome the adversarial relationshipswhich are common within the construction industry The concept is basedupon open book accounting and project participants having an attitude ofbest-for-project in the decision-making process All alliance participantshave an involvement in determining the project scope and risk and rewardallocation As a consequence this approach leads to simplified approaches todispute resolution by dealing with issues as they arise rather than involvingthe project team in the common paper chase of requests for informationand claims for variations and changes

There is often confusion on the differences between partnering andalliancing in the construction industry The most meaningful distinctionbetween partnering and alliancing is described by Walker and Hampson(2003a 53) as lsquo with partnering aims and goals are agreed upon anddispute resolution and escalation plans are established but partners stillretain independence and may individually suffer or gain from the relation-ship With alliancing the alliance parties form a cohesive entity that jointlyshares risks and rewards to an agreed formula rsquo

Under such a definition it can be seen that key project team memberscome together to form a pseudo company for the duration of the projectThis enables the benefits of working as one company to achieve a commongoal to be realised There are particular circumstances when alliances mayfunction as an ideal model for procurement

Concept design has been undertaken but detailed design is yet to becompleted thus leaving the projects in a state of lsquoliving designrsquo which isconducive to a flexible approach and so enabling value management

Total projectrsquos cost has been estimated but the budget has yet to be set ndashproject alliance objectives go beyond an emphasis on price to includethe ability to innovate and to manage relationships both within andbetween alliance participants including stakeholders

The alliance partners brought together are chosen such that theycomplement one anotherrsquos strengths and weaknesses

There is a high level of stakeholder and community awareness of theproject and its benefits and issues

The time frame is recognised as being a constraint

The key principle of the alliancing approach is that the personnel assignedto the project are the best people from each company in terms of the needsof the alliance (see Chapter 10 for more details on the quest for talent)Team members are expected to be leaders in their field and hence requirelittle monitoring or guidance ndash they also tend to welcome taking the initiative

404 Rowlinson and Walker

However in order for the alliance to function as a team certain prerequisitesand other transaction costs have to be implemented

The key focus for the alliance is to form a strong alliance culture withinthe team Unresolved internal conflicts will doom a project to failureso great importance is placed on team building to assist with the devel-opment of the alliance culture The generation of trust and friendshipwithin the team is a key determinant of this

Team building should not only commence at the very outset of thealliance but also continue until completion of the project and thedisbanding of the alliance Team-building activities that build trust andcommitment can include games and Outward Bound-type activitiesand such things as emotional intelligence programmes

Knowledge sharing is an important aspect of the alliance team Open andfree communication within a trusting environment is a key component ofcollaborative design In essence there must be no secrets as hiddenagendas within the team

Importantly the alliance deed which member companies sign at theoutset of the alliance contains a no-litigation clause The aim of this isto ensure amicable speedy resolution of disputes within the team ratherthan an escalation to the courts

The alliance participants collaboratively agree the target cost for the projectand then set about developing the design and also at the outset establisharrangements for sharing risk and reward arising from the projectTypically as was reported in the case of the National Museum of Australiaproject profit is placed at risk to ensure that cost targets are achievedHowever as an incentive cost savings are shared between the allianceparticipants under some form of lsquogain-sharingrsquo formula which is designedto encourage innovation maximise collaboration and focus production onefficiency (Hutchinson and Gallagher 2003 Walker and Hampson 2003b)

There have been a number of examples of alliances in Australia over recentyears (Davis 2006) such as The Ampolex Wandoo alliance (construction ofan oil platform and field development in Western Australia) WMC EastSpur alliance (a gas field development off Western Australia) BrisbaneWater Enviro alliance (upgrade of three water treatment plants in Brisbane)Sydneyrsquos Northside Storage tunnel project and the National Museum ofAustralia In general such projects have been reported to have exceptionallyhigh levels of collaboration cooperation and communication leadinggenerally to technical and managerial problems being resolved effectivelyand efficiently in the best interests of the project This process is facilitatedby participants putting project interest above individual company interestHowever alliances have been criticised in some instances for precludinglocal contractors from the bidding process For example the Report by the

Innovation and project alliances 405

House of Representatives Standing Committee on Industry Science andTechnology lsquoA sea of indifference ndash Australian industry participation inthe North West Shelf projectrsquo states lsquoThrough (alliancing) partners in aproject have a special interest in supplying key components and servicesrsquoand lsquoconstruction of platform modules was undertaken without com-petitive tenders being called Australian industry was denied any chance ofundertaking this workrsquo (Standing Committee on Industry 1998 63)

Underpinning theory

Alliancing is categorised by scholars into two main types strategic alliancingand project alliancing The most commonly adopted definition of strategicalliances is based upon two related ideas First the act of establishing inter-organisational relations that engages in collaborative behaviour Secondthese acts have a specific purpose which has a long-term strategic consequencein responding to opportunities and challenges that face an organisation ndashwhether that is for an organisation currently competing globally orpositioning itself to take asvantage of future opportunities (Doz andHamel 1998) The inter-organisational relationships can be grouped intothree broad classifications of services cross-company consortium (service)opportunistic and stakeholder alliances (Howarth et al 1995)

A strategic alliance is also seen as an inter-organisational arrangementwhich usually exists between two or more companies which extends beyonda specific project and whose parties would expect ongoing mutually benefi-cial business (Doz and Hamel 1998) According to Bronder and Pritzl(1992 412) a strategic alliance exists when the value chain between at leasttwo organisations with compatible goal structures are combined for thepurpose of sustaining and achieving significant competitive advantages Astrategic alliance can provide access to resources such as capital informa-tion technology management expertise markets customers distributionchannels land and labour Such resources may not be available to an organ-isation acting alone Greater access to resources allows an organisation toreduce its level of uncertainty in a demanding and turbulent environmentStrategic alliances also enable organisations to speed up the market-entryprocess and increase their responsiveness to consumer markets as indicatedin Table 131 ndash adapted from Howarth et al (1995)

Yet no successful strategic alliances can be developed without trustTrust in a strategic alliance also includes the concept of reciprocity whichimplies a long-term focus the acceptance that obligations are mutual androom for adjustment if one partner is suddenly placed in a compromisingposition (Howarth et al 1995) As occurs with partnering and relationalcontracting trust between strategic alliance partners is important because itcreates an opportunity and willingness for further alignment reduces theneed for partners to continually monitor one anotherrsquos behaviour reduces

406 Rowlinson and Walker

the need for formal controls and reduces the tensions created by short-terminequities It allows partners to focus on long-term business development aswell as reducing cost and time The characteristics of successful strategicalliances as well as successful business relationships proposed by Hampsonand Kwok (1997) ndash trust commitment interdependence cooperationcommunication and joint problem solving ndash reflect a similar theme

A successful alliance also requires creativity It has been shown in the pastthat alliances that have failed are typically the second alliance that a groupof companies undertake together The problem arises when the individualteam members who were on the first alliance insist on using the samepractices by repeating them since they worked on the previous alliancedespite the fact that they might not be appropriate for the second The newteam members do not understand why the practices are adopted and do notfeel any sense of ownership Since both strategic and project alliancesare tailor-made mechanisms such alliancing would fail due to the lack ofcreativity by the team members from the first project team and the newteam members do not feel committed to work

The main difference between project alliances and strategic alliances isproject alliances have a defined end which is most commonly the practicalcompletion date of a project The parties are brought together for a specificproject or outcome and a project alliancing agreement is also legallyenforceable Hutchinson and Gallagher (2003) describe a project alliance as

Innovation and project alliances 407

Table 131 Alliance-type characteristics

Alliance type Characteristics

Service alliances Requires the lowest level of interdependence betweenpartners with the smallest amount of changes and thelowest level of joint commitment

Provide economies of scale Provide the ability for the partners to undertake large-scale

projects with a limited purpose Difficulties arise due to the diversity of the interests and

goals of the partners Result in a loss of commitment from members

Opportunistic alliances Provide access to the resources of the partnerfor example joint organisationsventure Motivated by the existence and recognition of a market

opportunity Partners might exploit one anotherrsquos resources and then

move on to pursue the opportunity aloneStakeholder alliances The closest link between member organisations of allfor example suppliers Seek to build strong long-term relationshipscustomers employees Assist in achieving the organisational goals by major

stakeholders

a project delivery strategy where several participants join together to sharerisks and outcomes on a project and where sponsor and commercialparticipantsrsquo objectives (clientrsquos objectives) are aligned to

maximise performance proactively manage risk reduce cost and achieve outstanding results in sponsor key project objectives

They define project alliance as lsquo an integrated high performance teamselected on a best person for the job basis sharing all project risks withincentives to achieve game-breaking performance in pre-aligned project objec-tives within a framework of no fault no blame and no dispute characterisedby uncompromising commitments to trust collaboration innovation andmutual support all in order to achieve outstanding resultsrsquo (Hutchinsonand Gallagher 2003 8)

Love and Gunasekaran (1999) stated that alliances can be eithercollaborative or cooperative (Hamel et al 1989 Bronder and Pritzl 1992Huysman et al 1994) based on core competences Kwok (1998) describesproject alliances as a cooperative arrangement between two or moreorganisations that forms part of their overall strategy and contributes toachieving their major goals and objectives for a particular project Hamelet al (1989) suggest that organisations that enter into collaborative alliances(short term) are aware that their partners are capable of disarming themParties to these alliances have clear objectives and understand that theirpartnerrsquos objectives will affect their success Yet collaboration does notalways provide an opportunity to internalise a partnerrsquos skills Love andGunasekaran (1999) suggest that a lsquopsychological barrierrsquo may exist betweenalliance partners caused by the fear that their partner(s) may out-learn ordeskill them Wood and Gray (1991) state that organisations typically entercollaborative relations to reduce environmental complexity and to gainmore control over environmental factors Such collaboration may causenew dependencies to be created which may increase environmentalcomplexity and turbulence They argue that increases in complexity mayincrease transaction costs the need to manage bilateral and multilateralrelations and the need to develop new skills

Cooperative alliances (long term) encourage alliance partners to committheir resources to the relationship to gain mutual learning (Love andGunasekaran 1999) There is a lower level of competition and as a resultpartners may feel more committed to work together and exchange theirknowledge and resources Ketelhoumlhn (1993) suggests that cooperativestrategic alliances can create a competitive advantage Organisations thatrely on cooperation have been found to obtain lower costs for as longas they maintain trust internally and externally ndash among employees andmembers of their network

408 Rowlinson and Walker

There are many studies see for instance Lingard and Francis (2004 20052007) and Chapter 10 of this book which indicate that workndashlife conflicthas a damaging effect on job satisfaction organisational commitmentproductivity employee turnover and absenteeism For the individual this isassociated with burnout mental health issues and dysfunction within thefamily setting Indeed the construction industry is well known for its longand inflexible work hours particularly for those based on-site or workingon projects Despite the considerable resistance within the industry to theadoption of new ways of scheduling work the Wivenhoe alliance attemptedto create a high-performing team by innovating in terms of workndashlifebalance and reducing work hours The additional effect of this changein balance was aimed at encouraging the retention of staff and enhancingrecruitment in the future

Case study details

The following will provide background additional information for thereader to better understand its context and relevance to this book

The Wivenhoe alliance

South East Queensland Water (SEQ Water) owns and operates WivenhoeSomerset and North Pine Dams in Queensland Australia and is the sponsororganisation in an alliance with

Leighton contractors ndash the contractor Coffey Geosciences ndash specialist consultants geotechnical and

hydrogeology MWH ndash specialist consultants water Department of Commerce (New South Wales) ndash providers of finance

The alliance was formed with the intention of upgrading the existingWivenhoe Dam to ensure that it could cope with extreme rainfall and lsquoanyconceivable floodrsquo in the future The $70m Australian project involvedconstruction of a 165 m wide additional spillway a five-span traffic bridgepost-tensioning of the existing spillway and associated works 80 km fromBrisbane The upgrade was completed six months ahead of schedule andten percent below budget The alliance commenced by undertaking a numberof studies dealing with design options hydrology construction environmentgeotechnics and stakeholders (including the local communities) prior todeveloping the design and setting a target cost for the project

In terms of benefits arising from the alliance formation MHW claim thatthe approach leads to innovative solutions2 its web page states that lsquoTheWivenhoe Alliance has demonstrated how collaborative projects promote

Innovation and project alliances 409

innovation Significant savings were achieved through an innovative way ofdisposing of earthworks soil Rather than transporting the soil to an agreeddisposal area the Alliance designed and constructed some low hills in closeproximity to the dam and construction site The hills were landscaped andplanted to create environmental refuge areas and to match the surroundinglandforms The result was aligned with the clientrsquos environmental objectivesfor the project as well as achieving beneficial cost savingsrsquo

The key issue to come out of the alliance as far as this case study is con-cerned is the facilitation and management of innovation within the allianceInnovation took place in a number of fields such as project learning valuemanagement sustainability design innovation construction innovationprocess and product innovation working conditions and workndashlife balanceEach of these areas of innovation will be reviewed below but in order toput this into context the underpinning theory behind alliances is brieflyexpounded below

Project learning system

The contractor in the alliance had for a long time intended to set up anorganisation-wide project learning system The idea behind the system isthat workers estimators and directors on subsequent projects can makereference to a database of knowledge which will make their current decisionmaking more efficient and effective based on past experiences within theorganisation The aim is to ensure that the same mistakes are not repeatedand that good ideas are kept and repeated in practice The nature andculture developed within the alliance was such that individuals and theteam were willing to take risks with new ideas and new technologyConsequently all bought into the idea of the project learning system andparticipants felt obliged to make their contributions to the system Henceideas behind things that went well or didnrsquot go well were harnessed andstored in a database set up to capture this knowledge As far as theseparticipating organisations were concerned this was their first experience ofsuch a project learning system

Value management

In a similar manner participation in the value management process wasfacilitated by the culture of the alliance All participants bought into theidea of lsquobest for projectrsquo and so were willing to reveal in a timely mannerissues which affected the adequacy or efficiency of the projectrsquos componentsand which might in a different procurement system have lain hidden untiltheir consequences became apparent Participants willingly and openlydiscussed problems which they felt were beyond their own individual

410 Rowlinson and Walker

capacity to solve and the alliance team addressed these issues in a fashionwhich indicated a joint responsibility being taken by all for the outcomeThus although the value-management process cannot be considered to bean innovation the way in which the value-management process was under-taken was considered revolutionary by the participants Specifically theopen and free communication engendered and the attitude of lsquono-blamersquo ledto an atmosphere which facilitated the successful value management of theproject In addition innovations and ideas which contributed to this valuemanagement process were treasured and were actually recorded in aninnovation register as illustrated in Figure 132

Sustainability

The Wivenhoe Alliance worked with Queensland University of Technology(QUT) in Australia to complete a Sustainability Assessment of the projectadopting a triple-bottom-line approach that is Economic EnvironmentalSocial sustainability and also including Health and Safety as a key indica-tor Again the alliance approach led to an open discussion of sustainabilityissues which transcended the individual partnersrsquo specific interests in thatsustainability was seen to be a project cost and benefit and not a benefit toone participant at a cost to the other

Innovation and project alliances 411

Figure 132 Example of the innovation register

Design innovation

Design innovation was driven and focused by the lsquoBest for Projectrsquophilosophy The design team was challenged to innovate and value manageevery aspect of the project and the construction team encouraged tochallenge any aspect of design that could be modified for the benefit of theproject financially or otherwise The factors of safety which the designteam conventionally used were challenged by the rest of the alliance andthe design team were then forced to come down from their pedestal andbecome a complete team member Again the alliance culture and the driveto innovate which this engendered was a major factor in allowing the teamto achieve these goals

An example of a design innovation is illustrated in Box 131 below

412 Rowlinson and Walker

Wivenhoe Dam is being upgraded to be able to withstand the ProbableMaximum Flood (PMF) which is essentially a 1 in 100000 year eventIf we did have such an event whilst all the radial gates on the existingspillway are open the water would still hit the gates as it passed throughthe existing spillway This would cause the gates to bounce up anddown and there is a risk that due to the gates being held open by cablesthe cables could break if the gates bounced too high or too much

The initial solution was to install a locking pin on the gate suchthat when it is opened to the fully-opened position it will be lockedopen hence the gate will not bounce and potentially fail It wasunanimous that there must be a better solution but no one knewwhat it was It was agreed that a Value Management workshopshould be convened to help identify a solution two days wereallocated to this task

On the first day the issues were highlighted and the end result wasdiscussed It was at this point that everyone commenced brainstormingWe then came together and shared out ideas The end result was thatan innovative solution was achieved By looking outside the box andbeing forced to look at the problem from a direct angle a bettersolution was achieved

The solution was to install a wide plate upstream of the Radial gatethe plate would act as a penstock and force the water down to a levelsuch that when it passed the gates it was at least 1 metre below thebottom of the gate This removed the need for the locking pin becausethere would be no bouncing of the gate The extra benefit is thatadditional works that were previously required are now not neededdue to the Baffle Structure being installed

Box 131 Innovation example

Innovation and project alliances 413

During the subsequent design of the Baffle Structure constructionmodifications were added to allow the structure to become itsown permanent scaffolding and access platform It also has legacyvalue to the owner as it will provide a safe access platform for themaintenance workers of the dam The solution is a non-mechanicalone that is very little maintenance will be required The BaffleStructure solution saved the project in excess of $750000 This waspossible only due to forward planning by having enough time tovalue manage the issue design a new solution and then install it

Construction innovation

Construction innovation was seen to be not a standalone issue There wasan implicit recognition that the design process had a major effect onconstruction innovation and construction effectiveness Hence it was seento be a whole team task to develop innovations in construction In order tofacilitate this effective planning is vitally important The team needs timeto think through the construction consequences of design decisions andsearch for better alternatives Such an approach can be effective only if theplanning and design and construction innovation process take place earlyin the project Hence it was recognised that effective planning at the outsetwas an important facilitation device for the innovations in constructionwhich did take place

Collaboration example

An example of the collaborative approach to innovation and the willingnessto take risks was a design innovation that occurred on a crash barrierupgrade on the existing dam wall The design was challenged by theconstruction team and in conjunction with the design team a new andevolutional type of design was developed The design was implemented andconstruction commenced The design underwent a design review (thisoccurs on a monthly basis) and the design was found to be too risk-adversefor the reviewers and the design was altered The financial result wassubstantial extra cost due to the re-work involved On a normal projectthis would have been classed as a variation and extra costs would have beenincurred but due to the make-up of the alliance and culture of the teammembers there was no negative feeling or resentment and the costs wereabsorbed into the project The mindset was lsquoalthough the designers cost usmoney this time they have saved us time money and effort in the past andwill save more in the futurersquo Thus even through failure the alliance culturewas reinforced

Processproduct innovation

Innovations are not limited to design and construction but can occur in anyarea of the project Process and product innovations occur every day andare usually innovations that occur in secondary roles as opposed to directroles An example of this was an improvement to the design drawingregister process which made the location of the most up-to-date drawing somuch easier The benefit from such an innovation is intangible ndash one cannotassess the costs saved from avoiding working from the wrong drawings butsuch savings had undoubtedly accrued Such an innovation would not havelikely occurred on a traditional project as there is not the same lsquobest forprojectrsquo attitude

Change in working practices

A compressed work week was introduced part way through the constructionphase of the dam The site was initially operating on a 6-day 58-hour weekcomprising five 10-hour days plus an 8-hour day on Saturday In March2005 there was a move to a 5-day week with an 115 hour-day This changein working practices was studied by Lingard et al (2007) (see Chapter 10for more details) and they reported that employeesrsquo well-being and satis-faction with workndashlife balance were generally high and that perceptions ofworkndashlife conflict were favourably low Indeed knock-on effects for worksuch as productivity gains and loyalty to the organisation as well as non-work activities such as more scope for family and domestic duties were seento be part of the improvements brought about by the change in workingpractices There was also evidence that the changes led to improvedemployee retention Thus if one considers changing working practices asan innovation one can then assume that this innovation within the alliancehas allowed for the improvement in employee satisfaction and will perhapshave a subsequent effect on work effectiveness and innovation Howeverthe direct link has yet to be proven

Indeed the fact that this was an alliance project was seen by many inter-viewees to have facilitated the implementation of the shortened workingweek and led to a change in attitudes An individual response as reportedby Lingard et al (2007) bears testimony to this lsquoI think this job is anexception not the rule I think alliancing is conducive to being able to dothis because we can make more money by being smarter and changing thedesigns and being efficient whereas the ldquoold schoolrdquo way of making moneyin construction is going faster and harder and longer ndash squeezing as muchas you can out of resources over a finite period of timersquo

In addition Lingard et al go on to conclude that lsquothe compressed workweek was very successful in improving employeesrsquo workndashlife balanceFurther the projectrsquos time and cost performance suggest that the change to

414 Rowlinson and Walker

a five-day week did not hinder the attainment of objectives in other keyresult areas (KRAs) of the project Alliance employees were very satisfiedwith the compressed work week and reported a number of benefits includingincreased physical and psychological well-being greater motivation improvedproductivity increased job commitment and increased involvement inhomefamily activities These results suggest that strategies designed toimprove employeesrsquo workndashlife balance may be key components of highperformance work systems in the Australian construction industry Furtherthe collaborative nature of project alliances in particular the sharing ofrisks and rewards and the focus on ldquobest for projectrdquo decision-makingappear to provide a supportive work environment in which innovativeworkndashlife balance initiatives can be implementedrsquo

Capture and measurement of innovation

In order to ensure that innovation is actually taking place it is necessary tocapture and measure the innovations and the innovation process is Such anapproach was adopted on the web by the use of innovation tracking toolswhich included

Innovation register (see Figure 132)

ndash During the Wivenhoe alliance innovations were monitored andrecorded using a specifically designed innovation register whichcaptured the innovations as they occurred and tracked theirprogress through to completion under the general headings ofideas actions and savings However it was recognised that not allsavings could be measured in dollar terms and yet the idea couldstill be innovative The concept of benefit and best for project areimportant in this respect and need to be recognised in order tomaintain the lsquoalliance culturersquo

Value-management register

ndash In a similar manner a value-management register was compiledwhich monitored both the value-management meetings and eventsand the value-management outcomes This provides both a usefulsource of ideas for future projects and provides a mechanism forenabling a cost analysis of the value-management process if required

Project learning system

ndash The project learning system provides a database of all the good andbad ideas that have occurred on projects and the net effect of theseideas In this instance the project learning system was a prototypeand was deemed to be a success Indeed such a success that thecontractor has established it on a state-wide basis for all projects

Innovation and project alliances 415

Completion report

ndash As a mechanism for formally recording the process and progress ofthe alliance a completion report was compiled with the intention ofcapturing all those events and issues which occurred throughoutthe course of the project Within this report there is a discussionof the techniques used the innovations which developed andthose which actually did not come to fruition under tools utilisedon the project

Making sense of the case study

So how can one rationalise what has taken place in the Wivenhoe alliancein terms of innovation and innovation management One way of looking atthe process which took place is to plot on a grid innovation process in onedirection and innovation culture in the other direction and then locate theWivenhoe alliance and other organisations on this grid A typical firm suchas a supermarket which has no culture of innovation and no processes tostimulate innovation might rank poorly on this model and be found in thebottom left quadrant In contrast 3M Company which has a culture thatinspires innovation and which has a set series of processes to ensure inno-vation takes place might be located at the top right-hand quadrant of thismodel When looking at the Wivenhoe alliance the case study has shownthat it does have a culture which promotes and nurtures innovation It alsohas processes to generate ideas get them through the evaluation phase andhaving them implemented However the alliance process is very much anad hoc one compared with that of 3M There appears to be no strategic orunderlying innovation management plan for the alliance Perhaps this is thenature of the alliance concept rather than merely the Wivenhoe allianceitself the nature of the alliance is that it has defined beginning and enddates and so there is no scope for or drive towards strategic long-termviews Hence given these shortcomings one would place the Wivenhoealliance in a less strategic position than the 3M Company

Case study discussion

The case study indicates that the opportunity for innovation in alliance pro-jects is very high compared with conventional hard dollar contractsHowever the very nature of the alliance is that it is of a finite duration andso the ability to structure innovation effectively is somewhat limited Thusthe alliance approach to procurement has inbuilt within its culture the nec-essary characteristics to promote innovation but in all instances this inno-vation process needs to be managed The case study indicates how thisinnovation process can be encouraged and indeed monitored and measured

416 Rowlinson and Walker

Of great interest is the changing working practices implemented in thisalliance The fact that both performance and workndashlife balance issuesappeared to improve when the working week was reduced is quite impres-sive Indeed for most of the respondents to indicate that such an approachwas not possible within the hard-dollar contract is very enlightening Itwould seem that the alliance approach has benefits in terms of both the pro-ject performance and individual achievements and working practices ThusAlliancing might well hold the key to the cultural change required withinthe industry to improve performance universally

There are many factors relating specifically to alliances that can berelated back to Pratherrsquos (2000) model of innovation management as acombination of education application and environment and its adaptationby us as illustrated in Figure 131 combining ideas from Bucic andGudergan (2002) These factors describe the reasons why innovation isgenerally speaking more successful in alliances than in traditional firmsand projects All of these factors can be seen in the Wivenhoe alliance

Chapter summary

The purpose of this chapter was to provide a case study example of analliance project that had successfully demonstrated innovation throughalliance practices We also sought to discuss the theoretical basis for theobserved innovative practices and outcomes and to link these to other chap-ters in this book so that readers can extend or revise what they have graspedfrom our work

The chapter started with some context relating to the case study as wellas background concepts and theory We introduced an extension to theinnovation diffusion and knowledge transfer models in Chapter 8 by show-ing how education application and environment are linked to drive aninnovative project alliance organisation that can generate use and transferknowledge at the individual group and organisational level We then pro-vided some alliance theory and discussed where the case study fitted in withwhat theory suggests should happen in practice The evidence presentedsuggests that a well-functioning alliance can spark innovation and illustratedhow the alliance delivered useful innovations where more traditional projectprocurement approaches may stifle such innovation Our Table 132provided a summary of lessons from the case study linked to the modelpresented in Figure 131

In line with our format for the case study chapters we present Table 133that indicates how this chapter fits into the first 10 chapters

This chapter provides a summary of many useful alliance case studiesand so it represents a considerable contribution to the project procurementliterature

Innovation and project alliances 417

Table 132 Summary notes of factors influencing innovation

Factors leading to Notesalliance innovation

Education ndash individual- In the area of education or individual-level factors there islevel factors clearly a greater intrinsic motivation of staffThe lsquobest for

Intrinsic motivation projectrsquo mentality means that team members will be Extrinsic motivation thinking of ways to challenge the status quo and improveCritical thinking the projectrsquos performanceThere is also a greater extrinsicLeading to the creative motivation in alliances By actively seeking more efficient andprocess cost-effective methods the alliance increases its potential for

financial rewardAn increased appreciation of critical thinkingand reflecting on past actions and existing knowledge in thepresent context means that team members will constantly be coming up with new ideas to solve current problems

Application ndash group- In the group-level factors or application area there is a greaterlevel factors level of communicative interaction on the Wivenhoe alliance

Communicative job autonomy than is seen in most projectsThe informal and personalisedDiversity leading to the communication style encourages lateral thinking acceptancelearning process of criticism and willingness to consult othersThe level of job

autonomy of staff members encourages decentralisation andgives freedom to the individual and empowerment Finallythe diversity of team members means that people from arange of backgrounds and experiences are brought togetherfor the duration of the project

Environment ndash alliance- At the alliance level or the environment-level factors describedlevel factors by Prather (2000) there are many factors that encourage

Structure centralisation innovationThe centralised structure while it can beStructure formality restrictive in a normal firm can actually encourage innovationCulture of risk taking in alliancesThe fact that all of the decision makers areCulture of collectivism present on site means that the approval process for newAbsorptive capacity ideas can happen quickly and easilyA formal structure can The knowledge stocks prohibit innovation in traditional firms but the Wivenhoe

alliance overcomes this by working in cross-functional teamsThe fact that alliances have a risk-orientated culture contributes greatly to innovationThey accept mistakes andallow the freedom to fail more readily than traditional firmsAlliances are typically used for more lsquohigh riskrsquo projects andthose where the scope isnrsquot well defined Since alliance members know they will get paid for the work they doand that only the profit margin is at risk they are generallyless risk-averse than projects undertaken with hard-dollarcontractsThe final two alliance-level factors that lead toinnovation described by Bucic and Gudergan (2002) are aculture of collectivism and absorptive capacityThe collectivistculture can be seen at the Wivenhoe alliance in everyonersquoslsquobest for projectrsquo mentality Everyone is willing to cooperateto make the project successful and they put the goals of theproject ahead of their own personal goalsThe absorptivecapacity of an alliance refers to its ability to recognise valuable information and make use of itThis can clearly beseen at the Wivenhoe alliance both through their innovationregister and Project Learning SystemThey have clearprocedures for the recording and sharing of good ideasAll of the individual-group- and alliance-level factors cometogether and through well-defined procedures contributeto alliance innovation

Innovation and project alliances 419

Table 133 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash This study reviewed how value was delivered from innovationValue proposition and how the alliance structure supported thisand make-or-buydecision

Chapter 2 ndash The project fell into typical tangible construction project typesProject type and though intangible value was expected as a project outcomeprocurement through learning and improved processes for futurechoice infrastructure work by the client

Chapter 3 ndash The project alliance was highly focused upon internal teamStakeholder stakeholders and providing examples of innovation for themanagement client organisation to replicate and adapt in future

Chapter 4 ndash Project alliances have highly-developed probity and governanceGovernance structuresThis alliance was particularly focused on triple-

bottom-line outcomesChapter 5 ndash This project alliancersquos characteristics can be made sense of Business strategy by reviewing the dynamic capabilities and competitive

advantage strategic management aspects relevant to content inthis chapter

Chapter 6 ndash This chapter links in well with the knowledge advantagePerformance discussed as part of the CMM sectionmeasurement

Chapter 7 ndash Examples of an ICT innovation register (Figure 132) and severalE-business information management registers are provided

Chapter 8 ndash One of the main drivers for alliances is the expectation that itInnovation and can facilitate organisational learning and innovationThis isorganisational of particular relevance to this chapterlearning

Chapter 9 ndash Trust and commitment that melds organisational identity from aCultural series of individual organisations into one alliance requiresdimensions cultural alignmentThis is highly relevant to this chapter

Chapter 10 ndash Achieving alliance objectives requires selection and retention ofSelecting and high-value talent with skills and behaviours that require carefulgrowing talented selection and retention strategiesThis is of high concern topeople alliance partners

Notes

1 A useful web link to 3M to find out more about a range of 3M discoveries andinnovations can be found at URL httpsolutions3mcomwpsportal3Men_USourcompanyinformationhistorycentury-innovation accessed 1 September 2007

2 See wwwmwhglobalcomaualliance-delivery accessed 17 January 2007

References

Bronder C and Pritzl R (1992) lsquoDeveloping Strategic Alliances A Conceptual Frame-work for Successful Co-operationrsquo European Management Journal 10(4) 412ndash421

Bucic T and Gudergan S (2002) The Innovation Process in Alliances The ThirdEuropean Conference on Organizational Knowledge Learning and CapabilitiesAthens Greece 5ndash6 April Mylonopoulos H T N Athens Laboratory ofBusiness Administration 1ndash39

Cohen W M and Levinthal D (1990) lsquoAbsorptive Capacity A New Perspectiveon Learning and Innovationrsquo Administrative Science Quarterly 35(1) 128ndash152

Davis P R (2006) The Application of Relationship Marketing to ConstructionPhD School of Economics Finance and Marketing Melbourne RMITUniversity

Doz Y L and Hamel G (1998) Alliance Advantage ndash The Art of Creating ValueThrough Partnering Boston Harvard Business School Press

Hamel G Doz Y L and Prahlad C K (1989) lsquoCollaborate With YourCompetitors ndash And Winrsquo Harvard Business Review 67(1) 133ndash139

Hampson K and Kwok T (1997) lsquoStrategic Alliances in Building ConstructionA Tender Evaluation Tool for the Public Sectorrsquo Journal of ConstructionProcurement 3(1) 28ndash41

Howarth C S Gillin M and Bailey J (1995) Strategic Alliances Resource-Sharing Strategies for Smart Companies Melbourne Pitman Publishing

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd and Phillips Fox Lawyers 33

Huysman M H Fischer S J and Heng M S (1994) lsquoAn OrganizationalLearning Perspective on Information Systems Planningrsquo The Journal of StrategicInformation Systems 3(3) 165ndash177

Ketelhoumlhn W (1993) lsquoWhat Do We Mean by Cooperative Advantagersquo EuropeanManagement Journal 11(1) 30ndash37

Kwok T (1998) Strategic Alliances in Construction A Study of ContractingRelationships and Competitive Advantage in Public Sector Building WorksPhD Faculty of the Built Environment Brisbane Queensland University ofTechnology

Lingard H and Francis V (2004) lsquoTheWork-life Experiences of Office andSite-based Employees in the Australian Construction Industryrsquo ConstructionManagement amp Economics 22(9) 991ndash1002

Lingard H and Francis V (2005) lsquoThe Decline of the ldquoTraditionalrdquo Family Work-life Benefits As a Means of Promoting a Diverse Workforce in the ConstructionIndustry of Australiarsquo Construction Management and Economics 23(10)1045ndash1057

Lingard H and Francis V (2007) lsquo ldquoNegative Interferencerdquo between AustralianConstruction Professionalsrsquo Work and Family Roles Evidence of anAsymmetrical Relationshiprsquo Engineering Constrcution and ArchitecturalManagement 14(1) 79ndash93

Lingard H Brown K Bradley L Bailey C and Townsend K (2007) lsquoImprovingEmployeesrsquo Work-life Balance in the Construction Industry A Project AllianceCase Studyrsquo American Society of Civil Engineers Forthcoming

Love P E D and Gunasekaran A (1999) lsquoLearning Alliances A Customer-supplier Focus for Continuous Improvement in Manufacturingrsquo Industrial ampCommercial Training 31(3) 88ndash96

Maqsood T (2006) The Role of Knowledge Management in SupportingInnovation and Learning in Construction PhD School of Business InformationTechnology Melbourne RMIT University

420 Rowlinson and Walker

Maqsood T Walker D H T and Finegan A D (2007) lsquoFacilitating KnowledgePull to Deliver Innovation through Knowledge Management A Case StudyrsquoEngineering Construction and Architectural Management 14(1) 94ndash109

Peansupap V (2004) An Exploratory Approach to the Diffusion of ICT Innovationa Project Environment PhD School of Property Construction and ProjectManagement Melbourne RMIT University

Peansupap V and Walker D H T (2005a) lsquoExploratory Factors Influencing ICTDiffusion and Adoption Within Australian Construction Organisations A MicroAnalysisrsquo Journal of Construction Innovation 5(3) 135ndash157

Peansupap V and Walker D H T (2005b) lsquoFactors Affecting ICT Diffusion ACase Study of Three Large Australian Construction Contractorsrsquo EngineeringConstruction and Architectural Management 12(1) 21ndash37

Peansupap V and Walker D H T (2005c) lsquoFactors Enabling Information andCommunication Technology Diffusion and Actual Implementation inConstruction Organisationsrsquo Electronic Journal of Information Technologyin Construction 10 193ndash218

Peansupap V and Walker D H T (2006a) lsquoInformation CommunicationTechnology (ICT) Implementation Constraints A Construction IndustryPerspectiversquo Engineering Construction and Architectural Management 13(4)364ndash379

Peansupap V and Walker D H T (2006b) lsquoInnovation Diffusion at theImplementation Stage of a Construction Project A Case Study of InformationCommunication Technologyrsquo Construction Management and Economics 24(3)321ndash332

Prather C W (2000) lsquoKeeping Innovation Alive After the Consultants LeaversquoResearch Technology Management 43(5) 17

Standing Committee on Industry S A R (1998) A sea of indifference ndash Australianindustry participation in the North West Shelf project Report CanberraAustralia Parliament of Australia House of Representatives ISBN 0 644 507888

Szulanski G (1996) lsquoExploring Internal Stickiness Impediments to the Transfer ofBest Practice within the Firmrsquo Strategic Management Journal 17(Winter SpecialIssue) 27ndash43

Van de Ven A H (1986) lsquoCentral Problems in the Management of InnovationrsquoManagement Science 32(5) 590ndash607

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T and Hampson K D (2003a) Enterprise Networks Partneringand Alliancing In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Eds Oxford Blackwell PublishingChapter 3 30ndash73

Walker D H T and Hampson K D (2003b) Project Alliance MemberOrganisation Selection Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Eds Oxford Blackwell PublishingChapter 4 74ndash102

Walker D H T Maqsood T and Finegan A (2005) The Culture of TheKnowledge Advantage (K-Adv) ndash An Holistic Strategic Approach to theManagement of Knowledge In Knowledge Management in the Construction

Innovation and project alliances 421

Industry A Socio-Technical Perspective Kazi A S Ed Hershey PA Idea GroupPublishing 223ndash248

Walker D H T Wilson A J and Srikanathan G (2004) The KnowledgeAdvantage (K-Adv) For Unleashing Creativity amp Innovation in the ConstructionIndustry Brisbane CRC in Construction Innovation httpwwwconstruction-innovationinfoimagespdfs2001ndash004-A_Industry_Bookletpdf

Wood D J and Gray B (1991) lsquoToward a Comprehensive Theory ofCollaborationrsquo Journal of Applied Behavioral Science 27(2) 139ndash162

422 Rowlinson and Walker

Chapter 14

Business transformationthrough an innovativealliance

Alejandro C Arroyo and Derek HTWalker

Chapter introduction

In Chapter 3 stakeholders and the place of supply chain partners in projectprocurement delivery was discussed Chapter 5 linked strategy with creatingvalue in projects through procurement choices the translation of projectvision into managing portfolios of projects and strategically choosingprojects as well as aligning available resource combinations through strategicprocurement decision making Chapter 9 stressed the value of procurementchoices relating to forms of collaboration as triggering innovation Thesechapters underpin this case study chapter and provide a basis for extendingconcepts raised

A key aim of this book is to introduce the reader to a wider range ofconcepts of project value delivery through procurement decision makingthat has been generally available in a number of the business disciplesThe construction industry has had a growing focus on construction projectprocurement that other PM specialisations may learn valuable lessons from

The aim of this chapter is to provide an innovative example ndash where theproject involved transformation of the supply chain for a group of organi-sations in a realignment that allowed these companies to form a sustainablealliance centred on the construction delivery and operation of a fleet of riverbarges The way that these barges were procured and delivered representeda radical departure from lsquobusiness as usualrsquo to enable participating firms todeliver a sustainable competitive advantage in their normal operational busi-ness activities While the lsquoprojectrsquo may seem superficially straightforward itsstrategic nature allowing the parties involved to transform the way they didbusiness and find a means of synergistically sharing knowledge resulted inthis being a highly transformational project It is as much an example of achange management project and business transformation as one involvingbuilding a fleet of barges There is a dearth of readily available case studiesthat help us understand emerging PM practices from a Latin Americancontext and so this chapter also provides a useful source to help rectifythat deficit

This chapter is structured as follows The next section will outline thegeneral context and background of the project This is followed by a discussionof the underpinning theory that the case study illustrates and presents ndash thelsquowhatrsquo issues The following section then provides case study detailsexplaining the lsquohowrsquo and lsquowhyrsquo issues The last section provides an evaluationand discussion of implications for PM procurement practice

General context

An interest in PM techniques being used to enact a business transformationinformed this chapter One of the authors was intimately involved in aninnovative logistics project in South America involving a complex businesstransformation This occurred by moving from a standard business supplychain management (SCM) product delivery approach towards a PM approachthat integrated organisations previously characterised by a hands-offrelationship The experience introduced interesting and valuable insightsAll principal business participants described in this chapter are linkedthrough experience of working together in another innovative majortransformation ndash the lsquoAtlantic Corridor Projectrsquo

The Atlantic Corridor Project stems from an innovative way in which toaddress problems associated with the logistics of managing projects andcross-border business in a recently emerged trading block in South AmericaSouth America is embarking on an integrated economic and politicalenterprise ndash the Southern Market (Mercosur)1 Also a way to overcomeexisting logistical and trading problems within the region was to linkbusiness interests across the Mercosur in the development of a communityof practice (COP)2 project in which participants were able to virtually meetand take part in lsquointegrating forumsrsquo initially established through an onlinecommunity in various key points in Brazil and Argentina linking industrialhubs with consumer centres along the continent The aim of this project(the Atlantic Corridor Project) was to achieve through an improvedtransportation logistics infrastructure higher productivity and thus makeparticipants accomplish greater economies of scale (Arroyo and Walker2004) Several participants of the project (including the two team leadersunder study in this chapter) were members of that COP and have developeda measure of trust and sound business relationships as a consequenceThis relationship and COP notwithstanding the barriers to commerce aresignificant and real Further local and national media frequently concen-trate on national sentiments and so awarding contracts and conductingbusiness is subject to media pressure and interest that can negatively impactupon preferred business partnership formation in projects such as thatdescribed here

Globalisation pressures and increasing demand for resources by thestrongly emerging Chinese economy has been as fierce in Latin America as

424 Arroyo and Walker

elsewhere in the world The result of this emerging and sustained demandfor raw materials resources and guaranteed stream of supply by Chinesecompanies has not only driven up resource prices but also locked out manylocal recipients of these resources This prompts a re-evaluation of the waythat companies depending on local resources (in a region such as SouthAmerica) approach their business dealings in existing supply chain networksThe rules of the game in South America for steel manufacturers have changedwith the emergence of China as a major purchaser ndash for example hugedemands for iron ore and prevailing high priceslow availability for fuel usedin transporting bulk commodities by barge The geographical context of thiscase study adds to its complexity involving more than 2400 km of river nav-igation along one of the worldrsquos largest fluvial systems the ParanaacutendashParaguaywaterways linking Argentina Brazil Uruguay Paraguay and Bolivia Theproject case study focuses on the construction and operation of fully dedi-cated barge convoys to carry iron ore supplies ex Brazil to Argentina Moredetails of this fascinating project follow in a later section

Underpinning theory

This chapter draws upon SCM leadership business strategy and theory ofthe nature of organisations to reflect and make sense (Schoumln 1983 Weick2001) of the experience described in the case study Data were gatheredfrom documented experiences gained from personal interaction during thefirst project phases referring to project documentation generated during theproject and reflections on critical project-external incidents

SCM business relationships

SCM evolved from logistics management frameworks in the early 1980s(Lambert and Cooper 2000) Its acceptance also benefited from the conceptof value chains and the management of value-adding activities as being theway forward to achieve sustainable competitive advantage (Porter 1985Normann and Ramirez 1993 Womack and Jones 2000 Champion2001) Many standard manufacturing organisations have moved fromad hoc supply arrangements towards a more strategic lean SCM approach(Cox 1999) Advantages are well documented from a number of industrysectors including oil and gas computer component manufacturers chemicalindustry automotive and aerospace (Bessant et al 2003) SCM advantagesinclude better supply reliability improved quality culture alignmentbetween supply and producers and improved valuable knowledge transferleading to waste reductions improved competitive advantage to the partic-ipating chain of organisations and production simplification (Cox 1999Michaels 1999 Croom et al 2000 Dubois and Gadde 2000 Bessantet al 2003 Childerhouse et al 2003) Also a trend has emerged towards

Business transformation through alliance 425

project managers taking a supply chain management approach particularlyin the construction industry (Akintoye et al 2000)

This has been evident from project managers concentrating on workingmore closely and openly with fewer competing suppliers so that mutualunderstanding can reduce transaction cost inefficiencies caused by excessivenumbers of members of a supply chain wasting time developing quotes andtender proposals under extreme time pressures (Akintoye et al 2000)Reducing the number of competitors invited to quote for a contract (to afew well-qualified and credible suppliers) improves mutual understandingbetween parties and not only reduces risk and uncertainly relating to poorinformation and knowledge flows about the products to be delivered butalso results in improved relationship management leading to innovativemutual winndashwin problem solutions (Bessant et al 2003)

Thus SCM has either influenced how projects are being managed orthere has been a confluence of strategic thinking that has led projectmanagers to embrace SCM principles not only on projects but acrossprojects to programmes and portfolios of projects Tan (2001 41) linksSCM through corporate vision directly to strategic planning and fromthere to the development of processes designed to support tactical plansto execute an SCM strategy that delivers customer satisfaction which inturn generates sustainable business results This emerging theme has beenexplored and investigated in terms of how sophisticated organisations linktheir strategic management of projects programmes of linked and relatedprojects and whole portfolios of programmes (Morris and Jamieson2004) Thus the link between formerly isolated manufacturing activities(that relate to delivering an product or service) and a project (that deliversa specific outcome) has become increasingly evident as a value-creatingproposition delivered in a project management context using a variety oftools and approaches (such as SCM strategic positioning and generalproject management methodologies)

What has driven this evolution How can we better understand how thiscan be applied in practice In answering the first question two generalforces can be discerned as drivers First there are internal forces such asadoption of the evolving management theory and its practical applicationby senior managers PM advances have provided fertile ground for projectmanagers to experiment using theories (whether explicitly learned ordiscovered as part of osmosis from colleagues educational institutionsor general media sources) that they can test and refine ndash this is a form ofknowledge or innovation lsquopushrsquo Second there are strong knowledgeinnovation lsquopullrsquo forces at work The need for sustainable business devel-opment provides an acute force for organisational and individual membersrsquosurvival This force is manifested by the current acute competition on awider regional and global scale Customer (and supply chain stakeholder)expectations have also been sharpened with increasing demands for greater

426 Arroyo and Walker

value to be delivered Naturally force field analysis could unearth a lengthyfactor breakdown structure however two principal forces (pull and push) canbe generally used as a framework for understanding the evolution of thistrend Thus using this simplified framework on an interesting case study it ispossible to better understand how this business transformation is taking place

Strategic management influences andorganisational responses

Disruptive regionalisation and globalisation forces have challenged theway that many organisations can viably maintain a sustainable businessThese forces are organisation-external and must be responded to Chapter5 discussed the prescriptive strategic schoolsrsquo focus on strategy throughdesign planning and positioning that partially explain how strategy evolvesin a conscious way where it is sculpted from the situation Descriptivestrategy schools centre on motivation and what is going on in the mind ofstrategists be that entrepreneurial desire a cognitive psychology approachto explain decision-making processes a focus on learning with strategy asbeing an emerging experimental process a power process of negotiationand political decision making a cultural process by recognising collectivedecision making based on a variety of perceptions and assumptions of whatneeds responding to or an environmental process where strategy respondsto ndash rather than shapes ndash the environment in which strategic decisionmaking needs to be made The configuration school sees strategy as aprocess of transformation dynamically responding to periods ranging fromrelative stability to high levels of turbulence

In this case study the parties moved from a competitive stance where eachparty sought their part in any given projectrsquos supply chain through intensecompetition to one where they built a clustercoalitionalliance They didthis by forming a joint venture of selected supply chain members who theyfelt they could cooperate with This required significant change in businessprocesses and leadership style Through this action the group decided torespond to the turbulent external environment by leveraging social capitalgenerated through engagement on the Atlantic Corridor Project Their aimwas to transform the way they did business through their memberrsquosemergent learning and mutual adjustment They also leveraged their powerwherever possible to their advantage as a cluster to lock in materials supplyfor the steel manufacturing project partner and to provide synergistic busi-ness opportunities to other partners in the newly formed supply chain forthe project It was in some respects planned for but as we explain thestrategy also emerged and was highly wrapped up in the regionrsquos culture

The nature of the firm can be viewed from a number of perspectivesThe resource-based view (RBV) sees organisations as a set of competenciesand resources providing competitive advantage that can be deployed to

Business transformation through alliance 427

successfully undertake business activities (Conner and Prahalad 1996)Competencies have been argued as being a vital resource (Prahalad andHamel 1990) including knowledge (Conner and Prahalad 1996) Furtherorganisations now need to respond to turbulence and market uncertaintyby developing a set of dynamic capabilities that allow them to be flexiblelean responsive to disruptive change and become learning organisations sothat they can interact more effectively with both upstream and downstreamsupply chain members (Spender 1996 Teece et al 1997 Eisenhardt andBrown 1999 Eisenhardt and Martin 2000)

Courtney et al (1997) argue that in turbulent and rapidly changingcircumstances traditional strategic planning horizons are dangerously con-stricting and confining They categorise four levels of uncertainty withcorresponding strategic responses Level 1 with a clear enough future that canbe planned for using the traditional strategic toolkit as described by the posi-tioning school of thought (Mintzberg et al 1998 chapter 4) Level 2 withalternative futures lends itself to concentrating on a few discrete outcomes thatdefine the future using analytical tools game theory and so on Level 3 com-prises a range of possible outcomes but no natural scenarios where scenarioplanning can be used Level 4 is in the realm of true ambiguity with no basisto forecast the future so the main tools used for planning would be emergentby drawing analogies recognising patterns and using non-linear dynamicmodels Transformational organisational change will respond to the perceiveduncertainties and dynamic capabilities being developed by firms

Fenton and Pettigrew (2000) provide a comprehensive summary of workbased on the large-scale international INNFORM research programme(Pettigrew and Fenton 2000 37 Pettigrew et al 2003) They cite findingsfrom their study of European organisations that during 1992ndash1996 therewas a 65 increase in alliance formation and 65 increase in outsourcingThese turbulent changes have been driven by globalised competition andregionalised trading blocks Thus a distinct pattern of business supply chainpartner re-alignment and cooperative arrangements is becoming evident thatresponds to the emerging reality of global business In this context nationalboundaries seem to be increasingly irrelevant Globalisation particularlylsquofreersquo trade has forced organisations to be competitive not just within theirlocal context but to be able to withstand explicit and potential pressure fromcompetitors completely outside national boundaries Regionalisation miti-gates to some extent against globalised competition through countriesforming trading blocks where preferential treatment may be afforded toorganisations in member states ndash for examples in the European Union andthe Mercosur in Latin America However even within these trading blocksstiff competition arises out of the inevitable rationalisation and reconfigurationof infrastructure that can then force a disruptive influence on firmspreviously comfortably protected by national monopolies or local advantagespreferences

428 Arroyo and Walker

One recommended response to deal with these kind of external threatsand challenges is to form alliances or more closely working with clustersof organisations to be more competitive by working together rather thanseparately competing ndash as has been traditional in Japan (Anchordoguy1990) Clusters have naturally occurred within convenient geographicalproximity exemplified by the electronics industry in Silicon Valley theCalifornian wine industry and the fashion industry in Italy (Porter 1998)Clustering has been effective because it allows firms to act is if they hadgreater scale resources and capabilities whether that is through formal orinformal relationships with others in their cluster (Porter 1998 80)However this does require firmsrsquo leaders and managers to acquire anddevelop excellent relationship management skills because their new skillsrelate to effective persuasion and lobbying for collective action rather thanuse of command and control power The formation of clusters alliancesor forms of joint ventures is congruent with recent moves towards betterintegrated SCM (Croom et al 2000 Lambert and Cooper 2000) as high-lighted earlier Chapter 3 discussed how stakeholder management requiresan acute appreciation of the nature of trust and distrust and how thoseconcepts and the concept of commitment link to managing relationships

The emergence of SCM and clustering of organisations to respond toglobal and regional trading challenges has forced a change in emphasisin what can be considered as the main competencies of project managersand organisational leaders It is because these new structures requireadditional skills and competencies to previously reported leadership andPM characteristics (Kotter 2001) that include impact and influence-basedcompetences such as understanding power and influence processes (Bourneand Walker 2004) as well self-control and flexibility characteristics (Daintyet al 2003 2004 Dainty et al 2005) Principally amongst these is atransformational leadership style that matches the transformationalbusiness task that these firms face

Transactional leaders motivate subordinates to perform as expectedThey do this by helping them recognise task responsibilities identify goalsacquire confidence about desired performance levels and understand thattheir needs and the desired rewards are linked to goal achievement (Bassand Avolio 1994 53) There is an explicit or implicit understanding thatthe leader independently or with the follower specifies expectations with aperformance measurement system in place to reward desired behavioursand outputs The goals are defined and specified as are the means Avolio(1996 5) argues that transformational leadership requires lsquothe four Irsquos ndashIdealised influence Inspirational motivation Intellectual stimulation andIndividual considerationrsquo Transformational leaders motivate individuals toperform beyond expectations by inspiring them to focus on broadermissions transcending their own immediate self-interest concentrate onintrinsic higher-level goals (achievement and self-actualisation) and not

Business transformation through alliance 429

lower-level goals (safety and security) and be confident in their abilities toachieve the missions given by the leader (Bass and Avolio 1994) We canproject this behaviour beyond individuals to SCM behaviour that respectseach memberrsquos value proposition A mix of transformational leadership bythe lead agent in the supply chain can provide inspiration and vision andtransactional behaviour and the detail can be observed by governancearrangement behaviour (discussed in Chapter 4) and trustndashdistrust issues(discussed in Chapter 3) SCM and stakeholder management can be explainedin terms of leadership behaviours of the lsquoleadrsquo partners in the supply chainand the maturity of followership of others in the supply chain

This section reinforced theoretical discussion elsewhere in this book andprovides us with a useful view to analyse the case study reported upon inthis chapter It helps explain how an extremely turbulent business environmenttriggered change and how the experiences and relationships of principalparties to the alliance shaped their strategic SCM response

Case study details

The project comprised a highly customised design that was developedto suit a series of complex logistic constraints of a steel-manufacturingcompany belonging to a large transnational industrial conglomerateProject participants were located in Argentina and Paraguay Geographyinfluenced the project logistical design as it is an extremely complex processto transport steelmaking raw materials by river barge over 2400 km acrossnational borders along one of the worldrsquos largest river systems River bargetransport remains the most financially viable mode of transporting suchmaterials An important facet is that case study participants shared a pasthistory of business interaction and collaborated through the AtlanticCorridor Project e-collaboration3 network (Arroyo and Walker 2004) Thiscollaboration cemented trust and the necessary relationship commitmentand goodwill that provided the underpinning for attempting to transformthe way the collaborating firms participated in a valuesupply chain Thisinnovative approach represents an interesting example of a project (thatcould be seen as part of a programme or portfolio of projects) that helpsexplain how a business transformation was delivered through a series ofprojects in a portfolio of change initiatives

Physical outcome project general description

The specific project focused upon in this study comprised the constructionand operation of fully dedicated barge convoys to carry iron ore suppliesfrom Brazil to Argentina commencing in 2003 and phased over six yearsThe first phase comprised development and acceptance of an innovativelogistics design solution and its realisation through the construction of new

430 Arroyo and Walker

barges and leasing of existing barges The project had in-built replicationpossibilities to roll out a series of similar projects The following proposalas illustrated in Table 141 was accepted to describe the broad scope of thesix-year project (with the prospect of a larger follow-on project)

The first barge unit required 90 days to be built with a maximum of30 days for every subsequent built barge A group of 12 leased barges wassourced surveyed approved and chartered from one of the smaller bargeoperators Figure 141 illustrates a typical barge convoy A reliable riveroperator was introduced into the project team and persuaded to operate theconvoys under strict efficiency standards throughout the six-year contractduration Three potential shipyards were approached in Argentina BrazilParaguay and invited to bid for the barge-building contract using steelsheets for the barges to be supplied by the steel-manufacturing companyfrom one of its plants in Brazil

Business transformation through alliance 431

Table 141 Project proposal scope

1 One fully dedicated barge convoy 7 12 days sailing up-river 11 days12 months a year sailing down-river 2 days loading

unloading 1ndash2 days open2 Building 12 barges of 2500 tons each 8 Gross operational time 25ndash27 days

30000 tons capacity 1 trip every month3 One suitable tugboat of lsquopusherrsquo type 9 Total annual volume 250000 tons

basis 4500 horse power or ndash 10 basis 6 years contract4 Port Loading at Ladario Corumba 10 24 hours loading24 hours unloading

SobramilBrazil5 Speed 5 to 6 knots up-river and 11 Barge dimensions basis 65 m

8 to 9 knots down-river length by 15 m width6 Port Discharge at San Nicolaacutes 12 Building of new barges basis

Argentina US$490000 each

Figure 141 Typical barge convoy on the River Plate

This project presented logistical challenges within an increasinglycomplex business environment that demanded high levels of leadership andstrategy by participant executives (project team leaders) A high level ofenvironmental contextual uncertainity was presented by the global natureof the steel companyrsquos supply sources the impact upon global buyers andsellers of Chinarsquos raw materials demand and the business practices ofshipowners and port terminals During the 1990s the river transportationindustry was sharply re-engineered with introduced capital concentration tosubstantially replace ad hoc casual service provision and lack of effectivecompetition Also the river operatorsrsquo behaviour made leasing agreementswith a smaller number of dominant river operators highly problematicTactics used by one operator over its rivals included instigating prolongedlegal challenges over dubious unpaid debts and seizing chartered bargesThis illustrates the tough and antagonistic business negotiating style thatexemplified the river operatorsrsquo business culture

Change management general description

Table 142 illustrates the project participant context The steel-producingfirm in the consortium had to quickly adapt to a changing business contextto meet urgent steel production supply needs whilst meeting steel exportdemands Achieving this project was of utmost importance to meet growingexports by supplying the steel companyrsquos recently opened production line asa way to capitalise on an increasing international price for steel productsThe steel firmrsquos vision was to transform itself through an innovative processbased on improving business performance and continued efficiency as a wayto compete in the global market while completely changing the way decisionmaking was made

Manu S was under intense pressure exerted by accelerating global marketforces that were driving up costs of raw resources from Brazil used forsteel manufacturing products in its Argentinean plant and thus radicallychanging demand patterns Chinarsquos rise as a major economy over recentyears demanding greater iron ore and related resource supplies placedtremendous pressures on Manu S

Iron ore and magnesium reserves (that are key raw materials utilised inthe steel industry) in the Matto Grosso do Sul area of Brazil is estimated at150m tonnes Argentina lacks these strategic minerals and is thereforeincreasingly dependent on Brazil as a supply source for globally exportedsteel manufacturing products Steel that is produced not only suppliesArgentinarsquos domestic market but also generates foreign currencyTraditionally a single Argentine multinational group dominated thiscommercial activity with supply sources globally spread to avoid anysupply concentration that might negatively impact on the production

432 Arroyo and Walker

cycle or on their supply chain Supply sources were utilised as needed bybalancing the opportunity cost of stockpiling materials versus shipping it ona just-in-time basis from a limited set of sources About one-quarter of thesupply needs was thus allocated in a highly transitionally minded mannerto historical supply origins of raw materials providers as indicated inTable 143

Business transformation through alliance 433

Table 142 Project participant context

Critical playersSteel manufacturing company (Manu S) is based in Buenos Aires with 4000 employeesand showing an annual turnover exceeding US$1 bn belonging to an industrial con-glomerate with annual sales of US$32 bn and 16000 employees worldwideTheArgentine steel manufacturing company at present operates with global efficiencydepends upon global cooperation works on global basis is customer-focused and hasintegrated its worldwide products and associated services supply chain

Logistic consulting company (Logi L) is a Buenos Aires-based firm specialising in theformulation and implementation of complex logistic designs with offices all overLatin America to service its clientrsquos logistic projects in areas of difficult physical accessThey are highly specialised in providing logistics advice in the oil gas power infrastructureand mining industry sectors Customers are large transnational corporations undertakingprojects throughout the Latin American regionThis company possesses a great volumeof tacit knowledge that is very difficult to imitate in an ever-increasing market position

Barge operator company (Barge B) is based in Asuncioacuten in Paraguay this is one of thevarious river transportation firms that went through a re-engineering process duringthe 1990s by disposing of most of their floating assets and shore facilities It maintaineda very efficient small operation based on its deep knowledge solid planning and soundstrategy and was probably the only remaining operator skilful enough to undertakethis project and to deal with large powerful and demanding transnational firms

Instrumental playersBarge Brsquos shipping agent based in Buenos Aires and a barge owner himself during the1990s and ex-partner of the Paraguayan barging company acted as a cultural bridgeand managerial interpreter between the Argentine steel transnational and theParaguayan barge operator

Shipyards competing shipyards in Argentina Paraguay and Brazil actively influencedthrough lobbying both critical and instrumental playersTheir technical skills socialcontacts and community impact were some of the variables cleverly utilised by theshipbuilders and the client

Competition if competitors perceived that capital concentration provides too muchdominance over the waterways market in this part of South America then therewas a potential threat that competitors would tend to retaliate to impede theaccomplishment of the project however this threat was not significant due to theirshort-sighted strategy of relying excessively on their market dominance

Banks these were purely instrumental in approving or rejecting the project from afinancial standpoint

Media were instrumental in lobbying for the location where barge building was goingto take place

The situation represented by the case study is one of a highly volatile andturbulent environment The impact of Chinarsquos entry into the globalprocurement scene of acquiring steel production resources could have pro-vided a tipping point (Gladwell 2000 Kim and Mauborgne 2003) tippingthe balance between a past regime of one environment to anotherEstablished relationship power balances and emerging ways of workingglobally have been changing to the extent that past ways of operating arechallenged in todayrsquos global competition context Corporate players see thissituation as a business reality and need to adapt and align their actions tothis reality for survival

434 Arroyo and Walker

Table 143 Project steel products supply source characteristics

Matto Grosso do Sul ndash Brazil rated as of very good product quality though of poorlogistic performance with barge convoys sailing 2400 km along the ParanaacutendashParaguaywaterways Reaching the final destination on time and on budget involved a numberof difficult operational and commercial constraints Critical stocks had to be increasedwhile this supply sourcersquos relative share tended to diminish to accommodate othercustomers

Newcastle and Fremantle ndash Australia relatively lower quality iron ore was regularlysupplied on ocean-going vessels in shipments of up to 40000 tons ships of 60000tons deadweightThese vessels had high capacity but were underutilised due to RiverPlate draft limitations (meaning higher ocean freight rateston) though this was usefulin offsetting supply shortfalls arising out of waterway logistic bottlenecksA fullshipment from Australia delivered 40000ndash45000 tons with 30 days transit timewhereas a full convoy on the waterways often represented a tonnage ranging from18000ndash30000 tons and a transit time of 15ndash60 days It became clear that thevariability of volumes to be carried and sailing times on the waterways wasdisadvantageous even without considering port congestions at the Brazilian terminalsRiver draft variability was subject to a dynamic seasonality and further regulatoryframework constraints

Mobile USG ndash Alabama United States although the product was of high qualityand the transit time andor certainty of physical delivery was much better than thosepreviously mentioned draft limitations on the River Plate limited the size of vesselsand so logistics economies of scale were not achievedThis supply source resulted inbeing similar to that of Australia However Mobile was an efficient supply source ableto quickly offset any shortfall of other sources owing to its relative geographicalproximity and ample ship tonnage supplyThese variables were reinforced by existingeasy access to the commercial or negotiating channels to reach both shippingcompanies and qualified shipbrokers However this supply source also started todiminish with an increasing degree of preference to serve customerrsquos orders comingfrom ChinaThis choice resulted in relatively larger volumes being available andhigher prices being demanded for the product than was the case for being deliveredvia the River Plate

SepetibaTubarao Carajas ndash North Eastern Brazil quality was not the best thoughproduct delivery response by the producer and transit times resulted in being close tooptimal However continuous labour strikes unannounced port lock-outs and the RiverPlate draft limit ndash affecting all ocean sources alike ndash effectively restricted this relativeshare of the supply source to no more than one-fourth and often less than that

We will first argue that Logi L had a transformational impact uponManu S but we also argue that the project-external environment plays asignificant part in determining Manu Srsquos behaviour and how this behaviourrepresented a significant change in the way its leadership group behavedand that it realigned its strategic direction

The outcome was that Manu S accepted Logi Lrsquos proposal that requireda radical change in Manu Srsquos behaviours towards procuring its resources forits business operation It had to move from a highly transactional approachthat played raw material suppliers barge operators and port operators inthe logistical supply system against each other to get the cheapest price forservice towards a more sustainable negotiated settlement of long-termcontracts backed up by real commitments for performance Given the riversystemrsquos logistical supplierrsquos historical short-termism poor safety recordand general unreliable performance the transformation evidenced byManu S can be regarded as remarkable and worthy of scrutiny throughthis case study analysis The project was successfully delivered and provideda model for an extension to this approach This has changed businesspractice and procurement decisions for Manu S for this aspect of itsbusiness activity

Discussion of the case study context

One of the first issues to be explored in making sense of this case studyis trying to understand Manu Srsquos strategic quandary During and beforethe early 1990s Manu S enjoyed a commanding position in sourcing rawmaterials with a number of service and materials suppliers that could beplayed against each other

Further many river operators involved in transporting materials hadbeen fragmented with their behaviours being highly opportunistic withformal supply agreement contracts being broken when it suited them riskinglegal redress or financial penalties that were deemed less damaging forexample taking opportunities to undertake short-term transport work athigher rates than committed to by Manu S This behaviour locally translatedin English as being lsquoinformalrsquo ranged from breaking contractual commit-ments asserting losses from sinking or grounded barges and thus makinginsurance claims and other practices that would be considered unethicalprobably illegal and certainly not representative of behaviour that can forgealliances or sound relationships This represented a pressure for Manu S topursue a highly transactional approach to business relationships with itssupply chain for the procurement of raw materials along that supply chain

In addition lsquobest valuersquo represented cheapest price to Manu SMaintaining lsquosafersquo stock levels could be optimised by taking advantage ofa balanced supply that offered options where one potential supply sourcefailure could be compensated by another readily available source While the

Business transformation through alliance 435

costs of a short-term poor choice could be inconvenient it could neverthelessbe mitigated against the organisationrsquos purchasing power Yukl (1998)describes various bases of power including legitimate power in which thelegitimacy of being the major client can force subservient behavioursTable 143 indicates that Manu S had a number of options Until the emer-gence of China as an economic power affecting demand for raw materialsto make steel there was an equilibrium position where despite earlierhighlighted difficulties Manu S had the upper hand in any negotiationsover any supply and logistics procurement system providers This situationchanged as the demandndashsupply equation tipped in the late 1990s to early2000 period Thus a shock was administered to a hitherto relatively stablesituation even though experience indicated that the supply of river trans-portation services could be characterised as an unprofessional and chaoticscramble determined by the actions of many small-time wildcat operatorsseeking short-term gains This ad hoc situation was gradually choked off bythe consolidation of many of the wildcat barge operators and river portoperators into a more dominant smaller number of operators who shapedtheir business potential

Two driving forces can be identified First the force of Chinarsquos globalemergence tipped the balance of existing demand patterns to transform thenature and scale of resource supply and delivery demands The cost of bothsteel raw materials and oil used as fuel for transportation and energy rosesubstantially Second there was a consolidation and rationalisation in riverlogistics distribution system suppliers This left Manu S vulnerable in bothareas of raw procurement and a reliable distribution system Both factorshad a detrimental impact upon the coercive and legitimate power positionthat Manu S could maintain

The emergence of the Mercosur and the experience that Manu S sharedwith Logi L in being engaged in other cooperative ventures opened uppossibilities for Manu S moving from a highly transactional business strategyto a relationship-based one The important competitive advantage shiftedfrom a cost-based advantage built upon price-dominant power to a sharednetwork of contributors model where more sophisticated trade-offs occurthat at one level are transactional (the lsquowhatrsquos in it for mersquo syndrome) Thisled to a more relational and long-term strategy where the dominant directiveis potential and realisable synergies in the near or long term with a trustthat the potential will be not only realised but that it will be realised to amore fruitful extent than is likely in the purely transactional approachManu S has a track record of being very sophisticated in recognising oppor-tunities and so it is not surprising that it would be open to transformationalinfluences provided that benefits are apparent and perceived as realManu S showed a propensity to manage both transactional and transfor-mational behaviour The experience that Manu S developed by working onthe project through the interaction with Logi L and Barge B opened up

436 Arroyo and Walker

possibilities for an innovative approach to solving a supply chain problemin which Manu Srsquos board approved changes that triggered transformationalchange to its project leadership team role

Making sense of the case study

Stakeholder management behaviour of the supply chain was indicated bythe mix of transactional and transformational leadership style Transactionalleaders motivate subordinates to perform as expected by helping themrecognise task responsibilities identify goals acquire confidence aboutdesired performance levels and understand that their needs and therewards desired are linked to goal achievement (Bass and Avolio 1994 53)There is an explicit or implicit understanding that the leader specifiesindependently or with the follower a set of expectations and there is aperformance measurement system in place to reward desired behavioursand outputs The goals are defined and specified as are the means

In this case study Logi L had transformational leadership behaviour inits role of proposing and facilitating innovative approaches to logistics andengaging Players S and B to support and experiment with this idea

In many respects management can be seen as transactional that is gettingthings done through shifting balances of power towards an acceptablesolution as a set of compromises amongst conflicting values Leaders tend tobe transformational in that they develop fresh approaches to long-standingproblems They project their ideas onto images that excite people to givethese ideas substance (Zaleznik 1977) Manu S clearly took an organisation-ally transformational approach to its PM approach on this project with itsboard supporting its continuance and growth towards a second and potentialthird contract in this form

The fluctuations in oil prices rises in raw material prices due to Chinarsquosdemand and changes in the river transport operatorsrsquo structure provideduncertainty but these could be classified as presenting a Level 2 or Level 3uncertainty (Courtney et al 1997) The required strategic responses to thislie between Level 2 a lsquoclear enough futurersquo where a single forecast preciseenough for determining strategy could be employed and Level 3 lsquoalternatefuturesrsquo where a few discrete outcomes that define the future could beemployed Uncertainty can prove a trigger that forces organisations tochange their decision making and strategic approaches forcing adaptationto changed circumstances in order to survive (Meyer et al 1990)

Transformation such as that experienced by case study participants overthe past decade can be seen as typical of evolving environments whereperiods of relative equilibrium are punctuated by radical discontinuouschanges Gersick (1991) draws upon change theory occurring in individualsgroups organisations scientific fields biological species and a grand theoryapproach to argue that change occurs in this way when the deeper structures

Business transformation through alliance 437

that maintain equilibrium are challenged and forced to adapt to newconditions and that these can be stabilised until that equilibrium issufficiently challenged to require a revolutionary change This links to theclassical model put forward by Lewin (1947) in which study of the forcesacting upon a system can lead to an action plan in which a three-step modelof unfreezing moving forward towards a new stable state and then re-freezingtakes place The change management approach advocated by Lewin can beseen as a transformational process If we look at this case study from anindustry level we can use the model developed by Meyer et al (1990) to seeadaptation taking place as an evolution process where industry playerstrack small changes and adapt accordingly until the adjustments madecause internal tensions that create abrupt or revolutionary change becausethe previous system can no longer support the large numbers of smallchanges At the firm level managers and leaders instigate incremental changesoften using a transactional leadership style to cope with evolutionary changeuntil the situation reaches a revolutionary change point where as proposedby Greiner (1998) metamorphosis is required This requires organisationaltransformation as well as transformational leadership The strategy of beinglsquokingrsquo and directly procuring and organising raw material purchasingas well as completely outsourcing transportation logistics was becomingincreasingly difficult and uncertain in its outcomes

Further the situation was moving from a more loosely coupled systemtowards a more tightly coupled one because the slack and contingency rawmaterials storage capacity strategies that protected Manu S against poorlogistics performers was no longer adequate and also the opportunity costwas commercially unviable Manu S was being squeezed through globalisa-tion to move towards being more competitive and was also pursuing a dualstrategy of cost reduction and innovation in its SCM This indicates a focuson strategic competitive advantage (Porter 1990) The case study projectwith its relational based characteristics (of an integrated material deliverysystem of a dedicated barge convoy strictly compliant with safety and better-business practices as opposed to the previous informal ad hoc approach)indicated a transformational shift by Manu S influenced by Logi Lrsquos offeredproposal Manu S can be viewed as behaving in a transformational mode inresponse to being partially influenced by the transformational style ofmanagement by Logi L However Manu S still exhibited strong transac-tional behaviours with this being influenced by its organisational cultureManu S senior managers tend to mainly come from an engineering back-ground where analytical skills attention to detail and highly cost consciousvalues prevail and where the observed culture was also very homogeneousin terms of this engineering background as the career path

Much of the external pressures placed upon Manu S by the externalenvironment led Manu S towards a managerial and transactional stanceTwo examples of this are offered the impact exerted by a rising Chinese

438 Arroyo and Walker

dominance on the demand and supply balance for business interactionsthat Manu S has with its supply chain and the opportunities andchallenges triggered by a changing landscape of consolidation of previouswild-cat barge and port operators along the river system that were usedto transport vital resources The problems being addressed and solvedrelated to optimisation of returns for Manu S Also how to cope with achaotic and turbulent business environment where the relative stabilityof lsquorulesrsquo or modus operandi was subject to power shift changes away fromManu S as lsquokingrsquo to one where it was pitted against Chinese trading intereststhat began to dominate the change in preferred business partner

Prior to the changed environment becoming a clear and present dangerto Manu S a relatively stable environment dominated this situation whereManu S had sufficient market power and range of suppliers to be able tooptimise its raw material stockpiles between what was needed for immediateproduction and what was needed as a buffer stock Finished steel pricesfor manufacturing prior to the emergence of China as a mass marketincreased from 2001 to 2004 by some 70 (see oil and gas journalwwwogjonlinecom) Manu S responded to this changed environment byinvesting in a new plant to cope with growing demand However thistriggered greater pressure to ensure raw material supplies and be able totransport that supply as well as transport finished goods to customerswithin the Mercosur Thus the balance of power shifted for Manu S from asituation of dominance to being a contributing part of a broad supply chainfor its products that included the important transportation link in thatchain This established a need for Manu S to improve its relationship andvalue chain management with participants in its supply chain

The response that Manu S adopted was to join in this project as an activeparticipant and to follow through with plans to repeat the experiencefor further similar projects ndash adopting organisational transformationThe business transformation triggered by the participation of Manu Swas managed as a project Risk management planning coordination costmanagement and all the usual aspects of project management methodologiesand body of knowledge (PMI 2004) were applied

Manu S saw no need to be intimately involved with the business ofriver logistics prior to the transformation considering that river logisticswas outside its core competencies However Manu S senior executivesshifted their stance in agreeing with the view that outsourcing lsquooftenmeans becoming hostage to providers who may feel tempted to graduallyraise prices and reduce servicesrsquo (Auguste et al 2002 54) They recog-nised that by participating in this project they could gain better valuefrom the relationship in terms of reducing the uncertainties that theyfaced or at least to better cope with the market and physical uncertain-ties They were able to better shape in conjunction with Logi L andBarge B a more attractive future including the business generated from

Business transformation through alliance 439

supplying the steel to construct the barges to be used while helping tostabilise the uncertainty they faced Thus they were able to transform asevere business threat into an opportunity They also positionedthemselves through this project to be in a better position to learn fromthe experience and to fine-tune the next iteration

440 Arroyo and Walker

Table 144 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash The value proposition of the supply chain members wasValue proposition extremely important to supply chain members By choosingand make-or-buy an alliancejoint venture procurement form Manu S continueddecision its outsourcing strategy but brought the players closer to its

organisational coreChapter 2 ndash The barge fleet aspect of the project was akin to an engineeringProject type and project but it also involved a major change management procurement project with highly complex and evolving high relational andchoice integrated design and delivery aspects and also making

large-scale cultural adaptationsChapter 3 ndash A high level of supply chain team stakeholder managementStakeholder effort was evident through undertaking the transformationmanagement from lowest cost to a relational basisThe project focused

upon SCMChapter 4 ndash The trust and distrust issues needed to be considered andGovernance designed into the arrangement with an appropriate governance

frameworkChapter 5 ndash The case study was centred on a strategic decision to changeBusiness strategy the way that this kind of project would be procured for

Manu S It went from a hand-off supply of steel raw materialssupply to an integrated SCM using an emergent approachtriggered by business turbulence

Chapter 6 ndash There were performance measures built into the procurementPerformance system but space limitations inhibited us from discussingmeasurement these in depth

Chapter 7 ndash There were no e-business issues raised here though primeE-business players first collaborated through an e-informing interactive

portal developed as a means of triggering collaboration (the Atlantic Corridor Project)

Chapter 8 ndash The chosen procurement approach promoted knowledgeInnovation and sharing and organisational learning across the supplyorganisational chain for the approach to worklearning

Chapter 9 ndash The change management aspects had many links to this chapterCultural both from a cross-national and organisational culturedimensions perspective

Chapter 10 ndash This case study did not address any of the issues raised in thisSelecting and chaptergrowing talentedpeople

Conclusions

The case study demonstrates the context and indicates the drivers thattriggered a transformation in the organisation and management style ofManu S This player moved from a totally transactional approach to one offorming a partnership and while it is true that many transactional elementsremain (such as requirements that indicate a concurrent healthy trust anddistrust mitigated by governance by contracts and more tightly bindingagreements with the project partners) the change in business practice couldbe classified as transformational The leadership style indicates mixedtransactional and transformational elements Strategic decision makingin the case study is consistent with a configuration strategic approach(Mintzberg et al 1998) This led to behaviours that supportedimproved SCM and stakeholder management that were designed into theprocurement choice

The trigger for the transformation appears to be mainly contextual Thechanged environment demanded more than adaptation for survival with arequired metamorphosis in business practice Logi Lrsquos offering to design alogistics solution with the key Barge Brsquos involvement facilitated this Logi Lcould be seen as having a particular transformational leadership influenceupon Manu S Both Logi L and Barge B had important deep tacit knowledgeto contribute to help Manu S make the necessary logistics business modeltransformation

The purpose of this chapter is to provide a practical case study exampleof a project procurement decision and how it links to theory discussedin other chapters in this book This chapterrsquos focus centres on strategicdecision making SCM and to some extent stakeholder management

Analysis of this case study helps us to make sense out of a messy anddifficult situation that faced Manu S using a range of management theoryand literature Table 144 provides a summary of lessons from the casestudy linked to the chapters presented in the book

Notes

1 The Mercosur was established like the European Union to better integrate thecommercial political and cultural life of its block of members These membercountries include Argentina Bolivia Brazil Chile Paraguay and Uruguay withPeru Venezuela Mexico and South Africa as potential future members Emergingtrading blocks have to overcome a bewildering array of local laws and regulations(national as opposed to cross-country legislation as well as harmonising cross-country legal requirements) that impede their integration goal While many ofthese laws and codes are explicit their interpretation and application is subject toa great deal of tacit knowledge A further Mercosur aim is to rationalise andimprove integration of its infrastructure and logistical transport systems

2 See Chapter 8 for further details of COPs and their role in knowledge sharing andproblem solving

Business transformation through alliance 441

3 Participants from remote and central regions across the Mercosur agreed to meetonline twice monthly in a virtual meeting place with the aim of finding ways tosolve logistical problems within a 24-hour period

References

Akintoye A McIntosh G and Fitzgerald E (2000) lsquoA Survey of Supply ChainCcollaboration and Management in the UK Construction Industryrsquo EuropeanJournal of Purchasing amp Supply Management 6(3ndash4) 159ndash168

Anchordoguy M (1990) lsquoA Brief History of Japanrsquos Keiretsursquo Harvard BusinessReview 68(4) 58ndash60

Arroyo A C and Walker D H T (2004) A Latin American Strategic Communityof Practice Experience 18th ANZAM Conference Dunedin New Zealand 8ndash11December ANZAM 11 pages on CD-Disk proceedings

Auguste B G Hao Y Singer M and Wiegand M (2002) lsquoThe Other Side ofOutsourcingrsquo The McKinsey Quarterly (1) 52ndash64

Avolio B (1996) Whatrsquos All the Karping About Down Under In Leadership researchand Practice Parry K W Ed South Melbourne Pitman Publishing 3ndash15

Bass B M and Avolio B J (1994) Improving Organisational EffectivenessThrough Transformational Leadership London Sage

Bessant J Kaplinski R and Lamming R (2003) lsquoPutting Supply Chain LearningInto Practicersquo International Journal of Operations amp Production Management23(2) 167ndash184

Bourne L and Walker D H T (2004) lsquoAdvancing Project Management in LearningOrganizationsrsquo The Learning Organization MCB University Press 11(3) 226ndash243

Champion D (2001) lsquoMastering the Value Chainrsquo Harvard Business Review79(6) 108ndash115

Childerhouse P Hermiz R Mason-Jones R Popp A and Towill D R (2003)lsquoInformation Flow in Automotive Supply Chains ndash Identifying and Learning toOvercome Barriers to Changersquo Industrial Management amp Data Systems 103(7)491ndash502

Conner K R and Prahalad C K (1996) lsquoA Resource-based Theory of the FirmKnowledge Versus Opportunismrsquo Organization Science A Journal of theInstitute of Management Sciences 7(5) 477ndash501

Courtney H Kirkland J and Viguerie P (1997) lsquoStrategy Under UncertaintyrsquoHarvard Business Review 75(6) 67ndash81

Cox A (1999) lsquoPower Value and Supply Chain Managementrsquo Supply ChainManagement 4(4) 167ndash175

Croom S Romano P and Giannakis M (2000) lsquoSupply Chain Management AnAnalytical Framework for Critical Literature Reviewrsquo European Journal ofPurchasing amp Supply Management 6(1) 67ndash83

Dainty A R J Cheng M-I and Moore D R (2003) lsquoRedefining PerformanceMeasures for Construction Project Managers An Empirical EvaluationrsquoConstruction Management amp Economics 21(2) 209ndash218

Dainty A R J Cheng M-I and Moore D R (2004) lsquoA Competency-BasedPerformance Model for Construction Project Managersrsquo ConstructionManagement amp Economics 22(8) 877ndash888

442 Arroyo and Walker

Dainty A R J Cheng M-I and Moore D R (2005) lsquoA Comparison of theBehavioral Competencies of Client-Focused and Production-Focused ProjectManagers in the Construction Sectorrsquo Project Management Journal 36(2) 39ndash49

Dubois A and Gadde L-E (2000) lsquoSupply Strategy and Network Effects ndashPurchasing Behaviour in the Construction Industryrsquo European Journal ofPurchasing amp Supply Management 6(3ndash4) 207ndash215

Eisenhardt K M and Brown S L (1999) lsquoPatching Restitching BusinessPortfolios in Dynamic Marketsrsquo Harvard Business Review 77(3) 73ndash82

Eisenhardt K M and Martin J A (2000) lsquoDynamic Capabilities What AreTheyrsquo Strategic Management Journal 21(1011) 1105ndash1121

Fenton E M and Pettigrew A (2000) Theoretical Perspectives on New Forms ofOrganizing In The Innovating Organization Pettigrew A and A M Fenton EdsThousand Oaks CA Sage 1ndash46

Gersick C J G (1991) lsquoRevolutionary Change Theories A Multilevel Explorationof the Punctuated Equilibrium Paradigmrsquo Academy of Management Review16(1) 10ndash36

Gladwell M (2000) The Tipping Point London AbacusGreiner L E (1998) lsquoEvolution and Revolution as Organizations Growrsquo Harvard

Business Review 76(3) 55ndash68Kim W C and Mauborgne R (2003) lsquoTipping Point Leadershiprsquo Harvard

Business Review 81(4) 60ndash70Kotter J P (2001) lsquoWhat Leaders Really Dorsquo Harvard Business Review 79(11)

85ndash96Lambert D M and Cooper M C (2000) lsquoIssues in Supply Chain Managementrsquo

Industrial Marketing Management 29(1) 65ndash83Lewin K (1947) lsquoFrontiers in Group Dynamicsrsquo Human Relations 1(1) 5ndash41Meyer A D Brooks G R and Goes J B (1990) lsquoEnvironmental Jolts and

Industry Revolutions Organizational Responses to Discontinuous ChangersquoStrategic Management Journal 11(5) 93ndash110

Michaels L M J (1999) lsquoThe Making of a Lean Aerospace Supply Chainrsquo SupplyChain Management 4(3) 135ndash145

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Morris P W G and Jamieson A (2004) Translating Corporate Strategy intoProject Strategy Newtown Square PA PMI

Normann R and Ramirez R (1993) lsquoFrom Value Chain to Value ConstellationDesigning Interactive Strategyrsquo Harvard Business Review 71(4) 65ndash77

Pettigrew A and Fenton E M Eds (2000) The Innovating Organization SeriesThe Innovating Organization Thousand Oaks CA Sage

Pettigrew A Whittington R Melin L Saacutenchez-Runde C van den Bosch F A JRuigrok W and Numagami T (2003) Innovative Forms of OrganizingThousand Oaks CA Sage

PMI (2004) A Guide to the Project Management Body of Knowledge SylvaNC Project Management Institute

Porter M E (1985) Competitive Advantage Creating and Sustaining SuperiorPerformance New York The Free Press

Business transformation through alliance 443

Porter M E (1990) The Competitive Advantage of Nations New York Free PressPorter M E (1998) lsquoClusters and the New Economics of Competitionrsquo Harvard

Business Review 76(6) 77ndash90Prahalad C K and Hamel G (1990) lsquoThe Core Competence of the Corporationrsquo

Harvard Business Review 68 (3) 79ndash91Schoumln D A (1983) The Reflective Practitioner ndash How Professionals Think in

Action Aldershot BasiAshgate ARENASpender J-C (1996) lsquoMaking Knowledge the Basis of a Dynamic Theory of the

Firmrsquo Strategic Management Journal 17(Winter Issue) 45ndash62Tan K C (2001) lsquoA Framework of Supply Chain Management Literaturersquo

European Journal of Purchasing amp Supply Management 7(1) 39ndash48Teece D Pisano G and Shuen A (1997) lsquoDynamic Capabilities and Strategic

Managementrsquo Strategic Management Journal 18(7) 509ndash533Weick K E (2001) Making Sense of the Organization Oxford Blackwell

PublishersWomack J P and Jones D T (2000) From Lean Production to Lean Enterprise

In Harvard Business Review on Managing the Value Chain Review H BEd Boston MA Harvard Business School Press 221ndash250

Yukl G (1998) Leadership in Organisations Sydney Prentice-HallZaleznik A (1977) lsquoManagers and Leaders Are They Differentrsquo Harvard Business

Review 55(3) 126ndash135

444 Arroyo and Walker

Index

3BL see triple bottom line (3BL)3M 154 4164 Is concept of organisation learning

154 2654-quadrant model 36ndash74-stage framework 58ndash95 level maturity model 167ndash99-cell matrix 259

accountability 130 132acquisition of resources 43ndash4activity dimension 10ndash11administration 60ndash1 129advisory board role in governance

130ndash1affective commitment 81agency 47aggregation 92ndash3Akkermans HA and colleagues

219ndash20alliance management team

(AMT) 390alliance projects 298alliance relationship development

model 391ndash3alliances 250ndash6 collaborative 408

continuing 381 cooperative 408definitions 379ndash80 factors forsuccess 380ndash1 strategic 406ndash7

alliancing 54 298ndash301 322ndash3 340alliance relationship developmentmodel 391ndash3 organisationaldevelopment 389ndash93 research studysee research study alliancingselection of alliance partners 383ndash6staff selection 387 theoretical basis406ndash9 trust 388ndash9 390 392ndash3Wivenhoe alliance project 404ndash6

workshops for relationship buildingand development 386ndash8

Allinson RE 104analysers 249 259analysis of needs 56application in innovation 402application software development 37appointments procurement process 56approaches to procurement BOT

arrangements 50ndash2 combinedproject management and constructionmanagement (PMCM) 47ndash8Construction Management (CM)46ndash7 design and construct (DC)47ndash50 Novation 49ndash50 projectmanagement (PM) 47 total package50 traditional 45ndash6 Turnkey 50

appropriate practice 76arms-length pricing 23 24arms-length transactions 24assembly breakdown structure

(ABS) 35assessment centres 333ndash4assets intangible 191Atlantic Corridor Project 424

427 430Australia 16 17 22 296Auto Exchange 218AUTOVIA 218

Baccarini D 179ndash80balanced PPM scoring model 164ndash6balanced scorecard (BSC) 164ndash6

183ndash90Bangkok Second Stage Expressway

51ndash2bargaining power 248Barnatt Christopher 214ndash15

Bartheacutelemy J 20behaviour ethical 106 127benchmarking 202Bentham Jeremy 110Bessant J and colleagues 76ndash7best value choices for 58ndash9BHP Billiton 211ndash12Blomquist T 161board of directors role in governance

130ndash1Bontis N and colleagues 153ndash4bonus payments 338bottom-up approach 33boundaries 260Bourne L stakeholder management

research 77ndash90Bovis Lend Lease 120 233Brisbane Water Environmental Alliance

Supply project 298ndash301brokers 131Build Own Operate and Transfer

(BOOT) projects 43 see alsoapproaches to procurement

Building Information Modelling (BIM)225ndash32

burnout 317ndash19business case 9 10business delivery project management

office 371ndash4business to customer (B2C) 216business to government (B2G) 216buyers bargaining power 248buy-in by top management 302

capability maturity models (CMM)199ndash204

carbon credits 121ndash2Cartwright Chris 168ndash9case management 143case study developing a centre of

excellence 358ndash76 business deliveryproject management office 371ndash4context and history 359ndash61definition and purpose of projectmanagement office 361ndash5evaluation of project managementoffice 374ndash5 organisation projectsupport office 368ndash71 projectmanager support office 365ndash8rationale for project managementoffice 360ndash1 relationship of casestudy to key topics 376

case study supply chain management424ndash41 business relationships425ndash7 change management 432ndash5context 424ndash5 435ndash40 discussion437ndash40 logistics company 435ndash7project description 430ndash2 projectparticipant context 433 relationshipof case study to key topics 440 steelmanufacturer 435ndash40 steel productssupply source characteristics 434strategic management influences andorganisational responses 427ndash30

case study Wivenhoe alliance project400ndash19 alliancing 404ndash6background to the project 409ndash10capture and measurement ofinnovation 415ndash16 change inworking practices 414ndash15collaboration 413 constructioninnovation 413 context andtheoretical background 400ndash9design innovation 412ndash13discussion 416ndash17 innovation andknowledge sharing 401ndash3processproduct innovation 414project learning system 410relationship of case study to keytopics 418ndash19 sustainability 411theoretical basis of alliancing 406ndash9value management 410ndash11

case study the Wivenhoe Dam projectemployee interviews 324ndash5employee questionnaire 323ndash4work-life balance 321ndash6

challenges 39 300ndash1champions 131ndash2change management 223characteristics relational and cultural

42ndash3checks and balances 130childcare services 320China 291 434 436choices 3 6 8 42 58 247CIO Magazine 10citizens to government (C2G) 216claims industry 46Clean Air Act (USA) 122clean technologies 121Cleland DI 74clients triggering innovation 256clustering 429coalition personal political power 82

446 Index

Cochrane RA 36ndash7 147coercive power 81cognitive moral development 106ndash8collaboration 45 251 293ndash4 413collaborative alliances 408collectivism 285commitment 43 80 156 288ndash91 295commitment theory 80communication 389communication plan 87ndash8communities of practice (COPs) 74

167 169 267ndash8 424community benefit 93ndash4compatibility 225ndash32competencies 8competition 251 321competitiveness 92competitiveness view 116competitive strategy 150 248ndash52competitive tendering 294competitors 248completion report 416complexity 38compliance commitment 80Computer Assisted Design (CAD)

225ndash6 230ndash1concept definition phase 41conflict 287ndash8conflict hourglass model 287conflicts of interest 105Confucian dynamism 285connection power 82constant currency 23constraints 44construction industry alliancing 54

approaches to procurement 45ndash54culture 321 design and deliverydimension 43 partnering 54procurement systems 4 relationalcontracting 54 trust 293ndash4

construction innovation 413Construction Management (CM) 46ndash7consumer to business (C2B) 216consumer to consumers (C2C) 216contingency plans 15contingency theory 158continuance commitment 80contract administration 60ndash1contracting relational 54contracts 16 53ndash4contract strategies 44ndash5 52Cooper RG 42 167

cooperation 251 296cooperative alliances 408coordination 45coordinator 77COPs see communities of practicecorporate governance 126ndash33corporate social responsibility 119ndash20corporate tax 21ndash2Cost Competitive Alliance 384cost efficiency view 116costs 6 7 20 51Crawford L and colleagues 34 41creativity 36 407credibility 390Cresseyrsquos Fraud Triangle model 223lsquocritical fewrsquo 186ndash7Crossan MM and colleagues

154 265cultural barriers 296cultural characteristics 42ndash3culture Australia 296 as central to

project procurement 277 commonvalues 283ndash4 definitions 278ndash80289 290 dimensions 284ndash8evolution 279 national 280 282ndash3no-blame 299 and organisationalchange 289ndash90 of organisations280ndash3 parent organisations 290significance 278ndash83

customer delight 2customer relationship management

(CRM) 62ndash3CYPRASS Project Outcome Profiletrade

template 196ndash9

DC see design and construct (DC)Danish Transport Council 119data mining 224decision making 13ndash14 57decisions 1 7ndash9 114ndash15decision support 237ndash8decommissioning phase 5 6 42defenders 249 259delight customer 2deliverables hard and soft 39delivery phase 5 6Deloitte consulting 10deontology 111descriptive strategic schools

150ndash60 427design and construct (DC) 47ndash50design and delivery dimension 43

Index 447

design innovation Wivenhoe allianceproject 412ndash13

design phase 5desktop purchasing systems (DPS) 217detailed method statement 35de Wit A 180diffusion of innovation (DOI) 261distribution dimension 10ndash11distrust 79dominant players 248downstream stakeholders 73 76

90ndash5drivers e-procurement 216ndash21Dvir D 37ndash8

e-business 3 213ndash16 four-stagematurity model 214

e-business trajectory 212e-commerce 215ndash16education as part of innovation

process 402e-enabled (reverse) auctions 218ndash19efficiency 116egotism 109ndash10e-informing 221elder care 320electronic data interchange (EDI)

216ndash17 219Elkington J 115ndash22emergence 35 153 155 182empathic design 256employee development 338ndash9employee referrals 334ndash5employee value proposition

(EVP) 330ndash1employer of choice 329ndash30 331ndash3employers 330 331ndash3employment temporary 344ndash5empowerment 290e-MRO (maintenance repair and

operating) 221energy grid 70engagement-temporal dimension 11engineering projects 36ndash7enterprise information portals (EIP) 233enterprise networks 250ndash6enterprise resource planning 214

219ndash20Enterprise Resource Programme

(ERP) 61enterprises definition 142ndash5entertainment projects 35ndash6environmental bottom line 115 120ndash2

environmental context 39ndash40e-procurement benefits and

disadvantages 217 drivers andinhibitors 216ndash21 implementationphases 222ndash3 models 217ndash21trends and themes 235ndash8

Equator Principles FinancialInstitutions 116

Equator Principles website 115ndash16Ericsson Melbourne project

management office (PMO) businessdelivery project management office371ndash4 context and history 359ndash61definition and purpose of projectmanagement office 361ndash5development 168ndash9 evaluation374ndash5 organisation project supportoffice 368ndash71 project managersupport office 365ndash8 rationale forproject management office 360ndash1relationship of case study to keytopics 376

e-sourcing 217ndash18establishment costs 51ethical behaviour 106 127ethical issues 104ndash6 223ndash4ethical reasoning 108ndash13ethical theories as decision making

filter 113ndash15ethics definition 103ndash4 determined by

outcome 109 determined by processand principle 111 due process andprincipled approach 112 rightsapproach 111 theoretical bases102ndash15 virtue approach 112ndash13

ethics bank 108Exchange of Product Model Data

(STEP ISO-10303) 226execution phase 42expectations 55ndash8expectations management 2expert power 82exploitation 78external stakeholders 73

family support networks 74feasibility studies 56femininity 285finance department role in large-scale

enterprise 20ndash1financial bottom line 116ndash18firms 142ndash6flexibility 299

448 Index

Flyvbjerg B and colleagues 117 119Framework Agreements 94ndash5Francis V 318ndash19 320fraud 105 223French WA 78

games power politics 156ndash7geographic dimension 10ndash11Gibson CB 286ndash7global economy 18globalisation 424ndash5 427 428global leadership organisational

behaviour and effectiveness (GLOBE)study 285ndash6

global method statement 35global organisations triple bottom line

(3BL) 115global warming 122goals defining 186ndash7goals and methods matrix 36ndash7governance corporate 126 of

outsourcing 10 projects 126 scope128ndash30 structures 7 37

government board 56governments outsourcing 16government to government

(G2G) 216Granrose J 78Grisham Tom 287ndash8gross domestic product (GDP) OECD

21ndash2group decision making 57group interest 110

hassle 8Hendy P 21hidden costs 20lsquohigh performancersquo work systems 322Hofstede G 284ndash5Honda 155human resource management 339ndash42human resources and competition 321

IBM 23ICT see information and

communication technology (ICT)IDC 218imperfect market conditions 19implementation 58ndash60individualism 285Industry Foundation Classes

(IFCs) 226ndash7influence mapping 83

influences on procurement choices39ndash40

informational power 82information and communication

technology (ICT) diffusion 261ndash4innovation 154 interfaces 60interoperability 212 management21 and organisational learning 258role of portals in procurement 232ndash5

information modelling 225ndash32information portals 234information technology (IT) see

information and communicationtechnology (ICT)

inhibitors e-procurement 216ndash21initiation phase 4 5 56innovation application as part of

process 402 capture andmeasurement 415ndash16 construction413 definition 400ndash1 design412ndash13 education as part of process402 knowledge management andorganisational learning 264ndash9 andknowledge sharing 401ndash3 andlearning 256ndash64 models forimplementation 401ndash3 andorganisational environment 403 asoutput measure 299 processproduct 414

innovation diffusion research 261innovation register 415innovation trajectory 257insourcing 58institutional theory 158integration 45 265ndash6integrity 79intellectual capital 191intellectual property 15ndash16 227interactions 44ndash5interests 73internal rate of return 163International Alliance of

Interoperability (IAI) 227interoperability 212 225ndash32interpretive view of projects 33intuition 265ndash6invisible stakeholders 73iron triangle 2 60

job attractiveness 312job security 344ndash7Johnston Robert 2joint ventures (JVs) 252ndash3 379

Index 449

K-Adv model 199ndash204Kaplan Robert 184ndash5knowledge 8 access to 257ndash8 external

258ndash9 self-transcending 264stickiness 266ndash7 tacit 264ndash5typology 264

knowledge management (KM) 60264ndash9

knowledge networks formation 74Kohlberg Lawrence 106ndash8

law 112leadership understanding people 277learning 256ndash64learning communities 74Leblanc Richard 131legal entity dimension 10ndash11legal issues 223ndash4legislation prescriptive and

performance-based 122ndash3levels of uncertainty 428leveraging overhead costs 21liaison 20life cycles 15 16Lingard H 318ndash19 320 414ndash15locations 18ndash20Logical Framework Method (LFM)

179ndash80London Stock Exchange Taurus

project 181 183

Machiavelli Niccoloacute 82ndash3majority interest 110make-or-buy decision 1 7ndash9management contracting 46ndash7 of

expectations 2 informationtechnology (IT) 21 of people339ndash42 by projects 143relationship 53 of relationships 13reporting 9 stakeholderrelationships 71 structuresprocesses and boundaries 254ndash5trust 293

market conditions transfer pricing19ndash20

masculinity 285Maslow Abraham 80maternity leave 320matrix of needs 59maturity levels 202Meacheam DW 259ndash60measures of performance 2measuring value of outsourcing 10

mega projects 117Melbourne City Council House 2 120Melbourne Cricket Ground Great

Southern Stand 50Mercosur 424 436meta-data 224metaphors 57method statements 35micromanagement 36Mill John Stuart 110Milton Friedman 103Mintzberg H and colleagues 148ndash60mismatches 302mission statements 142 183mobilisation-demobilisation

dimension 11models of classification 41monitoring 9 60moral opportunism 113motivation 39 181motivation theory 80Muumlller R 4 161multinational companies 17ndash18multinational corporations 18ndash19mutuality 78

nanotechnology 121national culture 280 282ndash3National Museum of Australia 119

120 384ndash5near-shore locations 18ndash20needs 5 180needs analysis 56new entrantsrsquo challenge 247ndash8Nonaka I 264non-routine deliverables 23normative commitment 80ndash1Norrie JL 164ndash5Norton David 184ndash5Novation 49ndash50 235ndash6novelty 38Novelty Complexity Technology and

Pace (NCTP) framework 38

occupational health and safety (OHS)52 91ndash2 123ndash6

OECD gross domestic product 21ndash2OECD Transfer Pricing Guidelines 17off-shore locations 18ndash20Oliver Christine 158on-shore locations 18ndash20ontological assumptions 145opinion shaping 75

450 Index

OPM3 167ndash9organisational change projects 37organisational culture 280ndash3organisational development 389ndash93organisational environment and

innovation 403organisational forms 53 254organisational innovativeness

(OI) 261organisational learning 61 258 264ndash9organisational relationships 390ndash1organisational structure 290ndash1organisation breakdown structure

(OBS) 35organisation project support office

368ndash71organisations 123ndash4 142ndash5 249

259ndash60Outcome Profiletrade template 191ndash9

cross-reference matrix 195CYPRASS Project 196ndash9 headings192ndash4 three-step method 194ndash6

outcomes 191ndash9outsourcing agreements life cycles 15

Australia 16 business case for 10buy decision 7 contracts 16dimensions 10ndash11 by governmentdepartments 16 hidden costs 6management costs 26 measuringvalue 10 nature of 9ndash16 and out-tasking 10ndash16 oversight of 10process 236ndash7 reasons for 10requirements for success 25ndash6 riskmanagement 15 risks 14 skillmovement 15 skills and competencies8 stages of decision-making 13ndash14strategic objectives 14 for talentedstaff 312ndash13 taxation 16ndash17transfer payments 16 and transferpricing 16ndash24 types of 9

out-tasking 12ndash13overhead costs leveraging 21Owens Jeffrey 19ownership 73

pace 38ndash9Palaneeswaran E and colleagues 58ndash9participation in value generation 1partnering 54 250ndash6 294 323 379Peansupap V 260 261ndash4peer to peer (P2P) 215ndash16perceptions of value 5perfect market conditions 19ndash20

Performance Assessment System (PASS) 59

performance measures 2 130Perlow LA 319personal and political power 82personality tests 333ndash4personal power 82personal relationships 296PERT 148phases of projects 4ndash5 41plans 15 35PMBOK see Project Management

Body of Knowledge (PMBOK)Pollack J 34pollution control and prevention

120ndash1portals 233ndash5Porter ME 150Porterrsquos 5-force model 247ndash8portfolio definition 145portfolio optimisation 163portfolio project management (PPM)

163ndash4portfolio theory 161ndash3positional power 81 83position power 82positivism 33 34power types of 81ndash3power distance 284ndash5power politics 156ndash7Prather CW 401ndash2prescriptive strategic schools

147ndash50pricing information 235PRINCE 2 57 148prioritisation of needs 5privatisation 1 24ndash6probability-impact analysis 74ndash5processproduct innovation 414processes in project management 4process integration seamless 236ndash7process re-engineering 222process theory (PT) 261procurement and business strategy

160ndash9 life cycles 16 reduction oftraditional activities 237 role ofITICT portals 232ndash5 andsustainability 101ndash2 traditionalapproaches 45ndash6

procurement choices 6 42 247influences on 39ndash40 relationshipbased 379

procurement phase 6 42

Index 451

procurement process appointing staff 56

product breakdown structure (PBS) 34product stewardship 121profit split process 23program definition 144ndash5project classification 41project definition phase 41ndash2project delivery fulfilment 127project development projects 37Project Executive Board 56project governance 126project initiation documentation

(PID) 57project learning system 415project management (PM) 3ndash6 47Project Management Body of

Knowledge (PMBOK) 3ndash4 41Project Management Institute 143project management office (PMO) 163

167ndash9 361ndash5 case study 358ndash76project management skills 70project management success 178ndash9project managers view of stakeholders

83ndash4project manager support office 365ndash8project payback 163projects defining scope 33 definition

143 dimensions 34 factors inprocurement 57ndash8 influences onprocurement choices 40 nature of3ndash6 phases 4ndash5 selection 163ndash7tangible and intangible 40 Type 1147ndash8

project sponsors at board level 132ndash3project workforce planning 327ndash8proposals writing 54ndash61prospectors 249 259publicprivate partnership (PPP) 51ndash2public sector balanced view of

strategy 166

Quinn JB 153

radio frequency identification enabledinventory management system(RFID) 236

reactors 249 259ndash60reality checks 42reciprocity 78recognition planning 345referent power 82regionalisation 427

relational based project delivery 252ndash6relational characteristics 42relational contracting 54 294ndash302relational risk 43relationship based procurement

choices 379relationship development 386ndash8

391ndash5relationship management 13 53 71

see also collaboration ethics trustrelationships 72 78 296 390ndash1relocation 17ndash18reporting systems 9reputation 330research study alliancing 378ndash96

alliance relationship developmentmodel 391ndash3 context andtheoretical background 378ndash81implications for alliance procurementpractice 393ndash5 interviewquestionnaire 382ndash3 methodologyand context 381ndash3 organisationaldevelopment 389ndash93 relationship tokey topics 395 research findings383ndash93 selection of alliance partners383ndash6 trust 388ndash9 390 392ndash3workshops for relationship buildingand development 386ndash8

resource based view (RBV) 7 246427ndash8

resources 43ndash4 129return on investment 163reward-based power 82rewards 343ndash7rich pictures 57rights 73risk 8risk assessment 74ndash5risk management 15 72risks 12ndash13 14 35 43rivalry 248role conflict 315ndash16role culture 295 296roles specification 296ndash7

safety health and environment (SHE)provisions 120 122ndash6

Scandinavia 190ndash1Schumpeter JA 150ndash2Secret M 319ndash20security issues 223ndash4self-interest 109ndash10self-transcending knowledge 264

452 Index

sensemaking 203service evaluating standards 2service level agreements monitoring 9services transaction based 7Shenhar A and colleagues 37ndash8 181skills 15 70 338skills gap 341ndash2small and medium enterprises

(SMEs) 19social bottom line 115 118ndash20social capital 189 267social network mapping 83social science stakeholder theory 71ndash2Soft Systems Methodology 57soft systems methodology (SSM) 33ndash4Southern Market 424staff attracting talent 312ndash13 329

development 338ndash9 group andsupervisor fit 335ndash6 importance incompetition 326 job andorganisation fit 335 job security344ndash7 levels of trust andcommitment 345 performanceevaluation 346 planned recruitment326ndash7 recognition planning 345recruitment and selection 333ndash47relocation 337ndash8 retention 336ndash9rewards 336 342ndash3 selection foralliance working 387 selectionprinciples 333ndash5 turnover 317workforce planning 327ndash8

stage gates 42 167stake nature of 73stakeholder circleTM tool 83ndash90

communication plan 88ndash9 concept84ndash5 engaging stakeholders 87ndash8identification of stakeholders 86maintaining stakeholder community89 methodology 85ndash6 monitoringthe effectiveness of communication88ndash9 prioritisation of stakeholders86 stakeholder review meetings 88value of methodology 89ndash90visualisation of stakeholders 87

stakeholder interest intensity index 75stakeholders 2 benefits of social

bottom line 119 definition 73energy 70 identifying influence74ndash6 input 4ndash5 managing 72 74needs 3 power 86 projectmanagersrsquo view 83ndash4 proximity 86relationship management 71relationships with managers 72

relationship with projectmanagement team 77ndash90 types of73ndash4 urgency 86ndash7 varying levelsof influence 83

stakeholder theories 71ndash7Standish Group 181 183stewards 131stickiness of knowledge 266ndash7strategic alliances 406ndash7strategic characteristics typology 249strategic management 146strategic needs analysis 56strategic objectives of outsourcing 14strategy cognitive strategy school

152ndash3 competitive 150configuration school 159ndash60cultural school 157 design school147ndash8 entrepreneurial school150ndash2 environmental school 157ndash9learning school 153ndash7 planningschool 148ndash9 politics school 156positioning school 149ndash50 powerschool 156 and procurement160ndash9 in public sector 166 schoolsof thought 146ndash60

strategy view of value 116ndash17strengths weaknesses opportunities

and threats (SWOT) analysis 148structure organisational 290ndash1sub-contracting transaction costs 8subcontractors in relational

contracting 302substitute products threat of 248success dimensions 181 emergent

dimensions 182 as meeting needs180 of project and team 299ndash300project management distinct fromproject 178ndash9

Sun-Tzu 82ndash3suppliers bargaining power 248supply chain impact of enterprise

resource planning 219ndash20supply chain learning (SCL) 77supply chain management 424ndash41

business relationships 425ndash7 publicsector 90ndash1 strategic managementinfluences and organisation responses427ndash30

supply chain members as stakeholders76ndash7

supply chain sustainability (SCS) 91 92

sustainability 101 411

Index 453

Sveiby KE 190ndash1SWOT analysis see strengths

weaknesses opportunities and threats(SWOT) analysis

Sydney Opera House 140ndash1systems 33 44systems view of projects 33Szulanski G 267

tacit knowledge 264ndash5Taipei Mass Rapid Transit (MRT)

program 224talent 3Target Out-turn Cost (TOC) 384ndash5

394ndash5Tatnall Arthur 233taxation 16ndash17 21ndash2taxonomy organisational forms 53tax rates differential 24team spirit 45teamwork 286ndash7 296 298ndash9 335technology 3 38Telstra 25 26 359ndash60temporary employment 344ndash5tendering 45 294termination clauses 15The European Interoperability

Framework (EIF) 227ndash8threat of substitute products 248time-to-market 59total rewards 343trajectories of value generation 5trajectory of innovation 257transactional leaders 429transaction based costs 7transaction based services 7transaction cost economics (TCE) 7

116 127transaction costs 4 8transfer payments and outsourcing 16transfer pricing 1 16ndash24transformational change 160transformational leaders 429ndash30transformational view of organisations

142ndash5transnational organisations 17transparency 127 130 131triple bottom line (3BL) 102

115ndash22 127trust 42ndash3 392ndash3 406 alliancing

388ndash9 390 characteristics 81cultural implications on value291ndash5 definitions 291ndash3

dimensions 292ndash3 and distrust 156levels of 292 in management 293in out-tasking 12 supporting factors78ndash80

Turner JR 4 36ndash7 147Turnkey approach to procurement 50Typology of Personality 330

Uncertainty Complexity Pace (UCP)model 38 39

uncertainty avoidance 285 296upstream stakeholders 73 76USA Clean Air Act 122utilitarianism 109 110

value adoption of BIM 229ndash30cultural implications of commitment288ndash91 cultural implications of trust291ndash5 engineering 5 generation 1intangible 128 maximising 6nature of 2ndash3 strategy view 116ndash17tangible and intangible 5 190ndash1

value curve trajectory 211value management 410ndash11value management register 415value proposition of staff 312ndash13values 283ndash4 288ndash9 403value vectors 59Van de Ven AH 400ndash1vignettes Borat Industries 303ndash4

CanWheat 134ndash6 ChangeByDesignplc 96ndash7 Emuland 239ndash42OmniTrip 26ndash8 62ndash3 PeaceOfMindInc 348ndash51 Stakeholder FirstDevelopments 269ndash71 TheSource185ndash90 205ndash6 XYZ Corporation169ndash71

vision 55ndash8 128ndash9 181 183

Warburton RFE 21web-based enterprise resource planning

219ndash20web resources 28ndash9websites in employer branding 332weighting matrix 59ndash60wisdom dimensions 156Wivenhoe alliance project alliancing

404ndash6 background to the project409ndash10 capture and measurement ofinnovation 415ndash16 case study400ndash19 case study discussion416ndash17 change in working practices414ndash15 collaboration 413

454 Index

construction innovation 413 designinnovation 412ndash13 innovation andknowledge sharing 401ndash3processproduct innovation 414project learning system 410sustainability 411 theoretical basisof alliancing 406ndash9 valuemanagement 410ndash11

Wivenhoe Dam project case study321ndash6

Wolfe RA 261word pictures 201ndash2work design 344work arrangements alternative 320

work breakdown structure (WBS) 34ndash5work-family conflict 316ndash17workforce 314ndash15 337ndash8workforce profiles 327working practices changing 414ndash15work-life balance case study 321ndash6

changing workforce 313ndash14conflicting roles 315ndash16 initiatives319ndash21

work-life benefits 319ndash21work-life cultures dimensions 319work systems high performance 322

Zellman-Bruhn EM 286ndash7

Index 455

Procurement Systems

Procurement has long been and remains one of the most complex businessprocesses It can be approached in many different ways Characterised by itsnovel cross-disciplinary project management approach this new book coversmore than the conventional themes of project solicitation and proposalevaluation It builds on Procurement Systems A Guide to Best Practice inConstruction edited by Peter McDermott and Steve Rowlinson and extendsits content to make it relevant to the wider project management community

Coverage includes general historical context issues moving on to apractical discussion of different types of project and their procurementneeds This book focuses upon value generation through helping readers todesign project procurement implementation paths that deliver sustainablevalue It does this by showing readers how to facilitate project stakeholdersto identify and articulate both explicit tangible and implicit intangibleproject outcomes The book also discusses and provides cutting-edgeresearch and thought leadership on issues such as

stakeholder management ethics and corporate governance issues business strategy implications on procurement e-business innovation and organisational learning cultural dimensions and trust development human resource development

These issues are focused upon how procurement delivers value ndash a perspectiveof procurement that has been of increasing interest

Derek H T Walker is Professor of Project Management at RMITUniversity Australia

Steve Rowlinson is Professor in the Department of Real Estate andConstruction at the University of Hong Kong

Also available from Taylor amp Francis

Construction Safety Management SystemsS Rowlinson ISBN 978ndash0ndash415ndash30063ndash6 (hb)

Occupational Health and Safety in Construction Project ManagementH Lingard and S Rowlinson ISBN 978ndash0ndash419ndash26210ndash7 (hb)

Procurement Systems A Guide to BestPractice in ConstructionP McDermott and S Rowlinson ISBN 978ndash0ndash419ndash24100ndash3 (hb)

An Introduction to Building Procurement SystemsJ Masterman ISBN 978ndash0ndash415ndash24641ndash5 (hb)

ISBN 978ndash0ndash415ndash24642ndash2 (pb)

Procurement in the Construction IndustryW Hughes et al ISBN 978ndash0ndash415ndash39560ndash1 (hb)

Profitable Partnering in ConstructionProcurementS Ogunlana ISBN 978ndash0ndash419ndash24760ndash9 (hb)

Information and ordering details

For price availability and ordering visit our website wwwtandfbuiltenvironmentcom

Alternatively our books are available from all good bookshops

Procurement Systems

A cross-industry project managementperspective

Edited byDerek H T Walker and Steve Rowlinson

First published 2008 by Taylor amp Francis2 Park Square Milton Park Abingdon Oxon OX14 4RN

Simultaneously published in the USA and Canadaby Taylor amp Francis270 Madison Ave New York NY 10016

Taylor amp Francis is an imprint of the Taylor amp Francis Groupan informa business

copy 2008 Derek H T Walker and Steve Rowlinson selection andeditorial matter individual chapters the contributors

All rights reserved No part of this book may be reprinted orreproduced or utilised in any form or by any electronicmechanical or other means now known or hereafter inventedincluding photocopying and recording or in any information storage or retrieval system without permission in writing fromthe publishers

The publisher makes no representation express or impliedwith regard to the accuracy of the information contained in this book and cannot accept any legal responsibility or liability for any efforts or omissions that may be made

British Library Cataloguing in Publication DataA catalogue record for this book is available fromthe British Library

Library of Congress Cataloging in Publication DataWalker Derek H T

Procurement systems a cross-industry project management perspective Derek Walker and Steve Rowlinson

pcmIncludes bibliographical references and index1 Industrial procurement 2 Project management

I Rowlinson Stephen M II Title

T568W365 200765872ndashdc22 2007008896

ISBN10 0ndash415ndash41605ndash1 (hbk)ISBN10 0ndash415ndash41606ndashX (pbk)ISBN10 0ndash203ndash93969ndash7 (ebk)

ISBN13 978ndash0ndash415ndash41605ndash4 (hbk)ISBN13 978ndash0ndash415ndash41606ndash1 (pbk)ISBN13 978ndash0ndash203ndash93969ndash7 (ebk)

This edition published in the Taylor amp Francis e-Library 2007

ldquoTo purchase your own copy of this or any of Taylor amp Francis or Routledgersquoscollection of thousands of eBooks please go to wwweBookstoretandfcoukrdquo

ISBN 0-203-93969-7 Master e-book ISBN

Contents

Notes on contributors viiPreface xiiiAcknowledgements xxiv

1 Introduction and procurement fundamentals 1DEREK H T WALKER JUSTIN STARK MARIO ARLT AND

STEVE ROWLINSON

2 Project types and their procurement needs 32DEREK H T WALKER AND STEVE ROWLINSON

3 Stakeholders and the supply chain 70DEREK H T WALKER LYNDA BOURNE AND

STEVE ROWLINSON

4 Business ethics and corporate citizenship 101DEREK H T WALKER MICHAEL SEGON AND

STEVE ROWLINSON

5 The role of business strategy in PM procurement 140DEREK H T WALKER MARIO ARLT AND JAMES NORRIE

6 Performance measures and project procurement 177DEREK H T WALKER AND KERSTI NOGESTE

7 E-business and project procurement 211DEREK H T WALKER GUILLERMO ARANDA-MENA

MARIO ARLT AND JUSTIN STARK

8 Procurement innovation and organisational learning 246DEREK H T WALKER AND TAYYAB MAQSOOD

9 Culture and its impact upon project procurement 277STEVE ROWLINSON DEREK H T WALKER AND

FIONA Y K CHEUNG

10 Project procurement and the quest for talent 311BEVERLEY-LLOYD-WALKER HELEN LINGARD AND

DEREK H T WALKER

11 Case study ndash developing a centre of excellence (CoE) 358CHRIS CARTWRIGHT AND DEREK H T WALKER

12 Trust commitment and mutual goals in Australian construction industry project alliances 378PETER REX DAVIS AND DEREK H T WALKER

13 Innovation management in project alliances 400STEVE ROWLINSON AND DEREK H T WALKER

14 Business transformation through an innovative alliance 423ALEJANDRO C ARROYO AND DEREK H T WALKER

Index 445

vi Contents

Contributors

Co-editors and chapter co-authors

Derek H T Walker (co-author of the Preface and Chapters 1 through 14) isProfessor of Project Management at the School of Property Constructionand Project Management at RMIT University Melbourne VictoriaAustralia He is Director of the Doctor of Project Management (DPM)programme httpdhtwtcermiteduaupmgt His PhD thesis is related toconstruction time performance management and this led him into furtherinvestigation of a range of project procurement organisational learningand innovation aspects of PM He has successfully supervised numerousPhD candidates in this area as well as having written several books over 30book chapters and in excess of 150 peer reviewed papers Further detailscan be found on httpdhtwtcermiteduau He is also editor of EmeraldInsightrsquos International Journal of Managing Projects in Business His indus-try experience includes 16 years in the construction industry in the UKCanada and Australia (including a two year period with a project planningsoftware support and development organisation) with 20 years as an acad-emic also providing consulting services to the construction and IT industry

Steve Rowlinson (co-author of the Preface and Chapters 1 2 3 4 9 and13) is a Professor in the Department of Real Estate and Construction atHong Kong University and is involved actively in research and Doctoralsupervision in the areas of procurement systems construction manage-ment occupational health and safety and ICT He has been coordinatorof the CIBW 092 working commission on Procurement Systems for overten years now and has co-organised numerous conferences and symposiain this capacity Steve has authored and co-authored more than 10 booksand over 100 peer reviewed papers He is an Adjunct Professor atQueensland University of Technology where he has a particular interest ininternational project management and construction innovation Stevehas acted as a consultant to inter alia Hong Kong Works Bureau HongKong Housing Authority and Queensland Department of Main Roads andas well as numerous consultancy reports has produced over 100 expert

reports in relation to construction site accidents and constructiondisputes over the past 20 years in Hong Kong He is a member of theInstitution of Engineers (HK) the Institution of Civil Engineers (UK) anda Fellow of the Royal Institution of Chartered Surveyors and is a keengolfer skier and snowboarder For more details see httprechkuhksteve

Chapter co-authors

Mario Arlt (co-author of Chapters 1 5 and 7) is a Senior Manager withSIEMENS Corporate Research Inc Princeton NJ USA and also aDoctor of Project Management (DPM) Candidate at RMIT UniversityMelbourne Australia Over the past 15 years he has actively managedand provided consulting services on small- to large-scale projects inFinancial Services Banking Automotive Pharmaceutical and High Techindustries During the last four years he has established and managed aproject management consulting group within the SIEMENS USA He isa PMI Project Management Professional Certified OPM3reg ProductSuiteConsultant and Assessor His areas of expertise include project portfoliomanagement project recovery and PMO management

Justin Stark (co-author of the Preface and Chapters 1 and 7) is a SeniorProgram Manager at TerraFirma Pty Ltd and was previously a ProgramManager at Hewlett Packard Ltd Melbourne Australia He is also aDoctor of Project Management (DPM) Candidate at RMIT UniversityMelbourne Australia He has extensive experience in managing a widerange of varied projects including infrastructure role outs and design(architecture) transition and transformation programmes national andinternational data centre and office relocations as well as global SDLCprogrammes and pursuit management He is PMP certified and has pub-lished a number of academic papers on subjects including ICT andOutsourcing Services as well as being an invited speaker on AssetManagement throughout the Asia Pacific region His areas of expertiseare project recovery offshore relocations global programmes and PMOmanagement his thesis area is on Portfolio Optimisation within anEnterprise setting

Lynda Bourne (co-author of Chapter 3) received her Doctor of ProjectManagement degree at RMIT University where her research on definingand managing stakeholder relationships led to the development of a newproject management tool the Stakeholder CircleTM (see URL httpwwwstakeholder-managementcom for more details) She has authorednumerous papers and is a recognised international speaker on the topicof stakeholder management project communications and other relatedsubjects Professionally she is the Managing Director of StakeholderManagement Pty Ltd and is responsible for the development and delivery

viii Contributors

of a range of advanced project and stakeholder management trainingcourses including courses for PMP CAPM PgMP and OPM3 ProductSuiteaccreditation She was the first accredited OPM3 ProductSuite Assessorand Consultant in Australia chaired the OPM3 ProductSuite Examinationcommittee and was the inaugural winner of PMIrsquos lsquoProject Manager ofthe Yearrsquo award (2003 Australia) and has contributed to a number ofPMI standard development teams including the OPM3 and ProgramPortfolio Management Standards

Michael Segon (co-author of Chapter 4) teaches at the Graduate School ofBusiness at RMIT University Melbourne Victoria Australia He receivedhis PhD focusing on Creating and Implementing Ethics Systems in largeorganisations from the Queensland University of Technology in 2006From 2003 to 2006 he was retained by KPMG Australia (MelbourneOffice) to provide professional advice and consulting services in ethicsand integrity

James Norrie (co-author of Chapter 5) received his Doctor of ProjectManagement degree at RMIT University and is currently the Director ofand a Professor in the School of Information Technology Management(ITM) at Ryerson University in Toronto Canada (wwwryersonca)where he teaches both graduate and undergraduate courses in projectmanagement and business strategy He is the author of two booksseveral articles and speaks frequently around the world on topics relatedto project management with particular interest and expertise in enterpriseproject management (EPM) project portfolio management (PPM)strategic project selection and the use of the balanced scorecard as aproject management tool

Kersti Nogeste (co-author of Chapter 6) is Director and PrincipalConsultant of Project Expertise Pty Ltd (wwwprojectexpertisecomau)received her Doctor of Project Management (DPM) degree from RMITUniversity Melbourne Australia has managed successful projects andprogrammes of work in Australia and North America is a doctoralsupervisor guest university lecturer and a board member of a regionalhospital and health service Using this combination of qualificationsand experience she applies a unique balance of rigour and relevance tohelping her clients implement their organisational strategy via projectsensuring alignment of organisational strategy programmes of work andindividual projects through to the level of project outcomes and outputsKerstirsquos most recent roles have involved managing product developmentITampT infrastructure and company merger and acquisition (MampAs)projects and programmes of work In addition Kersti is the author ofa number of peer-reviewed journal articles and a regular speaker atnational and international conferences

Contributors ix

Guillermo Aranda-Mena (co-author of Chapter 7) is currently a Lecturer inProperty Construction and Project Management at RMIT UniversityMelbourne Australia He holds a PhD in Construction Management andEngineering from the University of Reading and a Masters of Science inEuropean Construction Engineering from Loughborough University ofTechnology both in the United Kingdom In 2003 Guillermo wasappointed Post Doctoral Research Fellow at the University of NewcastleAustralia working on a Cooperative Research Centre for ConstructionInnovation (CRC-CI) research project in Building InformationModelling (BIM) in collaboration with the Common Wealth Scientificand Industrial Research Organisation (CSIRO) Ove Arup and WoodsBagot Architects He is currently RMIT principal investigator of fourCRC-CI research projects including lsquoBusiness Drivers for BIMrsquo lsquoMobileTelcom in Constructionrsquo lsquoeBusiness Adoption in Constructionrsquo andlsquoAutomated BIM Estimatorrsquo He is currently supervising various MastersTheses and two PhDs He is a Conjoint Academic to the SingaporeInstitute of Management Singapore and the University of NewcastleAustralia Publications and further details can be found on wwwrmiteduaustaffguillermo

Tayyab Maqsood (co-author of Chapter 8) is a Lecturer in Construction andProject Management in School of Property Construction and ProjectManagement at RMIT University Melbourne Victoria Australia He is aCivil Engineer and has worked in Australia Hong Kong the UK Thailandand Pakistan in various capacities as lecturer project engineer and researchassociate over the last 11 years His PhD investigated the role of knowledgemanagement in facilitating innovation and learning in the constructionindustry His PhD work is published in 22 refereed articles

Fiona Y K Cheung (co-author of Chapter 9) recently completed her Masterof Applied Science at Queensland University of Technology on thetopic of Determinants of Effectiveness in Relational Contracting She hasalso been working as research assistant with the CRC in ConstructionInnovation in Brisbane on a number of research projects associated withrelational contracting and has co-authored a number of conferenceand journal papers She is currently a PhD candidate at QUT focusing onrelational contracting and sustainability in the construction industry

Beverley-Lloyd-Walker (co-author of Chapter 10) undertakes teaching andresearch in the School of Management Faculty of Business and LawVictoria University Melbourne Victoria Australia Her PhD focused onIT-supported change in the Australian banking industry and its impacton bank performance Her more recent research and teaching has main-tained a strong interest and emphasis on strategic human resource man-agement issues and she has co-authored with John Griffiths and Gary

x Contributors

Dessler Human Resource Management published by Pearson EducationAustralia the third edition of which is due for release in mid-2007 Shehas also contributed several book chapters on construction procurementand the role of IT in human resource management

Helen Lingard (co-author of Chapter 10) completed a PhD in the field ofoccupational health and safety in the construction industry and workedas Area Safety Advisor for Costain Building and Civil Engineering (HongKong) She has lectured in occupational health and safety and humanresource management at RMIT and Melbourne universities and pro-vided consultancy services to corporate clients in the mining construc-tion and telecommunications sectors Dr Lingard has researched andpublished extensively in the areas of occupational health and safetywork-life balance and human resource management She has co-authored two books on Human Resource Management in ConstructionProjects and Occupational Health and Safety in Construction ProjectManagement She is writing a third book on the subject of ManagingWork-Life Balance in the Construction Industry to be released in 2007She is Associate Professor (Construction Management) in the School ofProperty Construction and Project Management RMIT University

Chris Cartwright (co-author of Chapter 11) has recently retired fromEricsson Australia after 35 stimulating years the final 10 years takingresponsibility for project management methods and competence Drivingthe process improvement activities for the Ericsson Project Officethe team was rewarded in October 2005 when the organisation wasrecognised lsquobest in classrsquo globally within the group He is currentlycompleting his Masters Degree in Project management at RMITAn active member of the Melbourne chapter of PMI he has spenttime as a director and is currently managing a global team of450 PMI members writing the second edition of the Project ManagerCompetency Development Framework an ANSI standard due forrelease in Q3 of 2007

Peter Rex Davis (co-author of Chapter 12) is an Associate Professor inConstruction and Project Management He commenced teaching andresearch at Curtin in 1994 Prior to entering academia Peter amassedmany yearsrsquo experience in commercial construction with both Governmentand corporate clients Projects undertaken varied and encompassedschools hospitals local government buildings and major developmentsof significant complexity and scope He has professional experience inconstruction management in both the UK and Australia He has a PhDthat investigates the impact of relationship-based procurement Thedoctoral programme was carried out at Royal Melbourne Institute ofTechnology (RMIT) Melbourne Apart from his research into

Contributors xi

Construction Procurement he actively researches teaching and wasawarded a Curtin University Excellence and Innovation in TeachingAwards (EIT) in 2003

Alejandro C Arroyo (co-author of Chapter 14) has an MBA in MarineResource Management an MSc in Shipping and Ports and is also aDoctor of Project Management (DPM) Candidate at RMIT UniversityMelbourne Australia He is focusing his thesis on an integrative projectat transnational scale that is taking place today in South America byinvolving knowledge management and communities of practice conceptswithin an ever-changing political and business environment He is CEOand Consultancy Director of Buenos Aires-based Southmark LogisticsSA (wwwsouthlogcom) ndash a company focusing on project logistics acrossthe Americas in the segments of mining oil and gas hydropower infra-structure transportation marine environment and project sustainabledevelopment He works at present on a number of large projects in thenatural resources and infrastructure areas in the logistic and environmentfunction across the vast and complex geography of Latin America theCaribbean and Alaska

xii Contributors

Preface

Derek HTWalker Steve Rowlinson and Justin Stark

Chapter introduction

Project management (PM) theory and practice have undergone atransformation ndash from studying and understanding projects with tangibleoutcomes that are of finite-duration [such as delivery of constructedinfrastructure or information technology (IT) products] to radicallyreflecting upon whether some types of project really exist at all in anyconcrete or conceptual sense (Hodgson and Cicmil 2006) PM theory nowextends to a broad range of project types from the highly concrete defined-time lsquotraditionalrsquo projects to projects that are completely ephemeral andintangible (eg events and change management initiatives) This book ismainly focused upon the nature of PM from a practical perspectiveDefinition of projects and project types are discussed in Chapter 2 and inChapter 5 we discuss strategy as it is applied to projects and how projectsintegrate into the general management of an organisation However werefer to intangible projects throughout this book and recognise theexistence and validity of less tangible projects

Traditionally PM theory and practice have poorly addressed the widerissues of procurement as being a key activity to achieve value for moneyThe USA-based Project Management Institute (PMI) has close to 250000members and for many decades has invested much effort in developingcompetency standards however it only recently expanded its focus onprocurement as an important PM process Indeed the latest version of thePMI body of knowledge (PMI 2004 Chapter 12) devotes less than 30pages to the process with much of the chapterrsquos content being focusedupon transactional issues such as letting contracts contracts managementand administrative aspects of contract closure In research [using a surveyof members from the UK Association for Project Management (APA) onits body of knowledge] procurement was seen as a commercial area and nota strategic one (Morris et al 2000) The APA is linked to the umbrellaorganisation the International Project Management Association (IPMA)with over 40 PM associations as members (see wwwipmachasp) that helpalign and coordinate international PM standards The evidence from the

various associationsrsquo project management body of knowledge (PMBOK)reflects the tendency for project procurement thinking to be dominated bytraditional PM experience gained over the past half century fromconstruction heavy engineering aerospace ship building and otherindustries sectors Recent work criticises PM professional bodies as notfully considering the complexity indeed the reality of projects as conceivedby many PM practitioners (Cicmil 1999 2006)

Most PM practitionersrsquo conception of PM is predominantly based uponan assumption of project delivery being an outsourced activity undertakenby the client (or clientrsquos agent) with a delivery chain comprising a designteam a main contractor who sub-contracted and supervised much of thedetailed operational work and input resources (people equipment and mate-rials) This rigid and highly segregated form of procurement has attractedmuch criticism centred on a failure of the prevailing system to capture valuethroughout the supply chain There has been a series of UK governmentreports for example investigating the construction industry and findingsfrom these indicate that the traditional construction procurement system isa root problem driving fragmentation and an adversarial project culturethat fails to deliver best value (Murray and Langford 2003) Several reports(Latham 1994 DETR 1998) that are particularly critical of the culture pre-vailing in the construction industry in the latter decades of the twentiethcentury illustrate a situation that is currently poor in numerous other PMsectors The Standish group (1994) paints a similar picture of ITrsquos and PMrsquosfailure to provide value despite suggesting a more recent 50 improvementin the situation In their 2003 report they state that

Project success rates have increased to just over a third or 34 ofall projects This is a 100 plus improvement over the 16 rate in1994 Project failures have declined to 15 of all projects which ismore than half the 31 in 1994 Challenged projects account for theremaining 51

(Standish 2003)

In terms of procurement Rooks and Snijder (2001) undertook a survey of1252 IT purchasing transactions of Dutch small- and medium-sized enter-prises (SMEs) and found that only 28 of transactions for software hard-ware and systems between IT providers and customers do not have someproblems associated with them Their findings show that 45 of transac-tions had inadequate documentation supplied and 25 of transactions hadlsquoincompatibilityrsquo or lsquobudgetrsquo issues Although this was associated with thedelivery of projects we can (provided we have the linkage) relate the processof procurement (understanding deliverables managing relationships defin-ing service levels and expectations penalty clauses liquidated damages etc)to the success rates Thus while project success or failure is caused by a vari-ety of factors clearly selecting a procurement process that improves the like-lihood of project success and value creation is an important goal that crosses

xiv Preface

many PM sectors Strategising the procurement choice to fit the valuepropositions of stakeholders who can contribute to project success can be avitally important element leading to improved PM processes

Projects start with a procurement process that defines outcomes expectedand the project scope commissions the design to achieve identifiedoutcomes and assembles the means to deliver those project outcomes Toooften we see adoption of a default or one-size-fits-all procurement processWe attempt in this book to trigger a re-evaluation of the lsquonormsrsquo becausewe believe that project procurement is ripe for reflection and adjustment toreflect the plethora of project types being undertaken and contexts in whichthe procurement process lsquonormsrsquo are either inadequate or are simplycounter productive This short preface chapter introduces the bookrsquospurpose aim some founding definitions and the bookrsquos structure

The value proposition for this book ndash its purpose and aims

The core issues identified by critics of the traditional procurement system(Kelly et al 2002 Langford et al 2003 Dalrymple et al 2006) recognisethe need for value-for-money and improved relationship quality betweenteam members in the project delivery system (Walker and Hampson 2003)An emerging core interest in project procurement is supported andenhanced by the formation of the International Council for BuildingResearch and Innovation in Construction (CIB) working commission W092 ndashProcurement Systems W092 developed a focus on contracts managementand forms of tendering for construction projects during the early 1990sOver the past decade however it has embraced investigating the nature ofhow procurement choices affect organisational culture and workingrelationships (McDermott 1999) This contextual discussion will bebroadened later in this chapter We will draw upon the constructionindustry as it is a reasonably mature PM environment or field of interesthowever we also draw upon many other PM industry sectors

This book is primarily focused upon how project leaders can make andinfluence procurement decisions so as to realise a project that truly deliversvalue to the project stakeholders for project and organisational successParticular attention is paid to the nature of lsquovaluersquo in this process in doingso we introduce a range of intangible project outcomes including ethicalconcepts to help project managers consider and address relative identifiedethics issues when realising a project

You will have mastered concepts discussed in this book when you canarticulate how to improve the project procurement processes to capturevalue and be capable of doing so by understanding the following

the fundamental meaning of delivering lsquobest valuersquo for projects andprogrammes

Preface xv

the range of procurement options open to project managers and theinterface between matching the strategy for value creation with anappropriate procurement delivery choice

cultural dimensions that show how project leaders can develop supplychain and competitor alliances and joint venture arrangements tosynergise each partnerrsquos capacity to deliver project outcome value

how stakeholders can influence the value that a project can generate andhow they can influence its realisation through a project by designing aprocurement process that recognises their input and influence

how innovation and organisational learning can be incorporated intoprocurement processes to generate value

how value from e-business can be harnessed to effectively andefficiently procure projects

how PM leaders can balance cooperation and competition in procuringprojects or being part of a group offering PM services

the impact that attracting the best talent to work on projects can beachieved through procurement choices that encourage and rewardperformance

how to use value measurement tools that provide better leadingindicators of value generation and

how to develop an appreciation for and an awareness of the role ofethics and being a good corporate citizen in delivering PM value

The focus of the book is illustrated in Figure P1 The key theme is procuringproject value Organisations tend not to want to merely source productsequipment people or systems rather they have a complex (often implicit)

xvi Preface

Figure P1 Focus of the book

Shapes valuedelivery

Procuringprojectvalue

Affects +is affected by

Affects + isaffected by

Shapes procurementchoices

Understandingprojectment

options Understandingethics and corporate

governance

Understandingthe nature of value and

the value chain

Balancingcompetition with

cooperationdelivers the rightkind of value ndash rules

norms conduct

Defining orredefining

the tenderingprocess

Affectseffectivenes ofmaking choices

need for a bundle of resources that help them generate and deliver somethingthat will be valued by those receiving the projectrsquos productservice Value canbe explicitly and implicitly expressed Understanding procurement optionsallows us to manage procurement choices and subsequent outcomes

We can effectively define and redefine the procurement process to matchthe way that we and critical stakeholders perceive value so that we canfocus on efficiency to reduce coststime (doing the thing right) andeffectiveness by focusing on value-based differentiation (doing the rightthing) Our understanding of the value chain and the nature of value affectsour perception of value We also find the need to balance cooperation andcompetition across project phases Understanding ethics and corporategovernance issues to ensure probity in project delivery is not only essentialbut it also affects our perception of project value

The context of project procurement systems

This section provides an example of how the concept of procurement hasbeen developing in a PM environment When reviewing the PM literaturesuch as the PMBOK (PMI 2004) or the Morris and Pinto book (2004) forexample we see procurement viewed predominantly with a supply-chainmanagement focus Many IT or business process PM project managersmainly perceive procurement as a make-or-buy decision from a choice ofin-house sourcing or from an outsourcing perspective Some of the richerand more fine-grained research work into project procurement can befound in the construction management literature It is for this reason thatwe will now summarise highlights from that wide body of work

Jack Masterman produced one of the first texts in building procurementsystems (Masterman 1992 2002) and Rowlinson in Rowlinson andMcDermott (1999) developed the work further and provided a definition ofprocurement systems based on nine years of the work of the CIB1 WorkingCommission 092 (W092) Walker and Hampson (2003) among otherscited in this text brought relationship-based procurement systems morefully to the attention of the construction and PM fraternity The evolutionof this project procurement definition is repeated below and discussed inthe subsequent sections of this chapter W092 members and otheracademics in this field view a construction procurement system choice as astrategic decision that subsequently affects the whole construction processand that the procurement concept is a very broad issue However theyrecognised the need for appropriate procurement PM and administrationprocesses to be followed regardless of which procurement strategy may bechosen They describe the aims and objectives of CIB Working CommissionW092 Procurement Systems (established in 1989) as follows

to research the social economic and legal aspects of contractual arrange-ments that are deployed in the procurement of construction projects

Preface xvii

to establish the practical aims and objectives of contractualarrangements within the context of procurement

to report on and to evaluate areas of commonality and difference to formulate recommendations for the selection and effective

implementation of project procurement systems and to recommend standard conventions

This working group aimed to serve the needs of the international constructionresearch community in times of change as the 1980s had brought signifi-cant changes in the legal economic and social structures of states in bothDeveloping and Developed Countries Privatisation in its many guises wason the political agenda not only in Western Europe and North America butalso in Eastern Europe (through the transitions from socialist to capitalistsystems) and in Africa and Asia (through Structural Adjustment Programs)W092 has achieved a broadening of the procurement agenda which isaccepting a diversity of viewpoints the recognition of the impact of cultureand overall a contingency viewpoint

The construction procurement concept had been poorly defined prior toCIB W092rsquos formation and this is also reflected in other PM-related busi-ness activities It is worth exploring the development of the procurementconcept by this construction group as it is likely to be applicable to otherPM situations The CIB commission initially adopted a general definition ofthe procurement term as lsquothe act of obtaining by care or effort acquiring orbringing aboutrsquo from the standpoint that such a conceptualisation ofprocurement would raise awareness of the issues involved both in challeng-ing generally accepted practices and in establishing new strategies Mohsiniand Davidson (1989 86) attempted a more sophisticated definition ndash lsquotheacquisition of new buildings or space within buildings either by directlybuying renting or leasing from the open market or by designing andbuilding the facility to meet a specific needrsquo This led to a debate amongstcommission members in Montreal in 1997 over the proposed definitionlsquoProcurement is a strategy to satisfy clientrsquos development andor operationalneeds with respect to the provision of constructed facilities for a discretelife-cyclersquo (Lenard and Mohsini 1998 79) Thus the commissionrsquos viewwas that the procurement strategy must cover all of the processes in whichthe client has an interest indeed the whole lifespan of the building

However the usefulness of such definitions has been questionedMcDermott (1999) noted that existing definitions (at that time) whilebeing useful for making comparisons of projects or project performanceacross national boundaries were limited to developed market economies ndasha conclusion supported by Sharif and Morledge (1994) who have drawnattention to the inadequacy of the common classification criteria describingprocurement systems (such as those discussed in Chapter 2 of this book)in enabling useful global comparisons This criticism is exacerbated by

xviii Preface

procurement choice descriptions being used differently by different PMsectors for example in IT or product development ndash lsquodesign and buildrsquo inconstruction terms is a valid and meaningful choice yet in many other PMsettings a component is often specified in broad performance terms by amain contractor the supplier designs manufactures and installs thatelement as being part of a supply chain This is simply part of the make-or-buy decision discussed in Chapter 1 Thus the whole procurement typol-ogy debate has been broadened in the construction industry context intoone which covered a whole-of-life cycle to also include economic politicaland cultural issues Evidence of this appeared in Latham (1994 5) whostated that lsquosome international comparisons reflect differences of culture or ofdomestic legislative structures which cannot easily be transplanted to the UKrsquo

McDermott further points out that key assumptions contained within thedefinitions client choice and the availability of a range of procurementoptions are irrelevant to Third World countries (McDermott et al 1994)Following intensive debate a working definition of procurement wasdeveloped by CIB W092 at its meeting in 1991 defining it as lsquothe frameworkwithin which construction is brought about acquired or obtainedrsquo(unpublished document) McDermott argues that this definition serves auseful purpose as it is both broad encouraging a strategic interpretationand neutral being applicable to developed and market economies

W092 has a number of focus areas that are current and internationallyrelevant Amongst these are development and privatisation these are issueswhich although having developed in the Western economies have a highdegree of relevance to Asia where the rapidly developing economies ofChina and India have looked towards the private sector to meet some oftheir burgeoning infrastructure needs Most countries in the world havemoved towards privatisation and publicndashprivate partnerships (PPPs)

A commonly occurring project procurement theme is that of the roleof culture in the shaping of procurement systems In particular the roles oftrust and institutions are increasingly important These issues will bediscussed later in this book these issues have arisen in both the West andthe Asian economies for separate reasons Of course the nature of culturedetermines the nature of trust just as history as well as culture determinethe nature of the institutions within which procurement systems operateThis is a fruitful and an exceedingly interesting area of research

Along with culture and institutions comes conflict The move away fromadversarial approaches to procurement and contracts and a move towardscollaboration and relationship management can be seen to have permeatedthe systems in Europe North America and Australia However such changesare also taking place in Asia particularly in China and the Japanese systemhas also embodied relationship management in its Kaizen approach system-atic incremental improvement (Imai 1986) for many decades now Thus thework of W092 on an international basis has great relevance for research and

Preface xix

dissemination and along with procurement must come considerations ofsustainability Sustainability a quadruple bottom-line view in terms of socialeconomic environmental and safety and health issues is an essential prereq-uisite for the continuance of development Indeed sustainability is embeddedin procurement systems in the UK through the concepts of communitybenefit (Donnaly 1999) In this section we have tried to introduce the readerto the broad field of project procurement that unfolds in this book

Structure of the book

The book is presented in two main sections The first section presentsfundamentals of procurement Each chapter in that section contains a shortvignette together with questions raised and links to useful resources toaddress those questions

Chapter 1 provides a discourse on the nature of value PM andprocurement and defines terms and the historical journey that has led froma lowest-cost tender to the sophisticated view expressed in this book andthe literature that has supported the development of this book It discussesthe lsquomake-or-buyrsquo decision and the rationale for outsourcing and also thevarious outsourcing types

Chapter 2 addresses the issue of the context of different types of project andhow that impacts upon a choice of procurement methods to use A discussionof relevant contract administration issues is also presented as they relate togenerating and maintaining value within the context of procurement choices

Chapter 3 views procurement from the stakeholder perspectiveStakeholders can add considerable value to projects as well as negativelythreaten projects draining management energy and causing disruption

Chapter 4 includes important discussion of ethical issues relating toprocurement This chapter also discusses project and corporate governanceand the impact of brand image upon those associated with a project

Chapter 5 is important because it discusses the strategic decisions thatanchor a project in a particular trajectory the initial approval to proceedand the strategies that may govern the project throughout its life cycle

Chapter 6 logically discusses performance measures and ways of valuebeing perceived and how to assess the effectiveness of project teams ina holistic manner This chapter indicates how recent research has shownhow hidden intangible value can be identified and linked to more tangibleproject outputs so that the true value of a project can be better articulatedand monitored

Chapter 7 investigates how e-business has affected project procurementchoices and procedures This chapter also discusses important facets of howinformation communication technology (ICT) is supporting projectprocurement and delivery processes and how it should be factored into aproject procurement and delivery strategy

xx Preface

Chapter 8 addresses the important and often neglected aspect ofinnovation organisation learning and knowledge management (KM) thatcan add value to project procurement processes

Chapter 9 brings forward critically important issues relating to culturaldimensions of procuring and delivering projects These include the culturalenvironment of a project and how a procurement design can set it on amore positive trajectory Project teams these days comprise cross-culturalgroups whether cross-national or cross-disciplinary These issues arerelevant to considering and designing an effective procurement and projectdelivery strategy

Chapter 10 addresses a key issue relating to project delivery Projects donot deliver themselves people deliver them Therefore effective procurementchoices should build in value that tempts the project organisations to attractthe best available talent to deliver value This is as relevant to bothin-sourced and out-sourced projects

In the second section four chapters are presented which provide researchresults and case studies of organisations some of whom have had theiridentities disguised These are taken from the Construction Industry the ITIndustry and the Logistics Industry They develop ideas on PM procurementpractice through case studies involving alliancing business transformationprocess improvement and the establishment of a centre of excellence projectEach case study provides a description of the project context to helpreaders understand the issues challenges and quandaries facing theseprojects in their procurement choices Responses andor solutions to thesequandaries are then provided Each aspect of the lsquowhatrsquo issues are given andexplained in Chapters 2ndash5 Additionally the lsquohowrsquo and lsquowhyrsquo issues areaddressed in Chapters 6ndash10

We thank the generosity of those who assisted us in producing this bookthe contributing authors those who supported us while writing it thosewho undertook the valuable editorial checking and administrative dutiesand those who provided information Finally we thank those authorswhose work we cite All value generated in any book or project such as thisis developed from the baseline of previous literature developed by ouracademic and practitioner colleagues

Chapter summary

This chapter introduced the book Figure P1 illustrates the focus of thebook being firmly on delivering value through a procurement system thatbuilds in and designs in value as a fundamental proactive process Weintroduced procurement in the context of PM and also traced the recenthistory of the evolving procurement field of study We stress that we haveto strategically design processes that drive a value agenda to effectivelyachieve value delivery in PM We expect that this book will break new

Preface xxi

ground triggering people to re-think procurement and how it can be usedas a change-management agent This can be achieved by introducinginnovation ensuring an ethical process with due justice being a core valueso that value is generated for as many players as possible in the supplychain We indicate how strategy and e-business trends can influence projectprocurement and we also highlight new performance measurement toolsthat can address the needs of a range of stakeholders on a range of projecttypes Importantly we address the issue of how to attract and retain thebest talent to implement projects be that from in-house or out-sourcedteams We believe that this book provides a fresh engaging and strategicapproach to the field of procurement that has for too long been viewed asbeing only transactional lsquopurchasingrsquo and lsquocontracts administrationrsquofunctions We provide four stimulating case study examples of leading-edgeprocurement application where tools transformation and relationalengagement are key drivers of this fresh approach

Note

1 CIB is the acronym of the abbreviated French (former) name lsquoConseil Internationaldu Bacirctimentrsquo (in English this is International Council for Building) In the courseof 1998 the abbreviation was kept but the full name changed to InternationalCouncil For Research And Innovation In Building And Construction The CIB wasestablished in 1953 URL is httpwwwcibworldnlwebsite

References

Cicmil S (1999) lsquoImplementing Organizational Change Projects Impediments andGapsrsquo Strategic Change 8(2) 119ndash129

Cicmil S (2006) lsquoUnderstanding Project Management Practice throughInterpretative and Critical Research Perspectivesrsquo Project Management Journal37(2) 27ndash37

Dalrymple J Boxer L and Staples W (2006) Cost of Tendering Adding CostWithout Value Clients Driving Innovation Moving Ideas into Practice SurfersParadise Queensland 12ndash14 March Hampson K CRC CI

DETR (1998) Rethinking Construction Report London Department of theEnvironment Transport and the Regions

Donnaly M (1999) lsquoMaking the Difference Quality Strategy in the Public SectorrsquoManaging Service Quality 9(1) 47ndash52

Hodgson D and Cicmil S (2006) Making Projects Critical Basingstoke UKPalgrave MacMillan

Imai M (1986) Kaizen The Key to Japanrsquos Competitive Success New YorkMcGraw-Hill

Kelly J Morledge R and Wilkinson S (2002) Best Value in ConstructionOxford Blackwell Publishing

Langford D A Martinez V and Bititici U (2003) lsquoBest Value in Construction ndashTowards an Interpretation of Value from the Client and ConstructionPerspectivesrsquo Construction Procurement 9(1) 56ndash67

xxii Preface

Latham M (1994) Constructing the Team Final Report of the GovernmentIndustry Review of Procurement and Contractual Arrangements in the UKConstruction Industry London HMSO

Lenard D and Mohsini R (1998) Recommendations from the OrganisationalWorkshop CIB W-92 Procurement ndash The Way Forward The University ofMontreal 18ndash22 May Davidson C H and T A Meguid CIB 1 79ndash81

Masterman J W E (1992) An Introduction to Building Procurement Systems2nd edn London E amp FN Spon

Masterman J W E (2002) An Introduction to Building Procurement Systems2nd edn London E amp FN Spon

McDermott P (1999) Strategic Issues in Construction Procurement InProcurement Systems A Guide to Best Practice in Construction Rowlinson S andP McDermott (Eds) London E amp FN Spon 3ndash26

McDermott P Melaine Y and Sheath D (1994) Construction ProcurementSystems ndash What Choice for the Third World East Meets West Proceedings ofCIB W92 Procurement Systems Symposium Hong Kong 4ndash7 DecemberRowlinson S University of Hong Kong 1 203ndash211

Mohsini R and Davidson C H (1989) Building Procurement ndash Key to ImprovedPerformance Contractual Procedures for Building Proceedings of theInternational Workshop Liverpool UK 6ndash7 April D Cheetham D C T Lewisand D M Jaggar CIB 1 83ndash86

Morris P W G and Pinto J K Eds (2004) The Wiley Guide to ManagingProjects Series The Wiley Guide to Managing Projects New York Wiley

Morris P W G Patel M B and Wearne S H (2000) lsquoResearch into Revising theAPM Project Management Body of Knowledgersquo International Journal of ProjectManagement 18(3) 155ndash164

Murray M and Langford D A (2003) Construction Reports 1944ndash98 OxfordBlackwell Science Ltd

PMI (2004) A Guide to the Project Management Body of Knowledge 3rd ednSylva NC USA Project Management Institute

Rooks G and Snijders C (2001) lsquoThe Purchase of Information TechnologyProducts by Dutch SMEs Problem Resolutionrsquo Journal of Supply ChainManagement 37(4) 34ndash43

Rowlinson S (1999) Selection Criteria In Procurement Systems A Guide to BestPractice in Construction Rowlinson S and P McDermott Eds London E amp FNSpon 276ndash299

Sharif A and Morledge R (1994) A Functional Approach to ModellingProcurement Systems Internationally and the Identification of Necessary SupportFrameworks East Meets West Proceedings of CIB W92 Procurement SystemsSymposium Hong Kong 4ndash7 December Rowlinson S University of Hong Kong1 295ndash305

Standish (1994) The Chaos Report (1994) Company research report DennisMA 14

Standish (2003) Latest Standish Group CHAOS Report Shows Project SuccessRates Have Improved by 50 at httpwwwstandishgroupcompressarticlephpid2 25 March

Walker D H T and Hampson K D (2003) Procurement StrategiesA Relationship Based Approach Oxford Blackwell Publishing

Preface xxiii

A book such as this does not just happen Our co-authors for exampledirectly make a valuable contribution through their expertise and generouslygiving their time and effort to draft re-draft and polish the chapters ndash wedeeply thank them for that devotion and commitment Behind the scenesare the reviewers the copy editors and those in the publication chain thathelped us by producing this tangible version of the book Without their vitalinputs of expertise and energy the quality of this book would be compro-mised Authors need to discuss their work so we acknowledge and heartilythank our colleagues and friends who have provided moral supporttangible advice and valuable feedback throughout the writing phase Ouruniversities helped us by providing hardware and software and access to thelibrary as well as moral support

Finally and with great gratitude we all acknowledge and thank oursocial support structure our family and friends who provided theencouragement and support in so many ways to help make time by carry-ing out our share of the family work to allow us the time to think and writeSpecifically I (Derek) would like to deeply thank my partner BeverleyLloyd-Walker and my family including Georgina David Ruby ourwonderful grandchild and Tony and Lee

This book has been produced with the cooperation of CIB WorkingCommission 092 and is a CIB endorsed publication

Derek H T WalkerSteve RowlinsonSeptember 2007

Acknowledgements

Chapter 1

Introduction and procurementfundamentals

Derek HT Walker Justin StarkMario Arlt and Steve Rowlinson

Chapter introduction

This chapter discusses procurement fundamentals from a PM context thatsets the scene for the rest of the book We argue that delivering value is themain purpose of PM and that value is generated by PM teams for customersand stakeholders including organisations involved in the PM process Weassert that a sustainable procurement process provides a way that value isgenerated for all parties concerned because envisioned value generation is astrong motivator of the required level of commitment and enthusiasmnecessary to generate winndashwin rather than winndashlose outcomes

At the heart of value generation is the issue of who participates in thisprocess This brings to the surface the primary make-or-buy decision thatinvolves determining which parties are best prepared suited and equippedto undertake specific parts of a project That leads to determining how tobest procure the required resources whether they be internally or externallysourced While a portion of the project will be inevitably undertaken bythose in the lead or PM role position (even if that contribution is solely tocoordinate activities) much of the project work will be outsourced Thischapter will focus upon the procurement fundamentals of the outsourcingrationale It is often assumed as a lsquogivenrsquo without looking at this decisionfrom a value generation and maximisation point of view

This chapter starts by discussing the concept of lsquovaluersquo and moves on toquestion and discuss what an organisation actually is and how it can delivervalue The next section focuses upon the nature of outsourcing and itsderivatives That leads into the issue of transfer pricing and how valuegeneration is treated in a global context because the trend towards globaloutsourcing has led to often complicated taxation and value recognitionissues Privatisation is also discussed in this chapter because many of themajor projects being undertaken by the private sector have been shiftedthrough government policy in all market economies from the public sectorto the private sector or through a partnership of public and privateenterprises

The nature of value

Value is in the eye of the beholder Because the appreciation of value isgoverned by perception we must start with the stakeholders who have aneed that requires satisfying or addressing Chapter 3 will explore thestakeholder dimension of defining and contributing to value RobertJohnston (2004) argues that customer delight lies at the top end of acontinuum This ranges from dissatisfaction where fitness for purpose ismanifestly absent through compliance with minimum expected deliveryperformance to that higher level where exceptional value is deliveredDelight is therefore the result of (excellent) service that exceedsexpectations However this may come at an excessive cost to either theprovider or recipient His study was based on gathering over 400 statementsof excellent and poor service gathered from around 150 respondentsParticipantsrsquo phrases about excellent service provided by the respondentsfell into four relationship-based categories

1 delivering the promise2 providing a personal touch3 going the extra mile and4 dealing well with problems and queries

Characteristics of poor service were essentially the converse of excellence(Johnston 2004 132) The interesting part of this study which related tocustomer service in general rather than procurement process in particularwas that while category one is transactional and satisfaction of the statedstandard appears to suffice the other three categories are about intangibleand often poorly explicated standards We could recognise value thereforeas being not simply fitness for purpose at an agreed price in a timely mannerbut also as providing intangible deliverables for organisations that mayinclude excellence in quality of relationships leadership learning cultureand values reputation and trust It is not easy to identify and prepare PMprocesses that have well-operationalised and developed measures to monitorand ensure effective delivery However Nogeste (2004) and Nogeste andWalker (2005) identify how this can be achieved This aspect will be dis-cussed later in more detail in Chapter 6 The point made here is that valueis an amalgam of the lsquoiron trianglersquo of performance measures of time costand quality together with expectations and anticipated delivery of lsquosofterrsquooften unstated needs Traditional project delivery procurement systems maybe adequate in defining tangible and defined outputs but they fall short infacilitating delivery of expected intangible and unstated outcomes Thisbrings in issues of expectations management as a valid aspect of project pro-curement processes The extent to which these intangible outcomes are deliv-ered is often associated with the level of customer delight and value

2 Walker et al

Returning to the more tangible and defined elements of value anotherway of viewing value for money is receiving a project or product at areasonable price that reflects input costs and is delivered within a reasonabletimeframe at the specified quality level This concept of value relates toethical and governance issues Taking an extreme example slave labour orusing stolen materials could arguably deliver lower costs however thiswould be unfair and unethical Issues relating to ethics and governance willbe discussed in more detail in Chapter 4 Similarly a process that ensuresopen and transparent availability of cost and scheduling information forexample can provide a set of project governance property arrangements tosatisfy fairness criteria Thus provisions for demonstrating value can bestructured into procurement processes Further as will be discussed inChapter 8 procurement options can be designed to facilitate innovationandor organisational learning Similarly a focus on talent both from thepoint of view of attracting talented project team members and developingcapacity in teams and stakeholders can also be designed into procurementchoices This is discussed in more detail in Chapter 10

Another way of looking at value is to ensure that delivered projectsmeet strategic needs of stakeholders An inexpensively delivered factory(strategically) located in the wrong place will not deliver competitiveadvantage and hence will have sub-optimal or negative value For manychange management or product development projects making the correctstrategic choice is part of the project procurement process ndash especially asmany of these projects use organisation-internal markets to resource theseprojects This aspect will be further discussed in Chapter 5

New technology particularly an e-business and information andcommunication technology (ICT) infrastructure can offer new ways ofconfiguring procurement options and can impact new processes and waysof both procuring and delivering projects These innovative approaches canenhance value to be delivered and this aspect is presented in more detail inChapter 7

Much of the focus of this book particularly Chapter 2 lies withexploring the range of procurement options open to deliver value inprojects by matching these against the context of the projectrsquos need to besatisfied The cultural dimension of both generating trust and commitmentfrom all parties is explored in Chapter 9 and this is particularly importantfor relationship-based procurement options (Walker 2003)

The nature of projects and project management

The PMBOK provides a useful definition of a project and projectmanagement A project is defined lsquoas a temporary endeavour undertaken tocreate a unique product service or resultrsquo (PMI 2004 5) Project managementis said to be the application of knowledge skills tools and techniques to

Introduction and procurement fundamentals 3

project activities to meet project requirements Four main processes arelisted identifying requirements establishing clear and achievableobjectives balancing competing demands for quality scope time and costand adapting the specifications plans and approach to the differentconcerns and expectations of various stakeholders (PMI 2004 8)

Turner and Muumlller (2003) remind us that a project uses a temporaryorganisation to deliver its outcome and that there are transaction costsinherent in a project that do not appear in established ongoing productionorganisations They also stress that much of the project managerrsquos role ismotivating team members stakeholders and shaping agendas Theydescribe features of a project as follows (Turner and Muumlller 2003 2)

The project aim is to deliver beneficial change Features includeuniqueness novelty and transience Pressures typically encountered arein managing to cope with uncertainty integration and transienceProcesses need to be flexible goal oriented and staged

Value in terms of projects is apparently more complex an issue than stan-dard factory production of lsquowidgetsrsquo because the management and leader-ship intensity involves mobilising transient groups of people broughttogether for a limited time to work on specific projects people within thesegroups often exit part way through the realisation of these projects for onereason or another That is why this book includes aspects of stakeholderidentification and management (Chapter 3) organisational learning andknowledge management (KM) (Chapter 8) talent management (Chapter10) and cultural dimensions (Chapter 9) that make establishing an optimalframework for delivering value so important As the collection ofgovernment reports reviewed and commented upon by Murray andLangford (2003) clearly indicate the procurement systems traditionallyused in the UK construction industry fail to address the complex reality ofhow projects can best deliver the more holistic concept of value notedearlier in this chapter

The phases of a project need to be considered so that optimum value isdelivered because a project often takes a long time (many years) to deliverA typical project can be seen to comprise of four principal often overlappingphases These are illustrated in Figure 11

At the initiation phase the project needs are identified clarified and pri-oritised along with expected benefits the strategic impetus for the projectand developing and challenging the business case for the project This iswhere stakeholder input can provide significant project potential valueThe appropriate involvement of stakeholders and the management of thisprocess are discussed in Chapter 3 in more depth The need foridentifying stakeholder potential impact can be of crucial importance andadd value by identifying often hidden opportunities for planning input

4 Walker et al

and knowledge and can unearth hidden risks and threats (Bourne andWalker 2005ab) Also intangible value and benefits can be identifiedanalysed and linked to the tangible project deliverables (Nogeste andWalker 2005) The design phase involves matching needs with proposals todeliver the required value to meet the identified needs Stakeholderinvolvement particularly in respect of prioritising needs and using valueengineering techniques to optimise value (eg see Green 1999) can deliverunexpected value The design phase is usually followed by a process wherethe successfully selected project team is mobilised and resources procuredto deliver the project This is where sub-optimal procurement choices canhave a profound impact upon project delivery value The final phase notedabove is de-commissioning and often a different set of additional stake-holders may be involved at this stage

Figure 11 illustrates two trajectories of project value generation through-out the project phases At the initiation and design stages stakeholder input(including not only supply chain stakeholders but project end-users andothers affected by the projectrsquos existence) can provide critical definition andperceptions of value that may shape the evolving design details High-levelperformance at this leading edge of the project time span is indicated byidentification of misunderstandings of value perceptions at as early a stageas possible These can include fully understanding the true needs driving thefeasibility of the project contextual knowledge and matters relating toplanning and logistics Without this kind of input from stakeholders it is

Introduction and procurement fundamentals 5

High

Stakeholder inputPlanning input

Innovation + knowledge Intangibles

Low Initiation Design

Procurement

High performancelevels

High performance levels

High performance levels

Low performance levels

Co-operationcollaborationLow transaction costs

Low performance levels

Delivery De-commissioning

Val

ue g

ener

ated

Figure 11 Project phases and performance

common for project designs to start sub-optimally with high expense andrework being required to remedy this if discovered later Worse still thisinput may be realised too late to effectively incorporate ideas that couldoptimally realise project value This is why the chosen procurement processcan have such a significant impact upon the stage before committing theproject to detailed design and tender As illustrated above the gap betweenpoor and good performance at this stage can be significant

The second part of the trajectories illustrated in Figure 11 relates to thedelivery phase spilling over to de-commissioning The point made here isthat even if a poorly initiated and designed project has a top-level projectteam carrying out the project it is unlikely to yield as much value as amediocre or poor project team delivering a project where there was highperformance initiation and design established For example Bartheacutelemy(2001) identified a proportion of the hidden costs associated with outsourcingcontracts and their management and maintenance which include

searching for and identification of a suitable vendor transitioning services to the external service provider managing the day-to-day contract and its service deliverables and the effort required once the outsourcing contract agreement has been

completed or terminated

Figure 11 clearly demonstrates that the value contribution lies not only inthe way that stakeholders and project team initiators behave andcontribute but also in the timing of their contribution It shows how theprocurement phase which often spans the design and delivery phases ispivotal in generating project value

Procurement choices should be geared towards maximising value Thisinvolves not only considering which type of contract to use but how toengage stakeholders how to link business strategy to select the projectinitially how to define value both in its more tangible and easily explicatedform and the hidden tacit aspirations of those who are meant to benefitfrom the project Procurement choices should be about balancing demandsand responsibilities protecting reputations of those involved in the projectagainst using unethical practices encouraging innovation best practice andknowledge transfer where it can reap value developing project governanceand reporting criteria that highlight protect and generate value and theyshould aim to attract the level of talent that can deliver stakeholder delightClearly this vision of procurement positions itself far from the traditionallowest-cost strategy It requires a more intelligent treatment of how best tofacilitate the project to generate sustainable value If the word lsquovaluersquoappears overused in this chapter it is because it has been largely absent frommuch of the project management and procurement literature This bookseeks to redress this situation

6 Walker et al

The make-or-buy decision

At the heart of procurement is a fundamental make-or-buy decision ChrisFill and Elke Visser (2000) argue that essentially projects are triggered by adecision to realise a change within the organisation (a make decision) or tooutsource this (a buy decision) Most projects have both make and buyelements to them The interesting thing about the emerging and growingtrend of organisations managing by projects is that we can look atoutsourcing as being purely external (a buy decision) or we can choose tolook at a project justification proposal to internally produce goods ordeliver a service (a make decision) Also each of these has an importantimpact upon management issues associated with the project lifecycle Eitherway these decisions essentially follow a similar process

Calculation of costs relating to the delivery of transaction-based serviceshas been the subject of extensive research Transaction-cost economicspractices (TCE) (Williamson 1975 Chiles and McMackin 1996 Robbinsand Finlay 1997) enable an organisation to quantify the costs associatedwith transaction-based services Transaction-based services are defined asthose services that can be quantified in a manner that allows them to be sep-arated as individual items within a service delivery framework This makesidentification and cost analysis considerably easier than non-quantifiableservices Transaction-based costs are defined as the delivery of services thatcan be measured against a specified service level agreement These activitiesare a significant contributor when measuring the total costs associated withoutsourcing deals TCE assumes that the costs are selective those differingmanagement choices will see a differing value for the costs of transactionsand that the governance structure and organisationsrsquo interactions can affectcosts This may not be as relevant in outsourced deals as the structure ofthe outsourced provider and the methodology used for management maynot be within the direct control of the customer There may be situations inwhich the customer has an expectation of specific interactions with theappropriate levels of the project management team for the type of contractor service level agreements that are in place Although the governancestructure of the delivery organisation will affect the relationship it is thegovernance structure of the customer that can ultimately influence the ongoingservice relationship If organisations have the same governance structurethen costs will be reduced and cost management could be minimisedalthough both organisations may vary their governance structures to helpreduce transaction costs

The resource-based view (RBV) of the organisation assumes that organisa-tions are a collection of people processes technologies competencies (skillsand knowledge) money and physical assets that together provide the meansfor firms to conduct business Barney (1991) argues that for firms to gainand maintain sustainable competitive advantage these resources must be

Introduction and procurement fundamentals 7

(compared to competitors) rare valuable and inimitable They must bedeployed strategically in order to lsquostay aheadrsquo of competitors Others suchas Conner and Prahalad (1996) argue that knowledge is a crucial resourceand indeed Prahalad and Hamel (1990) were early theorists who argued thata firmrsquos core competencies lay at the heart of its value as a company A fur-ther elaboration on this view includes the way that firms respond toturbulence and dynamic change in the market and these competencies(dynamic capabilities) are central to a firmrsquos sustainability (Teece Pisano andShuen 1997 Eisenhardt and Martin 2000) Firms can (internally) view valueas being their capacity to maintain or increase the most valuable of their stockof resources Ideally this manifests itself in increasing revenues physical orintellectual property organisation competence or skills and knowledge thatits people deploy in their daily job performance Their attractiveness to clientsand the market is partially determined by their choice of strategy to use theirresources to generate value for their customers or clients

Many managers and business leaders translate this strategic choice whendelivering projects as a combination of undertaking parts of the project atleast cost or arranging for others who can do so at lower overall cost Anoften hidden cost that needs to be also considered is the transaction cost ofarranging to sub-contract out part of a project This can include themanagement energy (and opportunity cost of making more productive useof their time) in developing a tender brief tendering evaluating andawarding a contract and then administrating and ensuring that requiredquality is delivered This lsquotransaction costrsquo as described by Williamson(1991) can be significant and the scale overlooked by those eager tooutsource and subcontract parts of their project Further parts of a projectwill require resources of skill competencies and capitalintellectual assetsthat the firm may not possess and so the obvious solution is to outsourcethese parts Finally there are contextual issues that inform a buy-make decisionAn organisation may have all the required resources to not only undertakea project by themselves but may also wish to share risk share resourcedemands or develop collaborative relationships with other firms Fill andVisser (2000) identify reducing hassle as an outsourcing driver Hassle mayrepresent an element of risk management or binding up resources that couldbe more productively used elsewhere They present a process of the make-or-buy decision as being determined by the inputs of

1 the firmrsquos strategy and cost and business structures2 the transaction costs associated with a lsquobuyrsquo rather than lsquomakersquo decision

and3 contextual factors that can include risks and future opportunities

When a lsquomakersquo decision is made based on the above to undertake a part ofa project in-house then not only should budgets and plans be presented to

8 Walker et al

plan how to undertake the work and what resources are required at whattimes but a business case should also be made to justify that lsquomakersquodecision The business case should address risk elements opportunities andprovide contextual information for example there may be strategicpolitical or historical reasons why apparently non-cost-effective decisionsmay be made

The make or buy decision therefore generally results in at least somepart of a project being outsourced as no firm has all the requisite resourcesand skills to undertake an entire project under its own steam Thus the nextrelevant aspect to discuss is the rationale and forms of outsourcing In thischapter we discuss the concept of outsourcing before entering into detailsof the various procurement options that will be dealt with in Chapter 2

The nature of outsourcing and its derivatives

Gay and Essinger (2000) see outsourcing as a process of transferring servicedelivery management responsibility to a third party for providing servicesthat are governed by service-level agreements This recognises the fact thatthe customer must take responsibility for the delivery of services to itsorganisation Jacobides and Croson (2001) argue that effective service-level-agreement monitoring encourages the vendor to ensure that the deliv-ery of service meets the contractual requirements This implies that themanagement responsibility for the monitoring of services governed by theservice-level agreement remains with the customer especially when consid-ering the successful delivery of services The customer in such situationswill need to rely on information provided both by reporting communica-tions from the service provider and feedback from internal customers to beable to judge vendor service-level delivery and to prompt any subsequentadherence action to ensure contractual service-level agreement perfor-mance This information will then have to be compared to the contractbetween the service provider and the customer Management reportingneeds to be included in all outsourcing contracts and should reflect theservice-level agreements and expectations that have been agreed uponMeasurement or reporting systems should be able to reflect the value asso-ciated with services rather than lsquomanagement noisersquo

Outsourcing can be thought of in one sense as sub-contracting activitieswhen the firm has a contract for a project but is unable to internally absorball the required work In another sense it can be considered as undertakingpart of a firm-internal activity or process This may include IT support oran element of production (perhaps manufacturing components or servicedelivery element such as logistics support) Outsourcing has becomeincreasingly prevalent in facilities management (FM) for a more detailedtreatment of that aspect (see Broumlchner 2006) A further subset ofoutsourcing discussed in this section includes out-tasking and privatisation

Introduction and procurement fundamentals 9

Outsourcing and out-tasking

Project outsourcing naturally requires project management capabilitieswhilst outsourcing of operational activities often involves a portfolio ofcascading projects to deliver the outsourcing model Some of these projectsare directly related to the outsourcing act such as shifting an operation orprocess from being internal to external delivery Others are indirect such asthe development of an effective oversight or governance capacity formanaging an outsourced venture or may include change managementactivities that are nested inside or surround the actual outsourcing project

Recent surveys in CIO Magazine (Bendor-Samual 2002) and DeloitteConsulting (Landis Mishra and Porrello 2005) analysed the reason whylarge organisations outsource activities In both studies about two thirds ofthe respondents named cost savings as the primary driver for their movetowards outsourcing However as Deloittersquos recent survey points out 38of the respondents which engaged in outsourcing ventures to save costexperienced unexpected additional costs Many outsourcing ventures didnot deliver on other promises the expected increased focus on core businesswas not achieved critical processes were mislabelled as non-strategic andhad to be in-sourced again vendor risks had been underestimated andbetter access to quality resources were often overestimated

While this by no means establishes that outsourcing is an unsuccessfulmodel it suggests that a solid business case is essential to the success ofoutsourcing activities Such a business case should state the expectedquantitative and qualitative benefits both from a tactical and strategicperspective as well as identify and estimate all related risks in addition toestablishing suitable metrics to measure the value-add of the outsourcingventure on an ongoing basis A comprehensive business case should includeall direct costs for the services being provided as well as the indirect costsassociated with managing the supplierndashcustomer relationships and thoseincurred from risk management activities

Outsourcing should not be the strategic objective but an option toachieve a strategic objective defined by management Currently manyvariations of outsourcing can be observed The following classification ofoutsourcing variations based on six dimensions are presented in Table 11(Stark Arlt and Walker 2006)

The Activity Dimension describes what organisational activity is to beoutsourced and distinguishes between short- and long-term endeavourssuch as projects and programs on one hand and open-ended activities likethe permanent execution of processes on the other hand The GeographicDimension relates to the locations included in an outsourcing scenarioand captures the geographic distance of the outsourcing partnerFurthermore the Legal Entity Dimension defines the legal relationship ofthe partners of an outsourcing agreement which can reside either within

10 Walker et al

(shared services model) or outside a corporation The DistributionDimension captures the degree that an activity is outsourced which for adefined activity can range between co-location (0) and full outsourcing(100) The Engagement-Temporal Dimension classifies the partneringapproach from the kick-off of an outsourcing relationship and will mainlyimpact procurement considerations for the outsourcing contract Some ofthe successful outsourcing partnerships have moved through someexperimental stages to a more hands-off model Lastly the MobilisationndashDemobilisation Dimension captures the impact of outsourcing an activityand may imply significant efforts depending on the implied re-entryoption a full divesture with no plans for taking back the outsourcedactivity in the foreseeable future (simple) demobilisation of resources withpossible re-entry (moderate) or probable re-entry (intense) which requireslegacy capacity to do so

As can be seen in Table 11 the six dimensions allow numerous strategicor tactical permutations of outsourcing scenarios As an example for themix of these dimensions an organisation could decide to outsource aproject component such as the generic code development for a definedcomponent of a software product to a third party in an offshore locationwith little need for developing any long-term relationships or embeddedlearning product enhancement nor any need for complicated re-deploymentor redundancy of existing staff

Introduction and procurement fundamentals 11

Table 11 Outsourcing dimensions

Activity dimension Geographic dimension Projects LocalRegionalNational (on-shore) Programmes InternationalGlobal activities (near-shore Portfolios containing projects or or offshore)

programmes Operations or business processes

Legal entity dimension Within one legal entity In a different legal entity but

within a corporation Outside the corporation

Engagement-temporal dimension Hands-off divesture Experimental ndash spin-off Experimental ndash growing

partnerships to divest Experimental ndash growing

partnerships to potentially absorb the outsourced entity

Distribution dimension All activities are performed within the

organisation (collocated execution) Activities are distributed across multiple

locations and partially executed in-houseand outside (out-tasking)

All activities are performed outside the organisation (full outsourcing)

Mobilisationndashdemobilisation dimension Simple (no re-entry expected) Moderate (re-entry possible) Intense (re-entry probable)

Although outsourcing of services has been implemented by a number ofgovernment agencies for example there are other procurement strategiesthat can be employed to meet the needs of large organisations Out-taskingselective delivery of expert services (often complete business processes) byan external party can be used without committing excessive overheads andmanagement Recruitment agencies payroll service providers and cleaningservices are all prime examples of this style of procurement strategy In thesesituations a services contract is drawn up between the customer and thesupplier for the delivery of specified services It is then up to the serviceprovider to ensure that the service is delivered to the contractualagreements In these out-task scenarios non-technical or specified skill setservices are provided and economies of scale for the delivery organisationshould provide cheaper services to the customer (Domberg and Hall 1995)

Out-tasking is a short-term operational decision that can be used toprovide a service needed to continue operations or provide specialist skillsthat would not be required for long-term operations or can be completelydivorced from day-to-day deliverables The risk of this procurementstrategy is less than with outsourcing as there are lower switching costsand often the skills provided are available freely within the market placeOut-tasking requires that a level of trust be established between the twoorganisations but the level of relationship management and ongoing sup-port is considerably less than with the outsourcing of services Procurementis achieved by defining the service level required for specific tasks andsourcing them within the market place For additional services theincumbent may provide a more cost-effective service but the customer isable to freely negotiate within the market place

At first glance such a procurement strategy has the look and feel of anoutsourced service and the classification between outsourcing andout-tasking is a grey line However out-tasking is a specified deliverable sointellectual property would not change hands and the customer is more ableto switch vendors in an easy and timely manner With outsourcing the costof the service needs to consider the long-term implications of switchingcosts because when these contracts are terminated it often occurs in anacrimonious manner

Such an out-tasking scenario to a third party may yield certain benefitsalthough there is much literature to refute this as an activity that savesmoney and delivers (Treacy and Wiersema 1993) unless there is an ongoingrelationship with the supplier It would be particularly suitable for a one-timeshort-term outsourcing need for a clearly defined and potentially rathercommodified service which requires specialist skills or could be providedby a third party at a substantially lower cost in a shorter period of timeandor of higher quality The risk of this out-tasking strategy is lower thana full outsourcing scenario due to lower switching costs associated withmobilisation and demobilisation of key resources and the likely wide

12 Walker et al

availability of qualified resources in the market place to provide such(commodified) services Out-tasking as described in the above examplerequires that a certain level of trust is established between the two organi-sations but the level of relationship management and ongoing support isconsiderably less than with the outsourcing of an operation or process Thecustomer may procure additional services from the same provider or fromwithin the market place due to the commodified nature of the underlyingdelivery models Risks relating to the retention of intellectual property andthe build-up of a potential competitor are limited as the conscious decisionis made to only out-task a part of the development effort and to focus oncommodified activities Outsourcing the development of further softwarecomponents to other partners may increase the leverage while maintainingownership of the overall design and architecture and securing theintellectual property of the overall product

We suggest that outsourcing decisions should be a truly strategy-drivenprocess which could be executed as follows in Figure 12

The stages can be summarised as follows

1 Define strategic objectives The clear definition of the objective andtarget variables which will be used to measure the success of the takenaction is most critical for the success of an outsourcing venture Therelevance of this first step is often underestimated and will be furtherelaborated in this section

2 Define a suitable outsourcing model Based on strategic objectives thesix dimensions can be used for defining a suitable outsourcing modelMetrics defined in the prior step will help estimate the business benefitsand set target values Chapter 2 will explain this in greater depth

3 Validate the outsourcing model This validation step may include anumber of stakeholders which will be involved in the outsourcingprojects within the organisation It will further solidify the benefits andrisks and could take into consideration benchmarking data for similarventures within or outside the organisation

4 Define requirements and partner selection criteria As a result of theprior steps parameters for a proposal request can be identified as wellas vendor selection criteria

5 Select vendor Based on Stage 4 a vendor selection can be performedand negotiations will be initiated

Introduction and procurement fundamentals 13

Define strategicobjective(s)

Define a suitableoutsourcing

model

Validate the outsourcing

model

Definerequirements andpartner selection

criteria

Select vendor

Figure 12 Outsourcing strategy

Thus the decision whether to use internal or external resources for executingan activity or service is strategic in nature and not merely a price-drivenmake-or-buy decision as long as services are typically not standardised tothe extent where they are purchased and delivered like a commodity

To successfully outsource activities executive management needs todefine the underlying drivers for such an action To the extent thatmanagement can qualify and quantify the strategic objectives associatedwith the outsourcing activity it should be possible to establish a solidbusiness case and execute it Such strategic objectives could be articulatedas follows

being focused upon core business activities (metric volume and supportcost for activities) that are neither considered core competencies nordirectly responsible for the organisationrsquos competitive advantage

leveraging external subject matter expertise for example for non-coreproduct components or one-time development or integration efforts(metric in-house development staff hired or retained for non-coredevelopment)

reducing labour-intensive processes and increase of cutting edgecustomer-centric activities in locations which exhibit high labour cost and

understanding the exit criteria for outsourced activities which will leadto a relocation of outsourced activities back to the parent organisationor reassignment

However when considering the outsourcing of services a series of additionalrisks should be taken into account For example successful outsourcingrequires that the organisation ensures that not only the deliverables meetthe specifications but also the relationships and contractual requirementsare to be measured and maintained (Cooke-Davies 2002) which involveadditional efforts and costs on both sides The outsourcing contract needsto define a reporting and control mechanism with agreed upon metrics andaudit capabilities such that delivery risk can be managed by the customerOutsourcing activities often lead to a shift of primary skills sets from thecustomer organisation to the supplier which may reduce an organisationrsquosability to manage the delivery from requirements definition to executionFor example the outsourcing of a manufacturing activity will impact on theresident skill set for production engineering the outsourcing of engineeringcapabilities may diminish the organisationrsquos ability to develop newproducts The outsourcing of a complete process is likely to impact on thedetailed understanding of the process and hence the ability to managemonitor and audit process compliance with the intended purpose and soon This risk of losing relevant skill sets requires mitigation and will lead tocost which will impact on the business case and most likely the procurementscenario

14 Walker et al

Outsourcing often involves moving a defined set of skills from the existingorganisation to an external party ndash for an example see Willcocks and Choi(1995) Although this can be managed within the transition processconsideration must also be given to the management of the transition froma staffing perspective Often government staff have been in roles forconsiderable lengths of time and the migration to a commercial operatingenvironment is not successful Staff benefits expectations and organisa-tional culture would need to be considered as part of the integrationactivities while regulations such as union agreements and governmentcontracts and employment law can impact on the process (Lobez 1999)

The procurement process for outsourced services needs to take intoaccount the complete life cycle of the engagement A number of largeorganisations often experience euphoric expectations at the inception ofoutsourcing agreements without fully understanding and managing therisks within this new approach to business Organisations have to consideroutsourcing agreements ndash as with any venture ndash as a temporary endeavourthat whether long-term or short-term follows a life cycle includingcontractual agreements and managerial contingency plans for the event ofcontract termination As a part of such contingency plans an organisationwhich has completely outsourced an activity will need to understand howit would proceed to provide that function either internally or through analternative party if the contract was terminated

Any termination clauses should ensure the least possible disruption ofthe activity the protection of the intellectual capital required to continue theactivity and the re-transfer (or in case of software and data assets the deletion)of proprietary assets which were provided to the outsourcer under the agree-ment A number of companies experienced difficulties in enforcing intellectualproperty rights in markets like China Thus a potential risk managementstrategy that can be employed (besides the decisive pursuit of legal options)may include the aggressive hiring of key players of a former outsourcingpartner the protection of intellectual property (IP) or theft through selectiveout-tasking of only some or commodified components Although it is notpossible to include a re-allocation of key staff in case of a termination of out-sourcing agreements there is a need to define the intellectual property thatwould be provided in the event of any dissolution of the service delivered Inthis context intellectual property should include any hardware softwarecustomised processes and procedures that have been specifically funded by thecustomer and integrated into the operations of the services It should notinclude any intellectual property that is used for other customers or would becommercially sensitive to the supplier This definition especially whenconsidering the transfer of tangible assets needs to be contractually definedwith great care prior to the delivery of services if not the customer can be atthe mercy of the supplying body especially when considering mission-criticalservices or functions that support the core business of the customer

Introduction and procurement fundamentals 15

Within this framework the cost of maintaining a skeleton staff that isable to maintain the customerrsquos IP and ensure that the services beingdelivered are appropriate and fit for their intended purpose is a procure-ment transaction cost expense that is often overlooked Adding to the levelof complexity of this procurement life cycle is the need to manage both thedelivery of services and the relationships with the outsourced serviceprovider

For an operation an outsourcing contract defines the services beingdelivered functional and non-functional requirements covered as part ofthe service-level agreement related cost and other terms and conditionsHowever delivery of core services is not the only service required by thecustomer The procurement life cycle within the outsourced contract needsto include facilities for delivery of additional projects and functions thatmay be required by the customer as requirements change over timeTherefore the customer organisation needs to understand its directrelationship with the service provider and how to engage when additionalwork is required The internal customer management team needs to manageinternal relationships so that service delivery is consistent and that shadowservices are not provided by other non-authorised external parties Thisimposes an additional burden on the customer account team but it alsogives them an understanding of all the functions delivered within theirorganisation and a process that allows the customer to manage costs

Government bodies however may not be at the size required to successfullyobtain economies of scale by outsourcing service functions Within theAustralian market place for example the federal government attempted toovercome this limitation by clustering smaller government bodies toprovide a larger lsquocarrotrsquo for the outsourced providers Although this wasconceptually a good idea it did not take into account the differingrequirements of the previously independent government departments Asone of the drivers was cost reduction this in turn led to lower service levelsdelivered to a number of the agencies and drastically decreased customersatisfaction In addition the ongoing management of the relationship anddelivery of services required that both the outsourced service provider and theclustered agency worked as partners to meet all partiesrsquo needs and expecta-tions From a procurement life cycle perspective this is a complex task dueto the differing requirements for each party

Transfer pricing issues impacting on outsourcing decisions

The issues of taxation implications for outsourcing and transfer paymentsfor sections of a project undertaken offshore have some compleximplications that affect outsourcing decisions particularly where these mayinvolve service delivery like decisions being made about where a global

16 Walker et al

organisationrsquos head office may be located to benefit from corporatetaxation rates or deciding where to place a production facility This is awide area that cannot be dealt with in depth in this book however somediscussion and consideration of project management procurement implicationis needed

Multinationals have the ability to deliver and produce services and productsthat span national boundaries and jurisdictions When a multinationaltransfers goods and services within its subsidiaries located in differentcountries where are its profits taxed Government authorities such as theUS Internal Revenue Service or Australian Tax office regularly challengeprices for transferring products and services across boundaries and underthe banner of the same parent company The OECD Transfer PricingGuidelines which were published in 1995 with subsequent updates everyyear up to 1999 were released1 to assist corporations and governments indefining transfer pricing calculations (OECD 2001)

Defined guidelines maintain the armrsquos length principle of treating relatedenterprises within a multinational group and affirm traditional transactionmethods as the preferred way of implementing the principle Corporate taxadministrations taxpayers and enterprise organisations all have a share inavoiding conflicting tax rules which may impact on the development ofworld trade

Multinationals have the ability to utilise their size and influence to ensurethat the most cost-effective procurement strategies are available this maybe based on differing procurement strategies or utilisation of offshoreservices and manufacturing to maximise profitability for the parentcompany For transnational organisations this may include the provision ofservices procurement of materials or staffing needs from the most cost-effective locations In Australia for example state governments often com-pete with each other when dealing with transnational corporations byproviding incentives to these bodies Such incentives may include taxationbreaks (especially with regard to state levies such as payroll tax) orincentives to maintain facilities such as supportinvestments withinfactories settings (Mitsubishi Australia received substantial funding supportto enable the manufacturing facility to remain open in South Australia) asreported by Kohler (2004) Obviously government bodies believe that thereis a positive financial outcome in providing incentives to enterprises to setup services within their states and corporations and organisations wouldbe remiss not to take advantage of such offers Organisations utilise theirpurchasing power to generate the offers made by government organisationsto maximise their return on investments and meet transnational stakeholderexpectations

Consider the implication of cost-of-living calculations Organisationsmoved from the provision of repeatable services from areas with high costof living requirements (eg London Sydney) to lower-cost locations within

Introduction and procurement fundamentals 17

the same country (Kent Newcastle NSW) This re-allocation of deliveryresources to lower-cost locations started the trend towards outsourcing butwas done on a location basis rather than an external task-orientated focusHence transnational organisations are able to utilise their market influenceand purchasing power to drive down the costs of procuring services whilstobtaining grants or incentives from governments to locate their serviceswithin a specific location or environment

The next stage of procurement management is the multinationalcorporation Such companies are able to use their market influence topurchase the same goods and services from the most cost-effective locationregardless of where it is located in the world Governments can countersuch action by restricting imports via regulation (restricting certain importstariffs import duties) but such practices are decreasing as the globaleconomy moves towards a free trade environment2 In addition countrieswith larger gross domestic products are able to influence global trade bythe manner in which their currencies are managed The US Dollar providesa staple yardstick for inter-country transactions and some countries areable to support their exports by artificially undervalueing their currencieswhen compared to the US Dollar which increases the quantity of exports(Ong 2004)

Procurement however requires that there is a transaction in placeGoods or a service must be provided from the supplier to the consumer Notunlike a customer purchasing a car the multinational corporation is able toshop around and explore the market place A consumer is able to obtainquotes and minimise the price that they would pay for the goods or serviceCorporations take the same action in order to maximise their profitabilityand return on investments for their stakeholders This includes but is notlimited to purchasing in on-shore near-shore and off-shore locations Eachof these locations has its own advantages and disadvantages

On-shore locations are those in the same region or country as the parentorganisation This may be a conscience decision or a mandatory requirementFor example the US Government would not allow for the delivery ofsensitive (or any) services to support its deliverables from locations notdefined as USA locations Near-shore locations are becoming more popularas they have the advantage of being more cost effective (cheaper) butmaintain a proximity to the home country Examples are generally based onthe location of the home country but may also include Mexico or PuertoRico when servicing the United States or Malaysia when supportingSingapore Near-shore locations may have the advantages of lesser prob-lems with transportation costs language requirements and time zones butare not the cheapest alternative for an organisation to pursue Off-shorelocations (off-shoring) have become a buzz word with the services industryThis entails the delivery of services from locations remote from the homecountry Languages issues time zones and distance may be negatives to such

18 Walker et al

strategies but these are offset by the reduction in cost associated with suchactivities

Each of these strategies can be addressed in two distinct ways Anorganisation may purchase services from a specialist provider and thenincorporate their deliverables into their value chain This is a practice thatSmall and Medium Enterprises as well as Multinationals can utilise Such apractice would not generally undergo any legal requirements or impinge onany legislative requirements However multinational corporations are in aposition to either own off-shore delivery centres or purchase them if it suitstheir financial goals

In such instances there is a need to maintain a level of distance betweenthe corporations working together Jeffrey Owens from the OECD Centrefor Tax Policy and Administration states the following in his on-line article3

(Owens 2006)

Globalisation brings costs and benefits even for the tax professionalThe move towards a borderless world has opened up new opportunitiesfor taxpayers to minimise their overall tax liabilities Much of this taxplanning is legitimate

However he adds the following cautionary note lsquoAnother all-too-commonpractice is for some large corporations to manipulate transfer pricesbetween subsidiaries to artificially shift income into low tax jurisdictionsand expenses into high tax jurisdictionsrsquo (Owens 2006)

Transfer pricing plans and processes have changed considerably over thepast 30 years and the economic realities for dealing with differingjurisdictions with differing legalisation require careful planning andevaluation of the lsquorulesrsquo within areas where the multinational may operateFor example in the 1970s the management of transfer pricing was basedon behavioural theorists This required negotiated pricing plans and wasdone between companies without external interference

As governments understood that management of multinationalcorporations required a more hands-on approach to transfer pricingmanagement a different process for setting prices was utilised Pricingmanagement was defined on the basis of either perfect market conditions orimperfect market conditions (Ho and Lau 2005) For perfect marketconditions the pricing is based on market price In simple terms this isdefined as either the lsquoas isrsquo or lsquoadjustedrsquo market prices The lsquoas isrsquo pricerelates to that in which the commodity is available within the market placeFor example if the product needed is available at $100 within the marketplace that is the internal transfer price which is used The lsquoadjustedrsquo marketprice needs to take into account economies of scale profit margins andother internal costs that should not have to be double-counted whendealing with services available from within an organisation Economically

Introduction and procurement fundamentals 19

it would make little or no sense to have overhead costs that are generallyattributed to headquarters counted in two locations hence the lsquoadjustedmarket pricersquo may be less than that available within the market place andneeds to take into account all costs associated with the delivery andproduction of services

There are a number of associated costs that are identified as relating tothe practice and process of outsourcing or out-tasking and therefore relatedto the management of transfer pricing As provision of services from off-shore near-shore or on-shore locations must be managed and maintainedin regards to whether the services are delivered internally via a subsidiarycompany or from an external source the structure and expectationsrequirement in management of relationships is similar to outsourcingcontract management These factors are not generally included in thestandard delivery costs invoiced for service rendered as they are known ashidden costs As stated earlier Bartheacutelemy (2001) identified a proportion ofthe hidden costs associated with outsourcing contracts and theirmanagement and maintenance which is worth repeating here

1 searching for and identifying a suitable vendor2 moving services to the external service provider3 managing the day-to-day contract and its service delivery and4 the effort required once the outsourcing contract agreement has been

completed or terminated

Any provider be it internal or external can help reduce costs that areidentifiable and quantifiable This can be by the manner in which servicesare offered and delivered or by working closely with the parentorganisation to determine needs specific requirements and service-levelagreement definitions that are suitable for the delivery of goods or servicesrequired by the organisation It is not cost effective to deliver servicesbeyond the needs or requirements of the customer as these will generallyincur additional costs and may not be beneficial to the customerrsquos valuechain and will reduce profitability for the total organisation when consid-ering the delivery as a component of the total value chain Efficient deliveryof service should be the aim of both parties to an external supports goodsor services contract

The list of identified hidden costs does not include all of the costs involvedin managing external delivery The costs involved in the management of theservice contract should include both the costs incurred in externalmanagement (eg vendorndashcustomer relationship management) but also theinternal management costs Within a large-scale enterprise the financedepartmentrsquos role should include liaison with the other internal departmentsor business units with a goal of ensuring that the profitability of theorganisation is maximised this leads directly to the management and

20 Walker et al

definition of transfer pricing As enterprises can consist of a substantialnumber of departments this internal function could involve considerabletime effort and expense Although not as pronounced in the smaller-sizedmedium enterprises ($100M contracts) internal management costs stillneed to be considered

As IT management can be a highly complex process it is important tohave an internal liaison team that is able to determine what IT needs can bemet externally and those services that should remain within the organisationThe liaison team also needs to be able to look at IT objectively anddetermine if vendor proposals are effective and if the organisation has theability to utilise economies of scale to minimise additional IT costs Thisbecomes especially apparent when considering sharing resources within andoutside the sponsoring organisation and in highly integrated value chains

The ability to define where and when overhead costs are leveragedagainst any organisation tends to require careful corporate planning espe-cially when dealing with differing corporate tax rates across the worldFigure 13 depicts global corporate tax rates for 30 OECD countries(Warburton and Hendy 2006 xxiv) and show both weighted by GDP atpurchasing power parity in 2003 and unweighted averages for 2005Warburton and Hendy (2006 32) state that

Unweighted averages are the simple average of a range of observationsOnly unweighted averages are reported in the OECDrsquos RevenueStatistics ndash the source of most of the data used in this report This

Introduction and procurement fundamentals 21

50

40

30

20

10

0

50

40

30

20

10

0

Per cent Per cent

Irel

and

Hun

gary

Icel

and

Pola

ndSl

ovak

Rep

Sw

itzer

land

Cze

ch R

ep

Aus

tina

Finl

and

Kor

eaPo

rtug

alD

enm

ark

Nor

way

Swed

enG

reec

eM

exic

oN

ethe

rlan

dsA

ustr

alia

Tur

key

UK

NZ

Fran

ce

Luxe

mbo

urg

Belg

ium

Can

ada

Ital

y

Spai

n

Ger

man

yU

S(b)

Japa

n

Weighted average

Unweighted average

Figure 13 Statutory corporate tax rates OECD-30 2006

Source Warburtun and Hendy 2006 See httpcomparativetaxationtreasurygovaucontentreportdownloadsCTRfullpdf

means that each countryrsquos tax burden is given an equal weight in theaverage of all OECD countriesrsquo tax burden regardless of whether thatcountry is Australia which in 2003 contributed 19 per cent of the totalGDP of all OECD countries or the United States which contributed363 per cent of total GDP In comparison weighted averages scale thetax burden of each country by that countryrsquos contribution to total GDPUnweighted averages best reflect the diversity of experience in theOECD In contrast weighted averages may be useful if the observerwants to understand the proportion of economic activity relevant to aparticular issue ndash for example the rate of growth of OECD GDP is aweighted average

Multinational corporations that have the ability to measure profitabilityin differing parts of the world would obviously prefer to register profits inthe most economically suitable location An example of such would be acorporation having its head offices in Ireland rather then the UnitedKingdom so as to minimise taxation costs

To counteract this process governments define their transfer pricing rulesas requiring a number of tests in order to be approved In Australia forexample transfer pricing requires that each transaction be considered asan arms-length process That is to say that there are two independentparties involved and the negotiated price is one agreed to between theparties This agreement is then verified by following a four-step process(Bowman 2006)

1 A functional analysis of the business is undertaken2 Publicly available data is used to determine an arms-length transfer

price3 A comparison is then made to the materials lodged by the organisation4 An Year-on-year review of the process is undertaken

The aim of this process is to ensure that commercial realistic prices are setand used for transfer pricing requirements Although initially onerous onceset an organisation need not undertake every step in this process butmerely update any changes as defined The issue with such a process is thatit is self-regulating and the information is required only when a company isasked for the data to validate a claim or report The primary requirementfor organisations is to document the process and ensure that the data ismaintained and validated on a regular basis

Organisations do have a number of methods available to them whendetermining how to calculate the costs of goods and services and thesubsequent transfer price used between organisations These are based not

22 Walker et al

only on the method of production but also on the risk and rewards for eachcompany (Aaron Ackermann Schuhmacher and Triplett 1998) Arms-lengthpricing is generally used for manufacturing or non-routine deliverables Anexample would be car engines built in one country but installed in a secondby the same umbrella company Non-routine deliverables would beactivities such as business processing for sales and marketing or businessprocess management supporting multi-divisions within an organisation butwhich are delivered from an off-shore location This may also includehelpdesks application support and other intangible deliverables thatgenerally require an interaction between two individuals to resolve ratherthan a face-to-face meeting

For organisations that are tightly integrated within their value chainthe methods of determination for transfer pricing become more difficultArms-length pricing models are not suitable when the determination of whois responsible for specific components of the delivery is not clearly identifi-able (Aaron et al 1998) In such instances a profit-split process can beemployed however this requires an understanding (and subsequentdocumentation) of the risk each party is taking This can be calculated asthe value of each organisationrsquos investment in the project or the actualdollars placed at risk Such calculations are more interesting as the risk andreward should be calculated in constant currency Constant currency is anexchange rate that eliminates the effects of exchange-rate fluctuations andthat is used when calculating financial performance numbers Companieswith major foreign operations often use constant currencies whencalculating their yearly performance measures4 Although not immediatelyapparent this provides for a baseline cost measurement that is consistentyear over year and is well documented throughout the accounting profession

As an example the following statement is added to IBM results asreported to the Exchange and Securities commission and included within theirpress releases available from wwwibmcominvestor2q062q06earningsphtml

In an effort to provide investors with additional information regardingthe companyrsquos results as determined by generally accepted accountingprinciples (GAAP) the company has also disclosed in this press releasethe following non-GAAP information which management believesprovides useful information to investors

IBM results

without non-recurring items without divested PC business and adjusting for currency (ie at constant currency)

Introduction and procurement fundamentals 23

Arms-length transactions are the preferred method of calculation fortransfer pricing but they are not the only method available As we haveseen the processesrsquo needed to calculate transfer pricing for tightly inte-grated value chains becomes more difficult as the risk and rewardmeasurements and the level of investment should be taken into account Formore complex transactions organisations also have the option ofpurchasing a supplier and using them as an external supplier and to man-age the taxation and profitability issues needed to maximise profitabilityfor the parent organisation

Transfer pricing requirements and profitability within each country doaffect the financial impact and tax rates associated when making economicdecisions with respect to how organisations structure their businessesService-based functions such as call centres are delivered remotely andwould not be subject to transfer pricing requirements Rather the deliveryof the service and the subsequent profitability can be based around thepricing requirements Does an organisation price its services based on wherethe service is delivered or on where it is provided Is the profitability basedon where the service is delivered from or where it is used

Production costs are not the only consideration when dealing withproduction environments such as lsquowidget manufacturersquo For exampledifferential tax rates such as corporate taxations import duties withholdingtax and tax credits will affect the overall costs associated with manufacturingHowever taxation issues can influence procurement choices andapproaches for projects using a global supply chain

Privatisation

Privatisation of government-owned organisations is a different strategy tooutsourcing For many government agencies the possibility of privatisation isnot available It would not be possible to successfully privatise the total oper-ations of the Australian Tax Office or the Public Heath system as these aregovernment services needed to successfully run the country These agencies arecandidates for outsourcing of services to support delivery requirementsPrivatisation is a strategy that can be used to transfer publicly owned organi-sations into private hands (who are alleged to be better placed to effectivelymanage business activities) This includes functions such as utility companies ndashpower light and water ndash which are not only able to be regulated by thegovernments but also provide an opportunity for private organisations to reapbenefits from technology upgrades and economies of scale

Privatisation provides the government with the opportunity to focus onthe core deliverables required to support the population but also to ensure thatthe essential but not life-threatening services are still provided althoughrecent experience in Australia has shown that governments have privatisedfunctions that should be managed as non-profit organisations ndash for example

24 Walker et al

transport services and emergency assistance (Police Ambulance andFire-response numbers)

When considering privatisation the sponsoring body must not onlyconsider the immediate impacts of the move such as reduction in publicdeficit but also the long-term implications (Walker and Walker 2000) Therehas been much debate within Australia over the sale of Telstra (Australiarsquosgovernment-owned Telecom provider) to private hands see Daniel (2002)or wwwcitizensagainstsellingtelstracom The debate should consider thelong-term economic effect of selling one of the countryrsquos most profitablecompanies but the majority of discussion is on the upgrading of services torural and disadvantaged areas Although such debate is fruitful for thoseaffected it does not consider the reasons why the government-ownedagency did not provide services to these areas despite being a wholly ownedgovernment agency Such actions must be justifiable and it has now becomea political debate as to how to require a private company to deliver servicesto a non-profitable area By funding such activities the government isreducing the net present value of the sale of Telstra and showing theinadequacies within the strategy

Privatisation of service provision could be considered an effective strategyfor the management of currently managed government services providedthat the long-term effects of such behaviours are considered and any risksmitigated Although most of us live in a capitalist society the wholesaleprivatisation of utility government services needs to be considered in termsof the overall economic effect This must include the immediate benefits ofdebt reduction end-of-life maintenance and replacement costs being borneby non-public funding and improvement in services as well as the long-term effects of having a guaranteed revenue stream removed from govern-ment hands and the longer-term effect of not having overall control overthe staffing and delivery of these services Private companiesrsquo goals arecentred upon maximising profitability for stakeholders as a governmentagency its goals are where to provide a basic level of service for allconsumers Although these goals are not mutually exclusive the provisionof services for non-profitable areas and groups would not be maintained bythe private operators unless government regulation andor funding isprovided In this situation what is the benefit to the private operator if theyare still bound by management decisions beyond their control and are notable to work to maximise the profitability for their stakeholders

Outsourcing and privatisation are two strategies that have beenemployed by governments to attempt to maximise the levels of serviceprovided to the public Outsourcing requires a long-term commitment to theprovision of services by an external party If the contractual details aremanaged from a strategic standpoint and consideration given for thelonger-term requirements such as additional service provision and termi-nation clauses then outsourcing can be used successfully by a government

Introduction and procurement fundamentals 25

agency to provide a range of services needed so that the agency canconcentrate on its core business Care must be taken when drawing up suchcontracts as the management costs form a part of the overall cost ofownership Consideration must also be given to switching cost relationshipmanagement within and outside the agreements as well as the cost ofproviding additional service For example what are the costs associatedwith having a third party provider deliver services to the agency that willthen need to be managed by the outsourcer What is the cost of transitionFinally in a delivery model where multiple outsource providers are workingtogether to deliver services such as infrastructure network and applicationsupport who is responsible for the overall service delivery

Governments may start the privatisation process by separate legalentities such as crown corporations that generate profit and operate on afully commercial basis prior to being sold as an entity or floated on themarket as is the case with Telstra in Australia or happened with BritishAirways in the UK A non-government version of privatisation can be seenas the encouragement and development of spin-off companies or use oflsquoskunk-worksrsquo entities These are purposeful and strategic decisions toencourage development through outsourcing experimental high-riskventures to parts of an organisation that can be later divested orincorporated within the host organisation in a way that matches its cultureand governance structures Privatisation and developing spin-off companiescan be seen as a high-level strategic outsourcing economic response

Chapter summary

In this chapter we focused on value generation to stakeholders and how thismay be achieved by organisations in a way that cascades value through thesupply chain The discussion in this chapter acknowledges that much ofthe PM work will be outsourced to a project supply chain and so the valuegeneration propositions for these groups involved in a project needs tobe understood so that a winndashwin outcome can be not only achieved butalso through understanding value triggers throughout the PM supply chainthe generation of value can be designed into the procurement process Laterchapters in this book elaborate on a range of aspects of how value can bedesigned into the PM procurement process

Vignette

26 Walker et al

OmniTrip is the organisation that won the tender for logisticssupport and management of the privatised integrated publictransport system for Southland a major city of 4 million people thatuntil 10 years ago had owned and operated a State-owned bus

Introduction and procurement fundamentals 27

tram and train (both above and underground) public transportsystem OmniTriprsquos contract was to provide services andmaintenance of legacy transport assets and gradually replace thesewith new assets as part of Southlandrsquos government renewal andimprovement policy OmniTrip is a global organisation withexperience in delivering similar services in 15 other cities in NorthAmerica Asia Northern Europe and South America SouthlandrsquosEnergy Efficiency Legislation requires phasing out hydrocarbondependency and moving from the mix of current hydrocarbondiesel-fuelled 100-bus fleet to a hybrid hydrocarbon-electric fuelledfleet moving towards sourcing of green-energy-rated electricityfor the train system and phasing in in-ground power for the tramsystem removing of overhead power cables for its 200-kilometretram network over the next 20-year period and replacing the 600existing trams with state-of-the-art energy-efficient trams It also willreplace the 150 trains with more energy-efficient and high-securityand high-comfort trains

Its coordination activities include managing the procurement andmaintenance of transport assets staffing of all operations including facil-ities management of stations (owned by Southland) and developing anew generation of stored value smart card ticketing systems Clearlythese complex operations represent a series of projects and programmesof projects in portfolios In the interests of Southlandrsquos mandatedbest-value legislation OmniTrip has decided that open or even selectivetenders present best value alternatives Provision of in-ground power forthe tram system and removal of overhead power cables provide anillustration of the procurement choices facing OmniTrip

The engineering for undertaking this task involves integration ofmany complex engineering groups civil engineering track engineeringsignalling environmental and safety engineering to name but a fewWhile OmniTriprsquos joint venture (JV) partner ComfortZone has under-taken similar work in three similar-sized cities in the world each cityhas experienced different geological and social challenges so thatscoping this phase of the overall programme for the tram network hasproved difficult ComfortZone could use its in-house skills gatheredfrom its experience in the three cities or it could choose to outsourceparts of the task to up to 10 of its overseas supply chain partnersLegal advice suggests that this type of project could benefit from theformation of a separate entity or use out-tasking because of thepotential intellectual property (IP) to be gained in learning animproved way of delivering this kind of service and facility on manyother similar projects It also needs to consider capitalising onpotential revenue from cross-business entities that can realise income

Useful web resources

The following web sites accessed during 2006 should be of value to readersThese are only a few samples of interesting procurement-related web sitesthat illustrate procurement policies or strategies and tools and relatedinformation

Commonwealth Procurement Guidelines January 2005 for theAustralian Commonwealth Government Department of Finance andAdministration wwwfinancegovauctccommonwealth_procurement_guidehtml

28 Walker et al

from carbon-trading (see Chapter 4 triple bottom-line aspects) asmore of its supply chain has recently joint ventured with legal entitiesthat can maximise revenue from these carbon trade activities Furtherthe business world has significantly changed over recent years and theuncertainty associated with carbon-tax liabilities and trading incarbon credit off-sets has radically changed the notion of lsquolowest costrsquobecause costs and revenues associated with sustainability legislation(currently in place and anticipated) has radically affected procurementpolicies and structuring outsourcing agreements The tram trackworks that OmniTrip and ComfortZone are currently grappling withrepresent a small part of the procurement decision-making policy thatthis JV is experiencing

Issues to ponder

1 Describe three key aspects of value that you believe thatOmniTrip offers Southland that its JV with ComfortZoneenhances

2 What top three issues relating to the make-or-buy decision do yousee relevant to this case

3 Discuss three main justifications that you would expect could beargued for and against the privatisation of the services originallyoffered by Southland to its citizens

4 How does the uncertainty indicated above relating to sustainabilitypotentially affect the concept of an organisation delivering bestvalue

5 Using Table 11 as a template select three of the six outsourcingdimensions of procurement issues raised in this vignette and notewhat additional information should be provided to make areasonable procurement decision about outsourcing

The Australian Procurement and Construction Council which is the peakcouncil of departments responsible for procurement and constructionpolicy of the Australian Commonwealth State and TerritoryGovernments wwwapccgovau

Directory link to e-procurement tools can be found at wwwbuilderspacecomdivisionsprocurement-softwarehtml

The CIB web site provides references to many related conferenceproceedings there are a number of related commissions follow linksURL is wwwcibworldnlwebsite

Notes

1 See URL wwwoecdorgdocument3402340en_2649_33753_1915490_1_1_1_100html to link to the OECD bookshop

2 See wwwftagovau for more details and current updates on trends3 See URL wwwoecdobserverorgnewsfullstoryphpaid1945Tax_in_a_border-

less_worldhtml4 See the web site wwwinvestopediacomtermscconstantcurrenciesasp for this

and other explanation of other financial terms

References

Aaron D M Ackermann R E Schuhmacher C W and Triplett C S (1998)lsquoProposed IRS Regulations on Global Dealing Ignoring Capital and Taxing ittoorsquo Ax Management Memorandum 39(22) S322ndash335

Barney J (1991) lsquoFirm Resources and Sustained Competitive Advantagersquo Journalof Management 17(1) 99

Bartheacutelemy J (2001) lsquoThe Hidden Cost of IT Outsourcingrsquo Sloan ManagementReview 42(3) 60ndash69

Bendor-Samual P (2002) lsquoOutsourcing Directions and Decisions for 2003rsquo CIOMagazine ndash Advertising Supplement

Bourne L and Walker D H T (2005a) Stakeholder Chameleon ndash Ignore at YourPeril PMI Global Congress 2005 ndash Asia Pacific Singapore 21ndash23 FebruaryNewtown Square PA Project Management Institute 8 pp

Bourne L and Walker D H T (2005b) lsquoVisualising and Mapping StakeholderInfluencersquo Management Decision 43(5) 649ndash660

Bowman C (2006) lsquoA Mystery No Morersquo Charter 77(9) 56ndash58Broumlchner J (2006) Outsourcing Commercial Management of Projects Defining the

Discipline Leiringer D L R Abingdon Oxon Blackwell Publishing 193ndash206Chiles T H and McMackin J F (1996) lsquoIntegrating Variable Risk Preferences

Trust and Transaction Cost Economicsrsquo The Academy of Management Review21(1) 73ndash99

Conner K R and Prahalad C K (1996) lsquoA Resource-based Theory of the FirmKnowledge Versus Opportunismrsquo Organization Science A Journal of theInstitute of Management Sciences 7(5) 477ndash501

Cooke-Davies T (2002) lsquoThe ldquoRealrdquo Success Factors on Projectsrsquo InternationalJournal of Project Management 20(3) 185ndash190

Introduction and procurement fundamentals 29

Daniel Z (2002) lsquoAre There Benefits to Privatising Medibank Privatersquo TheBusiness Report Australia Australian Broadcasting Corporation RadioNational Saturday 4 May 2002 Available at httpwwwabcnetaurntalks830busrptstoriess550924htm (accessed on 28 July 2007)

Domberg S and Hall C (Eds) (1995) The Contracting Casebook ndash CompetitiveTendering in Action Series The Contracting Casebook ndash Competitive Tenderingin Action Canberra Australian Government Publishing Service

Eisenhardt K M and Martin J A (2000) lsquoDynamic Capabilities What are TheyrsquoStrategic Management Journal 21(1011) 1105ndash1121

Fill C and Visser E (2000) lsquoThe Outsourcing Dilemma a Composite Approachto the Make or Buyrsquo Management Decision 38(1) 43ndash50

Gay C L and Essinger J (2000) Inside Outsourcing The Insiderrsquos Guide toManaging Strategic Sourcing London Nicholas Brealey Publishing

Green S D (1999) lsquoA Participative Research Strategy for Propagating SoftMethodologies in Value Management Practicersquo Construction Management andEconomics 17(3) 329ndash340

Ho H K D and Lau T Y P (2005) lsquoAn Exploratory Study of Transfer PricingPractices by Multinationals with International Affiliatesrsquo International TaxJournal 31(4) 37ndash54

Jacobides M G and Croson D C (2001) lsquoInformation Policy Shaping the Valueof Agency Relationshipsrsquo Academy of Management Review 26(2) 202ndash224

Johnston R (2004) lsquoTowards a Better Understanding of Service ExcellencersquoManaging Service Quality 14(23) 129ndash133

Kohler A (2004) lsquoMitsubishi Here to Stay Phillipsrsquo Australia AustralianBroadcasting Corporation (ABC) 24 May httpwwwabcnetauinsidebusinesscontent2004s1113947htm (accessed on 7 January 2007)

Landis K M Mishra S and Porrello K (2005) Calling a Changing in theOutsourcing Market The Realities for the Worldrsquos Largest OrganizationsOutsourcing Study New York Deloitte Consulting

Lobez S (1999) lsquoThe Brave New World of Contracting Out Privatisation andOutsourcingrsquo The Law Report ndash Radio National ABC Transcripts RadioNational ABC Radio 28 September wwwabcnetaurntranlisthtmLaw(accessed on 7 January 2007)

Murray M and Langford D A (2003) Construction Reports 1944ndash98 OxfordBlackwell Science Ltd

Nogeste K (2004) lsquoIncrease the Likelihood of Project Success by Using a ProvenMethod to Identify and Define Intangible Project Outcomesrsquo InternationalJournal of Knowledge Culture and Change Management 4 915ndash926

Nogeste K and Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Makingthe Intangible Tangiblersquo Measuring Business Excellence 9(4) 55ndash68

OECD (2001) Transfer Pricing Guidelines for Multinational Enterprises and TaxAdministrations Geneva Organisation for Economic Co-operation andDevelopment

Ong L (2004) lsquoIs Chinarsquos Currency Peg the Culprit behind US Economic WoesrsquohttpwwwaseanfocuscomasiananalysisarticlecfmarticleID 711 7 January

Owens J (2006) lsquoTax in a Borderless World Achieving Tax Compliance is aChallenge Facing Governments the World over Action can be Takenrsquo OECDObserver October

30 Walker et al

PMI (2004) A Guide to the Project Management Body of Knowledge 3rd ednSylva NC USA Project Management Institute

Prahalad C K and Hamel G (1990) lsquoThe Core Competence of the CorporationrsquoHarvard Business Review 68(3) 79ndash91

Robbins H and Finlay M (1997) Why Teams Donrsquot Work ndash What Went Wrongand How to Make it Right London Orion Publishing Group Ltd

Stark J Arlt M and Walker D H T (2006) Outsourcing Decisions amp Models ndashSome Practical Considerations for Large Organizations International Conferenceon Global Software Engineering ICGSE 2006 Costatildeo do Santinho FlorianoacutepolisBrazil 16ndash19 October IEEE CD-Rom Sessions Research Papers I GSEManagement ndash 6 pp

Teece D Pisano G and Shuen A (1997) lsquoDynamic Capabilities and StrategicManagementrsquo Strategic Management Journal 18(7) 509ndash533

Treacy M and Wiersema F (1993) lsquoCustomer Intimacy and Other ValueDisciplinesrsquo Harvard Business Review 71(1) 84ndash93

Turner J R and Muumlller R (2003) lsquoOn the Nature of the Project as a TemporaryOrganizationrsquo International Journal of Project Management 21(3) 1ndash8

Walker B and Walker B C (2000) Privatisation Sell off or Sell out The AustralianExperience Sydney Australian Broadcasting Corporation

Walker D H T (2003) lsquoImplications of Human Capital Issuesrsquo In ProcurementStrategies A Relationship Based Approach Walker D H T and K D Hampson(Eds) Oxford Blackwell Publishing 258ndash295

Warburton R F E and Hendy P (2006) International Comparison of AustraliarsquosTaxes Benchmarking Report Canberra Australia Government Treasury ISBN 0642 74339 8 449

Willcocks L and Choi C J (1995) lsquoCo-operative Partnership and ldquoTotalrdquo ITOutsourcing From Contractual Obligation to Strategic Alliancersquo EuropeanManagement Journal 13(1) 67ndash78

Williamson O E (1975) Markets and Hierarchies Analysis and AntitrustImplications A Study in the Economics of Internal Organization New YorkFree Press

Williamson O E (1991) lsquoStrategizing Economizing and Economic OrganizationrsquoStrategic Management Journal 12(Special Issue) 75ndash94

Introduction and procurement fundamentals 31

Chapter 2

Project types and theirprocurement needs

Derek HT Walker and Steve Rowlinson

Chapter introduction

Early project management texts tended to assume that projects weresubstantially tangible and flowed along a well-trodden path The early textssuch as that edited by David Cleland and William King (1988) have verystructured and traditional content that stresses techniques examples fromsolid tangible projects such as those found in construction advancedmanufacturing aerospace with some minor attention directed towards ITprojects from a programming and development perspective The promise ofbusiness-development-type projects and intangible projects such as changemanagement and process re-engineering has been acknowledged but therewas little written about these That situation has been more recentlyremedied and there is a rapidly growing interest in these less-tangible-projects and new texts have been written to reflect this for example theone edited by Peter Morris and Jeffrey Pinto (2004) That book which willprobably remain a lsquomustrsquo for most project managers in the future has forexample sections devoted to strategic portfolio programme managementand supply chain management That particular text clearly demonstratesthe flowering of PM attention to being not only a part of general managementtheory but also of leading the way Most management theory particularlystrategy development have stressed the need for better implementation(Mintzberg et al 1998) but mainstream management texts generally fail toadequately grasp the PM nettle We suspect and suggest that is becausemainstream management literature has viewed implementation and lsquoopera-tionsrsquo as a lesser form of intellectual pursuit than strategy and planning andso has generally overlooked the PM literature We do not wish to appear ascomplaining about this perceived shortcoming we observe this as a theorygap worth filling We also assert that this gap can only be effectively filledby absorbing and reframing mainstream management theory to a project pro-gramme and portfolio context By doing so we attempt to expand the inter-est in PM theory and practice One inevitable outcome of this changing focusis that we must recognise the range of types of project and the managementapproaches that necessarily flow from that realisation This chapter adds to

that emerging perspective as well as providing a hindsight perspective on theforms of procurement options that have evolved over the decades to cope witha diverse range of project types and their realisation needs

This chapter is thus presented in three broad sections and a vignette atthe end of the chapter presents a scenario and prompts relevant questionsflowing from that scenario The first section deals with a discussion onproject types and their needs The next section logically follows by outliningthe various procurement options and how they may best fit the project typeand need requirements The third section focuses on writing and evaluatingproject proposals and also contains a brief description of where contractadministration fits into this picture The chapter ends with a vignette andsuggested activities and questions that readers can tackle to better frametheir learning from this chapter

Project types forms and phases ndash influencingprocurement choice

The PMBOK stresses the need for deciding what a project should deliverand how to plan to deliver that objective (PMI 2004) There remainshowever a tension between taking a top-down and bottom-up approach todefining the scope of a project The bottom-up approach essentially relieson a large number of well-understood and well-identified components thatcan be grouped into assemblies and these configured into subsystems andthence into systems A project becomes the summation of these systems thatdelivers a need That need can have quite different systems that whenbrought together satisfy that need Moreover systems can include tangibleparts such as a building or a weapon such as a shipplane or missile deliveryplatform as well as intangible systems such as training in the correct use ofthe weapon system or commissioning a building including training inmaintenance and facilities management for example Even these lsquohardrsquo ortangible projects have some lsquosoftrsquo deliverables Crawford and Pollack(2004) provide a useful discussion on this topic and link the concept oflsquohardrsquo projects or project objectives with objectivist scientific paradigmsthat believe that the truth lies lsquoout therersquo as a fixed reality This approachled to a predominant systems view while lsquosoftrsquo projects relate more tosubjective concerns and is interpretive in nature seeing sub-text andinexplicit needs as being highly important This is a view that will be discussedfurther in this book particularly in Chapter 3 relating to stakeholdermanagement and in Chapter 6 relating to project performance measures

The dichotomy is not complete as there has been an emerging use of amodified systems thinking approach (soft systems methodology or SSM) inproject management first developed by Checkland (1999) and used morerecently to investigate project learning from experience and project learninghistories (Maqsood et al 2006) Further Crawford and Pollack (2004)

Project types and their procurement needs 33

identify a framework of seven dimensions that form the basis for a frameworkof understanding both hard and soft issues in analysing both hard and softsides of the project These are (Crawford and Pollack 2004 646) as follows

1 the clarity of goalsobjectives ndash how clearly these have been expressed2 the tangibility of goalsobjectives ndash how well these can be defined

visualised or otherwise expressed3 success measures ndash the kinds of measures used to describe project

success4 project permeability ndash the extent to which the project is subject to

external risk and uncertainty influences5 number of solution options ndash the approach to exploring and refining

goals6 degree of participation and practitioner role ndash the roles that team

members adopt when managing a project and7 stakeholder expectations ndash the view held of what is a valid expectation

for the project that influential stakeholders believe to be reasonable

They argue that this framework can be adopted by project managers whendeveloping a strategy for delivering a project and mapping issues againstthe seven dimensions so that they can avoid having a poorly balancedimplementation and project definition strategy If the expectation for theproject is substantially lsquohardrsquo then there will be a clearly different PMapproach to be appropriately adopted than for a lsquosoftrsquo project In theirpaper they illustrate their framework with three different case studies frompublic sector organisations and conclude that the framework was useful inproviding a structure to better analyse what went on in those projects togenerate lessons learned This kind of framework based on experience andproject histories gathered using the framework to provide a consistent wayof making sense of project delivery performance can be helpful at theproject procurement design stage For example by improving understandingof hard and soft issues relevant to a particular project a better fit for adelivery model coordination of team members and communication mediacan be established

During the beginning of the final decade of the twentieth century therewas a vigorous debate about the value of and optimal form of developing awork breakdown structure (WBS) for a project in order that effective plansmonitoring coordination and control could take place Bachy and Hameri(1997) discuss the planning approach undertaken in a highly complex10-year lsquoordealrsquo as they call it to develop a large expensive piece ofscientific equipment ndash a Large Hydron Collider (LHC) ndash which allowsscientists to look into the structure of matter Their paper clearly favoursthe positivist paradigm They advocated first developing a detailed andhighly explicit product breakdown structure (PBS) or parts-list that defines

34 Walker and Rowlinson

the minutiae in an intensely bottom-up fashion They then detailed anassembly breakdown structure (ABS) that describes how the parts should beassembled and incorporated logistics and material availability and otherrelevant production and manufacturing data and information They usedthe ABS detail information to develop a top-down approach tree-likerepresentation of the project as a series of connected sub-systems or workbreakdown structures (WBS) organised by function and component Thehead of the WBS was the lsquotangible project outcomersquo and a series of high-level components cascaded down into a breakdown of the work to be doneDetailed WBS work packages define suitable lsquochunksrsquo that they couldprovide a clear and simple description of what was to be done (objectives)An organisation breakdown structure (OBS) followed the WBS to defineresponsibilities and accountabilities and this linked with the WBSinformed the way that resources would be consumed to deliver the projectThe WBS and OBS formed the basis of the plan and in many ways is similar(but less detailed) to that used in the construction industry and otherengineering applications often referred to as a global method statement anddetailed method statement (Walker Lingard and Shen 1998) Thisapproach is useful for integrating a range of plans such as a risk manage-ment plan an occupational health and safely plan and an environmentalplan (Shen and Walker 2001) that can provide the basis for the projectteam to be sufficiently prepared for identified risks and have sufficientlymodelled scenarios to be able to be in a position to cope with unexpectedcircumstances that distort the validity of planning assumptions (Walker andShen 2002) Lammers (2002) points out how complex the WBS on manyprojects can become and argues that the PBS also has a function of allowingtags or attributes to be linked to the WBS through the PBS so that a rangeof attributes can be stored in a data base that fully describes and defines thework packages Turner (2000) recommends that work packages on aproject of 1 year could have about 20 or so packages of work eachdelivering a project milestone with about 5ndash10 activities of work (each withresources and accountabilities clearly stated) within each work package thatwould take about 2 months to complete

It is interesting to contrast the above with how PM and planning for con-trol is handled in other industries where different paradigms prevail Thearts provide such a contrast as the view that prevails amongst creative PMteams is one of emergence rather than complete and rigid specification Forexample in sculpting an outcome such as the famous statue of David theview allegedly expressed by Michelangelo was that he knew that the statuewas inside the block of stone he just had to liberate it (Briner Hastings andGeddes 1996) The live entertainment industry also provides another usefulexample Hartman Ashrafi and Jergeas (1998) provide an account of 14entertainment project events in Alberta ranging from sports to musicprojects It is clear from their account that while each event demands that

Project types and their procurement needs 35

they are completed on time the mindset of the PM teams is quite differentto the more traditional projects discussed in the preceding part of thisdiscussion They identify important major differences in PM practices thatsuggest different paradigm and value systems from construction of ITprojects for example (Hartman et al 1998 270) Artistic creativity is highlyvalued so that ephemeral and intangible tacitly lsquounderstoodrsquo performanceexpectations are real outputs as well as outcomes that are expected ndash failureto deliver on expectations results in shame and loss of face The way thatwork is defined and undertaken is fluid and undefined as may be seen bythe common saying about such projects lsquoIt will be OK on the nightrsquo mean-ing that the culture forces people involved in project delivery at a range oflevels in a lsquohierarchyrsquo to lsquomuck inrsquo when required to ensure delivery on timeThe authors (Hartman et al 1998) and others (DeFillippi and Arthur1998) stress that we have much to learn from such projects It is interest-ing from a procurement point of view that many of these projects usevolunteer labour or those who expect to sacrifice their present immediatepotential return to gain lsquoexperiencersquo for expected future benefit not onlyfrom knowledge gained but also social capital such as trust and respectfrom those involved in the projects

This leads us to pondering if there is a useful typology of projects thathelps us to (1) identify different types of projects that would need a differentdelivery approach and (2) provide some guidance on how to design aprocurement choice that best fits the need for the type of project From theabove discussion it seems obvious that a micro-management approach aprocurement choice with its inherent contract requirement and behaviourexpectation inherent in the scientific project example (Bachy and Hameri1997) would be unenthusiastically embraced and delivered for the projectsdescribed by Hartman et al (1998) Two sets of authors provide us withsome guidance Turner and Cochrane (1993) developed a goals andmethods matrix that is useful in understanding the needs of different projecttypes that can lead us to develop appropriate procurement strategies tomeet the needs of these projects Another way of looking at project typeswas presented by Shenhar and Dvir (2004) Both of these views shed lighton our understanding of the impact that project type can have on procurementchoice that encompasses contractual requirements which in turn mayimpose obligations that affect PM behaviour and culture

Turner (1999) in his text book identifies a number of project types andPM styles that relate to these In Turnerrsquos paper with Cochrane (1993) theyidentify four types of project based upon a 4-quadrant model of methodsbeing well defined and goals being well defined (yes-no) Their typologiesare as follows

1 Engineering projects or lsquoearthrsquo projects have both goals and methodssolidly defined Early published project case studies typically cite

36 Walker and Rowlinson

construction shipbuilding aerospace and manufacturing projects asexamples because they attract a lsquoscientificrsquo view of operationsmanagement influence The example presented by Bachy and Hameri(1997) typify this kind of project

2 Project development projects or lsquowaterrsquo projects have poorly developedmethods but well-developed goals These are characterised as beingsomewhat fluid but structured in the way that a river stream lake orocean naturally creates a boundary The Bachy and Hameri (1997) casecould have been looked at this way if the positivist paradigm oflsquocertainty of solutionrsquo (the research equipment design) was questionedas being merely lsquothe optionrsquo However it can be useful to view this kindof project this way if the procurement aim is to specify a fixed outcome(or set of outcomes) while leaving delivery methods flexible ndash ratherthan demanding any particular process of micro-management

3 Applications software development or lsquofirersquo projects have a well-definedmethodology but poorly defined goals The procurement emphasis maybe directed towards requiring a particular methodological approachthat is known (or reasonably assumed) to be successful while holdingthe end goal more fluid The lsquofirersquo could be seen as air that is focusedsomewhat like a flame generated by concentrating the rays of the sunthrough a lens

4 Research and organisational change projects or lsquoairrsquo projects havepoorly defined methods and poorly defined specific goals These arecharacterised as being illusive and generally invisible though theseprojects can be redefined ndash by including intangible goal elementsthrough a process of linking intangible to tangible outcomes ndash seeChapter 6 and recent research in this area (Nogeste 2004 2006 Nogesteand Walker 2005) The key to making these projects less difficult todeal with is to either separate the outcomes into several phasedprojects or to fully link the tangible and intangible outcomes

The key to success in using this typology is to recognise the realities of thetype of project and to intelligently design a project governance structureand through the procurement strategy require that this governancestructure acknowledges the project type and ensures that an appropriateprocurement choice delivers the appropriate project controls andgoalsobjectivesvision to match the type Where necessary projects may besegregated into several linked projects such as one to deliver the output andanother to deliver the outcome if a radically different paradigm means thatone PM group is ill equipped to deliver both outcomes and that radicallydifferent styles and types of PM team are required

Aaron Shenhar has devoted a considerable amount of energy in thinkingabout types of project and appropriate management styles His co-authoredbook chapter (Shenhar and Dvir 2004) builds upon a number of previous

Project types and their procurement needs 37

papers (Shenhar Dvir and Shulman 1995 Shenhar and Dvir 1996Shenhar 1998 2001 Shenhar Dvir Levy and Maltz 2001) in which heextends the ideas identified above by (Turner and Cochrane 1993) One ofthe extending features that Shenhar and Dvir identify is how pace as partof pace complexity and uncertainty intervenes between the project producttask and environment and appropriate project management style Theydevelop what they call the Uncertainty Complexity Pace (UCP) Model(Shenhar and Dvir 2004 1267) where the Uncertainty dimension can beseen as a combination of novelty and technology Their NoveltyComplexity Technology and Pace (NCTP) framework was developed toguide project management style The PM style can of course be influencedby procurement choices that favour an appropriate PM style The frameworkhas four dimensions

Novelty is measured as derivative platform or breakthrough Thesedescribe the extent to which methods are well-defined Derivatives areextensions of existing products or methods Platforms are new generationsand refinements in existing families of products or methods Breakthroughsare paradigm shifts going beyond innovation to invention or significantreframing that develops a totally new way of looking at a problem

Complexity is measured as assembly system and array Complexity refersto moving from an assembly to a system and array An assembly involvescreating a collective of elements into a component A system by contrastinvolves a complex collective of entities into a new form a re-configurationor re-framing of parts into a new whole with different characteristics tothe pre-existing system An array-type project radically shifts the paradigmAn array defence project may turn a set of physical network relationshipsinto virtual ones where a radical new technology is introduced as thechange agent

Technology is classified as low tech that relies on well-establishedtechnologies medium tech that uses an existing technology base andincrementally extends it high tech involves new technologies that may havebeen experimented with and tested in other contexts and so is lsquonewrsquo in theapplied context but at least there is a reasonable body of knowledge of itsimpact and influences in other contexts super high-tech projects are basedupon new paradigms when the project was initiated

Pace is perhaps the new concept in project types Regular refers to anevolution as it happens with little sense of forced urgency Fastcompetitiveprojects are motivated by a sense of urgency so they do not follow a naturalrhythm but are accelerated by force Blitzcritical as the tag implies isdriven by an acute sense of urgency and turbulence The implication thatthese typologies present revolves in procurement terms around how tobest encourage performance accepting and trading risks and developing arewards and penalty structure that matches a project type to what can beotherwise developed by other PM teams The image of flogging a dead

38 Walker and Rowlinson

horse may be crude but it is relevant in this context Project sponsors needto recognise the project context and match a risk and reward strategy aswell as recognising the value generated by intellectual input of teams indifferent types of projects

Selecting an appropriate management style involves assessing the natureof the project-external environment including available resources stakeholderexpectations and so on deciding upon the nature and characteristics of theend-product (deliverable) and the details of the task to be accomplishedThese are represented by the lsquoshapersquo of the UCP model emerging from theseinfluences The response to the identified UCP risk profile should informthe project management style The style involves how interactions between theproject management team and its supporting supply chain will take placethe structure of the PM team and the way that they are integrated andcoordinated the tools that can be used to manage the project the PMprocesses adopted and the type of people and the competencies skills andmotivations that they will bring to the project

A badly structured risk acceptance provision in a procurement strategycan easily deter the lsquobestrsquo potential project teams clearly risk and rewardsare linked Even if a project sponsor relies heavily on the perceivedmotivation of the project team responding to an intriguing and engagingchallenge this may not prove effective in the presence of competingchallenges The degree of formality and micro-managing the opportunitiesfor divergent thinking and the trust that this requires and the reliance on astock of well-practised skills versus dynamic and emergent-experimentalskills should frame the procurement choice dependent upon the need of theproject and the capacity of the PM team This is an area of procurementand PM theory that is continually developing where case studies contributeheavily to our understanding of a preferred way forward When we look atjust these two examples of ways of looking at project types (and therewould be many others) we can see that project choice and appropriate PMapproach is a complex and messy area where simple surveys of lsquobestpracticersquo could be highly misleading

We need to remember that projects are procured both internally (within anorganisation) as well as externally (to an outsourced entity) The main driversthat influence procurement choice that we have seen in this chapter arerelated to the project characteristics (type of project) the project sponsorsrsquoexpectations and their perceptions of what constitutes value and the extentto which the rules and methods to deliver the project may be known or know-able Project deliverables will generally have some mix of lsquohardrsquo and lsquosoftrsquodeliverable elements and characteristics These will link together with theenvironmental context that surrounds the project and shapes the projectcharacteristics which will also be affected by the complexity uncertainty anddelivery pace expected An environmental factor affecting how a project maybe characterised is the sponsorrsquos expectations and value proposition because

Project types and their procurement needs 39

this will affect the expected role that governance degree of formality andprocurement and delivery processes expected to be used The state of knowl-edge about governance rules and project delivery methods also influence theprocurement choice Further in a paper by Shenhar and Wideman (2002)they construct a two-by-two matrix based upon a Y-axis of type of projectwork split into lsquocraftrsquo or skillstraining-based work and lsquointellectrsquo or educa-tion-creativity cells Their X-axis cells relate to lsquotangiblersquo and lsquointangiblersquotypes of product from the project They cite traditional projects (constructionaerospace shipbuilding automotive) for example as lsquocraft-tangiblersquo andlsquointellect-tangiblersquo as a new mousetrap or development of a hybrid petro-leumndashhydrogen powered car Examples of lsquocraft-intangiblersquo projects couldinclude updating procedures and processes while lsquointellect-intangiblersquoprojects could include producing a movie This view is somewhat similar tothe earlier hard and soft project idea

Figure 21 illustrates the precursors to making a procurement choicebased upon the literature in particular ideas presented by (Turner andCochrane 1993 Shenhar and Dvir 1996 2004 Shenhar and Wideman2002) This not only moves beyond viewing project types simply as forexample lsquomajor expansion projects development projects and operationsand maintenance projectsrsquo but also includes the important projectcharacteristic of the projectrsquos strategic purpose (Crawford et al 2005) ndashbecause this factor may influence the extent to which it may be undertakenin-house as opposed to being outsourced

40 Walker and Rowlinson

lsquoTangiblersquo

lsquoHardrsquo elements

Environmentalcontext

Valueperceptions

Procurementchoice ndash PM

styleorganisational

form

Experience +method known

Rules + governance

Strategic purpose

Required skill types

lsquocraftrsquo skills

lsquointellectrsquo skills

Pace

UncertaintyComplexity

lsquoIntangiblersquo

lsquoSoftrsquo elements

Projectcharacteristics

Sponsorrsquosgoals

Figure 21 Project influences upon procurement choice

In this book we focus upon project classifications as being important tounderstand what a project may require for it to be delivered and from thatthe appropriate delivery procurement process that should be adopted InCrawford et al (2005 Appendix H) study report they present a model ofclassification that links project classification purposes (for researcherslibraries professional associations and organisations undertaking projects)with project attributes Table 21 tabulates their 14 elements that they detailas project attribute categories

While not all of these have been explained here they do provide anindication of the diversity of project types and their demands in terms offinding an optimum solution to the procurement design and execution of theirdelivery Clearly a lsquoone-size-fits-allrsquo approach to procurement is unwiseProcurement systems should be designed to achieve the project objectivesand deliver both tangible and intangible elements of perceived success ndash thevalue proposition perceptions indicated in Figure 21

Having now set the scene for us to better understand what influences aproject procurement choice and the preferred style and form of organisationthat should deliver it we now present a description of the types of pro-curement choices available In this section we will confine our discussionto forms of outsourced procurement choices We discussed the make-or-buydecision in Chapter 1 so it is appropriate that we now discuss outsourcingprocurement choices

When making a procurement choice we need to be clear about the projectphase being considered The PMIrsquos PMBOK defines project phases or stagesas an initiation phase several intermediate phases and a final phase (PMI2004 21) Projects begin with a concept definition phase A business orimprovement need (concept) is identified ideas are generated and justifiedThis phase involves developing the project idea based on satisfying someneed undertaking preliminary research into its likely scope scale andviability (from a technical point of view) developing a business plan thattests its strategic and commercial viability and sets the framework forfurther development Successful passage through that gate permits a projectdefinition stage to take place In this phase the project vision explaining itsraison drsquoecirctre and describing the preferred future that it will deliver will be

Project types and their procurement needs 41

Table 21 Project categorisation attribute

1 Application areaproduct of project 8 Project timing2 Stage of life cycle 9 Uncertainty ambiguity familiarity3 Stand-alone or grouped 10 Risk4 Strategic importance 11 Complexity5 Strategic driver 12 Customersupplier relationship6 Geography 13 Ownershipfunding7 Project scope 14 Contractual issues

articulated and the design parameters will be established to create a clearboundary around the problem to be resolved so that it is achievable andunderstood Project design may span several sub-phases such as a high-orderconceptual design followed by (usually overlapping) a detailed designphase There are often reality checks (stage gates) undertaken to test thevalidity of the project concept before the execution begins Execution ispreceded by a tendering or procurement phase where the team that willexecute the project is selected commissioned and mobilised The executionphase often on longer projects where the project deliverable is more than ahighly tangible lsquothingrsquo that is simply designed and delivered involves someelement of design refinement and tuning coupled to the production processThe project is closed out when the deliverable is approved for acceptanceand there may be a further decommissioning phase considered where thelsquospentrsquo project need is dispensed with Project phases and the processeswhereby they are delivered are described in detail in methodologies such asPRINCE 2 For more detail refer to Bentley (1997)

Figure 22 illustrates the extremes of one way of looking at the choicesavailable for project-outsourced procurement One dimension indicates thedegree of relationship between the outsourced entity and the projectinitiator This relates to the closeness of the delivery team with the initiationgroup across the early phases of the project With high-relationshipsituations the delivery team will be intimately involved from the initiationstage in a joint problem-solving and advice-giving role This may bechannelled through a joint venture alliance or other form of joint benefit-harvesting arrangement At the other extreme the relationship may behighly transactional with the project initiators simply buying in expertise todeliver the project with no joint benefit-sharing arrangements Closelylinked to the relational characteristics are those of culture discussed inmore depth in Chapter 9 most particularly the degree to which trust

42 Walker and Rowlinson

High

Rel

atio

nal (

R) Q3 - High R

amp low IDD

Q2 - High IDDamp low R

Q1 - Low IDDamp low R

Q4 - High Ramp high IDD

Integrated designdelivery (IDD)

Low High

High

Design gt Tender gt Deliver

Design gt Deliver gt JVAlliance Design + Deliver + Operate

Design + Deliver

Figure 22 Broad procurement choices

commitment and risk management strategies are interwoven Eachprocurement choice carries with it different types of risk The relational riskpresents another consideration particularly with alliances and jointventures this is where understanding trust and culture implicationsbecome especially pertinent

The design and delivery dimension refers to the degree of collaborationthat occurs from the start of the initiation phase between the designers ofthe solutions and those who deliver it In the construction industry andmany other manufacturing-type industries the design group is quiteseparate from the delivering group and the deliverer is selected on an open-tender method The builder often tenders on a given design and builds strictlyaccording to the specifications Another transactional but more integratedform of this is where the project initiator develops performance specificationsand the builder designs and constructs to that performance specification Ina more highly relational basis the entity that designs and builds also workswith the project initiator to operate the facility and then hands that back tothe initiator at some specified future time in an agreed manner (eg inperfect working order or completely dismantled and removed) In this lattercase the relationship is long term and ongoing due to governanceprovisions to ensure that when the close-out date for handover occurs theexpectations of the project conditions are ensured A project sponsor withconcerns about internal project delivery competence risk for example candeal with this by outsourcing ndash as discussed in Chapter 1 however thereneeds to be a competence in the outsourcing process to do this This risk canbe managed by retaining the design processes or both design and productioncan be outsourced or even the entire operational management as happensin the case of Build Own Operate and Transfer (BOOT) projects

Procurement choices

Having broadly sketched out the options we will now discuss procurementchoices in more detail

Procurement is about the acquisition of project resources for the realisationof a constructed facility This is illustrated conceptually in Figure 23 whichhas been adapted from that produced by Austen and Neale (1995) anddiscussed by Rowlinson in Rowlinson and McDermott (1999) The figureclearly illustrates the facility as the focal point around which a whole seriesof resources players and institutions coalesce Central to this model is theclientrsquos own resources that are supplemented by the project participants ndashin the example of the construction industry the consultants and thecontractors delivering the project along with the suppliers and subcontractorsHowever these players are partially constrained by the lsquoinstitutional sidersquoThe model clearly illustrates the need for the acquisition of resources inorder to realise the project and turn it into a facility This acquisition of

Project types and their procurement needs 43

resources is part (and only a part) of the procurement system This part ofthe system can be referred to as the contract strategy ndash that is the processof combining these necessary resources together The contract strategy isnot the procurement system but only a part of it the rationale behind thisview is that the procurement system involves other features ndash such asculture leadership management economics environmental ethical andpolitical issues ndash which are all dealt with in this book

In reviewing this model it can be seen that there are institutionsstakeholders and players and all of these entities interact in order to bothdevelop the delivered facility and also to constrain the decision-makingprocess within bounds set by each element of the system These bounds canbe brought about by institutional or regulatory constraints or by the limi-tations inherent in the clientrsquos own human resources or the consultantsrsquo skilland experience levels for example for construction projects The project ismetamorphosed into the constructed facility Thus one can see the contin-uous process of development from an idea or a need to create a facility andwhich essentially encompasses and is constrained and at the same timefacilitated by the client organisation its mission and its values Hence inprocurement terms when one looks at client resources one is in fact not justassessing the clientrsquos experience and knowledge but also its mission valuesand organisational culture Thus the simple schematic model belies thecomplex managerial cultural and organisational systems underpinning thewhole of the process

44 Walker and Rowlinson

RegulatorsApprovalagencies

Governmentinfluence

Influentialassociations

TradeassociationsLabourSafetyassociations

Institutional playersinfluencing the facility Institutional players

influencing the project

Stakeholders

The client

The supply chain

Contractors

Consultants

Suppliers

Sub-contractors

Players

Institutions

The Facility(product or

service)

The Project(product or

service)

Figure 23 Procurement choices

Source Adapted from Austen and Neale (1995)

In addressing the contract strategy issue the majority of writers havesometimes inadvertently reverted to systems and contingency theoryviewpoints and emphasised the importance of integration throughout thewhole project process and within the project participants as keys to successHence one is drawn back to Irelandrsquos view (1983) on the almost insignificantdifferences between nominally different contract strategies The issue thatneeds to be addressed in determining the crucial issue of contract strategy isthe mechanism for ensuring integration coordination and active collaborationbetween the project participants This is achieved by not only devising anappropriate organisational form and set of conditions of contract but also byfocusing on the soft infrastructure which underpins these notionally hardconcepts of structure and contracts Thus the need to develop a team spiritappropriate organisation culture and a lsquobest-for-projectrsquo attitude are all partand parcel of this human relations infrastructure which ensures that theadopted strategy has a reasonable chance of success Cheung et al (2005) indi-cate how such an approach can be developed and implemented in a widerange of contract strategies with success

Figure 24 illustrates examples drawn from the construction industry andwe use the quadrants referred to in Figure 22 ndash more detail about thedefinition of the types of contract can be found in Walker and Hampson(2003b) However we briefly describe these for the benefit of readersunfamiliar with the construction industry terms

The traditional approach (Q1) to procuring projects involves discretedesign development tender contract award and construction deliveryphases Each phase is in theory separate and distinct A client beginsthe process by approaching the principal design consultant ndash generally thearchitect for building projects or a design engineer for engineering projects ndashwho then develops the design to as close to 100 complete as possiblebefore inviting tenders Often refinement and amendment of design detailsare undertaken during the project delivery phase to resolve many designissues left incomplete and unresolved Tenders may be invited on an open-tendering basis that allows anyone to tender for the project or on a closed-or pre-qualified-tendering basis ndash restricted to those who have metpre-tender qualification criteria such as demonstrated financial soundnessand relevant project experience

Project types and their procurement needs 45

ndash Traditional approachndash Accelerated traditionalndash Management contractingndash Construction managementndash Project managementndash Design and BuildTurnkeyndash BOT lsquofamilyrsquoPPP

Q1 Delivery

Q4 Delivery

Increasing integrationof design andconstructiondelivery

Figure 24 Contract strategy

The main criticism of the traditional approach has been that it invites aconfrontational approach over disputes arising out of contract variationsthe unresolved design issues and an entire claims industry has developed outof this to advise contractors on how to claim for extra work and client rep-resentatives on how to counter such claims (NBCC 1989) The traditionalapproach imposes role-rigidity upon all parties It remains mainly becausemost contractors and clients are familiar with it and so it often becomes adefault approach However it removes the contractor from the designdevelopment phase and thus much management and constructabilityinformation and knowledge is lost with serious cost and relationship riskconsequences (Francis and Sidwell 1996 McGeorge and Palmer 1997)The contractor is closest to the workface with intimate knowledge of theproduction process and supply chain delivery players and so has much tech-nical and relational knowledge about how best to meet design specificationsin a cost- and time-effective manner (Francis and Sidwell 1996) This canreduce or obviate contract claims that have been highlighted as resultingfrom the impact of poor design coordination and subsequent designchanges to make design details workable (Choy and Sidwell 1991Yogeswaran and Kumaraswamy 1997) Relationship aspects are impairedunder the traditional procurement system because the contractor is answer-able to the principal design consultant with no formal direct access to theclient to suggest improved design for constructability

Early contractor involvement in the design development process can befacilitated using non-traditional procurement methods that allow contractorexpertise to be made readily available to the design team This lsquobuildabilityrsquo orlsquoconstructabilityrsquo advice is crucial to the development of design solutions thatmaintain value in terms of the quality of product as well as providing elegantsolutions to production problems (Francis and Sidwell 1996 McGeorge andPalmer 1997) Under Construction Management (CM) (a term synonymouswith lsquomanagement contractingrsquo) the contractor acts as consultant builder pro-viding significant advice on the practicality of the design and expected con-struction methods (Sidwell and Ireland 1989) The CM also provides servicesfor construction planning cost control coordination and supervision of thosewho have direct contracts with the owner to carry out operational work usu-ally for a negotiated fee as an agent or directly take responsibility for a guar-anteed maximum price ndash this is similar to a traditional approach but with thebenefit of interacting closely with the client and design team Under the agencyCM model trade or work package specialists physically undertaking the workwould do so under separate contracts with the client being coordinatedsupervised and managed by the CM team

Advantages of using the CM approach are as follows

reduced confrontation between the design teams and the team responsiblefor supervising construction

46 Walker and Rowlinson

early involvement of construction management expertise overlap of design and construction increased competition for construction work on large projects due to

work packaging and splitting the construction activities into moredigestible lsquochunksrsquo

more even development of documentation fewer contract variations no need to use nominated trade contractors (those specifically

demanded to be used by the client) and public accountability

The project management (PM) procurement delivery approach emergedduring the 1960s and 1970s arising out a move towards multidisciplinarydesign practices and in-house project teams undertaking governmentprojects The traditional client representative generally an architect led thedesign team with the major role of coordinating the design activities andoverseeing the construction operations as a non-executive project manager(Walker 1993) Variations in responsibility and remuneration formsvarying from a fee for non-executive PM services to a guaranteed fixedprice with contractual relationships between PM and contractor teams(Barnett 19989) have added to the complexity of this approach with thePMrsquos role ranging from lsquoadviserrsquo to lsquoexecutorrsquo

The main difference between CM and PM approaches is that the PMteam generally takes responsibility for design coordination as well assupervision of those responsible for delivering the work packages If theseresponsibilities are not supported by a contractual arrangement or wherethe PM team advises a client willing to take a more active management rolethe PM will take an agency position using a power base of persuasion andexpert knowledge to influence others Major decisions are directlypresented to the client if an executive or addressed to a project board ofdirectors for formal approval if this group is charged to represent a clientrsquosinterests The PM team has a contractual arms-length relationship withboth the design teams and the construction team in lsquopurersquo PM arrangementsIf the lsquoadviserrsquo role is adopted then the PM managerial influence will takethe form of persuasion rather than authoritative direction

A design and construct (DC) approach allows a client to contract theDC organisation to manage both the design and construction processes asa single point of contact This takes the traditional approach furtherupstream by contracting out the design and construction (delivery) to a setrequirement specification There may have been preliminary designinformation developed to indicate a generalised design solution or thedesign brief may be left fairly for the DC contractor to offer proposals Incombined project management and construction management (PMCM)procurement options an organisation undertakes to represent the client in

Project types and their procurement needs 47

leading the design team and undertakes the management of the constructionprocess including providing construction advice during design develop-ment The PMCM entity may act as adviser (in which case the manageriallinks are persuasive rather than directive) or may undertake the work undera contractual arrangement in which it carries financial risk In a DCarrangement this team will hire both the design team members and theconstruction management team members either within the design andconstruction company entity or as sub-contractors The design team may besourced from in-house staff or as more frequently sourced from the poolof design consultants undertaking a variety of procurement forms (Walker1993) In many cases the design and construction contractor subcontractsor forms a joint venture with design firms It can be appreciated thatPMCM and DC blur quite substantially as procurement process optionsso that a PMCM entity that carries financial risk is really a DC contractor

The client will often commission a design consultant to develop a brieffor a DC approach that will have a range of possible conceptualdesign-stage information to move forward from Thus the client has theopportunity to work with the design team to develop a brief to a stage inwhich it can test the market for proposals that will develop a projectsolution based upon the concept design A selection procedure is then putin place to evaluate DC proposals However designers from DC groupssubmitting ideas and developed plans have the opportunity to provideinnovative solutions and to take the concept and provide their ownfootprint on the result This has several potential advantages it

provides for innovative solutions to be tested by the market often results in a cost-effective solution combines the expertise of both design and construction professionals

and allows the client to have a single point of contact with whoever

manages the project if it wishes or in the case of PMCM can maintaincontractual control and essentially use this group as its internal designand construction group

The relationship experience for project teams moves towards treatingdesign and construction supervision entities as being contributing partnersin an enterprise to deliver a project solution that combines the skills of bothdesign and construction groups Dulami and Dalziel (1994) undertook astudy of 37 managers of the construction team of whom 22 were involvedon traditionally procured projects and 15 on DC projects They suggestthat DC improves project team integration through better cooperationand communication between the design and construction teams than is thecase under traditional procurement approaches As design and constructioncontractors are primarily builders they have constructability input that can

48 Walker and Rowlinson

be of significant value in much the same way that CM consultants can offerthis advantage This is just one example of many research studies across theglobe into the effectiveness of moving from a traditional approach to aDC approach

Gunning and McDermott (1997 221) provide insights into how DCoperates in Northern Ireland through interviewing 20 client organisationsand 30 contractors They found that

competitive tendering is often based on minimal design work or siteinvestigation but with estimates inflated to cover consequent risks

life-cycle costing receives limited consideration by contractors inpricing particularly with poor client briefs

the quality of design and construction is related to the adequacy of theclient brief and the professionalism of the project team Thisprofessionalism can be strongly challenged by commercial pressuresand poor communication and

clients are often ill-informed about the implications of the design andbuild approach and about the importance of a comprehensive brief forthe designer and contractor

A variant of DC is Novation in design and construction DC responsi-bility is undertaken by one legal entity responsible for project executionThe client starts along a traditional route by commissioning designconsultants to develop a design concept or advanced concept solutions(perhaps up to 25 of design finalisation) to enable DC tenderers to bidfor the project These design solutions though substantially complete at thepoint of novation are then improved upon by absorbing constructabilityadvice while maintaining design intent and integrity The intellectualproperty of the design team as well as the design team themselves thentakes on a new form (novating) into a DC contractorrsquos organisation tofurther develop the design solution initially developed by the client anddesign team This provides the design solution to be novated and open tocontestability by the construction teamrsquos expertise and buildability advice interms of systems or more specific detailed design information This canhowever pose serious problems for clients who have a more advanceddesign concept in mind than might be the case for the design andconstruction option however The means to meet the spirit and essentialcontent of the design solution can be addressed by the entity thatsuccessfully takes over a DC role to novate the design solution and takeresponsibility for the CM role in realising the project This can represent auseful option enabling clients to influence the project design to a greaterextent than is possible in the standard DC option

The clientrsquos risk can be reduced because the contractor takes over designdevelopment after novation while accepting pre-novation design assumptions

Project types and their procurement needs 49

This arrangement allows the contractor to substantially fine-tune the designto take account of its competitive advantage including constructabilityissues For example in the A$200 million-plus Melbourne Cricket Ground(MCG) Great Southern Stand project in Australia the structural design waschanged from cast-in-place to precast concrete in response to an overheatedcast-in-place concrete market and advantages inherent in an off-site fabri-cation structural design solution Additionally novation allows fast track-ing and a fixed price however the client forgoes some flexibility of makingdesign changes without incurring potential cost penalties The contractorby embracing the pre-novation design cannot claim against design omis-sions or errors thus accepting contractual risk for the design The designteam who frequently risk being simply lsquopassedrsquo onto the contractor maysee their lsquobabyrsquo amended to a level felt unacceptable by them For somedesign professionals this may pose important issues of design integrity andownership that may be difficult to accept

Generally novation is seen as a DC variant The client commissions adesign team to undertake a partially complete design instead of each DCcompany separately developing a design to a proposal stage Uponsuccessful negotiation of the construction contract the design team and itsdesign is passed to the successful bidder The difference between novationand DC is principally one of client control and influence The client hasmore influence and control to shape the desired outcome in novation thanwith traditional DC

Turnkey procurement systems provide for the company supplying DCservices to also finance the project The client makes staged or periodicpayments towards the value of work completed for PM CM and DCwork In turnkey projects however the company is generally paid uponcompletion of the commissioning and testing Literally the client pays forthe project and gets the key to gain access to the project While this sharessome similarities with lsquoBOT familyrsquo projects (described next) the contractordoes not undertake to operate the constructed facility The turnkeyapproach suits many clients who wish for tax or other financial purposesto make a payment only upon delivery of an acceptable product

The BOT family of total package procurement options allow a clientrsquosproject need to be met by an entity that contracts to design build operateown for some period of time and transfer the facility back to the owner Inthe BOO BOT BOOT the lsquoBrsquo represents the word lsquobuildrsquo the first lsquoOrsquo aslsquooperatersquo and the second lsquoOrsquo as lsquoownrsquo and the lsquoTrsquo as lsquotransferrsquo This optionhas been in operation for decades with many examples of these projects inmost countries of the world Readers can refer to texts (Walker and Smith1995 Smith 1999) for more details on this approach BOT requires thatlsquocontracted parties must accept the conventional wisdom that risk shouldbe assumed by the party within whose control the risk most lies A majorfunction of the BOT arrangement is therefore to recognise and provide a

50 Walker and Rowlinson

mechanism for the assignment and management of those risksrsquo (Walker andSmith 1995)

With the BOT lsquofamilyrsquo of procurement options an alliance or jointventure group forms to provide a facility for a client for which the clientmakes a concession agreement to fund the facility until that facilityrsquosownership is transferred to the client This arrangement is more commonfor infrastructure projects than buildings because the concession allows fortolls or other payments to be made by end-users to cover the cost of bothprocuring the facility and its operation Extensions of this idea have beencited in which buildings have been renovated and leased back on this basisand others where the facility is required to be removed and the site returnedto an acceptable environmental standard One advantage of this arrange-ment is that it extends the ideas of constructability further to embrace lifecycle cost effectiveness If the entity proposing the design solution isresponsible for maintaining and operating the facility then they will havethe incentive to reduce long-term costs and thus develop a highly cost-effective product over the product life cycle (Smith 1999)

The BOT entity undertakes financing design and construction as well asoperation and so the client is taking no direct cost risk other than thepossibility that the facility does not meet its needs or that the concessionagreement is unsatisfactory (Smith Merna and Grimsey 1994) Legal andfinancing costs ndash establishment costs ndash can be considerable for the BOTentity and should be compared with the clientrsquos legal and finance costs inundertaking the project in other forms or options This option is unlikely tobe viable for small-scope projects however Governments are increasinglyusing this option for hospitals prisons and other projects previouslyundertaken through other procurement scenarios outlined in this section(Grimsey and Graham 1997) A new variant of this form is where agovernment will joint the partnership by injecting equity or in-kindresources (perhaps land or an existing facility that needs upgrading) in apublicprivate partnership or PPP (Akintoye Beck and Hardcastle 2003)

There has been recent criticism of these (and by inference other BOTfamily delivery systems ndash for further details readers can refer to (Fitzgeraldand January 2004 Hodge 2004) Experience with BOTBOOBOOTschemes reveals some notable failures Generally these have been based onfailures of trust andor communication One of the most prominent failureshas been the Bangkok Second Stage Expressway The competitive tenderphase took two years to find a successful bidder Part of the complexityderived from the land-procurement process to allow the project to proceedAt the date when the work was supposed to start only 1 of the landrequired was available That problem was overcome but as the completionof the construction phase neared other fundamental problems regardingthe operation emerged Toll rates were decreased instead of being increasedto fund the project This led to loans being frozen in response to financiersrsquo

Project types and their procurement needs 51

concerns about the financial sustainability and then arguments broke outover the right to operate the expressway The project environmentsubsequently dissolved into acrimony amongst accusations of corruptionand widespread political interference Thus both relationship and cost riskswere severely affected by the Thai government changing its mind(Ogunlana 1997 Smith 1999) Clients and stakeholders involved in suchprojects can at times be severely affected by the integrated nature of financedesign and construction Other PPP and BOOT projects with questionableoutcomes are discussed in this book in Chapter 4 under procurement andthe financial bottom line and dealt with in depth by FlyvbjergRothengatter and Bruzelius (2003 14)

Why has this range of contract strategies historically developed withinfor example the construction industry One of the reasons is that eachparticipant wishes to obtain as much financial advantage and other valueas possible from the project procurement process Because the process takesplace in a competitive market there is a cycle of fluctuating pressure onprices at all times and commensurate downgrading in the priority ofrelationship and occupational health and safety (OHS) issues If the clientforces (through the market or design requirements) a lower-cost solutionthen this downward pressure on costs often forces the contractingparticipant to look to alternative means to recoup profit This often leadsto a claims-conscious behaviour and can also stimulate reductions in qual-ity functionality and OHS performance Consequently the client and itsadvisers are forced to exert greater surveillance over the contractor in orderto minimise the effects of this behaviour This results in a vicious cycle ofnegative behaviour as well as increasing project transactions costs Theresult may be poor relationships on the project poor OHS performancepoor quality and lsquoclaimsmanshiprsquo

One way of avoiding this problem which is based around a traditionalprocurement contract strategy is to adopt alternative contract strategies asindicated in Figure 24 Other forces are at work in bringing new contractstrategies to the market place The competitive nature of the market forcesorganisations to innovate if they wish to grow and secure market shareHence as the construction industry typically has been a conservative andtraditional industry there has been in the past ample scope for theintroduction of new and innovative strategies However until the late 1960ssuch attempts at innovation were quite rare especially in the UK constructionindustry With the advent of more experienced and sophisticated clientsthere has been an opportunity for leading contractors of the industry toexplore new routes Also as buildings have become technically morecomplex and clients managerially more sophisticated there has been anincreasing recognition that the conventional (traditional) approach toprocurement is inadequate Recently modern management concepts thatis business process re-engineering and partnering have taken root in clientorganisations The construction industry has experienced these concepts at

52 Walker and Rowlinson

second-hand when working with a major client and first-hand in the rushto reorganise in the face of declining markets Consequently factors havecombined to force the construction industry into the position where ithas to change to survive and the trends indicated in Figure 24 have been aconsequence

Much of the literature in this area uses terminology such as the traditionalapproach design and build build-operate-transfer management contract-ing and so on In order to clearly define the types of arrangements in whichthe trust ethical relationship management and OHS issues and strategiesdescribed in this book arise and are implemented a generic taxonomy oforganisational forms is required as described in Rowlinson and McDermott(1999) The function of this taxonomy is to provide a clear and simpledescription of construction project organisation forms which when takenwith other contract strategy variables uniquely define a strategy that is fur-ther clarified when put in the context of the overall procurement system

On top of all of this structure are the concepts of relationshipmanagement and the development of collaborative and cooperativeworking relationships (Walker and Hampson 2003a) Rowlinson CheungSimons and Rafferty (2006 77) describe these concepts as followsRelationship management is lsquoa system that provides a collaborative envi-ronment and which provides a framework for them to adapt their behaviourto project objectives It is about sharing resources and experiences expos-ing the ldquohiddenrdquo risksrsquo Like all relationship approaches trust betweenalliance partners is important because it creates an opportunity and will-ingness for further alignment reduces the need for partners to continuallymonitor one anotherrsquos behaviour reduces the need for formal controls andreduces the tensions created by short-term inequities Thus the modern viewof the procurement system is one predicated on issues of trust collaborationand ethical behaviour rather than the traditional view of structure and legalframeworks This paradigm shift in how procurement is viewed has laid thefoundation for an alternate client and stakeholder-focused approach whichis the essence of the ideas presented in this book

A more recent development in the construction industry has emerged fora number of sophisticated (ie construction-procurement-experienced)clients where they have experimented with relational-based procurementapproaches Several definitions and ways of looking at partnering andalliancing are shown below these have been developed to view partneringand alliancing as defined by Rowlinson Cheung and Jefferies (2006 6ndash7)from a research study into this aspect working closely with two majorAustralian Government Construction clients

Traditional contracts operate under AS2124 or similar and areadversarial in nature the contractors having been selected mainly onthe basis of lowest price in a competitive bid and the superintendentssee their role as gatekeepers safeguarding the clientrsquos interest

Project types and their procurement needs 53

Partnering has been implemented by putting a partnering agreement ontop of the traditional contract and encouraging contractor consultantand client to proactively address project risks identifying them beforethey affect the project and take action jointly agreeing to manage therisk The problem with this approach is that superintendents have con-tinued to see their role as gatekeepers rather than as team membersand contractors have kept one eye on the conditions of contract andclaims whilst going through the partnering process

Alliancing has been implemented in the main through a management orcost plus contract where pain and gain are shared between the parties tothe contract and a team approach is engendered in many instances bylocating all team members in the same office Thus the traditionaladversarial roles have been removed by adopting a different form ofcontract and way of working out issues particularly in the area of RFIs1

Relational contracting embraces and underpins various approaches suchas partnering alliancing joint venturing and other collaborative workingarrangements and better risk sharing mechanisms Relational contractsare usually long-term develop and change over time and involvesubstantial relations between the parties The characteristics of relationalcontracts and construction contracts are summarized in the report

For readers who are interested in partnering in construction there is a widerange of papers and academic literature on this topic (eg see Matthewset al 1996 Smyth 1999 Uher 1999 Akintoye et al 2000 Bresnen andMarshall 2000 Walker and Hampson 2003a) For those interested in thedifference between partnering and alliances a pertinent comment was madeby Walker that project alliances ensure that partners in an alliance sink orswim together that is benefits or penalties are shared using an agreedarrangement based upon project performance rather than individual play-ersrsquo performance This ensures that alliance participants have the incentiveto focus their efforts upon helping each other to make the project a successrather than their own involvement being a success (Walker and Hampson2003a) This whole issue of alliancing and relationship-based procurementwill be dealt with in Chapter 9 on culture and in the two case studychapters Chapters 12 and 13

Writing and evaluating procurement proposals

The aim of writing a good project proposal that has the best chance of gen-erating value is one that clearly states the scope scale quality expected andrelational aspirations that will govern the manner in which the project willbe delivered It is also important that the project be linked to the strategicneeds of the organisation (Archer and Ghasemzadeh 1999 Artto et al

54 Walker and Rowlinson

2001 Morris and Jamieson 2004) Disappointment generally flows fromunrealised expectations Yet if these expectations are not well expressed andformalised in some way acceptable to the parties engaged then the gulfbetween what was delivered and what was expected can lead to litigationbad feelings and adverse impacts upon reputations

Working out what is expected to be done

Each project should have a clear vision The dictionary definition of visionis lsquothe ability to think about or plan the future with imagination or wisdomrsquo(Oxford 2001 2066) Kotter (1995) describes vision in terms of somethingthat helps clarify the direction in which to proceed ndash this makes sense as theword has implications of the sense of sight Christenson and Walker (2003)argue that a project vision is complex because projects use multipletemporary organisations each with its own cultures and subcultures Theyargue that a project vision should have the following characteristics

1 It must be understood It must capture the core purpose preferredfuture state and essence of the project objectives its raison drsquoecirctre

2 It must be motivational It must make a convincing case for followingthe project vision concept that can be internalised by projectstakeholders and that provides a compelling value proposition

3 It must be credible It must be consistent with stakeholder cultures orsub-cultures to appeal at the assumptions and values level so that thevision statement cultural artefact resonates with them

4 It must be demanding and challenging It should be proactive tofacilitate teams to work smarter and more effectively perhapsidentifying stretch goals

Lynn and Akguumln (2001) in a paper on project vision deploying varioustypes of innovation demonstrate the value for vision support and stabilityand argue that a true vision should be a beacon on the hill that guides pro-ject teams delivering the vision Where clear and stable vision is importantand different from specification is that vision articulates the preferredfuture state rather than expected delivered object Many projects involvingrapidly changing technologies or which experience other kinds of unsettlingturbulence (such as dynamic influence of stakeholders on complex inter-linked sets of projects) are forced to make changes in design that would sug-gest instability In such circumstances a strong vision can prevail overdetailed project design (Christenson and Walker 2004) The envisioningprocess is an evolving one as it moves from a highly tacit knowledge objectinto a more explicit form before being internalised as a cultural artefact

The starting point for a project should be a compelling vision that arisesout of the identified project need Once that has been established by a

Project types and their procurement needs 55

project sponsor and is tested by being approved in principle by anorganisationrsquos senior management then more detailed needs and require-ments analysis can take place This would involve close interaction withinfluential and knowledgeable stakeholders (as is described in more detailin Chapter 3) and a combination of performance measures that reflect bothtangible and intangible needs (see Chapter 6 for more details) The processis one of bubbling up as well as cascading down Ideas for projects with asomewhat hazy vision will bubble upwards as needs are pragmaticallyidentified These are then tested and validated by higher levels of organisa-tional authority for strategic fit and made to show how the projectrsquos visioncan enhance value for the organisation This gestation period variesdepending upon the urgency of the need and the processes available toencourage and test these ideas Many projects are currently viewed as partsof programs or portfolios of logically linked change initiatives (see forexample Section II of [Morris and Pinto 2004] for 12 chapters that discussthis aspect of managing projects in more detail than can be dealt with here)

The project initiation process will involve a project sponsor who mostlikely will shepherd the initial steps and depending upon the project scopeand scale may have a dedicated person or team to drive the feasibility stageAt the early stage a feasibility study is undertaken that should outline thepurpose (vision) of the project its strategic business and technical case thatwill be tested at the conceptual and functional level For many large-scaleprojects such as a petrochemical facility or advanced weapons systems thisprocess becomes a complex and intensive project in its own right When thefeasibility is established and approved more detailed plans for procurementcan take shape This triggers the mandate to proceed with the procurementprocess for appointments that include a project manager designer advisers(even if this may be to provide a schematic design rather than a moredeveloped design to be used for tendering on) and a host of other vital advi-sory roles that will develop the detailed project brief It is at this stage thatprocurement-form choices are made A project governance board (ProjectExecutive Board) will be developed as more work towards undertaking theproject proceeds This board will include key stakeholder representativesand senior organisational management representatives whose rolesresponsibilities and accountabilities should be well defined by this stageThis board will often expand as the project develops and may appointadvisers at various stages to assist them

Strategic needs analysis generally provides the basis for a project brief tobe developed (Barrett and Stanley 1999 Smith and Jackson 2000) It isbeyond the scope of this book to delve in detail into the briefing processthat will generate the terms of reference for the project but only tohighlight that this occurs well before project concept material is developedinto a project specification that may form the basis of tender documents

56 Walker and Rowlinson

Suffice it to say that in line with the bubbling up of ideas as part of the briefdevelopment process that concerned and closely impacted stakeholders canbest be marshalled to develop the needs analysis part of a project briefStuart Green and various colleagues (Green 1996 1999 Green and Simister1999) have developed approaches to group decision making evolving adesign brief including their involvement in value analysis and brainstorm-ing design ideas One approach is the use of metaphors which allows tacitinformation and knowledge to bubble up into a more recognisable and tan-gible form Many great design ideas started out as a metaphor the SydneyOpera House as sails on the harbour for example Another approach is theuse of Soft Systems Methodology (Checkland 1999) which uses lsquorich pic-turesrsquo as cartoon-like images to help unearth emotions about what is takingplace in messy complex situations (such as developing a design briefthrough brainstorming) For a more detailed description of some case stud-ies of how the briefing process has been organised for some constructionand projects readers can refer to (Green and Lenard 1999) The outcomefrom this process should be a Project Initiation Document Bentley (199727) PRINCE 2 states that lsquoa Project Initiation Document (PID) is an exten-sion of the Project Brief to include details of the Project Management Teamand risk analysis plus a refinement of the Business Case and the ProjectPlanrsquo

This chapter is concerned with choices that can be made to procureresources This section relates in general terms to the process of how toframe proposals and to evaluate them To procure project resources thefollowing need to be established

1 The scope and scale of the project so that boundaries between it andother projects or parts of a program are clear ndash this helps to limit oreliminate scope creep

2 The composition of the project components specified in a way so thatquantity quality and performance measurement is clear ndash this helps thedeliverer to understand what is to be delivered and how to scale andscope the deliverable so that it functionally and aesthetically meetsstated objectives without either providing what may be viewed assub-standard or super-standard (excessive)

3 What constitutes value for money ndash with the value proposition knowna more intelligent deliverer may be able to offer insights into how todeliver the expected need using less resources with derived benefitsamicably shared

4 What the lsquorules of the gamersquo are procurements and practices thatgovern the way that the work is measured valued paid for howchanges to contractual conditions are handled behavioural expecta-tions (ethical standards etc) constraints imposed by both external and

Project types and their procurement needs 57

internal conditions (perhaps workflow considerations) and a range ofissues relating to contracts administration these issues may be thecause of cultural clashes between parties if not clarified at the outset

5 Who takes responsibility for various risks ndash the guiding principle foreffective risk management that delivers value is that those who can bestmanage a particular risk should take responsibility for it and berecompensed accordingly

6 How disputes may be resolved processes and escalation plans ndash theserecognise the limits of authorisation at various levels in both teams andseek to design a speedy and effective dispute-resolution system and

7 The incentives and penalties that may apply

Procurement choices will in essence provide a range of templates andoptions that define the Figure 22 dimensions of the nature and closeness ofthe relationship the degree of separation or the integration of design anddelivery as well as how perceived risks are managed

As we aim in this chapter to present a guide to the sorts of things thatshould be present in a project brief we do not intend to provide eithercontract templates proposal writing shells or specific tips and hints onwriting a request for a tender or a proposal response There are a number ofbooks on the market that concentrate on that aspect (Bartlett 1997 Freedet al 2003 Nickson 2003 Blackwell 2004 Sant 2004 Frey 2005)

Working out how to do it

If the issues discussed in the section above have been adequately thoughtout and carefully considered the project scope scale and preferred lsquorules ofthe gamersquo can be established We also discussed and presented in thischapter a number of outsourced project procurement approaches and someof these can be adapted for insourcing (ie competitively seeking withinorganisation groups to be chosen to realise the project) So we have a situ-ation where a choice now has to be made between the various availableoptions In fact there are two types of choice first the choice of procure-ment form and second the choice of which tenderer should undertake theprojects Both choices can be reduced to achieving best value Best value forthe approach so that it meets the needs with the minimum negative impactof compromises about the inevitable conflicting demands of attributes thatcan not be always simultaneously achieved while managing complementar-ities to maximise synergies Best value in selecting a PM team to deliver aproject may also involve similar dynamics

The literature reviews a number of ways of approaching how thischoice can be made ndash based upon multiple-factor analysis (Kumaraswamy1996 Hatush and Skitmore 1997 Kumaraswamy and Walker 1999)Palaneeswaran et al (2003) for example identify five specific and one

58 Walker and Rowlinson

general potential value vectors that influence best value These are statedand expanded upon as follows

1 Time is similar to pace as described earlier by Shenhar and Dvir (20041267) that is time to deliver a project so that it is usable

2 Budget naturally is important and relates to the funding required thatis money but also can relate to cash-flow (pace of expenditure) as wellas resource categories (may be a consideration of recurrent and capitalor lsquobucket Arsquo and lsquobucket Brsquo which is linked to political as well aspractical constraints)

3 Life cycle considerations move beyond the current capital outlay issueto the timing of commitment and availability (eg assuming the intro-duction of technology improvement at some future time in the project)

4 Environment both from an impact and cost perspective though this canbe expanded to aspects of the social as well as environment parts of thetriple bottom line (3BL) as will be further discussed in Chapter 4

5 Image and esteem ndash this consideration brings in important intangibleaspects that will be discussed further in Chapter 6 and

6 Other factors ndash these are highlighted by Palaneeswaran et al (2003) asincluding some of the social 3BL elements as well as quality issues andhealth and safety obligations with an lsquoupgradeabilityrsquo issue added thatcan be generalised to being lsquomore strategically-tactically optimisedrsquo sothat it leaves future options and flexibility open

These value vectors are useful to helping us visualise how complicated thedecision process actually is It becomes clear that what is required is not anA or B choice on some kind of net present worth as advocated by purelyeconomic considerations but a carefully considered matrix of needs thathave metrics built to allow comparisons to be made Palaneeswaran et al(2003) advocate a four-stage framework that is relevant to choosing aprocurement method as well as choosing a successful proposal In stage 1lsquovitalrsquo mandatory aspects are filtered based upon set established bench-marks options can be filtered on a simple gono-go basis using questionsdesigned for simple yesno answers One useful example of a filteringsystem that narrows the field is the Performance Assessment System PASSthat has been successfully used in Hong Kong construction (Kumaraswamy1996) In stage 2 the essential best-value parameters are assessed across theoptions to produce a set of parameters and their relative score contributionTaking an lsquoall are equally weightedrsquo easy decision is avoided as well astuning these to options presented The weighting matrix should berigorously linked to the project context to provide a model that describesthe lsquoidealrsquo situation If for example time-to-market is a key driver and thistakes up 50 of the score weighting and cost only represents half of thetime consideration then it should attract only 25 of the weighting It is

Project types and their procurement needs 59

advisable that the weighting regime is agreed by a representative group ofstakeholders so that it matches and is in harmony with the project visionCare must be taken to ensure that the weighted attributes are independentso that the causendasheffect relationship intended between the choice ofweighted attributes reflects reality rather than being a poor proxy that isonly an indicator rather than a driver (Chang and Ive 2002) In stage 3with the evaluation criteria fixed each option can then be scored for eachattribute that has been weighted This should take cognisance of the incre-mental value-adding of these attribute scores for each choice Stage 4involves undertaking sensitivity analysis This should reveal how (theprecise circumstances) one option could be better than others and this canbe tested and explored and form the basis of developing tie-breaking (ornear ties) to ensure that the decision-making process is coherent and thatin the case of choosing between proposals any basis for negotiationsbetween close proposals is based on a defendable and logical basis This laststage demands transparency and a credible and contestable approach beingmade to retain the confidence of all that it is a real rather than a shamprocess

Finally consideration needs to be made about the actual cost of tenderingif a poorly or suboptimal tender call and submission process is adopted (asis widely the case currently) in terms of what does the value of the tenderingprocess add to the organisation tendering those tendering and society thatultimately pays the cost in a variety of direct and indirect ways as indicatedby Dalrymple et al (2006) Making these kinds of decisions can beexpensive and resource hungry and it is both unfair and unwise to imposea system in place where inappropriate costs and resources are expended inmaking the choice

Working out how to administer it

Contract administration is an important lsquodetailedrsquo part of the processBecause it is less glamorous than lsquodecision makingrsquo it tends to get poorlyattended to in projects Contract administration can generally be seen asbeing part of the PM monitoring and control coordination and governanceprocesses

Monitoring and control revolves around the lsquoiron trianglersquo of cost timeand quality Administration relies on standards being clearly statedmeasures being practical and applicable and processes being in place thatallow the information and knowledge generated to be used effectivelyThese days this means that there needs to be an interface betweeninformation communication technologies (ICT) that support gatheringtransfer analysis and reporting of information All this can and should beused in a knowledge management (KM) context that leverages experienceto lead to continuous improvement It would make sense if procurement

60 Walker and Rowlinson

systems required ICT advantages to be taken advantage of so thatorganisational learning can take place (Walker and Lloyd-Walker 1999) Insome contexts an Enterprise Resource Program (ERP) approach links andforces a supply chain to share information through the ERP (Akkermans et al 2003) One way of advancing current procurement administrationpractices would be to extend value in terms of control and coordination sothat the project brief and tender documentation require the recognition ofinformation and knowledge as a valuable resource this can be built inthrough the procurement system if it is indeed recognised as a valuableattribute

Contract administration can also be seen to influence the way thatnegotiation takes place While this is closely linked with cultural aspectsrelating to alliance-type projects in particular discussed in Chapter 9 it isworth flagging here This can result in the procurement process stipulatingfor example how dispute resolution can painlessly take place in acooperative rather than an adversarial manner as often happens inpartnering and alliancing procurement forms

Chapter 6 Project Performance Measures and Procurement will dealwith performance measures and the administration of projects to highlightand properly record achievements in satisfying often intangible or poorlyexpressed needs

Chapter summary

In this chapter we discussed different ways of understanding how a projectcan be viewed so that a project procurement choice can be guided by aproject typology We then discussed a range of options that presentthemselves based on the degree of collaboration and integration betweensupply chain parties and their relationship We highlighted some importantthemes including understanding the role of project vision and objectives aswell as understanding the nature and characteristics of project deliverymethods and how project context richly influences the setting that demandsan intelligent project procurement choice These themes are developedfurther in this book Our point of departure from many available books andtexts relating to project procurement and contract administration is ourfocus on the context of project type and its influence upon procurementchoice ndash we argue that this gap needed to be addressed

We also discussed how project procurement proposals could be writtenevaluated and how contract agreements can be administered Detaileddiscussion of those project procurement aspects from this chapter is limitedand intended to be of secondary focus to us because project proposalwriting and evaluation as well as project contract administration are topicsthat have been widely addressed in the construction management literature(Hughes et al 1998 Murdoch and Hughes 2000 Hughes 2006 Lowe

Project types and their procurement needs 61

and Leiringer 2006) and general business literature (Bartlett 1997 Freedet al 2003 Nickson 2003 Blackwell 2004 Lewis 2005)

Vignette

62 Walker and Rowlinson

OmniTrip is the organisation that won the tender for logistics supportand management of the privatised integrated public-transport systemfor Southland a major city of 4 million people that until 10 years agohad a public sector owned and operated bus tram and train (bothabove and underground) public-transport system described in thevignette in Chapter 1 OmniTriprsquos contract was to provide servicesand maintenance of legacy-transport assets and gradually replacethese with new assets as part of a Southlandrsquos renewal and improve-ment government policy Its coordination activities include managingthe procurement and maintenance of transport assets staffing of alloperations including facilities management of stations (owned bySouthland) and developing a new-generation stored-value smartcardticketing system

OmniTrip clearly has a portfolio of projects ranging from highlytangible ones such as taking down tram power lines and replacingthem with an in-ground third rail power access that is still in a stageof improvement from existing systems in place2 of those designed bythe French firm Alstrom3 This project falls within the tram hardwaredelivery programme in the tramways portfolio Although it representsa construction element (physically building the new tram lines andde-commissioning overhead power lines) it also has a large systems-engineering component because the third rail idea requires a lot ofservices of engineering integration including a WiFi network to allowcommuters to have full broadband internet access for an additionalcharge on their smartcard ticketing system The stored-value smartcarddevelopment system is another project within the tram hardware andsoftware program Training development stakeholder managementand other peoplendashsystems integration and engagement projects fallwithin the organware program

Each project and programme within the tramways portfolio hasdifferent characteristics that demand different procurement decisionsand solutions Some aspects such as the civil-engineering works can bescoped to be tendered either to a range of local small-scale constructioncontractors or to one of the several global facilities management andmaintenance contractors such as Transfield4 or Thiess5 Other aspectsof the service projects that is developing customised stored-valuesmartcards software that links to customer relationship management

Notes1 Request for information (RFI)2 See the Bordeaux tram system for example httpenwikipediaorgwikiGround_

level_power_supply3 See httpenwikipediaorgwikiAlstom4 See wwwtransfieldservicescomindexhtm5 See wwwthiess-servicescomauhomeindexhtm

References

Akintoye A Beck M and Hardcastle C (2003) Public-Private PartnershipsManaging Risks and Opportunities Oxford Blackwell Science Ltd

Akintoye A McIntosh G and Fitzgerald E (2000) lsquoA Survey of Supply ChainCollaboration and Management in the UK Construction Industryrsquo EuropeanJournal of Purchasing amp Supply Management 6(3ndash4) 159ndash168

Project types and their procurement needs 63

(CRM) application that has vast data-mining potential (subject todata privacy legislation and ethical considerations) may lead to JValliance or other IP-sharing procurement approaches OmniTrip aimsto maximise its value generation and business development potentialthrough its procurement choices and interaction with its upstreamand downstream supply chain OmniTrip also has been considering aBOOT-type scheme for acquiring the trams based upon fares gathered

Issues to ponder

1 Considering only the tram-track refurbishment project selectthree key aspects of value that you believe that OmniTrip couldidentify to make a procurement choice that maximises its valuedelivered by its downstream supply chain

2 What procurement options do you think best suit the valuepropositions identified by you under point 1 above Whatjustification can you make for your choice

3 Discuss three types of difficulty that you think OmniTrip mayencounter in using a BOOT-type option for acquiring the tramcomponent

4 How might the identified difficulty be different if an alliance orJV arrangement were used instead of a BOOT-type procurementoption

5 From the above and Chapter 1 vignette information what wouldyou say is OmniTriprsquos vision for this portfolio of projects Whattop-five ranked selection criteria may be used when assessing pro-curement submissions from its downstream supply chain partners

Akkermans H A Bogerd P Yucesan E and van Wassenhove L N (2003) lsquoTheImpact of ERP on Supply Chain Management Exploratory Findings from aEuropean Delphi Studyrsquo European Journal of Operational Research 146(2)284ndash301

Archer N P and Ghasemzadeh F (1999) lsquoAn Integrated Framework for ProjectPortfolio Selectionrsquo International Journal of Project Management 17(4) 207ndash216

Artto K A Lehtonen J-M and Saranen J (2001) lsquoManaging Projects Front-End Incorporating a Strategic Early View to Project Management withSimulationrsquo International Journal of Project Management 19(5) 255ndash264

Austen A D and Neale R H (Eds) (1995) Managing Construction Projects ndash AGuide to Proceses and Procedures Series Managing Construction Projects ndash AGuide to Proceses and Procedures Geneva International Labour Office

Bachy G and Hameri A P (1997) lsquoWhat has to be Implemented at the EarlyStages of a Large-Scale Projectrsquo International Journal of Project Management15(4) 211ndash218

Barnett A M (19989) lsquoThe Many Guises of a Project Managerrsquo The AustralianInstitute of Building Papers 3(1) 119ndash134

Barrett P and Stanley C (1999) Better Construction Briefing Oxford UKBlackwell Science Ltd

Bartlett R E (1997) Preparing International Proposals London Telford Bentley C (1997) PRINCE 2 A Practical Handbook Oxford UK Butterworth-

HeinemannBlackwell E (2004) How to Prepare a Business Plan London Kogan PageBresnen M and Marshall N (2000) lsquoBuilding Partnerships Case Studies of

Client-Contractor Collaboration in the UK in Construction IndustryrsquoConstruction Management and Economics 18(7) 819ndash832

Briner W Hastings C and Geddes M (1996) Project Leadership Aldershot UKGower

Chang C-Y and Ive G (2002) lsquoRethinking the Multi-Attribute Utility ApproachBased Procurement Route Selection Techniquersquo Construction Management andEconomics 20(3) 275ndash284

Checkland P (1999) Systems Thinking Systems Practice Chichester UK JohnWiley amp Sons Ltd

Cheung F Y K Rowlinson S Jefferies M and Lau E (2005) lsquoRelationshipContracting in Australiarsquo Journal of Construction Procurement 11(2) 123ndash135Special Issue on lsquoTrust in Constructionrsquo

Choy W K and Sidwell A C (1991) lsquoSources of Variations in AustralianConstruction Contractsrsquo The Building Economist December 24ndash29

Christenson D and Walker D H T (2003) Vision as a Critical Success Factor toProject Outcomes 17th World Congress on Project Management MoscowRussia 3ndash6 June On CD-ROM

Christenson D and Walker D H T (2004) lsquoUnderstanding the Role of ldquoVisionrdquoin Project Successrsquo Project Management Journal 35(3) 39ndash52

Cleland D I and King W R (1988) Project Management Handbook New YorkVan Nostrand Reinhold

Crawford L and Pollack J (2004) lsquoHard and Soft Projects A Framework forAnalysisrsquo International Journal of Project Management 22(8) 645ndash653

64 Walker and Rowlinson

Crawford L Hobbs J B and Turner J R (2005) Project Categorization SystemsNewtown PA Project Management Institute

Dalrymple J Boxer L and Staples W (2006) Cost of Tendering Adding CostWithout Value Clients Driving Innovation Moving Ideas into Practice SurfersParadise Queensland 12ndash14 March Hampson K CRC CI

DeFillippi R J and Arthur M B (1998) lsquoParadox in Project-Based Enterprise TheCase of Film Makingrsquo California Management Review 40(2) 125ndash139

Dulaimi M F and Dalziel R C (1994) The Effects of the Procurement Methodon the Level of Management Synergy in Construction Projects East meets West ndashCIBW92 Symposium Hong Kong University 4ndash7 December 1994 Rowlinson SR University of Hong Kong 53ndash59

Fitzgerald P (2004 January) Review of Partnerships Victoria ProvidedInfrastructure Final Report to the Treasurer Melbourne Growth SolutionsGroup 42

Flyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and RiskAn Anatomy of Ambition New York Cambridge University Press

Francis V E and Sidwell A C (1996) The Development of ConstructabilityPrinciples for the Australian Construction Industry Adelaide ConstructionIndustry Institute

Freed R C Freed S and Romano J D (2003) Writing Winning BusinessProposals Your Guide to Landing the Client Making the Sale Persuading theBoss New York [Maidenhead] McGraw-Hill

Frey R S (2005) Successful Proposal Strategies for Small Businesses UsingKnowledge Management to Win Government Private Sector and InternationalContracts Boston MA Artech House

Green S D (1996) lsquoA Metaphorical Analysis of Client Organizations and theBriefing Processrsquo Construction Management and Economics 14(2) 155ndash164

Green S D (1999) lsquoA Participative Research Strategy for Propagating SoftMethodologies in Value Management Practicrsquo Construction Management andEconomics 17(3) 329ndash340

Green S D and Lenard D (1999) lsquoOrganising the Project Procurement ProcessrsquoIn Procurement Systems A Guide to Best Practice in Construction Rowlinson Sand P McDermott (Eds) London E amp FN Spon 57ndash82

Green S D and Simister S J (1999) lsquoModelling Client Business Processes as anAid to Strategic Briefingrsquo Construction Management and Economics 17(1)63ndash76

Grimsey D and Graham R (1997) lsquoPFI in the NHSrsquo Engineering Constructionand Architectural Management 4(3) 215ndash231

Gunning J G and McDermott M A (1997) Developments in Design amp BuildContract Practice in Northern Ireland CIB W-92 Procurement SystemsSymposium 1997 Procurement ndash A Key To Innovation The University ofMontreal 18ndash22 May 1997 Davidson C H and T A Meguid CIB 1 213ndash222

Hartman F Ashrafi R and Jergeas G (1998) lsquoProject Management in the LiveEntertainment Industry What Is Differentrsquo International Journal of ProjectManagement 16(5) 269ndash281

Hatush Z and Skitmore M (1997) lsquoCriteria for Contractor SelectionrsquoConstruction Management and Economics 15(1) 19ndash38

Project types and their procurement needs 65

Hodge G A (2004) lsquoThe Risky Business of Public-Private PartnershipsrsquoAustralian Journal of Public Administration 63(4) 37ndash49

Hughes W (2006) lsquoContract Managementrsquo In Commercial Management ofProjects Defining the Discipline David Lowe and Roine Leiringer (Eds)Abingdon Oxon Blackwell Publishing 344ndash355

Hughes W Hillebrandt P M and Murdoch J R (1998) Financial Protection inthe UK Building Industry Bonds Retentions and Guarantees London NewYork E amp FN Spon

Ireland V (1983) The Role of Managerial Actions in the Cost Time and QualityPerformance of High Rise Commercial Building Projects PhD thesis SydneyUniversity of Sydney

Kotter J P (1995) lsquoLeading Change ndash Why Transformation Efforts Failrsquo HarvardBusiness Review 73(2) 59ndash67

Kumaraswamy M M (1996) lsquoContractor Evaluation and Selection A Hong KongPerspectiversquo Building and Environment 31(3) 273ndash282

Kumaraswamy M M and Walker D H T (1999) lsquoMultiple Performance Criteriafor Evaluating Construction Contractorsrsquo In Procurement Systems A Guide toBest Practice in Construction Rowlinson S and P McDermott (Eds) LondonE amp FN Spon 228ndash251

Lammers M (2002) lsquoDo You Manage a Project or What A Reply to ldquoDo YouManage Work Deliverables or Resourcesrdquorsquo International Journal of ProjectManagement 20(4) 325ndash329

Lewis H (2005) Bids Tenders and Proposals Winning Business Through BestPractice Sterling VA Kogan Page

Lowe D and Leiringer R (Eds) (2006) Commercial Management of ProjectsDefining the Discipline Series Commercial Management of Projects Defining theDiscipline Abingdon Oxon Blackwell Publishing

Lynn G S and Akguumln A E (2001) lsquoProject Visioning Its Components and Impacton New Product Successrsquo The Journal of Product Innovation Management18(6) 374ndash387

McGeorge W D and Palmer A (1997) Construction Management NewDirections London Blackwell Science

Maqsood T Finegan A and Walker D H T (2006) lsquoApplying Project Historiesand Project Learning Through Knowledge Management in an AustralianConstruction Companyrsquo The Learning Organization 13(1) 80ndash95

Matthews J Tyler A and Thorpe A (1996) lsquoPre-construction Project PartneringDeveloping the Processrsquo Engineering Construction and ArchitecturalManagement Blackwell Science 3(1ndash2) 117ndash131

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Morris P W G and Jamieson A (2004) Translating Corporate Strategy intoProject Strategy Newtown Square PA PMI

Morris P W G and Pinto J K (Eds) (2004) The Wiley Guide to ManagingProjects Series The Wiley Guide to Managing Projects New York Wiley

Murdoch J R and Hughes W (2000) Construction Contracts Law andManagement London New York E amp FN Spon

66 Walker and Rowlinson

NBCC (1989) Strategies for the Reduction of Claims and Disputes in theConstruction Industry ndash No Dispute Canberra National Building andConstruction Council

Nickson D (2003) The Bid Managerrsquos Handbook Aldershot GowerNogeste K (2004) lsquoIncrease the Likelihood of Project Success by Using a Proven

Method to Identify and Define Intangible Project Outcomesrsquo InternationalJournal of Knowledge Culture and Change Management 4 915ndash926

Nogeste K (2006) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project OutputsDoctor of Project Management DPM Graduate School of Business MelbourneRMIT

Nogeste K and Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Makingthe Intangible Tangiblersquo Measuring Business Excellence 9(4) 55ndash68

Ogunlana S O (1997) Build Operate Transfer Procurement Traps Examplesfrom Transportation Projects in Thailand CIB W-92 Procurement SystemsSymposium 1997 Procurement ndash A Key To Innovation The University ofMontreal 18ndash22 May 1997 Davidson C H and T A Meguid CIB 1 585ndash593

Oxford (2001) The New Oxford Dictionary of English Oxford UK OxfordUniversity Press

Palaneeswaran E Kumaraswamy M and Ng T (2003) lsquoTargeting OptimumValue in Public Sector Projects Through ldquoBest Valuerdquo-Focused ContractorSelectionrsquo Engineering Construction and Architectural Management 10(6)418ndash431

PMI (2004) A Guide to the Project Management Body of Knowledge Sylva NCProject Management Institute

Rowlinson S and McDermott P (1999) Procurement Systems A Guide to BestPractice in Construction London E amp FN Spon

Rowlinson S Cheung F Y K and Jefferies M (2006) A Review of the Conceptsand Definitions of the Various Forms of Relational Contracting Brisbane CRCin Construction Innovation httpwwwconstruction-innovationinfoimagespdfs2001ndash004-A_Industry_Bookletpdf2002-022-2A-01 (accessed on 7 January2007)

Rowlinson S Cheung F Y K Simons R and Rafferty A (2006) lsquoAlliancing inAustralia ndash No Litigation Contracts A Tautologyrsquo ASCE Journal of ProfessionalIssues in Engineering Education and Practice Special Issue on lsquoLegal Aspects ofRelational Contractingrsquo 132(1) 77ndash81

Sant T (2004) Persuasive Business Proposals Writing to Win More CustomersClients and Contracts New York Amacom

Shen Y J and Walker D H T (2001) lsquoIntegrating OHS EMS and QM withConstructability Principles when Construction Planning ndash A Design and ConstructProject Case Studyrsquo TQM MCB University Press UK 13(4) 247ndash259

Shenhar A J (1998) lsquoFrom Theory to Practice Toward a Typology of Project-Management Stylesrsquo Engineering Management IEEE Transactions on 45(1)33ndash48

Shenhar A J (2001) lsquoContingent Management in Temporary DynamicOrganizations The Comparative Analysis of Projectsrsquo The Journal of HighTechnology Management Research 12(2) 239ndash271

Project types and their procurement needs 67

Shenhar A J and Dvir D (1996) lsquoToward a Typological Theory of ProjectManagementrsquo Research Policy 25(4) 607ndash632

Shenhar A J and Dvir D (2004) lsquoHow Projects Differ and What to Do About ItrsquoIn The Wiley Guide to Managing Projects Morris P W G and J K Pinto (Eds)New York Wiley 1265ndash1286

Shenhar A J and Wideman R M (2002) Toward a Fundamental DifferentiationBetween Project Types httpwwwmaxwidemancompapersdifferentiationdifferentiationpdf (accessed on 27 July 2006)

Shenhar A J Dvir D and Shulman Y (1995) lsquoA Two-Dimensional Taxonomy ofPoducts and Inovationsrsquo Journal of Engineering and Technology Management12(3) 175ndash200

Shenhar A J Dvir D Levy O and Maltz A C (2001) lsquoProject Success AMultidimensional Strategic Conceptrsquo Long Range Planning 34(6) 699ndash725

Sidwell A C and Ireland V (1989) lsquoAn International Comparison ofConstruction Managementrsquo The Australian Institute of Building Papers 2(1)3ndash12

Smith A J (1999) Privatized Infrastructure ndash The Role of Government LondonThomas Telford

Smith J and Jackson N (2000) lsquoStrategic Needs Analysis Its Role in BriefDevelopmentrsquo Facilities 18(1314) 502ndash512

Smith N J Merna A and Grimsey D (1994) The Management of Risk in BOTProjects Internet 94 12th World Congress on Project Management OsloNorway 9ndash11 July Lereim J International Project Management Association 2173ndash179

Smyth H J (1999) lsquoPartnering Practical Problems and Conceptual Limits toRelationship Marketingrsquo International Journal of Construction Marketing 1(2)1ndash14 online version httpwwwbrookesacukotherconmarkIJCMissue_02010202pdf

Turner J R (1999) The Handbook of Project-based Management Improving theProcesses for Achieving Strategic Objectives London McGraw-Hill

Turner J R (2000) lsquoDo You Manage Work Deliverables or ResourcesrsquoInternational Journal of Project Management 18(2) 83ndash84

Turner J R and Cochrane R A (1993) lsquoThe Goals and Methods Matrix Copingwith Projects With Ill-defined Goals andor Methods of Achieving ThemrsquoInternational Journal of Project Management 11(2) 93ndash102

Uher T (1999) lsquoPartnering Performance in Australiarsquo Journal of ConstructionProcurement 5(2) 163ndash176

Walker A (1993) Project Management in Construction London BlackwellScience

Walker C and Smith A J (1995) Privatised Infrastructure ndash the BOT ApproachLondon Thomas Telford

Walker D H T and Hampson K D (2003a) lsquoEnterprise Networks Partneringand Alliancingrsquo In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishing 30ndash73

Walker D H T and Hampson K D (2003b) lsquoProcurement Choicesrsquo InProcurement Strategies A Relationship Based Approach Walker D H T andK D Hampson (Eds) Oxford Blackwell Publishing 13ndash29

68 Walker and Rowlinson

Walker D H T and Lloyd-Walker B M (1999) lsquoOrganisational Learning as aVehicle for Improved Building Procurementrsquo In Procurement Systems A Guideto Best Practice in Construction Rowlinson S and P McDermott (Eds) LondonE amp FN Spon 119ndash137

Walker D H T and Shen Y J (2002) lsquoProject Understanding PlanningFlexibility of Management Action and Construction Time Performance ndash TwoAustralian Case Studiesrsquo Construction Management and Economics 20(1)31ndash44

Walker D H T Lingard H and Shen Y J (1998) The Nature and Use of GlobalMethod Statements in Planning Research Report Melbourne The Departmentof Building and Construction Economics RMIT University

Yogeswaran K and Kumaraswamy M M (1997) lsquoPerceived Sources and Causesof Construction Claimsrsquo Journal of Construction Procurement 3(3) 3ndash26

Project types and their procurement needs 69

Chapter 3

Stakeholders and the supply chain

Derek HTWalker Lynda Bourne and Steve Rowlinson

Chapter introduction

Projects serve the needs of stakeholders by ensuring that their expectationsand needs are realised Project management does not occur in a vacuum butrequires an infusion of enthusiasm and commitment powered by the fullrange of project stakeholder energy sources in an energy grid that candevelop a positive or negative trajectory The key to effectively harnessingthis force is for project managers to know how to connect into thisorganisational grid and how to identify tipping-point key stakeholders andtheir value propositions Project managers are unlikely to deliver projectsuccess without paying attention to the expectations and needs of keyinfluence drivers and the diverse range of project stakeholders that maycumulatively exert a significant impact on the perception of project successA project that does not meet the expectations of influential stakeholders isnot likely to be regarded as successful even if it remains within the originaltime budget and scope

Effective project managers require keen analytical and intuitive skills toidentify high-impact and cumulative-impact stakeholders and work withthem to understand their expectations to influence project success Thisfacilitates managing a process that maximises stakeholder-positive inputand minimises any potential detrimental impact The authors argue thatproject managers need to be able to engage more effectively with the hiddenreservoirs of power that are exercised by project stakeholders in theinteraction between individuals in their social networks

In Chapter 4 we discuss business ethics as well as how considering thetriple bottom line (3BL) can help us identify a broader set of stakeholderswho may be otherwise left out of the project development process resultingin valuable perspectives insights and support being ignored Chapter 4 alsodiscusses project governance and the importance of an active and supportiveproject sponsor ndash a key and influential stakeholder Chapter 5 in discussingstrategy explores elements of the lsquopoliticsrsquo of decision making surroundingthe initiation and development of projects and in particular how thechoice of projects to be realised should be determined Whenever terms

such as lsquopoliticsrsquo or lsquostrategyrsquo are used there is an implicit recognition that afundamental issue to be first resolved is identifying stakeholders andinfluence-shapers by assessing their potential impact upon the way that theproject could proceed This chapter links with Chapter 6 because effectiveperformance measurement systems can only be developed by understandingthe project purpose and what benefits are expected to be delivered to whom ndashthat is stakeholders Chapter 8 discusses innovation and learning andhow the upstream supply chain (clients) as well as the downstream supplychain (suppliers and sub-contractors) have wisdom and knowledge to offerso identifying them and their potential impact is also of vital importanceChapter 9 explores the cultural dimension of project procurement and this ishighly relevant to stakeholder management Chapter 10 concerns attractingand retaining the most talented teams to help deliver project success againthis is relevant to managing project team stakeholders

This chapter is presented in three broad sections with a vignette at the endof the chapter that prompts relevant questions The first section deals withstakeholder theory because this forms the basis of our understanding of whichstakeholders should be focussed upon to fairly and effectively apportionattention and consideration of their issues needs and potential contributionThe section that follows discusses types and sources of power influence andconcepts of trust and distrust and from this describes how stakeholdermanagement links into these concepts with an upstream focus The ability tounderstand the often hidden power and influence of various stakeholdersis a critical skill for successful project managers Stakeholders can be aconsiderable asset contributing knowledge insights and support in shaping aproject brief as well as supporting its execution Project managers welcomeany tools that can help them identify and visualise stakeholdersrsquo likely impactand advances their ability to address the often-thorny problem of stakeholderrelationship management The third section then places the first two sections incontext with management of the downstream supply chain with a value focus

Stakeholder theory

Successful completion of project deliverables is critically dependent uponrelationship management skills amongst these the need to achieve projectobjectives that fully address stakeholder expectations throughout theproject life cycle (Cleland 1999 chapter 6) However one major task thatneeds to be undertaken in developing a projectrsquos strategic aims is to identifystakeholders in order to develop a project brief that best addresses theiroften-conflicting range of needs and wishes

Identifying stakeholders

Stakeholder theory offers a number of perspectives and expectations thatstakeholders may hold Social science stakeholder theory tends to focus

Stakeholders and the supply chain 71

around concepts of justice equity and social rights having a major impacton the way that stakeholders exert moral suasion over project developmentor change initiatives (Gibson 2000) Readers may wish to reflect upon theChapter 4 ethics section as being relevant here Thus one prevailing view isthat a stakeholder is someone affected by a project and having a moral (andperhaps a non-negotiable) right to influence its outcome This view is verybroad and its consequences unmanageable because there are so many waysin which a project can impact on a very wide range of people ndash fromaffecting a business environment through to other more physical or socialdimensions that relate to quality-of-life issues

Instrumental stakeholder theory holds that stakeholders and managersinteract and their relationship is contingent upon the nature quality andcharacteristics of their interaction (Donaldson and Preston 1995) In thisview the identification of stakeholders is more concerned with theirinstrumentality agency capacity or being vectors of influence This impliesa need for negotiation and expected reactions ranging from standoff tomutual adjustment depending on such intermediate variables such as trustand commitment and motivational forces (being harmonised or in conflict)

Jones and Wicksrsquo (1999) convergent stakeholder theory holds thatstakeholder actions and reaction to change leads to project managersneeding to develop mutual trusting and cooperative relationships with theirstakeholders Consequently their actions should be based on ethicalstandards ndash see Chapter 4 By meeting both objectives organisations can gaincompetitive advantage This accords with 3BL principles where performancesuccess is defined as meeting financial bottom-line performance measures aswell as environmental and social responsibility performance measures(Elkington 1997)

What becomes clear is that lsquolegitimate and validrsquo stakeholders need to beidentified and their power and influence mapped so that their potentialimpact on projects can be better understood Appropriate strategies canthen be formulated and enacted to maximise a stakeholderrsquos positive influenceand minimise any negative influence This becomes a key risk-managementissue for project managers to avoid many of the project failures detailed inthe literature for example by Morris and Hough (1993)

Briner et al (1996) identified four sets of stakeholders client projectleaderrsquos organisation outside services and invisible team members Cleland(1995 151) recognised the need to develop an organisational structure ofstakeholders through understanding each stakeholderrsquos interests andnegotiating both individually and collectively to define the best way tomanage stakeholder needs and wants He identifies several clusters ofstakeholders from the supply chain Stakeholders have also been describedas The ones who hold the beef (Dinsmore 1999) or those who have aninterest Effectively managing these stakeholders is essential at all phases ofthe project from lsquoinitiationrsquo to lsquocloseoutrsquo (Cleland 1995)

72 Walker et al

It becomes necessary to consider what a stakeholderrsquos stake actually iswhen trying to define what hisher needs or requirements are or how heshecould impact the project A stake could be an Interest a Right orOwnership An Interest is a circumstance in which lsquoa person or group willbe affected by a decision having an interest in that decisionrsquo A Right iseither a lsquolegal right when a person or group has a legal claim to be treatedin a certain way or to have a particular right protected rsquo or a lsquomoral rightrsquoOwnership occurs lsquowhen a person or group has a legal title to an asset or apropertyrsquo (Carroll and Buchholtz 2000 65) Most project stakeholders willhave an Interest many will have a Right ndash people with a disability orcitizens with a right to privacy and some will have Ownership ndash as inworkersrsquo right to earn their living from their knowledge or shareholders inan organisation

The definition of stakeholder that will be used in this chapter isStakeholders are individuals or groups who have an interest or some aspectof rights or ownership in the project and can contribute to or be impactedby either the work or the outcomes of the project

Figure 31 illustrates stakeholders in four groups upstream stakeholderscomprising the paying customer and end users of the productservice down-stream stakeholders who include suppliers and sub-contractors externalstakeholders are often ignored and comprise the general community andindependent concerned individuals or groups who feel that they will beimpacted by the project and its outcomes invisible stakeholders who engagewith the project team in delivering the ultimate project benefit but whose

Stakeholders and the supply chain 73

End users

External stakeholders

Project leader (PM)core team members

Projectsponsor

Champion

Upstream stakeholders Paying clientorganisation Downstream

supply chain

Participatingknowledgenetworks

Invisible teammemberspeople

Community+ external

independentconcerned groups

Figure 31 Stakeholder types

Source Adapted from Walker 2003 261

cooperation and support is vital for project success and also the knowledgenetwork that interacts with the project delivery team in a variety of waysand finally there is the highly visible project stakeholder group comprisingthe project sponsor or champion as well as the project delivery team

People naturally tend to form knowledge networks to share and re-frameknowledge that they routinely or occasionally use History provides manysuch examples of learning communities for example the medieval guilds ofEurope and more recently clusters of people in knowledge-sharing networkscentred around a particular skill forming lsquotech clubsrsquo or communities ofpractice (COPs) (Wenger et al 2002) A COP shares knowledge and skillsand sustains its members through obligations to exchange knowledgeproviding access and accessibility to shared insights and knowledge aboutwork practices (Wenger et al 2002 4) This hidden stakeholder group isoften ignored and yet COPs provide a significant source of influence andreferential support that project managers can tap into

Apart from the stakeholder groups identifiable by their more obviousconnection with projects there are clear and major groups that are invisiblebut whose cooperation and support is vital for project success Thesegroups would include familyndashsupport networks ndash this has family-friendliness(workndashlife balance) and workplace implications discussed in greater depthin Chapter 10 ndash but it also includes communities of practice and other socialnetworks People naturally tend to form knowledge networks to share andre-frame knowledge that they routinely or occasionally use

Identifying stakeholders influence

Cleland (1999 151) offers a process for managing stakeholders identifyingappropriate stakeholders specifying the nature of the stakeholderrsquos interestmeasuring the stakeholderrsquos interest predicting what the stakeholderrsquosfuture behaviour will be to satisfy himher or hisher stake and evaluatingthe impact of the stakeholderrsquos behaviour on the project teamrsquos latitude inmanaging the project He also provides practical advice on how to do thisMost stakeholder groups and individuals however are external and hencemany project management sub-processes are impossible to achieve for thesestakeholders Many organisationally internal individuals lie outside theboundaries of authority available to project managers Cleland (1999 175)offers after the first step of identifying stakeholders has been achieved asimple way to visualise stakeholders and their likely impact and influenceThe approach is simply to list stakeholders along one axis of a table list thesignificant stakeholder interest along another axis of the table and to thenindicate the perceived magnitude of their interest This simple idea isillustrated in Table 31

This idea can be expanded using concepts derived from risk managementRisk assessment can be undertaken using a probability-impact analysis

74 Walker et al

however we need to distinguish between not only the size of impacts and theirprobability of occurring but also the nature and timing of feasible responses tosuch risks (Ward 1999) Ward and Chapman (2003) later argued that risk isperhaps a misleading term and that uncertainty would be a better term to use

As a first step in assessing the potential impact of a stakeholder interest interms of contributing to project success the product of an interest-strengthand its influence-impact potential may provide a useful form of visualisingthese two dimensions of stakeholder interest From the stakeholderperspective they have a vested interest in the projectrsquos success that varies inintensity from very low to very high Also the impact of that interest can beassessed in terms ranging from very high to very low This provides a meansby which a stakeholder interest intensity map can be developed It can alsobe segmented as seen above and can be applied to a sub-set of stakeholdersIn this illustration we are illustrating collegial and COP interest This couldbe useful in designing strategies for maximising collegial support andcommitment to project success and developing success criteria measuresThe lsquoimpactrsquo part of the index relates to the power that these individuals mayhave to exert influence Their influence is bounded by their source of power

Figure 32 illustrates the process of influence shaping through socialnetworks With an organisation or entity is a number of opinion-shapersand they tend to belong to several social groups For example Group 1 mayhave affiliates through university classmates and alumni and Group 2 mayrepresent members belonging to a professional association (or indeed anytype of lsquoclubrsquo) Mentoring and seeking validation from reference groups canlead for example a sponsor to refer to a key network link who then seeksinformation knowledge and advice from network colleagues This helps toexplain how opinion-shapers outside any organisation can exert a hidden(though not necessarily sinister) force that contributes to or results in firm

Stakeholders and the supply chain 75

Table 31 Stakeholder interest intensity index (VIII)

Stakeholder interest Stakeholders vested interest intensity index (VIII) value

For colleaques and COP 1 2 3 4 5 6 7 8 9 10Develop teamrsquos skill base VH H N N L VL H VH L NEnhance workplace environmentFamily-friendly policyDemonstrated lessons learnedExemplar of better practiceHigh-profilestrategic project

NotesVested Interest (v) levels 5 Very high 4 High 3 Neutral 2 Low 1 Very lowInfluence impact levels (i) 5 Very high 4 High 3 Neutral 2 Low 1 Very lowVested interest-Impact Index (ViII) radic(vi25) eg if Vested Interest (v) level 4 (high) andInfluence impact levels (i) then ViII radic(4425) radic(1625) 080 high

impressions and perceptions being formed about issues In this way we cansee that tools that help us visualise influence and impact are pivotal in anystakeholder management approach

Supply chain members as stakeholders

Figure 31 illustrates upstream and downstream stakeholders in a supplychain Supply chain management will be discussed in more detail later inthis chapter but here we are merely establishing the theoretical justificationof viewing both upstream and downstream supply chain partners as validstakeholders Supply chain members working in well-integrated projectsshare access to systems knowledge and motivation to cooperate as seam-lessly as possible to the extent that they appear to be one organisationrather than an integrated flow of separate organisations

In Chapter 7 we discuss IT tools used by supply chains such asEnterprise Resource Planning (ERP) and other e-business programsincluding web portals and customer relationship management (CRM)systems These systems are intended to connect organisations seamlessly interms of data and information flows to facilitate efficiencies Bessant et al(2003) argue that supply chains should be viewed as mechanisms forupgrading and transferring appropriate practice and they explain this termto include experimentation to improve and fine-tune processes and waysthat they cooperate to deliver projects They also mean appropriate practiceto include joint learning as experimental improvement initiatives as well aseffective joint problem-solving activities In Chapter 8 we highlighted and

76 Walker et al

External opinionshapers

Opinionson lsquoYrsquo gt lsquoXrsquo

Universitycluster A

Professionalassociation

B

Group 1Affiliates to

lsquoArsquoGroup 2

Affiliates tolsquoBrsquo

Key personK1 belongs to

Opinionson lsquoXrsquo

Shapesinterest in lsquoZrsquo

VH Influenceon policy for

Internal opinionshapers

Project sponsor

Contributes to

Influences

Network connection

Informal mentor+ past colleague of

Figure 32 Influence mapping

discussed the implication of users clientscustomers as well as supply chainmembers being generators of practical knowledge and sources of innovativeimprovement ideas (Von Hippel 1988 Leonard-Barton 1992 1995Cavaleri 2004 Cavaleri and Seivert 2005)

Bessant et al (2003) undertook a series of interviews in six detailedsupply chain case studies in the semiconductor industry equipmentproduction of tubular structures for the oil and gas industry the computingequipment industry two different chains in the chemicals industry and theaerospace industry Their findings have particular relevance to stakeholdermanagement First they found that one leading partner in the supply chainneeds to take on the role of coordinator This is a traditional role of theproject management team However in the construction industry there hasa been long-term criticism about the way that smaller sub-contractors andsuppliers have been treated being often left to pick up any time slack lostthrough poor scheduling or consideration of production and deliverylogistics (Latham 1994 DETR 1998) While upstream supply chainpartners are often well considered and their reaction and impact is wellthought through small downstream supply chain partners are frequentlypoorly consulted and engaged with for joint problem solving so thatavoidable delays and costs are incurred because of problems with planninglogistics and production

Bessant et al (2003 182) highlight four supply chain learning (SCL)themes from the six case studies that they consider require more detailedanalysis and development

1 the importance of implementing SCL on a platform of lsquogood practicersquosupplier management (and the need to review such programmes to addthe SCL dimension)

2 the concept of supply chain coordination or lsquogovernancersquo and the roleswhich can be played by different actors in the SCL network

3 the role of facilitation and the skill sets and enabling toolkit which permiteffective learning networks of the kind reported here to evolve and

4 the processes through which a shared learning agenda (and relatedlsquocurriculumrsquo assessment frameworks etc) can be developed Earlyevidence suggests this needs to take place at a sector or supply chainlevel ndash for example via business associations

The above themes are consistent with the general literature for example ndashSpekman et al 2002 Sherer 2005 and Maqsood et al 2007 To achievethis kind of improvement these stakeholders need to be carefully consid-ered as part of a broad stakeholder engagement approach to procurement

A stakeholder management system example

This section will focus on explaining the process and antecedents to astakeholder engagement and a management tool developed by one of the

Stakeholders and the supply chain 77

authors for her doctoral thesis (Bourne 2005) The basis of stakeholderidentification impact assessment and engagement strategy planning relatesto how the stakeholder relationship with the PM team will be managed

Underlying concepts

Three underlying concepts govern this relationship ndash trust power andcommitment French and Granrose (1995) define relationships in thefollowing way

lsquoExploitationrsquo ndash one person uses another to achieve hisher own selfishobjectives without considering any benefit to the other

lsquoReciprocityrsquo ndash two persons are each using the other in a way thatensures each partner benefits In this type of relationship there is a senseof stability and balance absent from exploitation relationships Theserelationships are based on rewards and lsquogive and takersquo and

lsquoMutualityrsquo ndash this relationship is beyond exploitation and reciprocityThe two parties treat each other not as means but as themselves bytaking an interest in the otherrsquos goals and needs

lsquoMutualityrsquo is the superior of these three relationships Whether they areorganisations working to form partnerships or organisations dealing withemployees each party must have lsquomutualityrsquo as their goal The concept oforganisations working with their employees or with other organisations inless than superior exploitative relationships is one where it will be morelikely to breach ethical bounds because the idea of mutual benefit is ignoredor not understood The minimum that any stakeholder engagement strategymust aim for is lsquoreciprocityrsquo but by definition lsquomutualityrsquo will ensure thebuilding and maintenance of robust and successful project relationships(French and Granrose 1995)

Trust commitment power and stakeholder management

A special edition on trust in the 1998 lsquoSpecial Edition Issue of the Academyof Management Review volume 23 number 3rsquo provides some usefulliterature to understand the concept McAllister (1995) reported on resultsfrom a quantitative study of 194 managers that provides empirical evidenceto support the model developed as proposed by Mayer et al (1995) andRousseau et al (1998)

Figure 33 illustrates the model developed by Mayer et al (1995) Theyidentify three factors that support trustworthiness ability benevolence andintegrity Ability means the capacity to do something benevolence refers tointentions and integrity refers to coherence between what is promisedand what is delivered These factors are in turn modulated by the trustorrsquos

78 Walker et al

(ie the person who provides property and creates a trust) propensity toplace trust in the entity to be trusted There must be a perceived risk thatthe trustor may be taken advantage of so that a sense of vulnerability isinstilled in the trustor This risk test will have an outcome in the view of thetrustor that either validates trusting or indicates that the trust wasmisplaced This becomes a cycle in which the assessment continues until thetrustor feels that the experienced perceived vulnerability is unbearable Thisrepresents a kind of trust bank process described by Walker and Hampson(2003a 199)

Inkpen and Beamish (1997) introduce the idea that stability of therelationship also has some impact and this makes sense in a PM contextwith changes in trust strength occurring during different project phaseswhen parties have shifting ability to perform various trust tasks as theirinfluence changes with the importance of their involvement Rousseau et al(1998) note that there are different types of trust Institutional trust remainsfairly constant as it is perception of the institutionrsquos record of trustworthinessand as discussed in Chapter 4 this is often wrapped up in perceptionsbased upon ethics and governance They also describe calculative trust thatmerges into relational trust as tests of trust yield results to which the trustorand trustee adjust their perceptions

Figure 34 illustrates a model modifying ideas put forward by Rousseauet al (1998) combined with Mayer et al (1995) and Inkpen and Beamish(1997) adapted to a project phase continuum The interesting point fromthis is that research by Rousseau et al (1998) indicates that integrity was

Stakeholders and the supply chain 79

Factors ofperceived

trustworthiness

Ability

Benevolence

Integrity

Trust Outcome

Trustorrsquospropensity

Perceivedrisk

Risk taking inrelationship

Figure 33 A model of trust building

Source Mayer et al 1995 715

the prime factor initially determining trust but as testing continuesbenevolence takes over followed by ability being the dominant driver alloccurring as a project moves through its initial often chaotic initiationphase through more stable times as design leads to production andrealisation of the project objectives

The final modifier of trust that we wish to discuss is the presence of bothtrust and distrust simultaneously Lewicki et al (1998 445) developed amodel that combines trust with distrust in a two-by-two matrix illustratedin Figure 35

The range of trust and distrust helps explain motivations and perceptionsthat govern views about trustworthiness of partners in an alliance ahands-off contract or in a well-integrated supply chain

Figures 33ndash36 help explain some of the underlying forces that helpshape trust Figure 36 combines Meyer and Allenrsquos (1991) commitmenttheory with Maslowrsquos (1943) motivation theory The lowest form ofcommitment is compliance where the minimum possible standard isvolunteered often related to legal or rule-based requirements Continuancecommitment shares similarities with compliance in that the motivation is tosatisfy basic needs such as an individualrsquos need to make a living a firmrsquosneed to make a profit or provide a service that is its raison drsquoecirctre and soon Once that need is substantially met the commitment will dissipate andthere may also be easily available substitutes that can replace the object ofthat need so in this sense that lsquocanrsquo of commitment is weak or transitoryNormative commitment is more reciprocal (ought to) and is motivated bysocial needs and obligations This kind of commitment is wrapped up in

80 Walker et al

Relational trust

High

Low

AbilityIntegrity Tested by risk

Benevolence

Calculative trust

Institutional trust

EarlyInitiation Middledesign LateRealisation

Figure 34 Trust in phases

loyalty and emotional facets of culture that are stronger can be extremelystrong and are much harder to displace The strongest form of commitmentis affective because it is lsquowant-torsquo commitment based on a motivation ofself-actualisation andor ego needs The desire of course can be illusionaryand fade and in that sense we could argue that normative commitment isstronger However affective commitment can move people to contributebeyond expectations

Commitment levels can also relate to the sources of power deployedduring the relationship Greene and Elfrers (1999 178) outline seven formsof power that follow from the power literature reported in a number ofleadership texts (Hersey et al 1996 Yukl 2002)

1 Coercive ndash based on fear Failure to comply results in punishment(position power)

Stakeholders and the supply chain 81

High Trust

Characterised byHope

High-value congruence

Interdependence promoted

Opportunities pursued

New initiatives

Casual acquaintances

Limited interdependece

Bounded arms-lengthtransactions

Professional courtesy

Undesirable eventualitiesexpected and feared

Harmful motives assumed

Interdependence managed

Paranoia

Pre-emption best offensiveis a good defence

Trust but verify

Relationship highlysegmented and bounded

Opportunities pursued anddown-siderisksvulnerabilitiescontinually monitored

Faith

Confidence

AssuranceInitiative

Low Trust

Characterised byNo hope

No faith

No confidence

PassivityHesitance

Low distrust

Characterised byNo fear

Absence of scepticism

Absence of cynicism

Low monitoringNo vigilance

High distrust

Characterised byFear

Scepticism

Cynicism

Warineess and watchfulnessVigilance

2

1

4

3

Figure 35 Trust and distrust

Source Lewicki et al 1998 445

2 Connection ndash based on lsquoconnectionsrsquo to networks or people withinfluential or important persons inside or outside organisations(personal political power)

3 Reward ndash based on ability to provide rewards through incentives tocomply It is expected that suggestions be followed (position power)

4 Legitimate ndash based on organisational or hierarchical position (position political power)

5 Referent ndash based on personality traits such as being likeable admiredand thus able to influence (personal power)

6 Information ndash based on possession of or access to informationperceived as valuable (position personal political power) and

7 Expert ndash based on expertise skill and knowledge which throughrespect influences others (personal power)

The nature of power and influence the sources of this power and the wayin which it is used to contribute to or manipulate cooperative relationshipsunderpin all procurement strategies and the relationships that develop fromthese It is interesting that a number of books have appeared providingadvice on the use of power to undermine the competitor and to win againsta perceived enemy The works of Machiavelli and Sun-Tzu are among themost prominent A recent book on power and its use ndash which features ideas

82 Walker et al

Meyer and Allen (model)

Social needsCommitmentMotivations

Perceived self-worth(Affective-want to)

Self-actualisationego needs

Maslow (model)

Safetyphysiological

needs

Perceived need toreciprocate

(Normative-ought to)

Perceived cost of loss(Continuance-need to)

Perceived punishment(Compliance-have to)

Figure 36 Compliance and commitment

Source Adapted from Meyer and Allen 1991 and Maslow 1943

from the Machiavelli Sun-Tzu and others ndash relates to winning power andholding power for personal gain and not to achieve a goal that is shared byothers (Greene and Elfrers 1999) Positional power however is the leasteffective of the three outlined in building commitment to shared objectiveswinndashwin outcomes and constructive dialogue whether in resolvingdifferences or building shared understanding Project managers need to beaware of the types of power that people can wield to influence the opinionsand actions of others Power trustdistrust and commitment are closelylinked with project phases that impact on this project delivery dynamic asthe criticality of supply chain partners shifts with their contribution level

Stakeholder management ndash the Stakeholder CircleTM tool

While Table 31 provides a useful visual representation of stakeholderinterest intensity it can be made more informative by employing a greaterdegree of graphical imagery such as an influence map or social network mapbased on an organisationrsquos formal structure and showing who has strong orweak influence in the project environment Project stakeholders may havedeep (extensive) or shallow (limited) influence in terms of their network ofothers that may be proxies for their interest For example an individual withweak influence on the project driving power force may have very deepand strong influence on another individual or group that may in turn havea very strong influence on the project power source Information aboutrelationships may come through interviews formal and informal documen-tation or the lsquograpevinersquo Astute project managers keep their antennae activeconstantly and know when and how to use such influence maps to achievesuccess through others who may be able to influence the outcomes

Figure 37 illustrates how project managers view various stakeholders thosethey deal with through looking upwards downwards sideways and inwardsThis model was developed to describe the skills set needed by a project man-ager (Bourne and Walker 2004) Dimension 1 relates to knowledge of how tolook forwards and backwards to apply correct PM techniques ndash in the caseof this chapter this would include the appropriate strategy to draw uponwhen making decisions with stakeholders Dimension 2 relates to the knowl-edge of relationships of how to look inwards outwards and downwardswhich is also relevant to the power school of strategy as it includes the abil-ity to manage relationships with key influencing stakeholders Dimension 3skills relate to considering and ensuring that political influence and lobbyingis addressed by looking sideways and upwards This is what Bourne (Bourne2005) and Bourne and Walker (2004 228) refer to as lsquotapping into the powerlinesrsquo of project stakeholder influence

Following from techniques previously discussed that map stakeholdersand their influence patterns a visualisation of stakeholder power and impactcan now be constructed

Stakeholders and the supply chain 83

The Stakeholder CircleTM is both a methodology for stakeholdermanagement and a software tool The methodology will be described indetail later in this section The software tool is a relational database thatguides the team through steps for data input and prioritisation assessmentand then calculates each stakeholderrsquos relative importance The StakeholderCircleTM tool develops a lsquomaprsquo of the projectrsquos stakeholder community tofacilitate decisions about the amount of effort the project team should allocateto managing the relationship with any given stakeholder (see Figure 38)

Figure 38 illustrates the concept (referred to as the Stakeholder CircleTM)that one of the authors developed based on the idea that a project canreally only exist with the full consent of its stakeholders (Weaver andBourne 2002) The methodology and tool were developed as part of adoctoral thesis (Bourne 2005) and recently outlined in the PMI journal(Bourne and Walker 2006) The tool has since become commercialised (seeURL wwwstakeholder-managementcom for more details) Key elements ofthe Stakeholder CircleTM are concentric circle lines that indicate distance ofstakeholders from the project or project delivery entity the size of theblock its relative area indicates the scale and scope of influence and theradial depth can indicate the degree of impact (Bourne 2005 Bourne andWalker 2005)

Patterns and colours of stakeholder entities indicate their influence on theproject ndash for example orange indicates an upwards direction ndash these stake-holders are senior managers within the performing organisation that are

84 Walker et al

Outwardsclientsupplychain

Backwardsmonitoring

Downwardsteam

Upwardssponsor

Forwardsstrategy

Sidewayscolleagues

lsquospecial skillsrsquo tolsquotap into the power

linesrsquo

Dimension 3 BeyondLeading and Managing

ndash lsquoTapping the powerlinesrsquo

Dimension 1lsquoSciencersquondashApplying

techniques

Dimension 2Art ndashlsquoRelationshipsrsquo

How toInwards

Self

Figure 37 Tapping into the power lines

necessary for ongoing organisational commitment to the project greenindicates a downwards direction ndash these stakeholders are members of theproject team purple indicates a sidewards direction ndash peers of the projectmanager essential as collaborators or competitors and blue indicatesoutwards ndash these stakeholders represent those outside the project such asend users government lsquothe publicrsquo shareholders The final colour codingis dark hues and patterns for stakeholders internal to the organisation andlight hues and patterns for those external to the organisation

This depiction of the stakeholder community represents the projectrsquos keystakeholders as assessed by the project team In the Stakeholder CircleTM forthe Asset Management Project below the most important stakeholder hasbeen assessed as the Sponsor this stakeholder appears at the 12 Orsquoclockposition followed by the project team as the second most important andthe CEO as third most important

This tool can be very useful for project managers trying to understandand remain alert to the nature of stakeholder impact The model hasbeen tested through research conducted by one of the authors andpresented at Project Management Institute (PMI) chapter meetingsand conferences on several continents ndash in each case the feedbackindicated its resonance with practising project managers as a useful toolso we illustrate it here

The Stakeholder CircleTM methodology consists of five parts step1ndash identify step2ndashprioritise step3ndashvisualise step4ndashengage step5ndashmonitor

Stakeholders and the supply chain 85

Sponsor

Project team

CEO

Senior leadership team

Core team for stage 1

Functional manager 1

IT specialist assigned to project

Information management group

Contractors from supplier

Asset specialists stage 1

Asset specialists stage 2 34 amp 5

Auditors

SAM supplier

Functional manager 2

Councillors

Orange

Blue

Theproject

Purple

Green

Figure 38 The Stakeholder CircleTM tool

Step 1 ndash identify stakeholders

First the project stakeholders are identified and then categorised intogroups indicating how they may influence the outcomes of the projectupwards for senior managers downwards for members of the project teamsideways for peers of the project manager and outwards for otherstakeholders outside the project ndash such as government users unions Thedefinition of what each individual or group requires from the project as wellas a definition of the significance to the project of these individuals orgroups must be agreed and documented at this stage This concept is basedon the idea of mutuality as discussed earlier in this chapter This exercise isconducted by workshops with individuals who are familiar with the projectdeliverables and constraints and with the organisational structure (and theorganisational politics) It may be useful to use a metaphor to visualisestakeholder characteristics Shelly (2007) uses the concept of anorganisational zoo in which individuals are described in terms of a series ofattributes that links them to particular animal behaviours ndash this can be bothan amusing and highly enlightening exercise in considering not onlystakeholder characteristics but their influences power bases and habits andbehaviours

Step 2 ndash prioritise stakeholders

Next prioritisation of these stakeholders is undertaken by consideringthree factors that can assess the relative importance of stakeholders

Power ndash is their power to influence significant or relatively limited Proximity ndash are they closely associated or relatively remote from the

project Urgency ndash what is their stake Are they prepared to go to any lengths

to achieve their outcomes

A simple definition of power used in the prioritisation workshops it isbased on the stakeholderrsquos relative power to terminate the project It is ratedby the workshop participants on a scale of 1ndash4 where 4 is lsquohigh capacity toformally instruct change (can have the project stopped)rsquo and 1 is lsquorelativelylow levels of power (cannot generally cause much change)rsquo

Proximity as used in this methodology is self-explanatory The teammust rate the stakeholders on a scale of 1ndash4 where 4 is lsquodirectly workingin the project (team members working on the project most of the time)rsquoand 1 is lsquorelatively remote from the project (does not have directinvolvement with the project processes)rsquo

Urgency can be viewed as having two attributes time sensitivity andcriticality Based on these conditions the methodology requires workshopparticipants to rate stakeholders on a scale of 1ndash5 where 5 is lsquoimmediate

86 Walker et al

action is warranted irrespective of other work commitmentsrsquo and 1 is lsquothereis little need for action outside of routine communicationsrsquo (Mitchell et al1997 867) In projects where these ratings cannot be simply applied themethodology supports a breakdown of the process into two subsidiary setslsquovested stakersquo (how much lsquostakersquo does the person have in the projectrsquosoutcome) and lsquoperceived importancersquo (likelihood to take action positiveor negative to influence the outcome of the project) The ratings can thenbe combined in the software to give the overall urgency rating

Step 3 ndash visualise stakeholders

The data from the previous steps is transformed into the Stakeholder Circleone example has been described in Figure 38 The Stakeholder CircleTM

will be different for each project and for each phase of the project ndash therelationships that visualisation shows will reflect the projectrsquos uniquerelationships

Step 4 ndash engage stakeholders

The fourth part of the Stakeholder CircleTM tool methodology is centred onidentifying engagement approaches tailored to the expectations and needsof these individuals or groups The top-15 stakeholders defined as beingthe most important and influential for the project should receive specialattention but engagement strategies for all stakeholders must be developedTheir value proposition (what they require from the project) will ofteninclude intangible outcomes such as enhancement of personal ororganisational reputation and satisfaction of a measure in an individualrsquoskey performance indicator (KPI) set that is for delivery of project benefits

The first set of this analysis involves identifying the level of interest of thestakeholder(s) at five levels from committed (5) through ambivalent (3) toantagonistic (1) Next step is to analyse the receptiveness of each stakeholderto messages about the project on a scale of 1ndash5 where 5 is ndash direct personalcontacts encouraged through 3 ndash ambivalent to 1 ndash completely uninterested Ifan important stakeholder is both actively opposed and will not receivemessages about the project he or she will need to have a differentengagement approach from stakeholder(s) who are highly supportive andencourage personal delivery of messages The 5 by 5 matrix (see Figure 39)thus developed will become the engagement baseline that is the startingpoint for measuring the effectiveness of the communication activities ofthe project

Based on each stakeholderrsquos engagement strategy a communication planwill be developed consisting of specific messages or message forms(reports) how messages will be delivered by whom whether formal orinformal written or oral at what frequency The frequency and regularity

Stakeholders and the supply chain 87

of delivery of these messages will vary with the level of support andreceptiveness of the stakeholder as well as the stage of the project Themessenger need not just be the project manager other members of theproject team may be more appropriate to deliver the message

Step 5 ndash monitor effectiveness of communication

Once the Communication Plan has been developed and team communicationresponsibilities allocated the principal communication points must beincluded in the project schedule Including communication in the projectschedule means that team communication activities will be reportedregularly at project team meetings Regular Stakeholder Review meetingssimilar to Risk Review meetings will maintain the currency of the projectrsquosstakeholder community or provide information about changes in thatcommunity that will cause the projectrsquos stakeholders to be re-assessedre-prioritised and re-developed as a new Stakeholder CircleTM (community)

Re-assessment of the engagement matrix of project stakeholders is anessential part of the project-review processes whether by regular teammeetings reviews or in response to other unplanned events around theproject In the case of a stakeholder that was first assessed as activelyopposed and uninterested in receiving project messages an engagement strat-egy and communication plan should be developed to change the engage-ment matrix to (say) neutral for both support and receptiveness If onre-assessment the engagement profile has not improved this lack of changewill provide the evidence that the current communication is not effective adifferent approach must be taken This is illustrated in Figure 310 On theother hand achievement of the expected improvement as shown on the newmatrix is evidence that the engagement strategy is effective and thecommunication is achieving its intended objectives

Figure 39 shows the levels of support and receptiveness of twostakeholders The engagement strategy must adapt to this profile and be

88 Walker et al

Sup

port

Sup

port

Receptiveness Receptiveness

Stakeholder 1 Stakeholder 2

Figure 39 Stakeholder engagement profiles

reflected in the communication plan If at a later re-assessment the profileshave not changed as expected a new communication plan must bedeveloped and implemented

Figure 310 shows the effects of comparing a stakeholderrsquos engagementprofile over time The comparison of the new profile with the baselineshows that while the stakeholder is more receptive to messages about theproject the level of support for the project is unchanged This result shouldtrigger a re-assessment of the communication plan for this stakeholder

For further details of two case studies on the use of the tool refer to(Bourne and Walker 2006) and for substantial detail refer to Dr Bournersquosdoctoral thesis (2005)

Maintenance of the stakeholder community

The process of identifying prioritising and engaging project stakeholderscannot be a once-only event Stakeholders change as they move within theorganisation or leave it or as their relative importance to the project andtheir power and influence within the organisation changes As the projectmoves through the project life-cycle or implementation stages differentstakeholders may have more or less impact on the project The process mayhave to be repeated in whole or in part many times An essential part of themethodology is the repetition of the process of the methodology andbuilding of the Stakeholder CircleTM when any of these events occur

Strategy relating to the lsquowho what when and howrsquo of delivering thetailored messages defined for the important stakeholders must be convertedinto action The communication plan should be part of the project scheduleand thus reported on through team meetings and regular reports

Value of the methodology

The benefit of this methodology and tool is derived from the analysisprocess itself as participants of the workshops discuss potential project

Stakeholders and the supply chain 89

Sup

port

Sup

port

Receptiveness Receptiveness

Stakeholder 1 3 months later

Figure 310 Monitoring communication effectiveness

stakeholders and their needs and potential contributions These discussionsand related negotiations about agreements on ratings of stakeholders enablesall project team members to share their knowledge of the individuals andgroups being assessed as well as knowledge of the organisation and itspolitics Additional benefits come from the ease with which key stakeholdersrsquoinfluence on the project can be judged once the diagram is complete To bemost effective the assessment should be updated regularly as the projectprogresses through the phases of the life cycle or as the stakeholdercommunity changes to reflect the dynamic nature of project relationships

A methodology that provides a simple relatively time-efficient process forthe identification of key stakeholders is a useful adjunct to the project-planning processes The methodology also supports a logical process toallow the project manager to decide which of the projectrsquos stakeholders tofocus effort on since it would be impossible to attend to the needs andexpectations of all stakeholders The use of a process that steps the projectteam through analysis of the expectations of the project stakeholders andthe best means to ensure their support of the project provides another benefitto the project manager Managing the perceptions and understanding theexceptions of key stakeholders build robust project relationships and improvesthe chances of project success application of a methodology and visualisationtool such as the Stakeholder CircleTM will contribute to the perception of thesekey stakeholders that the project is being well-managed Finally because asystem such as this gathers data relating to stakeholder characteristics beliefsand behaviours it becomes a very valuable information-mining source to beused in ways similar to that of a CRM system

Downstream stakeholder supply chain management value

We have discussed how project and (whole of project) team stakeholderscan define and articulate their perception of what value the project representsto them and how they can contribute to that value generation We alsodiscussed how stakeholders can be engaged and their influence sought andmanaged as part of the procurement process We also indicated that valuepropositions vary between stakeholders and as is elaborated further inChapters 4 and 6 project outcomes that lead to a sustainable economy addsocial value as well as potential economic advantage This section focusesupon the downstream supply chain comprising sub-contractors andsuppliers that are often small- or medium-sized enterprises (SMEs) thatform a vital part of any economy

A most interesting recent development in the management of procurementsystems is the attempt to incorporate the supply chain into the system in orderto ensure sustainability In general worldwide this approach has beenchampioned and led by the public sector As indicated by Cheung (2006) public

90 Walker et al

sector clients have the opportunity to create managerial organisational andstructural improvements and develop economic social and environmentalsustainability in various market sectors which support their asset portfolioSupply chain sustainability (SCS) also supports the public sectorrsquos organisa-tional political industry development objectives through proactive supplychain management This section reviews recent initiatives in both Australiaand the United Kingdom

Recent work in Australia by Rowlinson and Cheung in the pre-castconcrete and recycling sectors and reported in (London 2005 Cheung2006) has investigated SCS in SMEs and (inter alia) sought to

improve economic sustainability stabilise employment levels and reduce high staff turnover improve skill levels occupational health and safety (OHS) performance

and thus productivity as a result of a state-wide smoothing of marketinvestment strategies

improve product quality reduce remedial work and reduce waste in government resources in having to monitor poor

performing sectors

These issues have also been addressed in the UK through frameworkagreements and other mechanisms and this will be discussed later As ageneral rule the long-term goals of all such approaches is to improvecompetitive behaviour improve market sector performance and thusimprove both business-process efficiency and effectiveness of public sectorprocurement systems This is undertaken by influencing policy developmentchanging organisational behaviour and culture and by implementing onlythose developments which lead to sustainability in the economic socialand environmental markets of the region In order for such approachesto be successful a strategy is needed whereby regional and countrywidesmoothing of demand in the various markets takes place throughdeliberate planned government policy Thus investment strategy is drivenwith a view to long-term benefits accruing through stabilisation ofemployment levels a commensurate reduction in employee turnover and thedevelopment and improvement of the industry-wide skills base This willalso have a knock-on effect in terms of OHS performance and the expectationis that there will be improved product quality as well as reductions in reworkAll of these objectives if achieved should lead to a reduction in the resourcesneeded by government to monitor performance in that an assurance systemis in place Although improvements in OHS performance might be seenas something of a by-product of SCS such improvements do add tocompetitiveness in an increasingly global market

Stakeholders and the supply chain 91

Competitiveness

Attitudes to OHS quality and human resource development play a majorpart in how an organisation is judged by its shareholders stakeholders andhosts Whilst maintaining high levels of OHS performance companies maybear heavy transaction costs in order to maintain this standard Thus thereis a conflict between competitiveness and safety performance Howevergiven the global nature of the markets and the need to be seen to be actingresponsibly in terms of corporate governance safety and health should beseen as essential elements in the goals and policies of companies Thus it isbecoming increasingly difficult to separate the approach to safety andhealth and human resource development from other technical and financialissues without jeopardising a companyrsquos competitiveness A strong safetyand health management system and a clear policy on maintaining the high-est standards of OHS is essential nowadays for the companyrsquos continuedexistence Indeed many companies derive competitive advantage from theirimpeccable safety and health records and this is an issue which can beenhanced through proactive supply chain management

Key issues in SCS

A major issue to be addressed in maintaining a sustainable supply chain isthe move towards more direct and long-term employment with commensu-rate skills and educational improvements within the work forceOutsourcing has been seen to attract substantial transaction costs in termsof setting up maintaining and auditing the outsourcing system It is alsoseen to be a social cost in the way that its implementation often leads to adowngrading in training and skill development and so impoverishes thework force and puts at risk OHS performance The objectives of SCSrequire some degree of stability of market demand and so itsimplementation is an area on which the public sector client has theopportunity through management of demand to have a significant impactThere are various mechanisms used to develop such an approach and twonovel methods were reported by Khalfan and McDermott (2006) andKhalfan et al (2006) in respect of framework agreements and a novelpartnership undertaken in England

Aggregation

They report that in the northwest of England a group of local authoritiesand as described in English legislation Registered Social Landlords (RSLs)formed an alliance to manage procurement for those involved in socialhousing renewal in their region The innovative element of this approachwas to bundle or aggregate present and future demand of different client

92 Walker et al

organisations and put this bundle into the market to ensure a balancedpattern of demand and also to negotiate with subcontractors and suppliersin return for resulting workflow certainty This alliance undertook separateagreements with the contractors and installers to supply labour only andinitiated another agreement with suppliers and manufacturers to supplyproducts and materials only In addition the social agenda was addressedby ensuring skill development amongst the local labour force in order toimprove economic and social sustainability as well as achieving hardenvironmental targets

Benefits of aggregation

In discussing the benefits of aggregation the authors indicate that bundlingof demand by local governments social landlords and facilitation byinitiatives of central government departments has enabled more companiesparticularly SMEs to collaborate and offer their own services as a packageto these alliances Thus there are both economic and social benefitsaccruing in the region from this particular type of initiative Indeed theauthors go on to highlight some of the benefits of aggregation which are

direct and continuous employment and subcontracting opportunitiesoffered by the contractors to the local labour because of continuouswork load for both their own employees and other subcontractors

skills development within the local community through apprenticeshipand training schemes Contractors have to take on board trainees andgive them both on-the-job training and flexibility for attending trainingand education courses

Community benefit

Platten et al (2006) discuss the concept of community benefit in relation toregional alliances and procurement and elaborate community benefit asincluding

local employment training provision a commitment to diversity and representation in the workforce a commitment to using the local supply chain health and safety sustainable construction and community awareness consultation and profiling

These are seen as being delivered through a project alliance which isencouraged to address these issues in the pre-qualification questionnaire (PQQ)

Stakeholders and the supply chain 93

and invitation to negotiate (ITN) thus indicating a shift in bothprocurement practice and key performance indicators This change has toa large extent been facilitated by the Office of the Deputy Prime ministerbut implemented autonomously in the regions These principles areincorporated in Framework Agreements and these are described as havingcore values which are based on the partneringalliancing concept which isagreed by the client body and all other participants including the supplychain These core values include trust honesty openness commitmentcooperation and respect In their case study Khalfan et al (2006) describethe Councilrsquos vision as a framework agreement that will deliver good-quality school buildings which will give

better educational results greater inclusion within the community better safety and environmental performance and reduced demand on future school budgets by addressing whole life-

cycle costing at the inception of the projects

Benefits of framework agreements

The major benefits that the researchers found to be achieved by suchagreements in general were

improved design less waste and duplication improved delivery greater quality greater certainty of cost better whole life-cycle costing building of trusting relationships and bringing of all lsquoproject knowledgersquo together at the inception of a project

Thus it can be seen that society-based agreements for construction worksare both possible and beneficial This sea change in the paradigm ofprocurement systems in the UK has led to a situation where bothcommunity benefits and SCS go hand in hand It shared some similaritieswith the concept of on-call contracting described in Walker and Hampson(2003b 21ndash22) and by Jensen and Hall (1995) in relation to medicalpractitioners and others undertaking locum work in the medical systemChan and Ibbs (1998) describe its use in a PM context where projects aresplit into a series of main contracts with the use of small-enterprisepractitioners undertaking phased small chunks of work under workpackages as min-contracts on an on-call basis They tender on a services-agreement basis for an overall bulk of likely work with the on-call contracts

94 Walker et al

providing the mechanism to formalise the contractual arrangements foreach individual package

Currently the UK is probably the most advanced in adopting suchapproaches to new procurement paradigms but it should be borne in mindthat this has been a politically driven agenda which has been in many waysforced upon the construction industry as a mechanism for restructuring anddeveloping both communities and supply chains Indeed benefits as gleanedfrom the case studies for the supply chain can be enumerated as follows

1 Benefits are derived even for subcontractors (self-employed peoplehired for labour-only by main contractor)

2 Continuity of work is given with additional attractions that includeprompt payment (one week)

3 Pay as You Earn (PAYE) paper work is done by the contractors4 Participating organisations do not have to incur tender costs because

they get to know upcoming work around 12 months in advance5 People working on site (both direct employees and subcontractors) are

trained in the underpinning concepts of the working arrangementsThis includes the understanding about the partnership among the localauthorities and RSLs and their initiatives to encourage apprenticeshipsOne of the supply chain partners describes the relationship in thefollowing terms ndash lsquoThe relationship of suppliers and contractors ischanged because there is no money involved between themrsquo This isbecause the whole procurement is an open book Another supply chainpartner sheds light on the benefits as lsquoSince RSLs are working togetherin one area therefore there are no conflicts and no problems in gettingthe material If they were working against each other then contractorswould be fighting among and with suppliers for material suppliesrsquo

6 Workforce smoothing is facilitated ndash a simple management concept isnow being practised within the supply chains associated with theframework for upcoming years

7 The power to select the product and allocate the profit margin is shiftedfrom contractors and moved to clients But on the other hand there isalso a guaranteed profit to all the involved supply chain partners for alonger period of time

Chapter summary

In this chapter we have used the stakeholder theory and applied it to con-cepts of trust and commitment to describe and illustrate the vital role thatstakeholders can take in making a contribution to adding value to theprocurement process This is dependent upon the views and perceptions ofvalue gained from stakeholders and how their potential contribution can berecognised We described how a recent cutting-edge tool the Stakeholder

Stakeholders and the supply chain 95

CircleTM can be applied and used to engage key identified stakeholders Thisled us to one of the often-neglected stakeholder groups the downstreamsupply chain We discussed how their contribution to value adding could bebuilt into a procurement process We also introduced an emerging approachwhich has benefits that include developing the potential for local industrySMEs to participate in an alliance-type arrangement (FrameworkAgreement) that allows them to more fully participate in projects ratherthan being closed out of a relationship-based procurement system Thislatter aspect not only potentially provides cost benefits but also facilitatesbuilding social capital and delivering value through other social benefits

Vignette

96 Walker et al

ChangeByDesign Plc is a consultancy that specialises in helpingorganisations to restructure their organisations in a holistic way thatincorporates brand and image changes together with cultural changeprograms and training and development It has been contracted toassist AutoCustomeyes a company that has grown to 500 employeesoperating through its Oakville Ontario North America Regionalcentre its European-based centre at Stuttgart as well as its MelbourneAustralia Asia-Pacific centre to change focus from customising auto-motive cars to a new range of leisure water craft and light aircraft Italso has recently had a growing business (from a small base) with theUS Australian and NATO military commands for their lsquobadgingrsquo andidentification tracking lsquocradle-to-graversquo system ChangeByDesign Plcsees its automotive market sector in terminal decline whereas theleisure water craft sector is showing strong growth particularly in theAsia-Pacific area Its identification tracking systems that it developedas an lsquoexpensive hobbyrsquo of one of the directors has been targeted as akey future market segment for strong future sales growth RecentEuropean legislation requires originators of consumer goods such asboats marine leisure water craft and light aircraft for example totrace and demonstrate a recycling of at least 80 of the productrsquoscontents Additionally as valuable military assets are being seen toneed unique identification embedded technologies that allow thesegoods to be tracked by location and ownership military facilitiesmanagement groups have been searching for systems that track theirassets on a 247 basis

AutoCustomeyes realised after undertaking a set of soul-searchingstrategic workshops that it needs to transform its business from anauto-centric organisation to one that focuses on the dual businessopportunities of the marine and air leisure craft business and being

Web resources

See URL wwwstakeholder-managementcom for more details about theStakeholder CircleTM tool

References

Bessant J Kaplinski R and Lamming R (2003) lsquoPutting Supply Chain Learninginto Practicersquo International Journal of Operations and Production Management23(2) 167ndash184

Bourne L (2005) Project Relationship Management and the Stakeholder CircleDoctoral thesis Doctor of Project Management Graduate School of BusinessMelbourne RMIT University

Bourne L and Walker D H T (2004) lsquoAdvancing Project Management inLearning Organizationsrsquo The Learning Organization MCB University Press11(3) 226ndash243

Stakeholders and the supply chain 97

part of the military supply chain for its badging and identificationdevice business ChangeByDesign Plc has the task of preparing aproject plan for a five-year organisational transformation that willinclude shifting and consolidating its regional headquarters Themilitary business will be located closer to its military client base inWashington DC and the Supreme Headquarters Allied PowersEurope (SHAPE) at Casteau north of the Belgian city of Mons Itsconsumer-badging business will be based in Chicago and Londonwith the Asia-Pacific offices in Brisbane The first deliverable for thetransformation plan is the stakeholder management plan

Issues to ponder

1 What are the five key elements of this plan would you expect to see2 Identify five key stakeholder groups and explain some of the

issues that they would be concerned about3 This business strategy envisages two quite separate business

streams that could spawn a spin-off if that were true identify fivestakeholder issues that this could introduce

4 To what extent do you think that existing supply chain partnersshould be involved in the planning process

5 With new market segments and each segmentrsquos supply chainstakeholder group being largely unidentified at present how doyou think that ChangeByDesign Plc and AutoCustomeyes mightidentify and persuade these groups to gain their trust support andcommitment to engage with them ndash what might be their valueproposition

Bourne L and Walker D H T (2005) lsquoVisualising and Mapping StakeholderInfluencersquo Management Decision 43(5) 649ndash660

Bourne L and Walker D H T (2006) lsquoUsing a Visualising Tool to StudyStakeholder Influence ndash Two Australian Examplesrsquo Journal of ProjectManagement 37(1) 5ndash21

Briner W Hastings C and Geddes M (1996) Project Leadership 2nd ednAldershot UK Gower

Carroll A B and Buchholtz A K (2000) Business and Society Ethics andStakeholder Management Cincinnati OH South-Western College Publishing

Cavaleri S (2004) lsquoPrinciples for Designing Pragmatic Knowledge ManagementSystemsrsquo The Learning Organization MCB University Press 11(45) 312ndash321

Cavaleri S and Seivert S (2005) Knowledge Leadership The Art and Science ofthe Knowledge-Based Organization Oxford Elsevier Butterworth Heinemann

Chan S-T A and Ibbs C W (1998) lsquoOn-call Contracting Strategy andManagementrsquo Journal of Management in Engineering ASCE 14(4) 35ndash44

Cheung F Y K (2006) Supply Chain Sustainability The Role of Trust andRelationship CIBW112 Sustainable Development Through Innovation andCulture Dubai UAE 26ndash29 November Dulaimi M

Cleland D I (1995) lsquoLeadership and the Project Management Body ofKnowledgersquo International Journal of Project Management 13(2) 82ndash88

Cleland D I (1999) Project Management Strategic Design and Implementation3rd edn Singapore McGraw-Hill

DETR (1998) Rethinking Construction Report London Department of theEnvironment Transport and the Regions

Dinsmore P C (1999) Winning in Business with Enterprise Project ManagementNew York American Management Association

Donaldson T and Preston L E (1995) lsquoThe Stakeholder Theory of theCorporation Concepts Evidence and Implicationsrsquo Academy of ManagementReview 20(1) 65ndash91

Elkington J (1997) Cannibals with Forks London Capstone PublishingFrench W A and Granrose J (1995) Practical Business Ethics Englewood Cliffs

NJ Prentice HallGibson K (2000) lsquoThe Moral Basis of Stakeholder Theoryrsquo Journal of Business

Ethics 26 245ndash257Greene R and Elfrers J (1999) Power the 48 Laws London Profile BooksHersey P Blanchard K and Johnson D E (1996) Management of

Organizational Behaviour 7th edn London Prentice Hall InternationalInkpen A C and Beamish P W (1997) lsquoKnowledge Bargaining Power and the

Instability of International Joint Venturesrsquo The Academy of Management Review22(1) 177ndash203

Jensen P and Hall C (1995) lsquoNew Arrangements for Radiology at Sydney HospitalrsquoIn The Contracting Casebook ndash Competitive Tendering in Action Domberger Sand C Hall (Eds) Canberra Australian Government Publishing Service 87ndash97

Jones T M and Wicks A C (1999) lsquoConvergent Stakeholder Theoryrsquo Academyof Management Review 24(2) 206ndash221

Khalfan M M A and McDermott P (2006) lsquoInnovating for Supply ChainIntegration within Constructionrsquo Construction Innovation Information ProcessManagement 6(3) 143ndash157

98 Walker et al

Khalfan M M A McDermott P and Kyng E (2006) Procurement Impactson Construction Supply Chains UK Experiences Symposium on Sustainabilityand Value Through Construction Procurement CIB W092 ndash ProcurementSystems CIB Revaluing Construction Theme The Digital World Centre SalfordUK 29 Novemberndash2 December Peter McDermott P and M M A Khalfan449ndash458

Latham M (1994) Constructing the Team Final Report of the GovernmentIndustry Review of Procurement and Contractual Arrangements in the UKConstruction Industry London HMSO

Leonard-Barton D (1992) lsquoThe Factory as a Learning Laboratoryrsquo SloanManagement Review 34(1) 23ndash38

Leonard-Barton D (1995) Wellsprings of Knowledge ndash Building and Sustainingthe Sources of Innovation Boston MA Harvard Business School Press

Lewicki R J McAllister D J and Bies R J (1998) lsquoTrust and Distrust NewRelationships and Realitiesrsquo Academy of Management Review 23(3) 438ndash459

London K (2005) Supply Chain Sustainability CRC CI Report Brisbane2004-016-A 33

Maqsood T Walker D H T and Finegan A D (2007) lsquoFacilitating KnowledgePull to Deliver Innovation through Knowledge Management A Case StudyrsquoEngineering Construction and Architectural Management 14(1) 94ndash109

Maslow A H (1943) lsquoA Theory of Human Motivationrsquo Psychology Review50 370ndash396

Mayer R C Davis J H and Schoorman F D (1995) lsquoAn Integrated Model ofOrganizational Trustrsquo Academy of Management Review 20(3) 709ndash735

McAllister D J (1995) lsquoAffect- and Cognition-based Trust as Foundations forInterpersonal Cooperation in Organizationsrsquo Academy of Management Journal38(1) 24ndash59

Meyer J P and Allen N J (1991) lsquoA Three-Component Conceptualizationof Organizational Commitmentrsquo Human Resource Management Review1(1) 61ndash89

Mitchell R K Agle B R and Wood D J (1997) lsquoToward a Theory ofStakeholder Identification and Salience Defining the Principle of Who and WhatReally Countsrsquo Academy of Management Review 22(4) 853ndash886

Morris P W G and Hough G H (1993) The Anatomy of Major Projects ndash A Studyof the Reality of Project Management London Wiley

Platten A Dobrashian T and Dickenson M (2006) Innovative Approaches toDeveloper Selection and Procurement for Housing Market RenewalSymposium on Sustainability and Value Through Construction ProcurementCIB W092 ndash Procurement Systems CIB Revaluing Construction Theme TheDigital World Centre Salford UK 29 Novemberndash2 December PeterMcDermott and M M A Khalfan 449ndash458

Rousseau D M Sitkin S B Burt R S and Camerer C (1998) lsquoNot So DifferentAfter All A Cross-Discipline View of Trustrsquo Academy of Management Review23(3) 393ndash405

Shelley A (2007) The Organizational Zoo A Survival Guide to Work PlaceFairfield CT Aslan Publishing

Sherer S A (2005) lsquoFrom Supply-chain Management to Value Network AdvocacyImplications for e-Supply Chainsrsquo Supply Chain Management 10(2) 77ndash83

Stakeholders and the supply chain 99

Spekman R E Spear J and Kamauff J (2002) lsquoSupply Chain CompetencyLearning as a Key Componentrsquo Supply Chain Management 7(1) 41ndash55

Von Hippel E (1988) The Sources of Innovation New York Oxford UniversityPress

Walker D H T (2003) lsquoImplications of Human Capital Issuesrsquo In ProcurementStrategies A Relationship Based Approach Walker D H T and K D Hampson(Eds) Oxford Blackwell Publishing 258ndash295

Walker D H T and Hampson K D (2003a) lsquoDeveloping Cross-TeamRelationshipsrsquo In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Oxford Blackwell Publishing chapter 7169ndash203

Walker D H T and Hampson K D (2003b) lsquoProcurement Choicesrsquo InProcurement Strategies A Relationship Based Approach Walker D H T andK D Hampson (Eds) Oxford Blackwell Publishing chapter 2 13ndash29

Ward S C (1999) lsquoAssessing and Managing Important Risksrsquo InternationalJournal of Project Management 17(6) 331ndash336

Ward S C and Chapman C (2003) lsquoTransforming Project Risk Management intoProject Uncertainty Managementrsquo International Journal of Project Management21(2) 97ndash105

Weaver P and Bourne L (2002) Project Fact or Fiction ndash Will the Real ProjectPlease Stand Up Maximising Project Value Melbourne 21 October PMIMelbourne Chapter On CD-Rom 234

Wenger E C McDermott R and Snyder W M (2002) Cultivating Communitiesof Practice Boston MA Harvard Business School Press

Yukl G A (2002) Leadership in Organizations 5th edn International edn UpperSaddle River NJ Prentice Hall

100 Walker et al

Chapter 4

Business ethics and corporatecitizenship

Derek HTWalker Michael Segon and Steve Rowlinson

Chapter introduction

Some aspects of business ethics and corporate citizenship have an obviousrelationship to project procurement From an ethical point of view the needto banish corruption and expunge exploitation is a given ndash or at least theespoused position of all reasonable people is that there is no place for thesebehaviours in a civilised world So there must be rules standards andprovisions that safeguard us from these extreme and unconscionablebehaviours This is where governance and cultural pressures from withinorganisations and society impose a way in which procurement of projectshappens such that it does not solely satisfy the need for one particulargroup organisation or individual to benefit unsustainably at the expense ofothers The ontological perspective that we adopt in this chapter andindeed in this book is that the outcome of projects is a beneficial changethat adds value and that this value should be sustainable and meets theneeds of genuine project stakeholders In this respect this chapter links veryclosely with Chapter 3 Chapter 6 and Chapter 9 and somewhat to Chapter 8and Chapter 10

Sustainability has an important link to procurement People influence anddrive the process of initiating designing and delivering the mechanisms thatresult in completed projects People who influence that PM process have arange of motivations and needs and different perceptions of what successand the project outcome should look like This is why this chapter links toChapter 3 People (the market) determine what they demand and if businessdestroys their capacity to procure projects then the reason for these projectsis removed The definition of project success and what constitutes value (asdiscussed in Chapter 6) directly relates to ethics corporate citizenship andgovernance issues that view value with a focus on sustainability in itsbroader sense Much of ethics and the governance issues associated with cor-porate citizenship relate directly to culture both organisationally andsocially This is closely anchored in notions of trust and commitment as dis-cussed in Chapter 9 Projects require talented people to deliver projects andthe expected benefits from those projects so attracting talented people is a

vital sustainability issue Determining procurement governance structuresand processes links with a projectrsquos capacity to deliver innovation and learn-ing (discussed in Chapter 8) because rules procedures and reward systemscan be used to encourage and facilitate innovation Similarly ethics andgovernance are linked to providing an environment where supply chainpartners and project team members choose organisations that they considerto be partners of choice (discussed in Chapter 10)

This chapter is presented in three broad sections with a vignette at the endof the chapter which prompts relevant questions The first section deals withtheoretical underpinning relating to business and social ethics because thisalso forms the basis for corporate citizenship and corporate responsibility Itis relevant to project procurement choices because it helps us to understandthe perspective of any given set of procurement arrangements that the pro-ject appears to endorse or be guided by This section also explains theunderpinning of what can be seen as a particular style of professional behav-iour Behaviour of course is cultural value-laden and thus contestable so itmakes an interesting point of debate and strategic advantage differentiation

The second section relates to explaining and exploring the triple-bottomline (3BL) concept and its impact upon project procurement decisionsbecause it considers the financial perspective as well as social and environ-mental dimensions This has informed decisions about how to structure aprocurement process for some industries most notably the oil and gasindustry An interesting recent development is the increasing use of instru-ments that can be used for capitalising on green credits and this is an areathat most texts on procurement have failed to recognise or discuss Theemerging nature of this aspect means that it will receive an exploratory andsomewhat cursory treatment that hopefully will develop in future editions

The third section relates to the impact of governance on procurementoptions This section briefly discusses corporate governance becauseprojects fit into programs that are managed within portfolios to achievecorporate strategic goals ndash these days the strategic advantage is stronglyinfluenced by competitive advantage based upon differentiation as well ascost efficiencies Governance is both fundamental and practical forprocurement because it is about the rules regulations and measures thatprotect integrity and fair play as well as protect project investors againstmuddled and mishandled approaches to managing projects In someindustries where the project outcome is highly tangible such as buildingsplanes ships etc there is a special focus on health safety and the environmentand so we will devote a sub-section of governance to that which impactupon procurement choice and governance requirements

Fundamental theoretical underpinnings of ethics

As managers we are expected to make decisions that advance the interestsof the organisation In fact we become agents of an organisation and in

102 Walker et al

effect are legally bound to advance the interests of the organisation and itsshareholders Decision making is the essence of a managerrsquos job and yet asdiscussed in Chapter 5 Mintzberg (1990) identified most managers asbeing reactive decisions makers Child (1986) also identified that managerstend to look to the first solution that appears to satisfy minimum criteriarather than the best option Such decision-making practice often leads topoor-quality outcomes which may expose organisations and managers torisk This chapter is concerned with improving decision making by addressingthe ethical dimensions Including an ethics filter as part of the processes thatenhances decision making by identifying the degree of risk associated withdecisions and the filter assists managers to develop defensible positions fortheir decisions and actions

What is ethics

In general ethics is concerned with what is right fair just or good aboutwhat we ought to do not just what is the case or what is most acceptable orexpedient (Preston 1996 16) Ethics is a multifaceted concept that includesthe study of morality the legitimacy of moral claims and the basis ofjustification of decisions As we will see organisations develop policies andprocedures as part of corporate governance for individuals to follow ndash thisis an example of normative ethics or the clarification of behaviour standardsabout what we ought to do As ethics is directly concerned with behaviourit therefore has relevance to the way people behave in organisations

Ethics can best be understood by considering a number of perspectives

philosophy and philosophical thinking about morality moral problemsand moral judgment (Beauchamp and Bowie 1997)

defined as a study of what is good or right for people what goals theyought to pursue and what actions they ought to perform (Velasquez1998)

concerning itself with human conduct or activity that is doneknowingly and consciously (Robbins and Mukerji 1990) and

actions and practices directed towards improving the welfare of peopleand attaining a good life (Buchholz 1989)

An important question to answer is why should we consider ethics at all inbusiness There are some who argue that business transactions and businessactivity are limited activities and as such managers are constrained to onlyconsider actions that advance the interests of the organisation Thisposition advocates that managers are constrained in their decision makingto only consider decisions that advance shareholder interests and it is wrongfor them to engage in socially responsible activity other than obeying thelaw ndash a view of the classical approach to socially responsible practice whichwas popularised by economist Milton Friedman in his significant article

Business ethics and corporate citizenship 103

lsquoThe social responsibility of business is to increase its profitsrsquo published in1970 (Donaldson and Werhane 1999)

However Allinson (1998) has argued that ethics is fundamental tobusiness conduct He contends that a moral relationship lies at the basis ofagreements and contracts between two people or two organisations andthat unless there is a basis of trust business cannot proceed This viewsuggests that the organisation is a moral player in society with duties andresponsibilities and in order to advance its interests it must engage in behav-iour that is acknowledged to be at least the minimum moral standard Morerecently business ethics literature has focused on the business case for organ-isations developing ethical cultures Related to the issue of trust betweenbusinesses and stakeholders as identified by Allinson (1998) the develop-ment of ethical cultures and business practices as evidenced by the existenceof codes of ethics integrity systems and socially responsible strategiesstrengthens the relationship between the organisation and the key stake-holders such as consumers (Freeman 1999) This suggests that there is adirect relationship to business profitability as evidenced by improved salesand sustained growth or a negative relationship to costs This can be seen asanother argument in support of organisational ethical frameworks

Whilst research is clearly emerging that supports the long-held view thatethics is good for business (Carroll and Meeks 1999) there is anotherreason why we should consider ethics at the micro level of managerialdecision making We all have slightly different understandings about whatis ethical Our moral values are shaped over time influenced by a range offactors including our parents and upbringing religion formal and informaleducation and our cultural identity among other experiences (Buchholz1989) We should not presume that our understanding and application ofethics is necessarily correct or that others will agree with our interpretationWhat is required is a considered and informed approach rather than anintuitive or gut feel to ethical decision making We should incorporate a sys-tematic approach to defining the ethical dimensions to our decisions andensure that our business practices are ethical because itrsquos the right andprofitable thing to do The study of business ethics does not just meanmoralising about what should or should not be done in a particularsituation Rather it systematically links the concepts of morality responsibilityand decision making in organisations (Ferrell and Fraedrich 1997)

What is an ethical issue

An ethical issue can be seen as a problem situation or opportunity whichhas several possible options and where each must be evaluated as right orwrong ethical or unethical Aguilar (1994 33) states lsquoManagers who aresensitive to the ethical content of business decisions and operational

104 Walker et al

activities who agree to behave ethically and who hold compatible views onhow to analyse ethical situations still must confront the inherently perplexingnature of many ethical problemsrsquo Managers talking about workplaceethical problems often describe dilemmas situations in which they werefaced with a difficult choice and where no clear-cut right answers existed

Managers face ethical issues on a daily basis issues such as dealing withclients marketing and advertising product liability and safety privacy ofemployee records employee discipline and relations with competitors thetricky topic of gifts invitations from suppliers ndash all have ethical dimensionFerrell Fraedrich and Ferrell (2002) classified the ethical issues relevant tomost organisations into four key areas First conflicts of interest secondhonesty and fairness third communications and fourth relationshipswithin the organisation

A conflict of interest exists when an individual has the opportunity totake a decision which advances his or her own interest rather than that ofthe organisation It is important to acknowledge that people often willmake judgements about perceived rather than actual conflicts of interestSeparating private interests from business dealing helps employees avoidconflicts of interest In project procurement terms accepting bribespersonal payments and gifts are considered conflicts of interest in mostlsquoWesternrsquo countries However in some countries gift giving is commonlyaccepted as part of relationship building to establish trust and rapport withbusiness partners This concept is referred to in China as lsquoguanxirsquo (Low andLeong 2000) and should not be confused with bribery We discuss thisaspect in more detail in Chapter 9 Maintaining transparency is an effectivestrategy in minimising conflicts of interest

Honesty and fairness can be seen as principles that most people wouldacknowledge as typifying ethical behaviour As Ferrell et al (2002) suggestthese relate to a decision makerrsquos general characteristics or traits It isexpected that people at the least follow all applicable laws and regulationsand should not knowingly harm customers employees clients orcompetitors through deception misrepresentation or coercion

Fraudulent behaviour1 and corruption can be seen as a subset of conflictof interest however it can also be systemic and involve many individualsand groups Ferrell et al (2002 33) define fraud as lsquoany purposefulcommunication that deceives manipulates or conceals facts in order tocreate a false impressionrsquo This would include financial records advertisingmessages tender selection etc where the organisationrsquos message tocustomers and stakeholders needs to be truthful

This last focus looks at areas such as relations with colleagues meetingobligations and responsibilities and not placing pressure on others toencourage them to take unethical actions We should recognise that manylaws exist that directly deal with interpersonal relationships and their

Business ethics and corporate citizenship 105

ethical dimension Anti-bribery anti-collusive tendering practices equalemployment opportunity and anti-discrimination legislation are examplesof laws which seek to ensure that people are not related unethically

Explaining ethical behaviour

Behaviour is a function of many variables We cannot simply say thatpeople are born good or bad and thus their actions are always predictableWhat we can do is examine how people make decisions and the factorswhich seem to impact on or influence their decision-making process

One of the best explanations for how people make ethical decisions isprobably that developed by Lawrence Kohlberg He found that in order forpeople to behave morally they must among other things decide whatcourse of action is morally right and then they must choose the morallyright path over others Kohlbergrsquos theory primarily focuses on the firstprocess the process by which people decide what is morally right (Frenchand Granrose 1995)

Kohlberg proposed that individuals arrive at differing moral judgmentsabout the same issues because they possess differing stages of cognitivemoral development He proposed a six-stage model of cognitive moraldevelopment with each stage representing progressively more sophisticatedmoral evolution These six stages can be grouped together in pairs to formthree levels pre-conventional conventional and post-conventional Byimplication persons at higher stages of moral development tend to considerfactors other then their own benefit when identifying and resolving moralor ethical issues however they can comprehend all reasoning at stagesbelow them but cannot comprehend the reasoning of stages any more thanone above there own (French and Granrose 1995) This suggests thatwithin organisations individuals may reach different decisions concerningthe same action or circumstances if not governed by specific guidelines ordecision criteria Kohlberg suggests that when a dilemma presents itselfwhich cannot be resolved explained or seems to contradict our own currentlevel of reasoning we gain maturity and move through these stages Thiscan occur through general interaction with others peers colleagues orthrough more formal methods such as education and training (French andGranrose 1995)

Level 1 ndash pre-conventional level

The pre-conventional level is characterised by people making decisionswhich are based on self-interest mitigated by rewards and punishment andexternally imposed rules such as law or organisational policies

In stage one how people decide whether an action is right is largelydetermined by the rewards punishments and favours associated with theaction This suggests people follow laws and rules automatically because

106 Walker et al

they do not want the negative consequences for example reprimandsfines etc or because they are rewarded through prizes salaries etc

At stage two people begin to recognise that they need to work with othersso that they can attain their goals ndash they acknowledge others and a duty tothem however they are still motivated largely by self-interest This conceptis known as reciprocity The lsquoscratch my back and Irsquoll scratch yoursrsquoapproach People engage in behaviour that they know will yield possiblefavours in return or feel obliged to repay a debt

Level 2 ndash conventional level

At this level people have recognised the importance of a group in societyusually family or some important clangrouping Generally living up to theroles and expectations of others and fulfilling duties and obligations andfollowing rules and laws within that group is determined as doing the lsquorightthingrsquo This is highly relevant to organisations as it highlights the importanceof leaders and supervisors in influencing the behaviour of employeesAccording to business research most people operate at this level withinorganisations highlighting the importance of leadership and culture and atthe following stage where the importance of organisational policies and pro-cedures act as guiding principles rendered as distinct from strict compliance(Ferrell et al 2002)

At stage three people value their belonging to a group and value theimportance of group interaction They tend to judge actions as right basedon the norms and standards of the group or based on the belief that theaction or outcome will be favoured by the group or the leader of the groupThe important concepts are those of trust and loyalty So people may dowhat is asked of them by a boss or managers because they want to pleasethem or because others whom they respect say itrsquos important to follow thedirections of the bosses

At stage four peoplersquos perspective broadens to consider the wider societalgroup People tend to make decisions based on the agreed duties andfollowing rules which are designed to promote the common good Whilstpeople have a broader perspective than that described at stage three thereis still a boundary that people use to define the wider societal group to theexclusion of others This might be at a state or national level or some otherbasis of categorising the group This could be used to explain why somestate governments will take a decision that advances their own state but isto the detriment of another

Level 3 ndash post-conventional or principled level

At this level people have gone beyond notions of self-interest or referentgroups rather they make their own decisions based on more principlednotions consistent with justice and rights This tends to be of greatest

Business ethics and corporate citizenship 107

relevance to organisations when engaged in lsquosocially responsiblersquo orcorporate citizenship activities

At stage five people still regard rules and laws are important because theymaintain social cohesion (known as the concept of social contract)however people are prepared to change laws for usual social purposes Inaddition people consider the concept of moral law that which existsbeyond the written law as contributing toward societal well being

At stage six people have moved to a higher level in which the notion ofuniversal laws and principles are applied

Kohlbergrsquos approach is not about understanding the action In factpeople operating at different levels may make the same decision or take thesame action but for different reasons This concept explains how they cameto make their decision and helps explain how they see the world and criti-cal factors influencing their decisions (French and Granrose 1995)

An ethics bank

Recent research suggests that some peoplersquos approach to ethical decisionmaking is not necessarily determined by levels of moral maturity rather itis a conscious decision to follow an action which they know to be wrongbut argue that it is mitigated by other good deeds they have done inthe past This has been referred to as an lsquoethics bankrsquo in which an ethicsbalance is established where good behaviour is deposited so as to allow theoccasional withdrawal via bad behaviour

This suggests that people generally follow a path which results inaccepted morally right actions Either consciously or unconsciously theykeep track of the lsquovaluersquo of these actions in effect building up credits oflsquogoodrsquo Then when confronted by a decision which they know to beethically unacceptable but which may be of sufficient importance or valueto them they may engage in a conscious and rational process ofdetermining how many ethically right actions they could trade off in orderto pursue the action

Perhaps this type of decision making is most evident at an organisationallevel where companies engage in actions which have a real or perceiveddetrimental impact on society or pursue actions which are knowinglywrong for example pollution or use or sell unsafe products etc Theorganisation then does something which society will recognise as beneficialin order to restore balance For example a mining company may buildroads schools or hospitals for a community in compensation for ecologicaldamage which they may not redress for economic reasons

Ethical reasoning

There are many ways of studying and analysing management decision makingand action Ethical theories describe general approaches to thinking that

108 Walker et al

allows ethical principles to be drawn and applied to concrete actions andmanagement practices

What questions should we ask What factors should we considerVelasquez (1998) suggests that the first step in analysing moral issues isobvious but not always easy get the facts ndash something we know fromMintzbergrsquos (1975) study of what managers do and seem reluctant to doSome decisions result in ethical controversies simply because we havenrsquotcollected enough information about the decision and its consequencesHowever having the facts is not enough to ensure that the decision is notjust profitable but also ethical As Preston (1996) suggests facts can beverified but they do not tell us what to do We need to use facts as part ofthe decision-making process but according to Velasquez (1998) we alsoneed to resolve the ethical issue through an appeal to values

There are a number of ways that we can analyse the ethical dimensionassociated with a decision Buchholz (1989) suggests that ethical theoriesare not just ways of analysing a decision but they may also enable us tojustify it He argues that a critical issue in decision making is being able todefend a decision using a variety of perspectives

Determining ethics according to outcome

Often individuals and organisations determine whether a decision or actionis ethical based predominantly on the actual or perceived value of theoutcome that is generated These approaches are also called consequentialisttheories and the two most often discussed are utilitarianism and egoismThey hold that the moral worth of an action or practice is determined solelyby the consequences of the practice or action and not on the intent of theaction A decision or an act undertaken by an individual or a group wouldbe considered right if the outcome generates benefits greater than the harmproduced (the lsquogreater goodrsquo) This approach to decision making uses adecision-making system that parallels costndashbenefit analysis and thus is veryappealing to business It assumes that everything can be valued and measured

THE EGOTIST APPROACH (SELF-INTEREST)

As the name suggests this approach focuses largely on benefits that canaccrue to the individual An act is considered morally right or wrong solelyon the outcomes for onersquos self Self-interest underpins ethical egoism andmany argue that the pursuit of self-interest will lead to optimal allocationof resources in a free market system Self-interest will provide themotivation for people to work hard take risks and innovate etc thusguaranteeing economic growth

Whilst this is a popular approach to defining ethical behaviour manytheorists suggest that it is a narrow interpretation Under this conceptmany actions that are clearly not beneficial to society could be argued as

Business ethics and corporate citizenship 109

beneficial for the individual and therefore perhaps seen as acceptable Wecan see egoism at work in organisations in particular through rewardsystems such as commission-based salaries Egoism can be also used toexplain why people take actions that others would see as unethical such asaccepting gifts or matters that others argue as conflicts of interest To theindividual it could be seen as merely advancing their self-interest

THE UTILITARIAN APPROACH (MAJORITY OR GROUP INTEREST)

Utilitarianism was developed by Jeremy Bentham and John Stuart Mill inthe nineteenth-century Britain to help legislators determine which laws weremorally best (Velasquez 1998)

The objective of this approach is to generate the greatest possible benefitfor the largest number of people whilst minimising the damage or harmdone to others The ethical action is the one that provides the greatest goodfor the greatest number As identified above this is akin to a costndashbenefitanalysis The issue here is not how these outcomes are achieved but ratherthe size of the cost or benefit that is incurred The primary way ofdetermining the moral worth of an action is to evaluate all the associatedsocial cost or benefit (Buchholz 1989) Utilitarianism has not only an obvi-ous appeal but it also has important limitations that are often overlookedby business

First the emphasis on measuring value often means that only those thingsthat can be measured are included issues such as emotions feelings sense ofduty are often not part of a utilitarian calculus Second determination ofvalue is somewhat subjective (see Chapter 6 for more on performancemeasures) One personrsquos view of a decision might be very different toanotherrsquos interpretation Third a significant problem with utilitarianism asit is applied in business is that it is not used to calculate the greatest benefitfor the greatest number as originally intended rather a restrictedutilitarianism is used whereby the benefits are calculated for only a certaingroup such as shareholders or customers Fourth utilitarians typicallyinclude only the direct costs and fail to include the indirect and opportunitycosts associated with a decision This can often lead managers and businessto fail to consider the impact of their decision on certain groups as discussedlater in this chapter with reference to 3BL issues raised by FlyvbjergRothengatter and Bruzelius (2003) Perhaps the most important failing forus to consider is that utilitarianism emphasises outcomes and not how adecision is made ndash that is the ends justify the means Clearly it is possible toachieve what one could argue are very ethical outcomes but in a mannerwhich is unethical or illegal The lack of attention to how decisions are madeby managers exposes the organisation to substantial downstream risk not tomention possible legal action when making project procurement decisions

110 Walker et al

Determining ethics by process and principle

Another way of determining the ethical nature of a decision is not to lookat the outcome but rather the process or actions used in arriving at thedecision or outcome This branch of ethics referred to as deontologymaintains that actions and practices have intrinsic value ndash some actions andpractices may be morally wrong no matter how good their outcomes mightbe (Buchholz 1989) Deontology also suggests that it is almost impossibleto accurately calculate benefits and harms because there are many unknownvariables As absolute certainty does not exist as is the case in the businessworld we can never really be sure of the full consequences of our actionsthus we need to use other means of determining the moral worth of anaction

In effect this branch of ethics says that focusing on the decision itself isimportant thus following duties respecting rights and using principles toguide decisions such as fairness justice and due process are advanced as themeans by which ethical decisions can be justified This has great relevanceto organisations because they use policies and procedures as a means ofguiding decision making Professionals such as doctors lawyers andengineers have codes of ethics and conduct which stipulate duties that needto be respected Similarly there are many laws such as Equal EmploymentOpportunity Anti-Corruption and Fair Trade legislation which are basedon notions of justice and fairness

THE RIGHTS APPROACH

The rights approach to determining ethics essentially proposes that peoplehave a set of rights that must be respected It emphasises that people shouldnot be seen as objects and must be afforded the right to freely choose acourse of action Velasquez (1998) provides a list of rights that can assist inguiding decision making Whilst not a complete list they are considered tobe indicative and have clear application to many business contexts

The right to the truth we have a right to be told the truth and to beinformed about matters that significantly affect our choices

The right of privacy we have the right to do believe and say whateverwe choose in our personal lives so long as we do not violate the rightsof others

The right not to be injured we have the right not to be harmed orinjured unless we freely and knowingly do something to deservepunishment or we freely and knowingly choose to risk such injuries

The right to what is agreed we have a right to what has been promisedby those with whom we have freely entered into a contract or agreement

Business ethics and corporate citizenship 111

THE DUE PROCESS AND PRINCIPLED APPROACH

This approach also focuses on the principles and processes that characterisethe decision Concepts such as fairness justice and due process areidentified by Buchholz (1989) as means by which the integrity of a decisioncan be demonstrated Perhaps the most obvious application of theseconcepts is that of law Law is often defined as the minimum moral stan-dard in society These standards are accepted and for the most part there isno need to undertake a costndashbenefit analysis (a utilitarian calculus or toanalyse rights etc) we simply follow the law and thus the decision is seenas ethical Fairness and justice is seen to be done when laws are followedand when due process is afforded Its application to organisations andmanagerial decision making is very clear Managers and organisations mustabide by applicable laws be they equal employment opportunity healthand safety or advertising requirements In addition organisational policiesand procedures can also be seen as part of this approach because theyprovide information about how to make a decision

Clearly determining ethics by process seeks to ensure the integrity of thedecision-making process however there are limitations which should beacknowledged Perhaps the most significant problem is the emphasis onhow we make the decision without consideration of the outcome Oftencourts will pass judgements on the basis that due process was not followedThis can occur in unfair dismissal cases in industrial relations where anemployee may have committed a serious offence but because managers andorganisations did not follow the required disciplinary procedures theemployee is seen to have been denied natural justice The other danger withthe due process approach is that it may encourage organisations to meetonly their minimum legal obligation This is identified by McAlister Ferrelland Ferrell (2005) as a minimalist social-responsibility position

DETERMINING ETHICS NATURE BY VIRTUE

The third major way in which people make ethical decisions is not as clearor calculating as the previous approaches rather the virtue approach hassimilarities to the controversial trait or character approaches to leadership2

This ethical approach proposes that there are certain ideals towards whichwe should strive ndash demonstrated by characteristics or virtues It isconcerned with peoplersquos motives or intention of their actions In this waywe need to recognise that it is a subjective analysis of the doer of the actionPreston (1996) suggests that this approach is not centred upon the questionlsquowhat ought we to dorsquo but rather lsquowhat kind of person ought we tobecomersquo

The virtue approach focuses on personal disposition attributes traitscharacter3 that enable one to become and to act in ways that develop

112 Walker et al

what human beings have the potential to become It enables the pursuit ofadopted ideals (lsquovirtuesrsquo) such as honesty courage compassion generosityfidelityloyalty integrity fairness self-control and prudence The goal is toencourage living properly so that good and right behaviour emanates fromwithin the person We can see the application to business in that manyorganisations develop value or mission statements as well as projectcharters for their projects which are built on such virtues The purpose ofthese is to establish the basis for organisational strategy culture and toprovide people with a series of principles that can assist in resolving anethical conflict when one of the other approaches fails to deliver a clear orsatisfactory resolution

Virtues are developed through learning and through practice Thisapproach assumes highly developed cognitive processes that is the ability torationally assess and understand complex environments and how they affectour decision-making It also assumes that we have the time to exercisereasoning to the extent that virtues become habits so that in practical lifepeople act instinctively through habit Consequently virtue approachessuggest that a truly good person does not calculate or reason abouttruthfulness or lying shehe is honest However despite a personrsquos reasoningabout what is right or good that person may still not choose to do the rightor good thing Consequently by becoming clearer about our identity (whowe are) it does not follow that actions we must take are pre-determined

The virtue approachrsquos greatest strength its generality is also its greatestweakness It does not provide specific guidance on how to resolve adilemma ndash it assumes that the virtuous person will know the answer Nordoes it provide a framework for the resolution of conflicts of virtues Forexample how does one resolve a conflict between honesty and loyaltyClearly some of these concepts are also open to interpretation Thevagueness about what constitutes a virtue like lsquointegrityrsquo can also result inits devaluation ndash this has been a criticism of mission and value statementsas being merely lsquowindow dressingrsquo because organisations and managers failto demonstrate or live up to these expectations

Applying the ethical theories as a decision-making filter

Whilst it is important to know the differences between the various ethicaltheories a further challenge is how to integrate them into decision making ndashwhen should you use utilitarianism or process and deontology or perhapsvirtue ethics

In this chapter we have identified that all the three major ethical approacheshave advantages and disadvantages To pick and choose a theory simply tojustify a decision is consistent with what Benjamin identifies as the moralopportunists constantly shifting their moral position so as to gain the mostsignificant short-term advantage (French and Granrose 1995 166ndash169)

Business ethics and corporate citizenship 113

Velasquez (1998) and Francis (1999) suggest that decision making needsto reflect a holistic approach which seeks to identify ethical implicationsfrom all three major approaches Both agree that the first step is to collectthe facts surrounding an issue and ensure that we have clarified the decisioncontext Managers need to be sure that the decision is theirs to take and thatthey have the knowledge and skills to make such a decision It is a basic eth-ical duty to ensure that we act within our defined authority and capability

Having ascertained the facts we should ask ourselves a series ofquestions which will assist us to identify the ethical dimensions associatedwith the decision

1 What are the potential risks or harms that will result from thedecision(s)

2 Which alternative will lead to the best overall consequences3 What are the moral rights of the stakeholders (including those affected

and those involved in the decision) and which course of action bestupholds those rights

4 Which decision is consistent with both the spirit and letter of applicablelaws

5 Which decision is consistent with policies and procedures of theorganisation

6 Which decision is consistent with principles of justice and fairness7 Which decision would be seen as having the characteristics of integrity

honesty truthfulness and trustworthiness

In effect these seven questions ask managers to use all the three approachesas part of the decision-making process Questions 1 and 2 reflect conse-quentialist perspectives Questions 3ndash6 deontology and process and thefinal question reflects virtue approaches If any one of the seven questionscauses concern then the decision may have questionable ethics or not be jus-tifiable Rather than pursue such actions and possibly expose organisationsand themselves to risk managers need to revisit their decisions and seekalternatives that are consistent with the principles identified above

This method of asking key questions does not necessarily guarantee thatall decisions taken will be ethical but it does increase the likelihood ofethical dimensions being uncovered and thus considered As with any skillthe more attention given to developing ethical decision-making skills themore effective they will be

Francis (1999) suggests that two further tests can be applied if there isstill uncertainty both dealing with your decision and perceptions that arerelevant to making project procurement decisions

1 Imagine that you have made a decision implemented it and for variousreasons the matter comes before a public court imagine further that

114 Walker et al

you are called to the witness box and are asked to defend your positionWould you be able to provide such a defence

2 Consider a similar scenario however on this occasion it is your motherfather spouse or children who ask you to explain your decisions Afterthe decision would they still be proud of you

Discourse is fundamental to increasing onersquos understanding of ethics andthe challenges of working in a morally complex world Managers oughtnot to assume that a decision must be taken without input from othersA rich resource for many individuals are the numerous professionalbodies which have codes of ethics and other forms of assistance such asforums that enable people to discuss and resolve challenges Similarly othermanagers and colleagues in your organisations have a wealth of experienceand knowledge and may be in a position to provide valuable counselhowever remember that their ethical perspective may differ substantiallyfrom your own Also stakeholder consultation can reveal pertinent andsalient issues

Project procurement and 3BL

The triple-bottom-line (3BL) concept came to the forefront of managementthinking with Elkington (1997) arguing that organisations should reportperformance in more than purely financial terms because this does not fullyadequately address the value proposition of significant stakeholders Thesecond two lsquobottom linesrsquo are social and environmental The social bottomline relates to the social impact of any activity to enable us to evaluate thetype and intensity of its impact upon society because the aim of businessesis to serve society by delivering goods and services If the social impact isignored then the current and future market can be undermined Theenvironment also sustains business activity and so any activity that harmsthe environment can potentially harm existing and future markets Thereasoning behind Elkingtonrsquos argument is that customers and clients shouldbe provided with sufficient information to be able to judge the level of theirsupport for a companyrsquos product (or service) so that they can make aninformed choice Those who feel that this is an intrusion into theprerogative of managers and leaders do so because they fear that these othertwo lsquobottom linesrsquo are highly politically charged A number of globalorganisations are joining into support groups that implement 3BLinitiatives For example the Australian Bank Westpac which operatesglobally has signed up to the Equator Principles initiative and as a projectfinancier this has important implications An example of their 3BLreporting can be found on the web4 A full text of the principles as well asfrequently asked questions can be found on the Equator Principles5

website In summary the website explanation of the principles contains

Business ethics and corporate citizenship 115

the following

Project financing a method of funding in which the lender looksprimarily to the revenues generated by a single project both as the sourceof repayment and as security for the exposure plays an important rolein financing development throughout the world Project financiers mayencounter social and environmental issues that are both complex andchallenging particularly with respect to projects in the emerging mar-kets The Equator Principles Financial Institutions (EPFIs) have conse-quently adopted these Principles in order to ensure that the projects wefinance are developed in a manner that is socially responsible and reflectsound environmental management practices By doing so negativeimpacts on project-affected ecosystems and communities should beavoided where possible and if these impacts are unavoidable theyshould be reduced mitigated andor compensated for appropriately Webelieve that adoption of and adherence to these Principles offers signifi-cant benefits to ourselves our borrowers and local stakeholders throughour borrowersrsquo engagement with locally affected communities Wetherefore recognise that our role as financiers affords us opportunities topromote responsible environmental stewardship and socially responsi-ble development As such EPFIs will consider reviewing these Principlesfrom time-to-time based on implementation experience and in order toreflect ongoing learning and emerging good practice

Project procurement and the financial bottom line

Procurement assumptions dominated by the financial bottom line present dan-gers in generating value for both customer procuring projects and those in thesupply chain that help deliver projects Customers who are highly price sensi-tive and seek to obtain the lowest cost may drive price-competitive orientedorganisations into a competitive advantage cycle that is dominated by lowestprice-seeking behaviour A cost advantage is generally short-lived and unsta-ble Theory based upon a transaction cost economics (TCE) view assumes thisto be driven by the lsquoefficiencyrsquo goal (Ghoshal and Moran 1996) This cost effi-ciency view can be contrasted with a competitiveness view gained throughhaving a differentiation competitive advantage that remains sustainable untilthat differentiation advantage can be replicated or improved upon (Porter1985) The broader view of resources includes knowledge reflexivity anddynamic capabilities that are used to respond to competitive pressures (TeecePisano and Shuen 1997 Eisenhardt and Martin 2000) However deliveryeffectiveness is also seen as crucial and this is expressed in project and PMterms through focussing on strategy (Morris and Jamieson 2004) A strategyview of value relates to delivering a bundle of offerings within a project out-come that meets the often complex and diverse needs of numerous and diverseproject stakeholders rather than a dominant focus on gaining value through

116 Walker et al

lowest cost An unbalanced focus on projects to surmount a return oninvestment hurdle or designed and delivered to maximise profit can be bothdistracting and ineffective Thus supporters of the 3BL concept believe that itis sub-optimal and often counter-productive to be blinded by the financialbottom line as the only valid criterion for procurement choice decisions

For mega projects where complex procurement decisions are made thereis justifiably an acute focus on the potential risk for large and embarrassingcost overruns In Chapter 2 of Megaprojects and risk an anatomy ofambition Flyvbjerg et al (2003 14) cite cost overruns on major projectssuch as the Boston arterytunnel project 196 The Humber Bridge UK175 the Great Belt rail tunnel Denmark 110 and the FranceUKChunnel 80 They also provide chilling examples of revenue deficitproblems with many mega projects and cite actual traffic as a percentageof traffic forecast in the opening year of the Chunnel project at only 18and the UK Humber Bridge at 25 (Flyvbjerg et al 2003 25) The citedfigures are well substantiated from reliable evidence presented in a range ofauthoritative sources so they can be accepted as representative for manylarge-scale projects They also stress the risk impact of non-technical issuesand claim that their data base drawn from their own studies as well asmany authoritative studies conducted by government auditing agencies andindependent research bodies suggests that

A main cause of overruns is a lack of realism in initial cost estimatesThe length and cost of delays are underestimated contingencies are settoo low changes in project specifications and design are not suffi-ciently taken into account changes in exchange rates between curren-cies are underestimated or ignored so is geological risk and quantityand price changes are undervalued as are expropriated costs and safetyand environmental demands

(Flyvbjerg et al 2003 13)

They conclude that we should not trust cost estimates and demand forecastspresented in business cases This suggests unethical behaviour through lyingand misrepresentation of situations It also suggests naivety and a lack ofconsideration of the real impact of ignoring social and environmentalaspects of a project In concentrating upon a dominating financial focuswhen preparing a business case for projects the social and environmentallegs of the 3BL stool often are ignored or at best poorly considered

Throughout this book we stress the need for looking beyond thefinancial dimensions of project procurement because society as a whole(including lsquothe marketrsquo and both lsquocustomersclientsrsquo as well as lsquosupplychainrsquo members) demand a more holistic approach to procurement thatconsiders a range of directly and indirectly influential stakeholder groupsThose who dismiss the importance of considering the 3BL as being of marginalrelevance should review risk management stakeholder management and

Business ethics and corporate citizenship 117

change-management literature A well-thought-through project businesscase should address adequate stakeholder analysis and issue mapping as avital first planning step in managing risks that can jeopardise any projectChapter 6 discusses a wider base of project performance measures than isoften considered in project evaluation and monitoring and relates closely tothe social and environmental aspects of the 3BL This chapterrsquos section onproject governance stresses the need for clear accountability and transparencyof expected standards which includes social and environmental aspects

A financial bottom-line focus manifests itself in attempts to achieveefficiency through sourcing the least expensive project inputs (see Chapter 1on outsourcing) effectiveness in terms of finding innovative ways to deliverprojects and learn from past experience (see Chapter 8) and financial sus-tainability through ensuring that the project returns sufficient financialbenefits that it justifies its existence

Project procurement and the social bottom line

The concept of a social bottom line is at least partially anchored in thebelief that the market is a broad set of immediate customers and potentialcustomers that given the financial means to access an opportunity couldand perhaps would become a consumer of goods and services on offer(Elkington 1997) Thus if business adopts a social responsibility agenda aspart of its market obligations then it will benefit financially in the longerterm The concept of embracing social responsibility can also be justifiedfrom an intangible deliverables perspective (as is done so in Chapter 6 ofthis book) that provides the deliverer (of the project to a market or to theproject delivery coordinator being part of a supply chain) with a potentialunique differentiation factor contributing to its competitive advantage

In the value for money debate the issue of publicly sponsored or fundedprojects having a critical need to deliver social benefits as their reason forbeing as Donnaly (1999 47) argues the reason why the public sectorconceived such projects as delivering clear water educational facilitiesmedical facilities and the other trappings of a civilised society was becausethe private sector could not satisfactorily deliver these ndash at least duringmuch of the twentieth century This aspect of the public policy debateargues that to obtain best value in project procurement the social bottom-line needs of projects designed to deliver social outcomes must be carefullyconsidered (Staples and Dalrymple 2008) This can translate in a numberof ways relevant to the strategic intent of a given project This notionaccords with those who argue that project selection and outcomes must bealigned with the strategic intent (Archer and Ghasemzadeh 1999 Morrisand Jamieson 2004 Norrie and Walker 2004) Imagine a highwayinfrastructure project is proposed in a rural setting and a significant part ofits timing decision for being promoted and supported was to maintain

118 Walker et al

workflow in the local area to sustain local industry capacity andemployment It may be entirely appropriate therefore that the project bedesigned and delivered in a way that helps to maintain the sustainability ofthat community together with its supporting industrial and workforce baseMaking social bottom-line factors part of project procurement selectioncriteria is not new In the National Museum of Australia (NMA) project forexample an indigenous workforce employment selection criterion was partof the evaluation process explicitly required by those submitting proposalsto form an alliance to deliver that iconic project in 2001 in CanberraAustralia Alliance partners had to demonstrate substantial acceptance ofthe draft alliance document for the project that included related codes ofpractice proposals for support of local industry development andemployment opportunities for Australian indigenous peoples There wasalso a focus on demonstrating an outstanding record of ethical and sociallyresponsible working with government and local communities and acceptingbroader responsibility (Walker and Hampson 2003)

The incorporation of social bottom-line benefits to identified projectstakeholders who may not have a critical and pressing lobbying capacity todemand social benefits can deliver kudos as well as provide future brandcache value for organisations adopting this approach Much of thephilanthropic activity that openly takes place (as opposed to anonymouscontributions) to deliver social benefit by corporations and individuals ispartially justified as a brand-enhancing or kudos-building activityRecognition of the value of strategically factoring in social bottom-line out-comes makes sense and can be achieved by linking these to tangible outputsmore usually recognised as project outputs (Nogeste and Walker 2005Nogeste 2006) In the Flyvbjerg et al (2003) book they caution aboutpromoting mega infrastructure projects on the basis of generating regionaleconomic growth Indeed while these authors recognise and support theneed to be transparent about the strategic intent for such projects they pointto a number of examples where providing infrastructure to advantage onegroup has severely damaged others One example they cite is the newtransport fixed-link infrastructure that has been constructed betweenDenmark and Sweden The intention was to synergistically stimulateeconomic activity between two centres and that there was an expectationthat people might move from Copenhagen Denmark to Malmouml Swedenbut this appears not to have happened to the extent expected In factthey cite a report from the Danish Transport Council of predictions(subsequently realised in the two years following their report) that theGreat Belt link (a mega infrastructure project) will have the affect on portcities of losing ferry operations thus affecting that constituency thatregional economic effects will be small and that positive economic benefitsthat could be generated will occur in areas not targeted to be improved(Flyvbjerg et al 2003 69) In considering corporate social responsibility

Business ethics and corporate citizenship 119

more generally Bansal (2006 2) identifies several best practices that can beapplied to business projects and other business activities

including social issues in risk assessment models measuring the cost or revenue impact of social issues and using these as

criteria in numbers-based models lengthening decision-time horizons to make these fuller assessments involving external stakeholders formally and informally and building social capital

While considering the social bottom line may be seen as a generic ethical orlsquosocially responsiblersquo thing to do we stress that to be effective in a PMsense these should be strategically targeted and that performance measuresbe developed and used in monitoring lsquosuccessrsquo of this particular projectoutcome aspect It is clear that careful thought and planning is needed sothat the unintended consequences of good intentions do not triggerlsquocollateral damagersquo

Project procurement and the environmental bottom line

The environmental bottom line also sustains business activity Any activitythat harms the environment can potentially harm existing and futuremarkets Most projects have specific legal safety health and environment(SHE) provisions to protect people and the environment that they need tocomply with Indeed the NMA project alliance provides an example ofstringent requirements (Walker and Hampson 2003) Another example ofa client that purposefully sought out green solutions to building design anddelivery to present a showcase project that seeks a strong environmentalbottom line is Melbourne City Council House 26 This bold project pro-vides a window on future projects that aspire to the values espoused by thewebsite and provides an inkling of a possible future where environmentalsustainability is considered a key element of any project An example of acompany designing and building a regional office for itself incorporating3BL principles for pragmatic reasons7 is the new Bovis Lend Lease PLSydney office Here was the evidence of a concern for developing not onlya building that had many lsquogreenrsquo credentials and features as well aspromoting a workplace that added to peoplersquos enjoyment of their workingday experience (Yates 2006)

While it is true that legislation has partially taken care of some of theabove types of issues there is much more that can be done by designingproject performance to be more environmentally sustainable (Hart 1997)He argues a three-stage environmental strategy that can informprocurement strategies Stage one is a shift in emphasis from pollutioncontrol to pollution prevention There are standards that move towards

120 Walker et al

this ndash for example ISO14000 Hart cites organisations such as the Germanchemicals giant BASF as helping China and other countries build less-polluting plants than have historically been provided Their differentiationcompetitive advantage in responding to placing subsidiary or outsourcedchemical plants in these countries comprises their advice experience anddevelopment of improved pollution standards This also enhances theirlsquobrandrsquo image

Stage two is product stewardship where not only the pollution-generatingproduct but other parts of the environmentally affected product cycle areaddressed This entails cradle-to-grave analysis of products (projects andorportfolios of projects) where pollution may occur and investigating innov-ative ways of overcoming these The Rocky Mountain Institutersquos URLwwwrmiorg provides an extensive link to materials and stimulating ideasfor ways in which a proactive approach to specifying materials methodsapproaches and resources that can be more eco-friendly For example in aradio broadcast in October 2000 Amory Lovins explained how carpet-tile-floor finishes and air conditioning were provided as lsquorentalrsquo services as partof a building project procurement approach (Lovins 2000) That approachsought to prevent pollution by better conserving resources Another designfor the environment (DFE) approach amongst a number of others cited byHart is an asset-recycling strategy adopted by Xerox for using leased recy-cling photocopier as low-cost high-quality Xerox parts to be reassembledinto new machines (Hart 1997 72)

Hartrsquos third identified stage is clean technologies The fast-expandingarea of nanotechnologies has the potential and promise to revolutioniseproduction and therefore procurement Nanotechnology is a catch-allphrase for materials and devices that operate at the nanoscale In the metricsystem of measurement lsquoNanorsquo equals a billionth and therefore ananometre is one-billionth of a meter

Much of the literature (as at early 2007) suggests that this is a realrevolution even though it is yet to have widespread impact upon us in theimmediate future (ie up to the end of the first decade of this century)However it is becoming obvious that industrial processes that use pollutingby-products will be superseded by nanotech processes or products that notonly provide superior environmental bottom-line impacts but are also lessexpensive In the shorter term nanobots (tiny machines) can be developedto work like enzymes by eating up waste products but before long they willalso be programmed to actually build components Under such circumstancesorganisations that dismiss this potential differentiating competitiveadvantage technology do so at their own peril

The above is a rapidly evolving field that will no doubt affect procurementpractice Before leaving this subject it is worth introducing a concept that isstarting to creep into the procurement lexicon ndash emissions trading and morespecifically carbon credits

Business ethics and corporate citizenship 121

This system has been in existence for many years the sulphur dioxidetrading system evolved out of 1990 Clean Air Act legislation in the USAdesigned to deal with acid-rain problems and has been more recently usedto trade carbon credits as a way to encourage reduction in greenhouse gasesand recognise that the environment (and all of us) bear the ultimate cost ofglobal warming due to greenhouse gas emissions A fast-growing trade incarbon dioxide (CO2) credits has emerged with London becoming thecarbon-credit trading capital of the world In 2006 a major report waspresented in the UK by Sir Nicholas Stern in which the financial implica-tions of global warming and the need for a carbon-trading system was madeabundantly clear8 This will have serious ramifications for procurementchoices once the requirement for carbon offsets becomes law and part of theprocurement culture We can envisage that procurement choices in futurewill stipulate not only some form of global warming lsquofootprintrsquo measure butalso CO2 reduction that footprint and carbon offset strategies

On the Australian Broadcasting Corporation (ABC) programmeBackground Briefing the programme noted an exchange between a reporterand a woman in a Sydney shopping centre accepting a free handout of energy-saving light bulbs The woman was signing a document in accepting the giftthat provided a named manufacturer with abatement certificate that it couldsubsequently use in its business activities to offset its pollution responsibilitiesas a carbon credit (ABC 2006) This example is just one of many that are hap-pening throughout the world While this recent development may be seen tobe of marginal impact upon most peoplersquos and organisationsrsquo current pro-curement choices this will become more widespread and push the market toconsider the environmental bottom line more closely

Safety health and environment (SHE) and project procurement

One can visualise safety for both the environment as well as individualsengaged in delivering projects as part of the 3BL concept Ensuring a safeenvironmental outcome relates to the environment part of the 3BL andoccupational health and safety (OHS) relates to the social part of the 3BL Inorder to address the issue of OHS it is necessary to look at the developmentof legislation and practice in these areas in order to give a perspective on theway ethics has shaped legislation and practice We focus on a small part ofthis as it relates to project procurement because this is a broad subject area

Prescriptive versus performance based

In the 1970s in the USA and the UK there was a move away fromprescriptive legislation to performance-based legislation This change inphilosophy is discussed in Lingard and Rowlinson and this change has

122 Walker et al

shaped the way organisations deal with OHS ever since The basic premisebehind this change in legislation was that organisations should be encour-aged to develop their own OHS management systems which fitted theirown particular circumstances As a consequence it was not necessary toprovide detailed prescriptive lists of how to organise safety this was left toindividual companies to devise their own safety management plan andimplement this plan and management system accordingly

A review of the international literature reveals that the same type ofwork-related deaths injuries and illnesses occur in construction indus-tries all over the world Many construction hazards are well-knownand in some cases have been studied in great depth What is apparentis that the construction industry fails to learn from its mistakes Weunderstand where deaths injuries and to a lesser extent illnessesoccur in the construction industry but we still fail to prevent them Thesame methods of working that have been used for generations are stillbeing used giving rise to the same hazards and ultimately resulting inthe same incidence of death injury and illness Furthermore theconstruction industryrsquos organisation structure and management meth-ods militate against the identification and implementation of innovativesolutions to the industryrsquos OHS problems Improvements in OHS willnot occur unless new methods of working that reduce known OHSrisks are developed However this is likely to require that the industryrsquosstructural and cultural barriers to the adoption of new methods ofworking be overcome

(Lingard and Rowlinson 2005 13)

Enforcement versus self-regulation

Unfortunately the drive which brought about this change was predicatedon the belief that existing prescriptive safety management systems wereadequately monitored policed and enforced the same can be said forenvironmental management systems However such an assumption was nottrue in many instances as indicated in the preceding quote and particularlyso in project-based industries Project-based industries are notoriouslyflexible and could be described as typical of Burns and Stalkerrsquos (1961)organic organisations As such these industries are difficult to monitor andcontrol as participants at both management and operational levels areconstantly moving and rosters are constantly changing as well Thusimplementing a structured OHS system which is self-regulating is a muchmore difficult task in such an industry as compared to the much moremechanistic setting of a factory or an office Consequently the concept ofself-regulation has been found to be far less effective in project-basedindustries than in more mechanistic organisations However it is important

Business ethics and corporate citizenship 123

at this juncture to point out that one project-based industry thepetrochemical industry has performed far better than many other project-based industries and this superior performance has stemmed from aparticular attitude organisational culture in approaching safety andcorporate governance in this sector

In industries such as real estate development and construction there hasbeen a tradition of lax management and this has been underlined by anotoriously poor OHS record in this sector Hence one might ask thequestion Is the sector mature enough to cope with self-regulation or shoulda prescriptive and enforcement-based approach be adopted After all thiswould reflect a contingency viewpoint and there is absolutely no reasonwhy all sectors should follow the same approach If a sector as a whole canbe considered immature then there is a need to embark on a differentapproach to the implementation of a performance-based OHS systemThus an industry-wide education and training programme might be mostappropriate in such circumstances Once a level of industry-wide maturityis reached then the leading performers can move towards a performance-based system Having taken such a lead these high performers can thenbe encouraged to partner with their supply chain and allow the knowledgeexpertise and experience they have developed to flow down the supplychain in terms of the implementation of plans procedures and protocolswhich enhance the overall performance of the industry

Worker engagement

An often-neglected aspect of a performance-based approach to OHS is themechanism by which workers are engaged and enabled to manage and directperformance on their projects Engagement is crucial if workers are to bringtheir specific knowledge of tasks and hazards to managementrsquos attention andmight also be considered a basic human right By forming say safety circles(and quality and sustainability circles) and engaging workers in discussionsconcerning working methods and precautions there is an excellent opportu-nity for companies to improve both performance and safety culture withinan organisation Hence specifically focused engagement programs are acharacteristic of high-performing project organisations This is particularlyimportant in a project-based industry where teams are forming breaking upreforming and breaking up once more By engaging workers at all levels andacross the whole of the project time line it is possible to ensure that goodideas and specific hazards are identified and implemented or eliminated

However the nature of the industry does lead to problems of control atall levels

The fact that construction is a project based industry is also an importantcontextual issue When attempting to manage a dynamic changingenvironment such as a construction site and indeed a construction

124 Walker et al

firm it should be borne in mind that there needs to be an appropriateorganisation structure to deal with the changing nature of the projectand ndash as it moves from design to construction to in-use phases and asproblems arise (such as late delivery of materials or labour shortages)on a day to day basis ndash there is a need for rapid decentralised decisionmaking contingency planning and an appropriate organic form oforganisation This engenders a free independent spirit in constructionsite personnel and has traditionally led to a healthy disregard forauthority and regulations This has in many instances been taken toofar and descended into unacceptable corruption and malpractice TheHousing Authority short piling case in Hong Kong (LEGCO 2003)9

and the Report of the Royal Commission into the building industry inAustralia in 2003 are examples of how this can drastically affect thewell-being of the industry and those working in it the cherishedcharacteristic of independence and initiative has also given the industrya bad name In turn these characteristics also make it difficult toimplement programs across the whole of the industry and safety andhealth on construction sites is badly affected

(Lingard and Rowlinson 2005 11)

Thus the very nature of the industry inevitably leads to ethical issuesbeing raised which must be dealt with if the industry is to become botheffective and efficient and pass muster as addressing issues of corporateresponsibility

Safety culture

Safety culture better referred to as health and safety culture reflects theattitude of all in the organisations towards a continuous improvement ofthe health and safety situation within the organisation A safety culturedoes not naturally occur in project-based industries as workers come toprojects with different experiences attitudes training skills and knowledgeHence the culture must be nurtured Understanding this and risk perceptionswithin organisations is increasingly important for company survival

Organizations increasingly recognise the importance of managingsuch risks effectively As well as becoming more internally sensitive torisk issues organizations in high-risk sectors are coming underincreasing pressure from external parties particularly regulators andmedia to manage the risks associated with their operations effectivelyOrganizations in high-risk sectors therefore increasingly seek greaterunderstanding of their internal and external risk contexts in order tobetter manage their operations within a level of risk that they cancontrol including avoiding minimising or mitigating effects of disasters

(Glendon 2003)

Business ethics and corporate citizenship 125

The effectiveness of OHS legislation

So is OHS legislation effective There is no straight answer to this questionbut adopting a contingency viewpoint it can be said that both prescriptiveand performance-based legislation have their merits and one or the otheror both are appropriate in different situations Hence the role of managementis to address these difficult questions and provide a safety managementsystem which is appropriate to the circumstances This means having agood understanding of the competence of people within the organisation(technical administrative and managerial competence) and providing asafety management system which fits both these competences and thenature of the tasks being undertaken This is a decision which has to be takenafter careful consideration In addition the context in which the decision ismade needs to include the nature of enforcement and the consequences ofnon-compliance However this implies a trade-off and the issue arises Is itethical to trade off cost against safety when human life is at stake This isa dilemma which safety practitioners legislation enforcers and companydirectors must all address

Project procurement and governance

The Wikipedia entry10 for corporate governance reads

Corporate governance is the set of processes customs policies lawsand institutions affecting the way a corporation is directed administeredor controlled Corporate governance also includes the relationshipsamong the many players involved (the stakeholders) and the goals forwhich the corporation is governed The principal players are theshareholders management and the board of directors Otherstakeholders include employees suppliers customers banks and otherlenders regulators the environment and the community at large

Rodney Turner offers the following premise relating to project governance

Project governance provides the structure through which the objectivesof the project are set and the means of attaining those objectives aredetermined and the means of monitoring performance are determinedProject governance involves a set of relationships between a projectrsquosmanagement its sponsor its owner and other stakeholders

(Turner 2006 93)

The term corporate governance can sound very grand and intimidatingbut in essence it should be seen as setting reasonable acceptable (ethical) rulesand regulations that protect those who have a stake in a project including

126 Walker et al

supply chain and team-member participants It is about accountability andresponse ndash who does what under what rules and for what rationale Furtherit revolves around structures being in place to facilitate accountability andsecond it requires the will and capacity to ensure that governancestructures are effective in ensuring ethical standards are in place Thesection on theoretical underpinnings of ethics in this chapter has indicatedthe different ways in which ethics can be viewed hence the beliefs andvalues that underpin what is seen and believed to be lsquoethical behaviourrsquoGovernance is mainly about ensuring that espoused (cultural and ethical)values are translated into matching behaviours The ethical behaviour thatmost people would relate to as acceptable is

a lack of criminal action the adherence to the notion of fair play that is not taking unfair advan-

tage over those in less-powerful positions ndash customersclients supplychain teams etc and

maintaining a sustainable system so that the long term is notjeopardised by short-termism

The above fits in well with building an organisational culture that supportspositive behaviours that are discussed in Chapter 9 of this book It alsolinks in well with some aspects of risk management notably taking duediligence to ensure that risks of this kind are mitigated against wherepossible and planned for

A simple way of looking at governance as a means of getting things doneis illustrated in Figure 41 This model is limited to the extent that itassumes that the majority of effort and engagement is involved in deterringand preventing people from taking opportunistic behaviour that inhibits orharms 3BL sustainability This assumption (Williamson 1975) draws uponTCE which recognised that there is a cost of conducting a transaction thatincludes the cost of policing standards This approach has not been univer-sally accepted as necessarily pivotal because it is argued people are humanand have a repertoire of behaviours and motivations and opportunitiesbehaviour as viewed from a TCE perspective (Ghoshal and Moran 1996)The Figure 41 model also illustrates ethical standards and cultural prac-tices as well as contributing to governance

The key to project delivery fulfilment is developing a means of projectdelivery that meets the project purpose has supportive structures to helpmake this happen using a system and people with the capacity to do so thatit is designed with accountability frameworks in place that have visiblecredible and reliable performance measures that are transparentTransparent means that there is a tangible and understandable linkbetween what is being done the way it is being done and the project out-come One may view this model as the synthesis of this book ndash finding

Business ethics and corporate citizenship 127

procurement choices and systems that deliver positive intended results(outcome rather that just outputs) in a way that we can learn from andimprove upon

This section will discuss aspects of this model in more depth but first letus get a grasp of the essentials The first element in the figure is the purposeGovernance does not just happen by itself Projects by definition are achange process (Turner 1999) Effective change first requires those whomust be involved to appreciate and support the need for the change so thatthey lsquoownrsquo the change and are committed rather than compliant with regardto that change (Kotter 1995) Thus the first step is in developing a visionthat people are likely to embed in their psyche Some projects that havemaintained a strong sense of vision can overcome poor PM performance tofacilitate project success (Christenson and Walker 2004) A strong visionshould inform the project mission that identifies what tangible ways inwhich the vision can be realised and this cascades into a set of objectives

To allow this to happen there needs to be a structural framework in placethat represents considerable intangible value to the organisation deliveringprojects and providing a real differentiated competitive advantage simplybecause each organisation is unique and has a unique set of initialconditions to set that organisation upon a trajectory of project deliveryThis requires an organisational design that provides certain functions andpeople (a project sponsor to help shape support and champion a projectrsquosvision and transform that into a systemic entity that can deliver the project

128 Walker et al

Organisationaldesign

Financialengineering

Policy +procedures

Workprocesses Codes of

practice

Legalrequirements

Structures

The purpose

Vision

Mission Goals

Delivery means

Informs

Resources

Capacity

TransparencyStakeholderdisclosurePerformance

measures

Knowledge

Know what

Know why

Know how

Care why

Motivation

Culturework ethic

Authority+ power

Risk management+ control

Accountability

Controlsgoverns

Regulations Audits

Reporting

Figure 41 Simple model of governance

vision outcome) to deliver the intended results The financial structure ndash theway that the project will be financially engineered ndash also needs to beconsidered The extent of risk capital can influence how a projectrsquos feasibilitywill be approved and how it may be monitored and controlled Forlarge-scale infrastructure projects a government raising only sovereign debt(that which is backed by an ability to raise taxes to cover costs) can intro-duce a degree of laxity in monitoring and control and so some experts inthis topic suggest that ensuring some market participation with capitalinjections that are at risk enforces a higher degree of rigour in transparencyand governance than might not otherwise occur (Flyvbjerg et al 2003122) There will also be administrative components to the project deliverysupport structure such as policies and procedures regulations and codes ofpractice This is where explicit ethical codes can make a difference to theflavour of the administrative practices and influence the organisationalculture There will be legal requirements that force certain actions such asworkplace relations laws cultural practices and observations (feast daysetc) environmental laws statutory obligations and a host of other legalrequirements Often a tacit lsquoculturalrsquo or lsquotraditionalrsquo overlay of practicescan also impact upon this element

The capacity for lsquothe systemrsquo developed for the project is also impactedupon by capacity sub-elements Resources are a natural and obvious part ofthis Resources include funding people equipment and knowledge to namejust a few In terms of a collective and individual team knowledge capacitythere needs to be lsquoknow howrsquo or technical competence to deliver the visionknowledge relation to how to achieve goals set as well as the rationale ofwhy this is important We will see in Chapter 8 that the notion of lsquostickyknowledgersquo or degree of difficulty in knowledge transfer is affected bypeoplersquos understanding of the cause and effect link that exists betweenaction and outcome (Szulanski 1996) Authority and power are alsohighlighted in the model as part of the capacity to deliver because withoutdelegated authority and the power to enforce the design of the projectdelivery strategy the project vision and its validity will be undermined Thisincludes the capacity to use knowledge to recognise and evaluate riskmanage that risk or have the authority and control to be able to pass thatrisk to others (with due recompense for doing so) who are in a betterposition to accept and deal with that risk Additionally there is the capacityinput of the cultural work ethic that influences behaviour Motivationdrives this in part This can include the lsquocare-whyrsquo element by shifting peo-ple from being compliant to the achievement of a set of specific projectobjectives to being committed to achieving the project vision even thoughthe mission and specific objective may be upgraded beyond the stated (andpossibly outdated) specified requirements This is where the spirit of thevision is seen as being more valid that temporarily fixed mission andobjectives that lead to a richer sense of success

Business ethics and corporate citizenship 129

To ensure that the project delivery design operates within the scope of itsintended outcome a number of checks and balances need to be put in placeThese are the more obvious governance aspects that gain much attention inthe literature but cannot be of use without effective configuration of theabove elements of a delivery strategy This is often understood in terms ofaccountability and transparency

The use of appropriate performance measures informed by and consis-tent with the project vision and goals is necessary to be able to measure andthen monitor what is happening as opposed to what was expected tohappen during the project life cycle These measures support monitoringtaking place to enable accountabilities to be specified and ingrained (withinthe culture of the organisation so unspecified required aspects that need tohappen lsquojust dorsquo happen because that is the way that the organisationculture drives tacit or unspecified required actions to be undertaken) toensure that required actions do happen Accountability allows people andfunctions to have attributed to them responsibility for outcomes so that itis clear what actions these people and functions are meant to take whenand how those actions will be taken and how project stakeholders with aclear and mandated influence can be assured that those accountableperform as required Accountability is informed by transparency Thismeans that all concerned with a project should have a clear indication ofwho the stakeholders are on a project the nature of their interest and theirinfluence upon decision making and disclosure of project informationStakeholder analysis and mapping as well as developing stakeholdercommunication strategies is also part of a robust stakeholder managementrisk plan and can use tools such as the Stakeholder11 CircleTM (Bourne andWalker 2005) that are discussed further in Chapter 3 Disclosure is animportant part of governance and ethical and professional behaviour as itseeks clarity and communication

Having mapped out the scope of what project governance can mean wewill now justify the above modelrsquos elements from expert evidence that hasappeared in the literature

From a corporate governance perspective there is an argument that anorganisationrsquos board of directors when effectively subject to soundgovernance principles can lead to superior strategic decision making andhence improved organisational performance (Young 2003) The rationalebehind this assertion is that well-qualified independent-thinking directorswho intelligently question board proposals and reports on performancestrengthen accountability within the organisation This quality can preventorganisations from failing to deal with conflict of interest issues that havebeen earlier cited as important ethical issues In project governance termsthis can translate to a project advisory board and an example citing expe-rience of such a company board that had input into product developmentas lsquoAn effective advisory board properly composed and structured can

130 Walker et al

provide non-binding but informed guidance and serve as a tremendous allyin the quest for superior corporate governancersquo (Reiter 2003 1) HoweverReiter noted that such boards must have a clear mandated purpose scopeand focus and be appropriately constituted to encourage open discussionand debate about relevant issues that introduces valuable review and wis-dom rather than being a closed policing agency such a board should openup possibilities as well as review existing proposals In terms of the compo-sition of corporate boards and their capacity to provide valuable review andmake sound decisions Richard Leblancrsquos work has had a profound impactin Ontario Canada and elsewhere in North America His study of corpo-rate boards and their impact upon company performance indicates that abalance of skills and abilities is often lacking in many organisations becauseof bias in board member recruitment that blinds the board to certainentrenched views (Leblanc and Gillies 2003 Leblanc 2004) He hasadvocated (and this has been accepted into legislation in Ontario) thateffectiveness of board decision-making can be enhanced by transparency ofboard composition in terms of not just their identity but the skills andcapacities that they bring to the board so that investors can make aninformed choice about investing in that organisation Relating this back toproject governance issues transparency of the composition and workings ofany project review oversight or overall governing group that initiallyapproves monitors and permits a project to continue (particularly if itbecomes a distressed project) is vital so that those on the project teamknow that their outcomes are being rigorously assessed during the projectdelivery phase The lesson that we should learn from corporate governanceliterature is that for many projects particularly those of large scope or highcomplexity a system of advisory and oversight-monitoring boards shouldbe established with suitable expertise and capacity to initiate review andapprove continuance of a project ndash already part of the Prince 2 methodology(Bentley 1997)

Recent PM thinking relating to project governance has centred on therole of project sponsor broker and steward A project broker is responsiblefor the relationship between the client and the project team A client with arequirement approaches an appropriate person who knows where theresources to meet that requirement can be sourced and mobilised A projectsteward marshals and puts together the resources necessary to deliver theproject that the project manager will be responsible for leading (Turner andKeegan 2001) The steward role can be seen as similar or the same as whatPeter Morris describes as the project champion He says that a championobtains the resources needed to accomplish the project with much of thework being externally and internally focused (Morris 1994 257) In thisway it describes a combined brokersteward role Perhaps to add to anyconfusion of terms is the term lsquosponsorrsquo whose role is to make resourcesavailable and a lsquochampionrsquo who is a senior representative who convinces

Business ethics and corporate citizenship 131

the sponsor that the project should have priority and supporting resources(Turner 1999 51)

If we try to simplify the concept in order to be clear about where theseroles fit in with project governance we can conclude that there is a role foran entity to be accountable to the client or owner of a project This entitycould be an individual such as a broker or sponsor who provides a singleinterface between the project and the entity that will receive the realisedproject deliverables or it could be a board that reports to the projectsponsor This entity should have a clear accountability to deliver and beable to effectively communicate progress towards that end

Within the board or in terms of an individual being accountable todeliver a project there should be an effective championsteward role whichis to be accountable for effective support of that project This leadershiprole ensures that the structures and capacity are in place ndash described brieflyin Figure 41 If it becomes clear that resources are insufficient that author-ity constraints inhibits performance or that there is insufficient knowledgeavailable to deliver or structural impediments such as organisational designor policy and procedures then the championsteward should transparentlyadvise the board (or sponsor) of the crux of problems encountered withpotential solutions to resolve any difficulties and be able to either gainsupport to provide the means to overcome highlighted distress or toabandon the project (Crawford 2006)

Dinsmore and Cooke-Davis (2006) identify five roles that a board-levelsponsor championsteward would fulfil being governor of the projectand avoiding either abdicating responsibility to the project team or micro-managing the project being owner of the business case that is beingcommitted to it and understanding its nuances intimately harvestingbenefits that is ensuring that both tangible and intangible benefits deliveredare optimally absorbed typical of a harvested benefit is the learning gainedthrough delivering the project being a friend in high places often theproject manager does not have the political clout to make an impact whenseeking priority over resources when heading for distress or to influence theboard to gain due recognition for project achievements finally being avisible champion of the project both within and outside the board so thatthe projectrsquos profile and vision is fully supported

In a study of project success and project governance involving a surveydata set of 168 valid records recently reported upon (Crawford 2006)results suggest that projects are not generally good at delivering the benefitsfor which they were undertaken Analysis presented about that researchsuggests that about 26 of the variance in success can be attributed to lackof governance effectiveness of project sponsors This supports the generalcorporate governance meta-analysis of studies reported upon by Young(2003) Crawford (2006) argues from her study results that in terms of

132 Walker et al

effectiveness the project sponsor is in the best position to

1 ensure that all strategic options are considered before commencing aproject

2 ensure that the project receives needed resources3 ensure that the project team has sufficient authority to complete the

project to realise expected benefits4 influence the quality of the business case presented to sanction a

project5 ensure that responsibility and accountability levels rest with the right

people in the organisation and6 ensure that if technical performance requirements of the project can be

achieved the business case will also be achievable

From the top-down perspective (ie the board level) it becomes clear thatproject governance is enhanced or limited by the quality of the structurecapacity and accountability of a board member who can effectivelychampion or sponsor a project However the governance system must bedesigned and implemented to provide the detailed knowledge andinformation about the project to the championsponsor at a board level

Underpinning and supporting the project managerrsquos ability to deliver aclear picture of a projectrsquos status to the project championsteward is a seriesof iron triangle (cost time and quality) monitoring and controlmechanisms Also the actual procurement process (to reduce the likelihoodof opportunism and exploitation and to manage uncertainty relating to theability to deliver the required outcomes) underpins this ability and featuresprocedures which help or hinder the project manager such as contractualmeans to deal with changes in scope and modifications to the existingspecification of details of work to be undertaken (Winch 2001) Therewould be organisation-wide and legal requirements that requiretransparency being provided through audits and reporting mechanisms thatshould support accountability and transparency

Chapter summary

In this chapter we have explored a number of project procurement issuesthat relate to how project procurement policies can and should takeaccount of long-term sustainability ndash of not only the organisation makingdecisions but the wider community The ethics section helps provide us withframeworks to make decisions and choices that facilitate us to lsquodo the rightthingrsquo In Chapter 3 we argued that trust is an essential ingredient in makingrealisable and valuable commitments and so ethical behaviour plays animportant role in demonstrating and facilitating trust between parties

Business ethics and corporate citizenship 133

engaged in projects Similarly the section on 3BL in this chapter relates toanother practical aspect of lsquodoing the right thingrsquo as it helps us understandthe balance needed between creating financial social and environmentalvalue through our projects so that we build lsquobrandrsquo image and loyalty whileaddressing value to stakeholders in a more holistic manner A critical partof that is OHS as it helps shape procurement choices and actions to con-form to an ethical path to deliver value as well as addresses our duty ofcare to our stakeholders Emerging issues of CO2 emissions and potentialimpact of carbon trading are raised The section on governance shows howrules regulations and protocols of delivering projects can providetransparency and accountability to govern the way that value is delivered

Vignette

134 Walker et al

CanWheat a major Canadian Saskatoon-based exporter of wheatproducts had decided to build a set of wheat storage facilities inUrqatistan a former Soviet republic now independent with untappedlarge deposits of natural gas and oil and located on the route of aproposed hydrocarbons pipeline grid connecting Siberian fields toEurope Urqatistan is ruled by an ex-Soviet regional militarycommander and highly placed party official CanWheat also is a jointventure (JV) partner with several food-processing businesses that aresubsidiaries of Global-Nutrition plc that while basing itsheadquarters in Chicago has most of its operations and logisticsgroup based in St Petersburg Russia and its marketing operationsbased in The Hague The final JV partner in the holding company thatwill own and operate the facilities is the charity TasDentAID anassociation formed by a group of Tasmanian dentists and periodontiststhat had raised AUD$50 million for the project

The storage facilities project has 60 of the necessary US$15 billionfunding financed through the JV and the rest as loans by a consortiumof banks The project comprises 10 grain-handling silos associatedrailway-access spurs a series of 30 small local bakeries spread outacross Urqatistan to be leased back to local operators and a datacentre for operational and marketing IT systems with Global-Nutrition plc providing all IT services through its be-spoke systemdeveloped and enhanced over the past 5 years The advantages of theproject were stated to lsquoprovide much needed employment in aneconomically depressed part of the world to provide a best-in-classcentral distribution logistics point for wheat distribution in a regioncritical to global hydrocarbons during the next few decades and tohelp kick-start skills development opportunitiesrsquo Urqatistan had

Business ethics and corporate citizenship 135

served as a base in the Soviet Union days for regional expertise inlogistics and engineering science through its highly regardedUniversity of Urqatistan Engineering School and Science School

Recent media reports raised disturbing allegations involvingbribery money laundering and labour exploitation These were dis-missed as misunderstanding the nature of consulting commissionspermits and administrative costs incurred and transfer costingarrangements that are perfectly legal in a global economy A Russianreporter had broken a story published in the Times in London alleg-ing that Global-Nutrition plc had recently opened up a number ofclinics in central Africa ostensibly as part of its 3BL initiatives thathad been implicated in highly suspect drug-testing practices for anunnamed major pharmaceutical company The reporter alleged that asmall number of villages (considered to be of sub-standard housing)would be removed to make way for the rail spurs and that theUrqatistan government had pledged to relocate and re-house peoplefrom those villages in a new suburb of the capital that had beenreported in National Geographic magazine as a model new lsquoSilkRoute Cityrsquo Additionally villages had agreed to compensation ofUS$2000 each for relocation of three community burial sites datingback 3000 years

A subsidiary of Global-Nutrition plc is the principal distributor ofgenetically modified wheat Much of the financial dealings have beenundertaken through their St Petersburg office CanWheat provided theengineering expertise for design briefing of the silo and rail-spur logis-tics engineering in cooperation with local engineering consultantsTasDentAID consultants directed by one of its key administrativestaff was involved in much of the preparatory work in negotiatingreal estate deals and logistics involved with transport of equipmentand materials into Urqatistan as the TasDentAID staff member hadintimate local knowledge of the country and key governmentand business stakeholders through family connections The project hadstrong government support from Australia Russia and USA

Issues to ponder

1 Identify and discuss three ethical issues raised and usingKohlbergrsquos stages model analyse these issues and any paradoxesthat may be raised to identify procurement requirements thatcould address these issues

2 Identify and discuss an example of a 3BL initiative being pursuedby JV participants and evaluate with justification your considered3BL maturity level

Useful links

The 2004 KPMG Forensic Fraud Survey see wwwcgsconzfiles Fraud-Survey-2004pdf

The Stern Report see wwwhm-treasurygovukindependent_reviewsstern_review_economics_climate_changesternreview_indexcfm

The better practice guide for governance is at the Australian AuditorGeneralrsquos office site wwwanaogovauWebSitensfViewPubsReadFormampView LatestBetterPracticeGuidesByTitleampTitle Latest20Better20Practice20GuidesampSubTitle (Released20within20the20last203020days)ampCat ampStart 1ampCount 10

Other links are indicated in footnotes in this chapter

Notes1 See KPMGrsquos bi-annual Forensic Fraud survey wwwcgsconzfilesFraud-

Survey-2004pdf2 For an interesting ABC broadcast on this subject readers can download an MP3

file of the program Bryson G (2006) The Ethics of Virtue EncounterAustralia ABC httpwwwabcnetaurnencounterstories20061759630htm

3 For more on the four virtues temperance prudence courage and justice see theWikipedea entry on httpenwikipediaorgwikiVirtueThe_four_virtues

4 See URL wwwwestpaccomauinternetpublishnsfContentWICREVEquatorprinciples

5 See URL wwwequator-principlescom6 Their website wwwmelbournevicgovauinfocfmtop171amppg1933 can be

accessed for further details7 For an example of the BLL 2005 sustainability report go to www

bovislendleasecomllwebbllmainnsfimagespdf_sustainability_report_05pdf$filepdf_sustainability_report_05pdf this report clearly states their values and3BL actions taken

8 See wwwhm-treasurygovukindependent_reviewsstern_review_economics_climate_changesternreview_indexcfm for discussion from the Stern Report relating tocarbon trading see Part IV Policy responses for mitigation (Chapters 14ndash17) onwwwhm-treasurygovukmedia986E1sternreview_report_part4pdf

136 Walker et al

3 What other 3BL maturity level that you can assess from informationprovided is indicated and what initiatives do you think could beincorporated into this project

4 What information in this vignette is missing about the project JVmembers that you would like to know more about to betterunderstand the ethical and SHE issues raised here

5 In terms of project governance identify and discuss three formalprocedures for addressing accountability and transparency issuesdo you consider appropriate for this project

9 See HKLEGCO (Hong Kong Legislative Council) 2003 wwwlegcogovhkyr02ndash03englishscsc_bldgreportsrpt_1htm

10 Reproduced from the Wikipedia article httpenwikipediaorgwikiCorporate_governance for which the use is licensed under the GNU Free DocumentationLicense

11 wwwmosaicprojectscomauTechniqueshtmlStakeholder20Circle

References

ABC (2006) The Rise of the Carbon Traders Carlisle W Sydney ABC NationalRadio Background Briefing

Aguilar F J (1994) Managing corporate ethics Learning from Americarsquos ethicalcompanies how to supercharge business performance New York OxfordUniversity Press

Allison R E (1998) Ethical values as part of definition of business enterprise andpart of the internal structure of the business enterprise Journal of Business Ethics17(910) 1015ndash1028

Archer N P and Ghasemzadeh F (1999) An Integrated Framework for ProjectPortfolio Selection International Journal of Project Management 17(4) 207ndash216

Bansal T (2006) Ivey on best practices in corporate social responsibility IveyBusiness Journal 70(4) 1ndash3

Beauchamp T L and Bowie N E (1997) Ethical theory and business UpperSaddle River NJ Prentice Hall

Bentley C (1997) PRINCE 2 A practical handbook Oxford UK Butterworth-Heinemann

Bourne L and Walker D H T (2005) Visualising and mapping stakeholderinfluence Management Decision 43(5) 649ndash660

Bryson G (2006) The Ethics of Virtue Encounter Australia ABC httpwwwabcnetaurnencounterstories20061759630htm (accessed on 28 July 2007)

Buchholz R A (1989) Fundamental concepts and problems in business ethicsEnglewood Cliffs NJ Prentice Hall

Burns T and Stalker G M (1961) The management of innovation LondonTavistock Publications

Carroll A B and Meeks M D (1999) Models of management morality Europeanapplications and implications Business Ethics A European Review 8(2) 108ndash116

Child J (1986) Organization A guide to problems and practice LondonHarper amp Row

Christenson D and Walker D H T (2004) Understanding the role of lsquovisionrsquo inproject success Project Management Journal 35(3) 39ndash52

Crawford L (2006) Project Governance ndash The Role and Capabilities of theExecutive Sponsor PMOZ ndash Achieving Excellence Melbourne Australia 8ndash11 August PMI ndash Melbourne Chapter 1ndash11 CD-ROM paper

Dinsmore P C and Cooke-Davies T (2006) The right projects done rightFrom business strategy to successful project implementation San Francisco CAJossey-Bass

Donaldson T and Werhane P (Eds) (1999) Ethical issues in business Aphilosophical approach Series Ethical issues in business A philosophicalapproach Upper Saddle River NJ Prentice-Hall

Business ethics and corporate citizenship 137

Donnaly M (1999) Making the difference Quality strategy in the public sectorManaging Service Quality 9(1) 47ndash52

Eisenhardt K M and Martin J A (2000) Dynamic Capabilities What are TheyStrategic Management Journal 21(1011) 1105ndash1121

Elkington J (1997) Cannibals with forks London Capstone PublishingFerrell O C and Fraedrich J (1997) Business ethics Ethical decision making and

cases Boston Houghton Mifflin CoFerrell O C Fraedrich J and Ferrell L (2002) Business ethics Ethical decision

making and cases Boston Houghton MifflinFlyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and risk An

anatomy of ambition New York Cambridge University PressFrancis R D (1999) Ethics and corporate governance An Australian handbook

Sydney UNSW PressFreeman R E (1999) Divergent stakeholder theory Academy of Management

Review 24(2) 233ndash236French W A and Granrose J (1995) Practical Business Ethics Englewood Cliffs

NJ Prentice HallGhoshal S and Moran P (1996) Bad for practice A critique of the transaction

cost theory Academy of Management Review 21(1) 13ndash37Glendon A I (2003) Understanding and managing risk perceptions Quarantine

and Market Access Conference Maximising Trade ndash Minimising Risk Canberra24ndash25 September pp 36ndash43

Hart S L (1997) Beyond greening Strategies for a sustainable world HarvardBusiness Review 75(1) 67ndash76

Kotter J P (1995) Leading change ndash Why transformation efforts fail HarvardBusiness Review 73(2) 59ndash67

Leblanc R (2004) Preventing future Hollingers Ivey Business Journal 69(1) 1ndash9Leblanc R and Gillies J (2003) The coming revolution in corporate governance

Ivey Business Journal 68(1) 1ndash11Lingard H C and Rowlinson S (2005) Occupational health and safety in

construction project management London United Kingdom Taylor amp FrancisLovins A (2000 8 October) Natural Capitalism ndash A Lecture by Amory Lovins

Background Briefing Sydney Australia ABC wwwabcnetorgrntalksbbingstoriess196391htm

Low S P and Leong C H Y (2000) Cross-cultural project management forinternational construction in China International Journal of ProjectManagement 18(5) 307ndash316

McAlister D T Ferrell O C and Ferrell L (2005) Business and society A strategicapproach to social responsibility Boston MA Houghton Mifflin

Mintzberg H (1975) The managerrsquos job ndash Folklore and fact Harvard BusinessReview 53(4) 49ndash62

Mintzberg H (1990) The design school Reconsidering the basic premises ofstrategic management Strategic Management Journal 11(3) 171ndash195

Morris P W G (1994) The management of projects a new model LondonThomas Telford

Morris P W G and Jamieson A (2004) Translating corporate strategy intoproject strategy Newtown Square PA PMI

138 Walker et al

Nogeste K (2006) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project Outputs Doctorof Project Management DPM Graduate School of Business Melbourne RMIT

Nogeste K and Walker D H T (2005) Project outcomes and outputs ndash Makingthe intangible tangible Measuring Business Excellence 9(4) 55ndash68

Norrie J and Walker D H T (2004) A balanced scorecard approach to projectmanagement leadership Project Management Journal PMI 35(4) 47ndash56

Porter M E (1985) Competitive advantage Creating and sustaining superior per-formance New York The Free Press

Preston N (1996) Understanding ethics Leichhardt NSW Federation PressReiter B J (2003) Corporate governance and firm performance Is there a rela-

tionship Ivey Business Journal 68(1) 1ndash7Robbins S P and Mukerji D (1990) Managing organisations New challenges amp

perspectives New York Sydney Prentice HallStaples W and Dalrymple J (2008) Best Value Public Sector Construction

Procurement International Journal of Public Sector Management (forthcoming)Szulanski G (1996) Exploring internal stickiness Impediments to the transfer of

best practice within the firm Strategic Management Journal 17(Winter specialIssue) 27ndash43

Teece D Pisano G and Shuen A (1997) Dynamic capabilities and strategicmanagement Strategic Management Journal 18(7) 509ndash533

Turner J R (1999) The handbook of project-based management Improving theprocesses for achieving strategic objectives London UK McGraw-Hill

Turner J R (2006) Towards a theory of project management The nature of theproject governance and project management International Journal of ProjectManagement 24(2) 93ndash95

Turner J R and Keegan A (2001) Mechanisms of governance in the project-basedorganization Roles of the broker and steward European Management Journal19(3) 254ndash267

Velasquez M G (1998) Business ethics concepts and cases Upper Saddle RiverNJ Prentice Hall

Walker D H T and Hampson K D (2003) Project alliance member organisationselection In D H T Walker and K D Hampson (Eds) Procurement strategiesA relationship based approach (Chapter 4) Oxford Blackwell Publishing74ndash102

Williamson O E (1975) Markets and hierarchies analysis and antitrustimplications A study in the economics of internal organization New York FreePress

Winch G M (2001) Governing the project process A conceptual frameworkConstruction Management and Economics 19(8) 799ndash808

Yates M (2006) The Building as an Organism for Knowledge and CulturalChange in Organisations The 6th International Conference on KnowledgeCulture and Change in Organisations Prato Italy 11ndash14 July Kalantzis MCommon Ground 1ndash8 Electronic

Young B (2003) Corporate governance and firm performance Is there arelationship Ivey Business Journal 68(1) 1ndash5

Business ethics and corporate citizenship 139

Chapter 5

The role of business strategyin PM procurement

Derek HTWalker Mario Arlt and James Norrie

Chapter introduction

We have stated throughout this book that the purpose of procuring aproject is part of a process to derive benefit from a planned and executedtransformation Moving from state X to Y development of a new buildingor product or moving from a stand-alone IT system to an integratedsolution all start with a need that is expressed as being part of a strategyto generate a benefit from an identified opportunity So any one projectis probably part of a series of projects that together in the context of aprogramme or portfolio sense deliver an outcome that contributes tostrategic goals of the organisation The value proposition is not so much thesuccess of the project but the success of the strategy This is why some failedindividual projects can lead to strategic success because as explained inChapter 6 and Chapter 8 the project outcome may have led to acceleratedlearning and improvement on subsequent projects that would not have hap-pened without the initial apparent failure If we use the original sense of theword strategy being associated with warfare a project may be consideredas a tactical battle in a long war This may be of little consolation to a pro-ject manager who has been haunted by the spectre of failure ndash so thischapter is important in that it may bring solace to such individuals it placesprojects in a meaningful organisational context and supports the focus onthe need for experimentation innovation and learning to be encouraged inproject management as highlighted in Chapter 8

In addition we must not forget that some strategies emerge and evolveThey often take altered paths from that originally envisaged perhaps becauseof environmental turbulence or conscious change In this context a failedproject may well emerge as being seen as playing a pivotal role in overall suc-cess An Australian example of this that many readers may relate to is thecase of the Sydney Opera House This iconic project was during itsconstruction described in the press and professional journals of the timeas an unmitigated disaster because of both significant cost and time overruns(Murray 2004) As an opera building it also appeared to cater for a tiny

Business strategy in PM procurement 141

minority of potential consumers and would not be thought of as a touristdestination Naturally the design brief and intent was to produce a spectac-ular monument that might embrace the image of a vibrant and emerginglively place where people would like to visit however the strategy forproviding an icon was somewhat masked at the time by more functional per-formance criteria To judge this examplersquos success in terms of delivering anopera house on budget on time and in a way that facilitates superb musicbeing played and listened to there is to miss the point (Heneghan 2004Murray 2004) This icon can be seen to have played a significant part ofalmost literally placing Sydney on the map1 The lsquosuccessrsquo of this building asan icon may well have been a catalyst to change the image of Sydney cap-turing an image of itself as a centre of sophistication and culture and its per-ceived place as the major Gateway to Australia for many internationaltourists This resulted in much of the finance industry moving their head-quarters and global operations in the 1980rsquos from Melbourne to Sydney

The purpose of this illustration is to stress the importance of linkingproject success to strategy through procurement choices based on strategicthinking rather than delivering a project limited to the iron triangleperformance criteria The interface between business strategy and projectprogramme management needs to be explored for appropriate project strate-gies to be developed

The purpose of this chapter is to help make explicit the link betweenstrategic intent and decision making related to making project procurementchoices This chapter is closely linked to Chapter 6 in which we discussproject performance measures and procurement Naturally performance isestablished in context with performance objectives and aims Our centralargument is that the strategic aim of performance is paramount andindividual project performance while very important and not to be under-rated is after all just a strategic performance contributor It is for thisreason that Chapter 6 includes discussion of intangible performanceaspects because these aspects can provide a greater strategic impactthan more tangible output-specified quality measures ndash such as on-timeon-budget To achieve the objects set for this chapter it is segregated intofour sections together with a vignette that presents a hypotheticalsituation together with relevant questions that if answered could reinforcelearning from this chapter

The first section deals with theories of the firm to identify what isimportant to organisations that will frame strategies to remain sustainableand competitive to deliver value to their constituents The second sectiondiscusses strategy and associated value propositions that frame thechapterrsquos discussion The third section focuses upon programme and pro-ject management The fourth section then concentrates on ways in whichproject approval and initiation decision can be made to be aligned withstrategic intent

142 Walker et al

Theories of the firm-influencing strategyand project procurement

In Chapter 1 The Make-or-Buy Decision Section we introduced severalviews or theories of the firm We will expand upon those ideas in this sectionWe argue that organisations delivering projects need to have dynamiccapabilities and high levels of knowledge competence to be able to delivera known productservice or to be adaptive and innovative to addressdynamically changing needs or potential problems to deliver solutions evenwhen they begin the project process not quite knowing how that solutionwill emerge It is interesting to think about what kind of organisation couldbest do this This prompts some interesting questions

Fundamental terms and definitions

What is a firm ndash an organisation an enterprise Why does this kind of entityexist These are sound questions to ask and probe in this book because anorganisationrsquos raison drsquoecirctre is critical to the theme of this book An organi-sation can be seen as an entity that creates value by transforming resourceinputs to outputs as products services and ideas using a variety of resourcesthat it sources as and when required and manages to facilitate thattransformation It facilitates lsquoprojectsrsquo happening and it undertakes routineoperational activities Simplistically we can see that many organisationsdo the same things time and again in a kind of factory-line way or they dothings differently by transforming a set of resources as inputs into aproduct service or idea The transformational view can either assume thatessentially the same things are produced (as in a factory assembly line orlooking at business processes as ways of doing things in a coherent andstructured manner) or that different things are produced because theoperating environment is likely to vary (subtly or radically) with eachiteration This means that firms make choices take strategic directions anddeploy specific tactics either proactively or reactively The subtext behindtheir choices can be said to be influenced by their dominant philosophyand this philosophy can shape procurement choices and their impact on thecreation of value to stakeholders

Organisations have a vision of what their role in society is and how theycan best deliver value to their constituents This vision translates to a missionthat defines what they will do ndash lsquoour mission is to (verb)rsquo There must be apoint to this activity and that is spelled out in terms of objectives and theway that these will be carried out is defined by the strategy to be employedSome parts of that mission translate to somewhat continuous ongoingoperational activities and others more clearly have a defined start and endThe project management profession has developed over the past 50 or soyears through leading some activities (that were seen as best undertaken using

Business strategy in PM procurement 143

a world-view that these activities will get done as part of the organisationrsquosday-to-day operations) to be undertaken using a PM perspective (that theyshould be seen as having an independent and defined life span with definedlife phases)

The shift from seeing many activities that were undertaken with anoperational work view to a lsquomanagement by projectsrsquo view is gainingascendancy This view sees activities as being undertaken by temporaryorganisations assembling these as a project delivered within a defined startand completion boundary (Turner 2006) We do not suggest that everythingis a project or could be twisted in some way to be seen as a project Weargue that many operational activities that were understood to be stableroutine processes (such as building cars) that could be viewed as projects(because even car models have life cycles and are also subject to masscustomisation with short production runs) should be treated and managedas projects Case management in terms of government agencies and evensuch things as customer relationships (and student experience management)is managed as a project with a focus on the case and case subject So muchof the current business context is dominated by the need for a projectmanagement approach to deliver value be that a product service and morecommonly some kind of transformation

This brings us to the interesting question of what is an organisation ndash bethat a firm business unit project team or an enterprise consisting of manydivisions sub-ordinate legal entities and a conglomerate of commercial orsocial groupings An organisation or firm is often attributed to have aphysical structure and when incorporated (literally made human in theflesh) is legally treated as an eternal entity However there are a variety ofviews of the firm (or organisation) and each view influences the way thatstrategy might be developed Fundamental to this discussion we need toclarify PM terms related to defining a project programme and portfolioto understand how a project organisation can deliver beneficial outcomesthrough a project framework

The PMI has recently turned its attention to explaining how operationsand a project live side-by-side in organisations Figure 51 illustrates this(PMI 2006 7) The PMI (2004 5) defines a project as lsquoa temporaryendeavour undertaken to create a unique product service or resultrsquo It is thusdefined in scope by time duration (rather than be ongoing) and is unique(a customised offering) Therefore viewed from a procurement perspective aproject requires an organisation or assembly of resources that need to besourced either internally or externally to deliver the specified outcome Byinference if not by definition choices need to be made and so an overallstrategy is required with cascading tactical plans that need to be managed ndashcoordinated monitored and controlled (PMI 2004 7) This can be furtherexplained as experiencing pressures of uncertainty integration and transienceusing flexible goal-oriented staged processes (Turner and Muumlller 2003 2)

144 Walker et al

A project may be a small part of the overall strategy A series of connectedprojects that strategically link in such a way can be referred to as a lsquopro-grammersquo (Turner and Muumlller 2003 Morris and Pinto 2004 xx) There willmost likely be a range of programmes underway grouped into strategicinterests such as (taking the automotive industry example) cars truckseven perhaps a hybrid fuel source vehicle Operational activities such asequipment or software maintenance for example could be seen as beingseparable Routine maintenance where the maintenance crews respondto faults and regular scheduled maintenance activities may work in a day-to-day fashion where the scope may be readily identifiable or evenunknown until the problem is investigated in depth ndash delivery expectationis lsquowithin a reasonable timersquo Emergencies and scheduled maintenance canbe viewed as a project With emergency maintenance completion time andreliability is a key performance measure and with scheduled maintenancecost and reliability are key considerations within an envelope of expectedtime delivery There are other operational activities such as legal servicesmany general administration activities etc that could also be viewed in thesame way as illustrated by the maintenance example The main differentiatorbetween operational and project activities lies with scope definition andother boundary considerations (time cost quality for example)

The PMI has defined a programme as lsquoa group of related projects man-aged in a coordinated way to obtain benefits and control not available from

Figure 51 An organisational context of managing portfolios of projects

Source PMI 2006 7

Vision

Mission

Organisational strategyand objectives

High-level operationsplanning andmanagement

Project portfolioplanning andmanagement

Organisational resources

Management ofon-going operations(of recuring activities thatproduce value) (projectised activities to increase

value production capacity)

Management ofauthorised programmesand projects

managing them individuallyrsquo (PMI 2004 368) Thus a sense of logic orstrategy is associated with a programme ndash it can just be a set of projectsundertaken by a specific sub-unit within an organisation One advantageof looking at program delivery in this way is that a highly complexinfrastructure facility such as say a tollway can be looked at as comprising aprogramme of projects some linked in similar resource bases (roads bridgestunnels) others as linked by the outcomersquos logic (e-tag systems to read andprocess transponder data for electronically charging and collecting tollsdevelopment of spin-off business enterprises marketing projects communityconsultation projects arranging finance etc) Such a very large infrastructureprogramme may even be viewed as a portfolio of projects The PMI offers auseful definition to help us understand what a portfolio may be A portfolio islsquounderstood as a collection of projects or programs and other work that aregrouped together to facilitate effective management of that work to meet thestrategic need of the businessrsquo (PMI 2004 367) The terms programme man-agement and portfolio management are similar and the distinction is somewhatconfusing The term portfolio management is becoming dominant referring tothe management of a series of related and connected projects that are pur-posefully grouped together to obtain synergies and further the strategicdirection of the organisation served by those constituent projects This is theessence of the term as currently expressed by researchers who have studied thisarea in great depth for example by Elonen and Artto (2003)

The PMI defines a portfolio as a collection of projects andor programsto meet strategic benefit (PMI 2006 4) Morris and Pinto define portfoliomanagement (2004 xx) as a strategic alignment activity lsquoconcerned withdecisions on choosing and prioritizing programs and projectsrsquo ndash the PMIincludes authorising projects and programmes (PMI 2006 5)

In highlighting these definitions it becomes clear that the dominatingontological assumption is that projects are real things that they needmanagement and that bundles of resources are assembled and deployed todeliver intended outcomes and that there must have been some strategy orat least raison drsquoecirctre for the project programme and portfolio This per-spective must be stated because many projects are ephemeral and envisageintangible outcomes such as a cultural change management project Evenfor these difficult-to-physically-see projects there is the same ontological per-spective of these having a strategy that an organisation uses to underpin theintroduction and germination of projects and programmes

How do firms and organisations deliver projects

In Chapter 2 in the Make-or-Buy-Decision Section we cited (Barney 1991)as one of the resource based view (RBV) proponents of explaining thenature of a firm We also introduced other sub-elements of that RBV thatlook at the set of competencies that a firm may have to offer its clients(Prahalad and Hamel 1990) and of those competencies we noted that

Business strategy in PM procurement 145

146 Walker et al

agility and flexibility (dynamic capabilities) to respond to turbulence werekey competences (Teece Pisano and Shuen 1997 Eisenhardt and Martin2000) Within the dynamic capabilities view of the firm is the learningorganisation view in which organisations are seen as an organic metaphorin which they need to be able to learn and effectively use knowledge tofunction flexibly in a turbulent environment Further projects programmesand portfolios exist within an institutional context Thus part of anorganisationrsquos competences and resources is its capacity to respond withina political and institutional constraints and opportunities context so thatan organisation with the resources to be able to combine its knowledge andassets to address institutional barriers as well as having the resources to doso can provide the precise resources to deliver the desired results (Oliver1997) The political and dynamic capabilities view of organisationalcompetency again highlights the need for organisations to be seen as beingknowledge based (Grant 1996 Spender 1996 Spender and Grant1996) Nelson (1991 70) and raises an interesting competency ndash itsdynamic capabilities ndash that of an organisationrsquos ability to destroy as well ascreate production infrastructure and technologies to enable nimble adaptationof new approaches and purposeful destruction of outdated approaches tomake way for the development of any new capabilities In procurementterms this means not being rooted to a specific dogmatic approach despiteprevailing political pressure (ie the lowest-cost versus best-value or publicsector versus private sector dichotomies) Often there is an underlying logicto a particular approach that fits a situation and organisations must adaptto deliver this logic The requisite capability of an organisationfirm is to besufficiently adaptable to respond to a projectrsquos needs

Strategy and strategic management schools of thought

This brings us to the next two terms that need to be made explicit Theterm strategy is widely accepted as a form of overarching plan The way thatstrategy is developed and deployed varies The second important term todefine is the organisation its purpose role and how it operates Withoutexploring these terms and understanding how meaning can influence PMand procurement perspectives we would be in danger of not recognisinghow various project types (as discussed in Chapter 2) can need differentorganisational foci and strategic management styles

The dominant view of strategic management in much of the PM literatureis one of conscious planning at a high level that is cascaded down thehierarchies that fall in line with the prevailing wisdom from on high ndash that isthat everyone is singing from the same hymn sheet Much of Section II of theMorris and Pinto (2004) edited book2 for example falls into this paradigmand this reflects the managerialism and thoughtful control-seeking behaviourthat much of the PM profession seems to identify with

One weakness that plagues many professions is that those writing andcommenting on practice tend to avoid looking outside their immediatetheoretical comfort zone This is understandable because we all havelimited time to study read and think and so we tend to seek the opinionof those we have professional respect for in our fields of endeavour ManyPM commentators have for many years accepted that there are verydifferent types of projects that range from the highly concrete to the highlyintangible (Turner and Cochrane 1993 Shenhar Dvir and Shulman 1995Shenhar and Dvir 1996) Different project types may and will require differentstrategic management approaches It is for this reason that we will providea summary of the various strategic management schools drawing heavilyfrom the text by Mintzberg Ahlstrand and Lampel (1998) Mintzberg et al(1998) list 10 schools of strategy that fall into three groups prescriptivedescriptive and configurative We will summarise these with a PM perspectiveso that it enriches our understanding of how a given strategic approach maymake more or less sense for a given project type

Prescriptive strategic schools

This set of three strategic schools is more concerned with how strategyshould take place than with how it does take place

The Design School sees strategy formation as a process of conception inwhich strategy being created from an analysis of external factors is representedby threats and opportunities and internal appraisal of the organisationrsquosstrengths and weaknesses It was developed initially in the late 1950s anddrew upon classical military theory for designing battle conditions thatcould minimise weakness and exploit strengths through detailed knowledgeof the environmental factors in which the battle would take place Thisstrengths weakness opportunities and threats (SWOT) analysis as it hasbeen widely known helps us to explore options prioritise them and selectwhat appears to be the most likely one to successfully implement It dependsupon consistency in not presenting mutually inconsistent goals and policiesand needs to be adaptive to an external environment and be reinforced bydeploying the organisationrsquos competitive advantage It is a very deliberateprocess and presupposes that the SWOT analysis can be undertakenaccurately In terms of project types discussed in Chapter 2 it seems appro-priate where objects and rules are reasonably well known the environmentis reasonably stable and the organisation undertaking the project is alsostable so that its competitive edge does not evaporate or is easily hindered

This represents lsquoType 1rsquo projects as defined by Turner and Cochrane (1993)However this school seems to be at odds with the characteristics of manyprojects that are highly volatile in terms of their operating environment goalsand priorities or where there are high levels of uncertainty Type 1 projectstypically are suited to the range of techniques espoused in the PMIrsquos body

Business strategy in PM procurement 147

of knowledge (PMI 2004) such as use of detailed work-breakdownstructures detailed scheduling tools such as PERT high levels of monitoringand control using methodologies such as PRINCE2 (Bentley 1997) andgenerally manage projects in a way that assumes that it is possible to planin great detail The approach assumes that while plans are likely to need tobe changed to reflect changed circumstances it is indeed worth the effort toinvest time and effort to develop detailed plans and to monitor these andthat the output from that monitoring process leads to a worthwhile degreeof control over the progress of the project Responsibility for the designedcontrol resides with senior management at the organisational apex (forportfolio and to a large extent programmes of projects) At the project levelthe project manager and the PM team will respond to the governancearrangements as discussed in Chapter 4

According to Mintzberg et al (1998) the design schoolrsquos view of strategyformation requires that it should be kept simple and informal made explicitin simple terms and also that it should be one of a kind and customisedafter consideration of the SWOT process Perhaps the most telling signatureof the design schoolrsquos strategic development process is that the plan isdeveloped first and followed like clockwork in a disciplined way through itsrealisation during the implementation phase The SWOT analysis remains itsmost recognised feature This approach thus tends to rely on a plan beingformulated that should work the procurement system adopted and processesand techniques used all aim to control the project according to the plan

Some of the features of this approach are salutary when considering PMoutcomes for projects other than a Type 1 project see Chapter 2 and(Turner and Cochrane 1993) First this school makes strategy explicitand discipline demands an inflexible adherence (Mintzberg et al 1998 36)to lsquofollowing the dotsrsquo Second the strategy design is separated fromimplementation (Mintzberg et al 1998 36ndash37) clearly this requires thetrajectory set by the strategy designer to be unwavering with assumptionsmade by the strategy designer in the SWOT phase to remain stable and belargely correct We know from experience that the environment experiencedduring most projects even a Type 1 project matches this requirement

The Planning School views strategy as a formal process where theultimate objective of lsquothe projectrsquo is made explicit in its strategic andoperational terms This is closer to how we see many projects beingplanned It tends to use the strengths weakness opportunities and threats(SWOT) model but rather than try to explain strategy in a hierarchal lsquomustadhere torsquo mode it introduces procedures checklists and bureaucraticallycorrect procedures that achieve the objective in a planned way It is also ahighly specialised field with experts setting the plans that are deliveredlsquoaccording to planrsquo (Mintzberg et al 1998 58)

Adherents to this school also make extensive use of scenario planningand or simulation and may mistakenly believe that scenario plans are

148 Walker et al

predictions (Flyvbjerg Rothengatter and Bruzelius 2003) The key to theplanning school approach is a belief that it is a mechanical system that canbe understood and solved In terms of project types it assumes that there arevalid project types with different aims that these conform to rules and thatrules can lead to optimal solutions This translates into a belief that projecttypes have some kind of inbred solutions lsquoout therersquo ready to be deployedand that a perfect solution or methodology is ready to successfully deploy

Projects are fraught with uncertainty The planning school concentrateson objectives that must be achieved to meet the needs of stakeholdersIn PM fields this may be viewed as more important that in operationalmanagement because project success is appreciated in the eye of thebeholder ndash the stakeholder The planning school is pragmatic and thus lookstowards benefits derived from a project that is targeted at the aim of theproject concerned it is highly logical It starts out with a premise that theproject has a vision and mission that will make a difference to creating ormaintaining value This vision can be operationalised into a mission andobjectives statement that can inform strategic planning Plans can then beparcelled up into short- and long-term plans This approach has many simi-larities with the strategic design school except that it assumes that there isa way of foreseeing the future and hence preparing for that expected future

Courtney Kirkland and Viguerie (1997) argue that there are a number ofdifferent types of uncertainty which shape our view of appropriate strategiesto pursue They discuss a lsquoclear-enough futurersquo where the likely future isreasonably predictable traditional strategy development tools are appro-priate and a single forecast and plan to meet that forecast is probablyappropriate They see another category as exploring alternative futuresperhaps using game theory A more complex lsquofuturersquo involves scenarioplanning to explore a number of possible futures with full analysis of conse-quences There is also a further state that embodies a somewhat chaotic andunknown condition in which true ambiguity prevails Clearly developingproject delivery strategies matched by procurement choices is complex andsuggests that there are few simple stock-standard prescriptive solutions

The Positioning School sees strategy as an analytical process Mintzberget al (1998 83) argue that lsquoonly a few key strategies ndash as positions in theeconomic marketplace ndash are desirable in any given industry ones that canbe defended against existing and future competitors Ease of defence meansthat firms which occupy these positions enjoy higher profits than otherfirms in that industryrsquo They go on to describe the development of thisschool in three waves The origin of this school was described as beinglinked to military maxims relating to defensive or offensive positions in abattlefield such as lsquosurround and destroyrsquo and so on The second wave washeaded by groups of boutique consultants that applied various militarymaxims to commercial strategy problems as market imperatives Theseconsultants from the 1960s through to the end of the 1980s sold packaged

Business strategy in PM procurement 149

or mass-customised niche strategic-planning solutions to organisations tohelp them develop a position strategy for them using building blocks ofexpertise that they gained from their practice Later these consultanciesbecame dominated by a smaller number of larger consulting firms whereglobal consultants with experience of working with many clients on manyproblems in many countries and environments build up a formidable database (and knowledge base) to tap into

The third wave gaining momentum in the 1980s was highly influencedby Porterrsquos competitive strategy (Porter 1985 1990) He identified fiveforces that shaped competitive advantage These are the threat of newentrants the bargaining power of suppliers threat of substitute productsthe bargaining power of buyers and intensity of rivalry among competitorsThrough analysing the nature and trajectory of these forces a firm couldadopt a competitive advantage through focusing on a narrow or broadtarget with the aim of positioning itself with a cost advantage (being thelowest-cost provider) or a differentiation strategy (having a unique offer-ing or position in terms of brand reputation and gaining loyalty) This ledto an analysis of where value is best derived ndash as is stressed in this bookThis strategy school assumes that firms have the time resources and meansto plan and analyse in detail and carefully position themselves appropri-ately However this approach may not be quite so successful in highly tur-bulent situations where scope scale and opportunity are rapidly changingAs Mintzberg et al (1998 121ndash122) argue a host of soft factors need to beconsidered alongside hard ones in turbulent conditions and while thesethree schools have strengths in measurement data gathering and analysisthey do lack responsiveness to disruptive change While some elements orphases of projects are relatively stable others are highly turbulent

Descriptive strategic schools

This set of six strategic schools is more concerned with describing howstrategy does in fact take place

The Entrepreneurial School responds to market chaos and extremeturbulence and it focuses exclusively and intensely on a top-managementperspective This school sees strategy as being centred upon vision throughthe innate intuition judgement wisdom experience and insight of theentrepreneur who formulates the strategy to meet the envisioned challengeThe fundamental basis of this school is rooted in innovation

Schumpeter (1934) coined the terms (translated from German) as gales ofcreative destruction to describe the role of market turbulence as triggeringchange in both what customers demand and what is on offer This assumesthat first-mover innovators who can position their product or service totake advantage of rapid change will prosper While undertaking analysisand design (and other features of the prescriptive group of strategy schools)

150 Walker et al

is useful in developing an offering there is frequently little time for first-moverinnovators to perfect their strategy and productservice This school ofstrategy may be appropriate to specific project types discussed in Chapter 2and described by (Turner and Cochrane 1993) ndash notably those with fewmethods known and low clarity of goalsobjectives that is some lsquowaterrsquoType 2 Projects and many Type 4 lsquoairrsquo Projects Type 1 lsquoearthrsquo engineeringprojects tend to be stable in known methods and goalsobjectives and oftenexperience what Graham Winch (1998) describes as lsquozephyrs of creativedestructionrsquo in a witty parody of Schumpeterrsquos gales of destruction term

Mintzberg et al (1998 133ndash136) describe the characteristics of theapproach summarised as follows First it is characterised by an active andaggressive search for new opportunities often not thought of or conceivedbefore For example consider providing a portable music provision facilityThis has moved radically from the courtly patronage that supported thelikes of Mozart in his career where such artists were attracted to a particularlocation Centuries later gramophones that could be located in onersquos homeprovided that service Later still the transistor radio and walkman andcurrently the iPod and MP3 player evolved at several decade intervals Eachof these innovations has been radical and they have not only changed theway that music services are procured but also the whole supply chain thatdelivered those innovations as complex portfolios of projects It may haveincluded a series of new innovations in how music is produced and storedas well as delivered The procurement strategies had to adjust to suit thesedriving innovations for example procuring iTunes instead of CDs

Second in the entrepreneurial organisation power is centralised in theownerrsquos hands ndash in fact it may be more accurate to say the mind of theentrepreneur rather than hands because it is the perspective vision andpower of persuasive argument based on a great idea that drives ad hocstrategy This style resonates with some projects where vision is the all-important guide that leads to success when techniques are poorly appliedThe vision becomes the strategic plan and as long as it is clearly understoodcompelling and motivational credible and doable and challenging to forcesmart new ways of delivering the vision and thus benefits from the project(Christenson and Walker 2004) Following on from the last point theentrepreneurial school of strategy is strongly characterised by dramaticleaps forward in the face of uncertainty These strategies are aimed to takefirst-move advantages often using unconventional approaches that extracthigh returns from a cost advantage before competitors and others in thePorter 5-force equation can catch up with them It represents true differen-tiation competitive advantage because by the time other competitors havefound a substitute to challenge the entrepreneur they have moved onto another great idea For those wishing to procure services of this kindof innovator they must take a radically different approach (procurementstrategy) to tune into this kind of project deliverer

Business strategy in PM procurement 151

Finally the motivation of the entrepreneur according to this school ofstrategy is achievement in terms of any innovation delivered as well asgrowth in business derived from that innovation that functions as a proxyfor validating the strategy This strategy is highly risky and those involvedin procurement relationships with adherents of this kind of school are in fora turbulent ride A highly bureaucratic client who seeks to work with a firmadopting an entrepreneurial school of strategic thought might demand areporting or governance system (refer to Chapter 4) that is totally inappropri-ate and therefore might kill any potential benefits to be derived by stiflingan innovative entrepreneurrsquos capacity or motivation to deliver an outcome

The Cognitive Strategy School sees strategy as a mental process and takesan interest in the way that a strategistrsquos mind works by using cognitivepsychology to do this ndash how they make decisions how they judge evidenceand how they communicate what they believe to be sound strategic decisionsThey do this within two wings of this school taking quite a different perspec-tive of how to see a strategy Mintzberg et al identify these two wings(1998 150ndash151) One wing is highly positivistic and objective taking aview of the world as if seeing a videoDVD being played The other wingsees the strategy as being subjective and so they see the strategy beingdeveloped as a process of observation and interpretation of the world

Both approaches are rational and subject to a range of judgementalbiases One of the main flaws noted by Mintzberg et al (1998 153) isthat proponents of this school may falsely believe that a cause and effectrelationship exists between things that are merely correlated Also theymay suffer under the delusion that their past actions have led to a specificoutcome when that may have been merely closely correlated to a randomevent Blind belief in so-called facts can seriously cloud judgements so caninappropriate application of statistical tools or when supported by poorlydesigned methodologies to gather data for analysis This danger is flaggedby a number of thinkers on project management and procurement notablymuch of the work of Flyvbjerg (2006) and his colleagues (Flyvbjerg et al2003) They argue that bias includes not just poorly structured governancesystems allowing poor strategic decision making based on exhaustive dataanalysis but also deliberate lying and manipulation by special-interestgroups who paint a convincing picture of the way that they would likeothers to accept their position as reasonable facts A metaphor may be usedby cognitive strategy school disciples to encourage divergent ways ofthinking to counter some of the bias found in being rigidly anchored to alsquofactualrsquo way of thinking and analysing situations While this can providea powerful and useful tool for creating innovative creative visions andmeaning it can also exaggerate inaccuracy because the context of thesituation can be misrepresented to fit the metaphor or analogy

If a strategist thinks that the correct way to develop a strategy is byrigorously gathering (quantitative qualitative) data and that facts (or theory)

152 Walker et al

inevitably lead to good strategy then they may be deluded Mintzberg et al(1998 154ndash155) also draws to our attention the impact of differentpersonality types referring to the Myer-Briggs-Type Indicator ndash (seeMyers 1962) The strength of this school is that it concerns itself withunderstanding the frames of reference assumptions mental models andproblem-solving strategies that lie behind the strategistrsquos mind Thisapproach to planning can be useful when trying to understand whathappened during a projectrsquos initiation stage and its likely impact upon itscapacity to deliver value

This school is useful as it provides insights into the way that strategiststhink and approach strategy development ndash it naturally alerts us to strengthsand weaknesses of human implications upon strategy formulation This canbe important on many projects that take years to deliver when so manychanges affect the project in so many ways so that a retrospective evaluationto gather lessons learned may be very difficult without considering thisschool of strategy

The Learning School sees strategy as an emergent process We touchedupon strategy being seen as a dynamic ability to be flexible and based uponknowledge in the knowledge-based view of the firm (Teece et al 1997Eisenhardt and Martin 2000) In this view of strategy there is a departurefrom the CEO (or the highest echelon of management) being the strategyformulator rather it implies a flow of influence stemming across theorganisation from top to bottom Strategy and changes emerge fromthe organisation as a whole through its evolved culture and how theinterplay and actions between leaders and followers affects procedures andgovernance (discussed in Chapter 4) We will discuss the link betweenproject procurement innovation and organisational learning in more depthin Chapter 8 It is worth however highlighting in this section key aspectsrelating to strategy formulation and deployment

The design school sees wisdom and knowledge flowing from on hightrickling to those below who make the strategy happen in a disciplined andmechanistic manner The learning school sees a very different picture ofwhat is happening Knowledge is seen as residing at a range of levelsthroughout organisations as specific expertise that needs the perspective andpractical application of pragmatic knowledge (Cavaleri and Seivert 2005)Quinn (1992) brought to our attention the importance of ideas bubbling upfrom below from which strategy later developed through a conversationbetween those with great ideas and those in the hierarchy who could supportthese with resources and plans of how to commercialise and gain value fromthese Quinn (1992) cites companies such as 3M see also (Shaw Brown andBromiley 1998) and explains how many of these firms have tapped intospecific technical expertise that is used to inform strategic decision making

Bontis Crossan and Hulland (2002) discuss managing an organisationrsquoslearning in terms of stocks and flows of knowledge They see learning being

Business strategy in PM procurement 153

154 Walker et al

available at the individual level as intuition being interpreted throughsocialisation and culture of an organisation then flowing to the group levelwhere it is integrated and reframed according to the circumstances facingthat group This is then institutionalised by the organisation in routinesrules rites and regulations or codes of practice This happens as a flowforward and feedback process (Crossan Lane and White 1999) so thateach of the three levels individual group and organisation is enmeshed in acommunal effort Crossan et al (1999) offer the 4 Is concept of organisationlearning ndash individual intuition informing interpretation of ideas throughreflection as an individual and through dialogue with colleagues Integrationof the reframed intuition becomes codified within groups and this leads toinstitutionalisation by the organisation This is also mediated by power andinfluence at different levels (Lawrence Mauws Dyck and Kleysen 2005)that link to governance issues discussed in Chapter 4 Individuals influencegroups who through cultural adaptation or changed practices force theorganisationrsquos leadership to respond formally This results in changedapproaches (including strategy) and procedures (tactics and governancearrangements) and this imposes a discipline that reinforces the knowledgesharing and learning within the group and by an individual Certainly the3M approach to innovation that fits with this feed forward and feedbackconcept appears to have influenced 3Mrsquos organisational culture byallowing people their pet research and development projects that can thenbe considered by 3M senior management for further development bythe organisation

The learning school helps to explain what is going on within organisationsand how new ideas products or proposals for forming alliances with othersshapes strategy It also provides additional insights into what has been termedinternal corporate venturing (Burgelman 1983) and entrepreneurship wherean internal project sponsor or champion strategically influences the selectionof particular projects

This theory of how strategy emerges radically differs from the top-downdesign school and requires different procurement approaches and a differentleadership style For ICT innovation diffusion and the support and roll outof ICT innovation and change projects 2 of the 11 factors determinedthrough factor analysis that were shown to affect case study organisationsin the Australian Construction industry among a select group of already IT-sophisticated organisations included supervisor support and a culture ofopen communication about problems and solutions (Peansupap andWalker 2005) This research fits well with the above view of strategy aslearning emergence and the 12 prescriptions for logical incrementalismoffered by Mintzberg et al (1998 183ndash184) that also matches with muchof the change-management literature (Kotter 1996 Wind and Main 1998Kanter 1999) so well

The natural development of the organisational learning strategy schoolhas been the focus on how strategy appears to emerge Here strategy mayappear to randomly surface from complex processes and interactionsoccurring in organisations that permit and encourage diverse thought andexperimentation however there is an underpinning rationale There willstill be clandestine players who find it effective to lsquosuggestrsquo ideas to theirorganisational bosses (or others with more perceived influence) who thenset in train a championing and lobbying process for the idea As Mintzberget al (1998 190) point out while individual(s) may press the idea forwardin a deliberate and strategic way the organisation may see the strategy asjust emerging The emergent strategy school adapts learning-school ideasand further develops these to introduce elements of power influencechange management and diffusion to the concept of ideas and strategies justbubbling up It also draws upon lsquosensemakingrsquo concepts Karl Weick (19891995) explains lsquosensemakingrsquo as a process where people retrospectivelyexplain (or make sense) of actions from a chain of events and influences

It is important to remember that emergence can occur through ignoranceas well as learning through brute power as well as sophisticatedly crafted andsubtle influence Strategies can be forced through even the most politicallyopen and liberal organisations and also they may be forced through by anexternal environment that imposes a particular logic Government policyin the Australian higher-education system (as elsewhere) has provided apervasive influence in (government) forcing desired strategy to lsquoemergersquo withinuniversities This has nothing to do with a learning-organisation approachother than lsquosensemakingrsquo imposing a particular logic as either inevitable oran easier path in some quid pro quo struggle for survival and sustain-ability of an organisation Strategy can emerge from administrative fiatcollective choice self-interest or professional judgement (Mintzberg et al1998 192) A broad umbrella set of constraints and opportunities canimpose a logic with details that when analysed leads to more detailedstrategies emerging

The literature relating to Hondarsquos rise in motorcycle manufacturing anddistribution within the UK and the USA in the late 1960s provides interestinginsights into how Hondarsquos strategy emerged (Pascale 1984 Goold 1996Mintzberg 1996 Mintzberg et al 1996) While that story triggered a greatdeal of debate about emergent strategy it also serves as a useful adjunct todeveloping the learning school of strategic thought This strategy school hascontributed to and drawn from the literature on core competencies (Prahaladand Hamel 1990) and how that shapes strategic intent (Hamel andPrahalad 1989) and adds to an organisationrsquos dynamic capabilities(Teece et al 1997) It also draws upon chaos theory in that it influencesorganisational strategy as being seen to need to adapt to and be flexible inturbulent situations where dramatic change can rapidly occur (Strogatz 2003

Business strategy in PM procurement 155

Backstroumlm 2004 van Eijnatten and Putnik 2004 Snowden 2006) Thisstresses the need when making procurement choices to be more cognisant oftodayrsquos turbulent environment and that one size does not fit all

The Power School sees strategy as a process of negotiation linked toinfluence and politics Some aspects are subject to further discussion inChapter 3 on how stakeholders influence a procurement strategy and so wewill limit our discussion in this chapter Influence can be legitimate beingdesignated by the governance provision such as the power to initiatesupport or approve It can be illegitimate by subverting legitimate powerthrough hidden (non-transparent) influence or pressure ndash perhaps as part ofmutual adjustment or more sinister motives Some of these influences arediscussed in Chapter 4 relating to ethics and professionalism

Being aware of the political landscape can be an advantage wheninfluencing others Bourne and Walker (2004 228) refer to project managercompetencies as needing to include three dimensions of wisdom and theseare further explained in the discussion on stakeholders in Chapter 3Dimension 1 relates to knowledge of how to look forwards and backwardsto apply correct PM techniques ndash in the case of this chapter this wouldinclude the appropriate school of strategy to draw upon when makingdecisions Dimension 2 relates to knowledge of relationships of how to lookinwards outwards and downwards which is also relevant to the powerschool of strategy as it includes the ability to manage relationships withkey influencing stakeholders Dimension 3 skills relate to considering andensuring that political influence and lobbying is addressed by lookingsideways and upwards This is what Bourne (2005) and Bourne andWalker (2004 228) refer to as lsquotapping into the power linesrsquo of projectstakeholder influence (see Chapter 3 for further discussion)

The politics school also believe that the ability to influence and negotiateis also reflected by the sense of commitment or compliance experienced bythose taking part in negotiations This will be discussed further along withnotions of trust in Chapter 9 Cultural Dimension of Project ProcurementTo summarise the relevance of those concepts in this context we can envisagecompliance as being the lowest level of commitment (Meyer and Allen1991) where perhaps legitimate power is enforced to push through strategyand may explain why the strategy may then be given only lip service Otherforms of persuasion may be employed to encourage high-level commitmentthat can lead to sustainable support for strategy Similarly trust is an impor-tant element of political persuasion because personal integrity behaviourand the dynamics of power interact in negotiation (Lewicki LitterereMinton and Saunders 1994) Trust can effectively cohabit with distrustwhere processes are put in place to ensure that transparency enables trustto build by being seen to be verified (Lewicki McAllister and Bies 1998)Mintzberg (1989 238ndash240) This highlights a number of power-politic gamesthat are played out in organisations that affect strategy development and

156 Walker et al

adoption Some of these games are overt such as using authority to coercepeople through intimidation or bribery by budget approval by usingexpertise in an exclusionary way Others are covert and might occur throughsuch ploys as alliance building empire-building selective sponsorship basedon reciprocity These are a few of those described by Mintzberg (1989) butthey give a flavour of the assumptions underpinning the power-school strat-egy that seek to understand how strategy evolves from this negotiation-dynamics perspective Strategy becomes a bargaining process and its resultscan be explained not so much by rationality or even the fiat of the leaderor any particular group rather it evolves as a series of compromisestemporarily mapped by waves of influence that map out boundaries

A related school to this is the cultural school that sees strategy as acollective process Culture can be studied from either the outside in or insideout Mintzberg et al (1998 267ndash268) outline five premises of the culturalschool First is that strategy is based upon beliefs and understandingsshared by an organisationrsquos members this has profound implications formisinterpretations in cross-cultural teams because of the wide range ofmeaning that can be assigned by different groups to what seem to be commoncultural artefacts (Grisham 2006) Second individuals acquire their culturalbeliefs through socialisation which is highly tacit and value laden Thirdbecause much of culture pertains to the unspoken and assumed artefacts atthe superficial level may appear to represent culture coherence while atdeeper levels assumptions may vary Thus a strategy document may beinterpreted quite differently by different individuals and groups Fourthstrategy takes the form of perspectives rooted in collective intentionsFinally Mintzberg et al (1998 268) argue that culture and especiallyideology does not encourage strategic change so much as perpetuate thestatus quo

The cultural school is seen by Mintzberg et al (1998 280) as beingtoo conceptually vague to be useful for working out what strategy can beachieved and how rather it is helpful for explaining what might behappening at any given time This is because so much of the literatureprincipally describes what is going on in peoplersquos heads and hearts ratherthan their physical observable behaviour it all requires expert interpreta-tion That said it introduces us to important aspects of change managementand as projects are change programmes of one kind or another and thisschool offers us a useful way of understanding the dynamics of forexample (internal team and external) stakeholder influence Considerationsof culture should be made when making procurement choices so as tominimise unpleasant unexpected outcomes happening

The environmental school sees strategy as a reactive process This schoolsees the environment as the defining actor together with leadership and theorganisation shaping strategy through the organisationrsquos reaction to forcesexternal to it Mintzberg et al (1998 288) argue that this school evolved

Business strategy in PM procurement 157

out of contingency theory with ideas such as lsquothe more stable the environmentthe more formalised the organisationrsquos internal structurersquo They presentfour premises of this school First the environment presents itself to theorganisation as a set of general forces at the centre of the strategy-makingprocess Second in a kind of Darwinian sense organisations must adaptreact or be selected out of existence Third leadership becomes a passiveelement in reading the environment and proposing organisational adaptiveaction Finally the environment metaphor leads to a belief that organisationscluster into distinct ecology-style niches Its Darwinian population-ecologyfocus leads this school to observe strategy from a population perspectiveA group of organisations within a population niche compete as one innovatesit advances within that pack provided that it has sufficient resources tosustain it however the environment has a limited carrying capacity so inthis Darwinian struggle less-efficient organisations die

Another stream of the environmental school uses institutional theorywhich posits that there is an institutional pressure to conform and so strategybecomes ways in which resources are converted into symbolic ones such aslsquobrand reputationrsquo being a market leader (of that niche within the pack)This compels competing organisations to mimic each otherrsquos perceivedsuccesses Being recognised as successful is a strategy for attracting moreresources (share-market recognition being a partner or employer of firstchoice etc) Benchmarking and lsquobest practicersquo can be viewed as expressingthis strategy Christine Oliver (1997 708) adapts institutional theory andargues that far from being passive organisations that survive are evolvinginternally by adaptation and change management to respond to externalenvironmental factors However large institutional organisations arehindered by sunk costs not in financial terms but sunk costs in culture(organisational inertia through habit) and ways of valuing skills (in public-works government departments valuing the opinion and skills of sayarchitects over engineers or vice versa) This can affect their type and rateof response because they are captives of their own history and whatappeared to work best in the past ndash being blinded rather than beinginformed ndash by history Nevertheless she states that lsquoFirms seek out compe-tency blueprints or recipes in several ways including direct imitation of asuccessful competitor (eg late-mover imitation of a rivalrsquos technology)indirect mimicry of role models (eg benchmarking) and the use of outsideconsultants to develop expertise employed competitorsrsquo This tends to forceorganisations within a niche to adopt similar strategies until one completelybreaks the mould and pole vaults into a separate niche revealing a com-petency trap of others in their niche Institutional forces therefore entrapsome firms into pursuing limited strategic choices In project procurementterms we can observe the difficulty in government agencies and corporatesmoving away from a lowest-price to the best-value approach No matter

158 Walker et al

what the rhetoric is the tender and evaluation process always seem tofavour and slip towards trying to get a low tender cost

Mintzberg et al (1998 294) cite a number of critics who argue thatenvironment explains neither short- nor longer-term survival and decaybecause other internal forces for example irrational competitor actionsand other factors may have as much if not more influence upon organisationalsustainability However they do value this perspective as being useful intrying to understand how organisational populations form and adoptstrategy and how that helps us think about strategy related to seeinghow strategic choices may be perceived to be limited in organisations at amature stage in their life cycle

Configuration strategic schools

This last strategic school is concerned with strategy as a process ofconfiguration and transformation PM is described as creating a transfor-mation so this school may be of particular interest to readers of this bookMintzberg et al (1998 302) identify two main labels for this school strategyas configuration and as transformation Some of the preceding schools canbe seen as representing different phases or stages of an organisationrsquosapproach to strategy as it evolves and responds to the challenges it sensesStart-up organisations tend to have a charismatic entrepreneurial leaderwith a focus on visionary strategies while mature organisations that havebeen around a long time have built up not only cultures and habits but alsohave professional managers who conservatively approach strategy Likewisedifferent types of project and different types of sponsor or clients will elicitdifferent strategic approaches to project procurement that match what theyare comfortable with

Mintzberg et al (1998 305ndash306) states that Configuration Schoolproponents believe that most of the time an organisation can be describedin terms of a kind of stable configuration of its characteristics for a distin-guishable period of time adopting a particular structure by adopting itsstrategies to meet the challenges it faces from its external environment Thereare periods of stability and periods of extreme turbulence when disruptivechange requires a quantum leap to another organisational form Thesesuccessive states of configuration and transformation occur over time similarto the stages of organisational transformation triggered by turbulent shocksdescribed by Greiner in (Greiner and Schein 1988 Greiner 1998) The key tostrategic management therefore is to sustain stability most of the time whenthat maintains competitive advantage and to be able to shift gear to beingtransformational to cope with disruptive change to position the organisationto be ready for the next fairly stable period This is where the other strategyschools have their usefulness because the process of strategy making can

Business strategy in PM procurement 159

be seen as Mintzberg et al (1998 305ndash306) argue as

lsquoone of conceptual designing or formal planning systematic analyzingor leadership visioning cooperative learning or competitive politickingfocusing on individual cognition collective socialization or simpleresponse to the environmental forces but each must be found at itsown time and in its own contextrsquo ndash lsquothe resulting strategies take theform of plans or patterns positions or perspectives or else ploys butagain for its own time and matched to its own situationrsquo

Finally in this section it is worth looking at transformational change againbecause this is in essence a PM issue Change-management proponents stressthat in order to achieve change people need to be persuaded that change isrequired They need to see that the current state needs reform because itis either currently undesirable or will lead to imminent undesirable conse-quences Further a specific plan to make that change needs to be made Thisplan should be credible achievable and reasonable in terms of the balancebetween the efforts to be made (or sacrifices) and the benefits to be derivedfrom that change (Kotter 1995) This way of looking at strategy fits wellwith the PM concept of identifying a need and developing a brief (thebusiness case) deciding upon a plan of action to achieve the strategythat includes working out how to assemble the required resources (theprocurement plan) and then taking action to deliver the desired outcomes(the implementation stage) and finally to deliver the outcome and learnfrom the experience (the closeout stage) Understanding the various strategicschools of thought is helpful for us to argue for change or to emphasisechoosing an appropriate procurement strategy

Linking business strategy to procurement

This section will explore the area of project portfolio management (PPM) ndashhow projects may be strategically selected It will outline three levels ofactivity involving project execution at the project programme and portfoliolevel We will then discuss current insights gained from study of howprojects can and should contribute to creating and delivering value to theirsponsors and stakeholders

Project managers tend to see a project as a given task that must be carriedout This view is fast changing as the importance of managing complexityand risk associated with large projects is better understood and the trenddevelops towards managing businesses as a series of projects where anincreasing amount of attention is directed towards this view of PM (Archerand Ghasemzadeh 1999 KPMG 2003 Turner and Muumlller 2003 Morrisand Pinto 2004 Blomquist and Muumlller 2006b)

Recent work funded in part by the PMI has led to some useful clarificationaround how PM and programme and portfolio management fit together

160 Walker et al

Business strategy in PM procurement 161

(Morris and Jamieson 2004 Blomquist and Muumlller 2006ab) In simpleterms the whole process is about improving PM (doing the project right)and improving programme or portfolio management (doing the right pro-jects) Modern portfolio theory was pioneered by a Nobel-prize-winningeconomist (Markowitz 1991) and it has also been further developed by aca-demics from marketing and product development backgrounds to proposemodels of selecting the strategically appropriate project from a range ofchoices (Cooper Edgett and Kleinschmidt 1997ab Cooper 2005)

Elonen and Artto (2003) identified from an in-depth study of twoportfolios that revealed common problems not only make sense but havealso been used to map problems of roles and practices that indicate poorportfolio management performance identified in a comprehensive anddetailed study undertaken by (Blomquist and Muumlller 2006a 63) TheBlomquist and Muumlller (2006b) study comprised 11 semi-structured inter-views with senior managers from large globally operating organisationsrepresenting 5 different industries Their findings indicated that managerswith a focus on portfolio management aim for maximising organisationalresults

They also conducted a quantitative study analysing organisationsrsquo gover-nance practices roles and responsibilities of 242 participating programmeportfolio managers They devised an index (Blomquist and Muumlller 2006b)that measured benefit to the organisation All participants indicated somelevel of programme and portfolio practice so they divided the sample intoone group that performed above the mean and another group at or belowthe mean They then analysed the characteristics of roles and practicesof those that performed below the mean-index results (designated as low-performing organisations) using the analysis of variance (ANOVA) statisticaltechnique Table 51 illustrates their findings (Blomquist and Muumlller 2006a63) They discovered that as expected portfolio management practices areaffected by the complexity of the environment Higher complexity demandedmore rigorous application of a programmeportfolio governance structure tomeet the needs of their environment and project types The organisationsstudied were primarily involved in for-profit business activity but aninteresting question is raised by this what can we learn from this researchthat can be applied to another very important sector not-for-profits (tosociety in general rather than commercial organisations)

First it is instructive to understand what programme and portfoliomanagement generally offers It is instructive to consider two basic require-ments that need to be satisfied by programmeportfolio management toimprove value generation for project clientssponsorschampions andother stakeholders These are to first select the lsquorightrsquo project to realiseand second to design a delivery governance system to ensure that expectedbenefits are realised The first part is related to developing a system tochoose the lsquorightrsquo project the second relates in part to Chapter 4 in relationto governance and in part to performance measures which is discussed in

Table 51 Mapping strategy research against known problem areas

Chapter 6 but will also be expanded here with a discussion of the role ofthe project management office (PMO) and its variants

Choosing the lsquorightrsquo project

In the private sector practitioners and academics have begun to partiallyaddress this challenge by first adopting and then translating portfolio theoryas originally defined within the Finance discipline into a project managementcontext (Martino 1995 Cooper et al 1997a) This approach is generallyknown as PPM In effect this extends the boundaries of traditional projectmanagement by attempting to include how projects are selected prioritisedand approved to proceed rather than a simple focus on project execution

An important underpinning of the original theory is the normal priorityplaced on maximising the financial return while minimising the risk of theselected portfolio This point cannot be ignored when the theory is appliedto project management This is known as portfolio optimisation Thisapproach leads to the development of decision support tools (normally inthe form of some kind of consistent scoring model) to assist in portfolioselection Most of these scoring models emphasise selecting projects thatoffer higher financial returns as measured by traditional means that isreturn on investment (ROI) internal rate of return (IRR) or project paybackConsiderations might however include amounts of available capital orresources thus forcing the selection of a portfolio of lsquoaffordablersquo or lsquodoablersquoprojects based on cash-flow considerations The emphasis and underpinningsof any and all of these more or less complex approaches remains primarilyfinancial While this may seem like an acceptable assumption in the privatesector where the singular purpose of most corporations is to make profits atalmost any cost (Bakan 2004) it should be clear that this same assumptioncannot and should not hold true in the public sector In fact others haveeven questioned this approach within the private sector (Elkington 1997)suggesting its focus is too narrow and propagates concepts such as the 3BLand social responsibility as other points of reference for corporate perfor-mance in the private sector This aspect is discussed in detail in Chapter 4of this book If managing a portfolio of projects for financial gain is notappropriate in the public sector and perhaps not even in the private sectorwhat are the right criteria then

Since achieving alignment between strategy and projects is one of theoft-cited benefits of programme management (Morris and Jamieson 2004)we must therefore conclude that one critically important aspect in anyrevised PPM methodology is the assurance of a firmer connection betweenthe organisational strategy-and project outcomes This suggests a needfor project management professionals to be both deeply involved and tocompletely understand the strategy-making process and to properly addresscommunicating eventual links within both single-project management andmultiple-project management settings to those on their project teams

Business strategy in PM procurement 163

164 Walker et al

This notion has been sufficiently explored The literature rightly calls fora clearly defined and measurable business strategy and an accompanyingvision and mission for every project This leaves the question how doesone theoretically and practically link this to PPM methodology andpractices in a way that will enhance the understanding of strategy amongproject team members

It is also relevant to question why many PM professionals naturallyassume a profit-centric model could be universally applied in a projectmanagement context It does not seem as if this fundamental assumptionhas been challenged to any great degree in the existing literature While thisassumption may make sense in the original context of selecting a financialportfolio where investors like corporations are focused on maximisingtheir rates of return in the public sector strategic objectives are normallymore complex to define and measure than a pure profit motive (for instancesocietal outcomes regulatory compliance life and death issues communityhealth educational achievement etc) A more rational and effectiveapproach to project selection would be to create conditions in the scoringmodel and accompanying decision-support tools where one could besatisfied that

a sufficient portfolio of strategic projects actually existed and if properlyselected and managed would lead to the organisation accomplishing itsintended strategy and

given a clear definition of strategy it would be possible to select projectsthat were most likely to have the maximum strategic contributionbalanced across all aspects of the stated strategy and not just itsfinancial performance

One approach offered here is an adaptation of the balanced score card(BSC) idea that will be discussed in more detail in Chapter 6 A BSCattempts to balance competing notions of how value can be represented andwe suggest that all projects should be prioritised using a balanced assessmentRather than discuss the underlying theory we refer readers to Chapter 6or to read about the underlying concepts (see for example Kaplan andNorton 1992 1993 1996 1998ab) Norrie (2006) developed and tested asystem of evaluating projects for using this evaluation framework to guideapproval of projects offered for development and realisation as part of aportfolio of opportunities for enacting change He argues that while tradi-tional scoring models simply only compared financial return to risk themore sophisticated proposed scoring model must now compare strategic con-tribution across four individual dimensions to risk The outcome of thischange is a more complex but more strategic and dynamic scoring model asshown in Figure 52 The four elements are based upon the Kaplan andNorton criteria modified for a PM and portfolio management purpose

Business strategy in PM procurement 165

The model recognises outcomes being related to people customers serviceand financial outcomes that are strategic elements in an organisationrsquossustainable development Each project proposal can be assessed accordingto criteria related to an organisation-specific template Most organisationshave a strategy that helps them develop specific measures and where this isnot present they are advised to access expert advice to help them develop amodel that fits their unique circumstances As noted earlier in the theory ofthe firm section organisations should aim to mould a unique and difficult-to-imitate set of characteristics of the value that they offer If an organisationis confused over how to structure their equivalent to Figure 52 then itshould commission a consultant to help it do so

Each dimension of the graph represents its own traditional risk rewardmatrix with reward on one axis and risk on the other The centre of thegraph represents (00) suggesting that as projects move outward from thecentre they increase in risk and return ndash a normal assumption in mostinstances since rarely is their return without risk Each project is analysed forits contribution (measured in terms from a very weak or indirect supportingcontribution all the way through to a direct or very direct measurableimpact) and the size of the circle represents the degree of contribution of theproject in each domain This is determined by comparing the contributionof the individual project outcomes (always in their most measurable terms)to the previously established gap identified during the planning process

Figure 52 Norriersquos proposed balanced PPM scoring model

People

Service Financial

High

High

Return Return

Risk

Risk

High

Size of bubble indicates strength of strategic contributionVery direct Direct Indirect Weak

High

Low Low

Low Low

Customer

between current and future performance levels for that domain at the overallenterprise level Similarly projects which impact more than one quadrantconcurrently (ie contribute to building strategic capability in several areasrather than only in one) are more valuable to the organisation and shouldbe executed in order of highest priority The more each project can establisha significant ability to contribute to a lessening of that strategic gap inmeasurable terms the more reliable the project is to that quadrant attainingits intended performance level overall

In relation to risk the circles are then positioned to determine thoseprojects as having relatively higher or lower assessed risk (depicted bymoving outward on the graph from the centre as having more assessed risk)This combination allows for trade-off decision making in each quadrant ona project-by-project basis between risk and reward The importance of thischange in practice cannot be underestimated for its possible contributionto the private sector certainly but it is even more significant in the publicsector The complex multi-stakeholder strategy present in the public sectormakes traditional financially driven project scoring models quite limitedin their applicability To address this imbalance we must use a methodwhich allows us to measure for example outcomes related to the greatersocial good or achievement of social policy objectives not just financialterms (eg improvements in overall health levels decreases in waitinglists or treatment lapses increases in educational success rates access tocost-effective day care or improvements in the number of commercialpatents issued to business etc) The BSC would allow one to do thatFurthermore once the BSC is incorporated into a public sector settingwe have demonstrated how it can be used to balance strategic outcomeswith the costs of programme implementation enforcement and other fac-tors (Norrie 2006)

This balanced view of strategy is imperative in the public sector whereresponsibilities cannot be abandoned simply because they are costly Howeverwhere applicable financial efficiency is still equally valued creating theright balance for application of the methodology in this sector In additionit retains the approach of mitigating potential project benefits with possiblerisks thus retaining an important theoretical foundation of effective PPMmethodologies By combining these methodologies we find a way toacknowledge this complexity and we can learn to account for the true valueof a project beyond its pure financial impact By adopting the BSC as amethod of measuring any particular part of the public sectorrsquos mandateacross its four dimensions and attaching relevant measures to each it finallybecomes possible to score the relative strategic value of any project bymeasuring its potential individual contribution to the overall measuresin each of the four dimensions But there is another inherent value in thisproposed change which is subtle but critically important If an organisationrsquos

166 Walker et al

Business strategy in PM procurement 167

focus is on strategy execution and if projects form part of the infrastructurerequired to execute strategy once it has been formulated it becomesimperative that the organisation ensures that it has a sufficient numberof projects in each dimension to actually accomplish its stated goalsThis transfers the notion of lsquobalancersquo from the scorecard methodology intoa project setting demanding that the project portfolio also be similarlybalanced This helps build expected performance levels into the selection ofthe project portfolio from the outset

This approach complements the notion of stage-gates proposed byCooper (Cooper 2005) for selecting winning product developments wherea series of go or no-go decisions are made at logical junctures of a productdevelopment cycle (read project phase for PM) This portfolio practice isparticularly common in some industries for example in the pharmaceuti-cal industry (Lehtoned 2001 Morris and Jamieson 2004 chapter 4) andin research and development (RampD) in telecommunications (PoskelaKorpi-Fippula Mattila and Salkari 2001)

The PMO enacting portfolio strategy

There has been much discussion regarding the PMO concept and where itis currently heading Most construction projects are managed on sitethrough a project office where specialists and much of the project teamcongregate in physical proximity to work together to share ideas and tofacilitate communication through rich personal contact This has beenhappening for many decades if not centuries The main difference that hasmore recently occurred that is relevant to this chapter is that the PMO hasbeen evolving as a way to move beyond just gathering people together andbetter coordinating their actions and resources towards sharing standards(Rad 2001 Ingebretsen 2003 Blomquist and Muumlller 2006b Crawford2006) This facilitates programme or portfolio management (Turner 1999chapter 14 Artto 2001) in a way that adds coherence

PMOs at its lowest level merely provide a location where project teammembers gather to do their PM work and this is often restricted to thoseinvolved in the lsquoiron trianglersquo processes of time cost and quality controlThis level of PMO supports decision making coordination and control and isa way of lsquohousingrsquo project managers Once they are linked either physically orthrough a form of communities of practice (COP) as for exampleillustrated by a construction industry example (Jewell and Walker 2005)that the knowledge sharing which takes place allows standards to be set thatmake established PM processes more repeatable for that organisation Thusthe PMO facilitates organisation-wide impact of an incremental improve-ment and increased PM maturity The PMI standard OPM3 (PMI 2003)specifies a five-level maturity model Initial where ad hoc PM approaches

168 Walker et al

are deployed and the project is characterised by chaos and confusion withthe same mistakes being repeated for each project Repeatable where basicPM tools techniques and processes are deployed and formalised often witha start in developing a procedures manual or system that allows success to berepeatable or failures not to be repeated Defined the procedures manual orsystem is formalised and tested to a point where it is accepted as a policyand guides PM activities Managed at this stage performance is recordedand data collected to demonstrate the effectiveness of the systems in placein the PMO and it is possible to justify resources and initiatives and gaugethe value of the PMO and ensure the systems are well understood andaccepted and finally the optimising level may be reached this is where it iscontinuously improved and is embedded in the organisational culture(Crawford 2002 Rad and Levin 2002 282) The impact and degree ofinvolvement of the PMI in projects can be mapped Kendall and Rollins(2003 284) illustrate a simple example where business units function unitsor other organisational sub-units can be established as columns in a tableand each split into columns for type of project for example developmentintegration maintenance etc The rows can then represent a classificationof type of projects undertaken that makes sense to the organisation forexample large medium and small The cells of the table can then be pop-ulated by project references so that the scope scale and type of projectsundertaken by the organisation can be visualised This can be useful forsenior managers to understand what PM is happening or it can be used asan input into a project filtering and screening process described in the pre-vious section of this chapter

We can now start to get a sense of where the PMO could be strategicallyheading Chris Cartwright from Ericsson Australia presented at a PMIchapter seminar a detailed account of Ericssonrsquos development of a strategicPMO for the Asia Pacific region that has won awards for excellence inbusiness (Cartwright 2006) this discussion is extended in Chapter 11 Heoutlined how PMOs evolve or inevitably are doomed to be restructured outof existence The Ericsson Melbourne PMO started life as many others asan attempt to raise PM skills and capabilities and a large part of its originalremit concerned creating standards promoting learning exchange andsharing experience and gathering data on success or otherwise of theirprojects This evolved to being involved in decision making about whichprojects to focus on and so its role crept into the portfolio managementarena and further evolved to being one where it has a strategic focus in notonly advising on the strategic selection of projects but also in helping todevelop business cases coach PM staff as well as advise sponsors andchampions on how to optimally enhance their role The PMO in its latestevolution is proactive and has been made more accountable If projectsnow start to drift the focus is not on auditing and crisis management ratherit is on needs analysis facilitating better quality resource decision making

Business strategy in PM procurement 169

coaching and mentoring developing COPs and facilitating people-networkingand supporting projects from the start so that they do not become distressedThe result has been that the PM and program management activities hasmoved from a back-of-house small revenue generator to being a revenueand social capital star that is recognised now at board level Thistrend concurs with efforts by the PMI for example to get greater board-level recognition of PM and its value in addition boards and high-leveladvisory groups would have more PM skills to draw upon when makingstrategic decisions

Chapter summary

This chapter starts with a general discussion of the nature of the organisationand various perceptions of its reason for being The purpose for this sectionwas to question how organisations create and generate value throughprojects This led to a summarised discussion about the various strategicschools that currently attempt to describe why organisations behave in theway they appear to do The rationale of this was that if organisations haveto choose between a range of potential projects then they should choosethose that deliver greatest benefit for stakeholders given the purpose thatorganisations see themselves as fulfilling A highly commercial organisationwill have a different vision priorities and objectives to a not-for-profit onefor example and so it is likely that their strategic propensity will alsodiffer The section on strategic choosing the lsquobestrsquo fit project naturallyflows from understanding the organisationrsquos strategic rationale The BSCtool described provides a useful way of making strategic choices We thenintroduced the concept of the PMO as a strategy-enabling device as itfacilitates taking strategy into action by guiding projects in a strategic andformal way Chapter 11 takes both the theory and practice of the PMOfurther so that readers may find more substance and content relating tothat aspect in Chapter 11

Vignette

XYZ Corprsquos strategy is defined as being geared towards a leadingmarket position for private yachts in its respective geographic marketRather than being a trendsetter the company typically respondsquickly to market trends and is known for being a reliable integratorof proven technologies and features XYZ Corprsquos reputation in themarket is characterised by modern yet somewhat standardised designswith limited customisation options Compared to its competitors

170 Walker et al

the company is best described as a lsquofast followerrsquo but it leads thecompetition in delivering a quality product in short time frames ata very reasonable price point However due to stiff competitionmargins are very slim and the corporation is struggling to make thedebt payments for substantial equipment purchases of the past

The PMO which is responsible for both PPM and project executionhas the following potential projects to choose from

1 upgrade manufacturing facility with new kitchen and dining areaa project long promised by the CEO benefiting staff moraleCost $200k over two years

2 PMP training and Certification of the 10 project managerswho oversee large-scale yacht projects Cost $50k Benefit non-conformance cost savings of 120k over three years

3 purchase of a new tool machine for manufacturing more customaccessories Cost $250k Benefit additional sales of approximately$2m pa

4 hiring of an additional industrial designer Cost $120k paBenefit approximately $1m in sales through more customiseddesign offerings

5 RampD for new hybrid propulsion projects to offer a product whichcomplies with more stringent noise and pollution restrictions forinter-coastal waterways Cost $5m over five years

6 new construction of an RampD facility to allow projects like thehybrid propulsion and other basic research efforts Cost $400k and

7 replacement of the lsquobrokenrsquo order entry system and other relatedsoftware Cost $100k Benefit time savings 50k pa and ordergeneration of at least $15m per year Update financial reportingsystem required to be completed in the new fiscal year in orderto sustain regulatory compliance Cost $75k

Issues to ponder

The CFO assigns a project budget of $500k which cannot beexceeded The outcome of the first selection process is to lsquoshortlistrsquoprojects (2) (3) (4) (7) and (8)

1 What strategy model or combination of models best characterisesXYZ Corp

2 Is the provided information sufficient to make an optimal decisionIf not what information is missing

Notes

1 For readers interested in finding out more about this icon visit theAustralian Government Culture and Recreation portal web site www cultureandrecreationgovauarticlessydneyoperahouse

2 The authors recommend this text as being a high valuable reference for projectmanagers and PM students as it is a comprehensive and current collection ofPM theory and practice

References

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Artto K A (2001) Management of Project-oriented Organization ndash ConceptualAnalysis In Project Portfolio Management ndash Strategic Management ThroughProjects Karlos Artto M M and Taru Aalto Helsinki Project ManagementAssociation of Finland 5ndash22

Backstroumlm T (2004) lsquoCollective Learning A Way Over the Ridge to a NewOrganizational Attractorrsquo The Learning Organization MCB University Press11(6) 466ndash477

Bakan J (2004) The Corporation The Pathological Pursuit of Profit and PowerNew York Free Press

Barney J (1991) lsquoFirm Resources and Sustained Competitive Advantagersquo Journalof Management 17(1) 99

Bentley C (1997) PRINCE 2 A Practical Handbook Oxford Butterworth-Heinemann

Blomquist T and Muumlller R (2006a) lsquoMiddle Managers in Program and ProjectPortfolio Management Practices Roles and Responsibilitiesrsquo ProjectManagement Journal 37(1) 52ndash66

Blomquist T and Muumlller R (2006b) Middle Managers in Program and ProjectPortfolio Management Practices Roles and Responsibilities Newtown SquarePA Project Management Institute

Bontis N Crossan M M and Hulland J (2002) lsquoManaging an OrganizationalLearning System by Aligning Stocks and Flowsrsquo Journal of Management Studies39(4) 437

Business strategy in PM procurement 171

3 If the financial benefit of the RampD investment would achieve aquick payback should the company assume more debt funding togo ahead with them

4 Provided projects (2) (3) (4) (7) and (8) could be funded couldthis choice set be justified as the optimal portfolio

5 What would be the decision steps after the lsquoshort listingrsquo exercise

Bourne L (2005) Stakeholder Relationship Management and the StakeholderCircle Doctor of Project Management Graduate School of Business MelbourneRMIT University

Bourne L and Walker D H T (2004) lsquoAdvancing Project Management inLearning Organizationsrsquo The Learning Organization MCB University Press11(3) 226ndash243

Burgelman R A (1983) lsquoA Model of the Interaction of Strategic BehaviorCorporate Context and the Concept of Strategyrsquo Academy of ManagementReview 8(1) 61ndash70

Cartwright C (2006) The Journey to a lsquoBest in Classrsquo ndash Corporate Project Officemembers P M C Melbourne PMI Melbourne Chapter

Cavaleri S and Seivert S (2005) Knowldege Leadership the Art and Science of theKnowledge-based Organization Oxford Elsevier Butterworth Heinemann

Christenson D and Walker D H T (2004) lsquoUnderstanding the Role of ldquoVisionrdquoin Project Successrsquo Project Management Journal 35(3) 39ndash52

Cooper R G (2005) Product Leadership Pathways to Profitable InnovationNew York Basic Books

Cooper R G Edgett S J and Kleinschmidt E J (1997a) lsquoPortfolio Managementin New Product Development Lessons from the Leaders-2rsquo Research TechnologyManagement 40(5) 43ndash52

Cooper R G Edgett S J and Kleinschmidt E J (1997b) lsquoPortfolio Managementin New Product Development Lessons from the Leaders-Irsquo Research TechnologyManagement 40(5) 16ndash28

Courtney H Kirkland J and Viguerie P (1997) lsquoStrategy Under UncertaintyrsquoHarvard Business Review 75(6) 67ndash81

Crawford J K (2002) The Strategic Project Office New York MarcelDekker AG

Crawford L (2006) Project Governance ndash The Role and Capabilities of theExecutive Sponsor PMOZ ndash Achieving Excellence Melbourne Australia 8ndash11August PMI ndash Melbourne Chapter 1ndash11 CD-ROM paper

Crossan M M Lane H W and White R E (1999) lsquoAn Organizational LearningFramework From Intuition to Institutionrsquo Academy of Management Review24(3) 522ndash537

Eisenhardt K M and Martin J A (2000) lsquoDynamic Capabilities What are TheyrsquoStrategic Management Journal 21 (1011) 1105ndash1121

Elkington J (1997) Cannibals with Forks London Capstone PublishingElonen S and Artto K A (2003) lsquoProblems in Managing Internal Development

Projects in Multi-project Environmentsrsquo International Journal of ProjectManagement 21(6) 395ndash402

Flyvbjerg B (2006) From Nobel Prize to Project Management Getting Risks RightResearch Conference 2006 New Directions in Project Management MontrealCanada 16ndash19 July Project Management Institute CD-Rom flyvbjerg_bent 1ndash17

Flyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and RiskAn Anatomy of Ambition New York Cambridge University Press

Goold M (1996) lsquoDesign Learning and Planning A Further Observation on theDesign School Debatersquo California Management Review 38(4) 94

Grant R M (1996) lsquoToward a Knowledge-based Theory of the Firmrsquo StrategicManagement Journal 17(Winter Issue) 109ndash122

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Greiner L E (1998) lsquoEvolution and Revolution as Organizations Growrsquo HarvardBusiness Review 76(3) 55ndash68

Greiner L E and Schein V (1988) Power and Organisation Development NewYork Addison-Wesley Management

Grisham T (2006) Cross Cultural Leadership Doctor of Project ManagementSchool of Property Construction and Project Management Melbourne RMIT

Hamel G and Prahalad C K (1989) lsquoStrategic Intentrsquo Harvard Business Review67(3) 63ndash76

Heneghan T (2004) The Architectural Review Opera Becomes Phantom (TheSaga of Sydney Opera House) (Book Review) EMAP Architecture 215(1) 95

Ingebretsen M (2003) lsquoWin Project Battles Managers Enlist Project War RoomsrsquoPMnetwork 17 26ndash30

Jewell M and Walker D H T (2005) Community of Practice Perspective SoftwareManagement Tools A UK Construction Company Case Study In KnowledgeManagement in the Construction Industry A Socio-Technical Perspective Kazi AS Ed Hershey PA Idea Group Publishing 111ndash127

Kanter R M (1999) lsquoFrom Spare Change to Real Changersquo Harvard BusinessReview 77(3) 122ndash132

Kaplan R S and Norton D P (1992) lsquoThe Balanced Scorecard ndash Measures thatDrive Performancersquo Harvard Business Review 70(1) 171ndash179

Kaplan R S and Norton D P (1993) lsquoPutting the Balanced Scorecard to WorkrsquoHarvard Business Review 71(5) 134ndash142

Kaplan R S and Norton D P (1996) lsquoUsing the Balanced Scorecard as a StrategicManagement Systemrsquo Harvard Business Review 74(1) 75ndash85

Kaplan R S and Norton D P (1998a) Putting the Balanced Scorecard to WorkIn Harvard Business Review on Measuring Corporate Performance Boston MAHarvard Business School Publishing 147ndash181

Kaplan R S and Norton D P (1998b) Using the Balanced Scorecard as a StrategicManagement System In Harvard Business Review on Measuring CorporatePerformance Boston MA Harvard Business School Publishing 183ndash211

Kendall G I and Rollins S C (2003) Advanced Project Portfolio Management andthe PMO ndash Multiplying ROI at Warp Speed Boca Raton FL J Ross Publishing

Kotter J P (1995) lsquoLeading Change ndash Why Transformation Efforts Failrsquo HarvardBusiness Review 73(2) 59ndash67

Kotter J P (1996) Leading Change Boston MA Harvard Business School PressKPMG (2003) Programme Management Survey ndash Why Keep Punishing Your

Bottom Line General Report Singapore KPMG International Asia-Pacific 20Lawrence T B Mauws M K Dyck B and Kleysen R F (2005) lsquoThe Politics of

Organizational Learning Integrating Power into the 4I Frameworkrsquo Academy ofManagement Review 30(1) 180ndash191

Lehtoned M (2001) Resource Allocation and Project Portfolio Management inPharmaceutical RampD In Project Portfolio Management ndash Strategic ManagementThrough Projects Karlos Artto M M and Taru Aalto Eds Helsinki ProjectManagement Association of Finland 107ndash140

Lewicki R J McAllister D J and Bies R J (1998) lsquoTrust and Distrust NewRelationships and Realitiesrsquo Academy of Management Review 23(3) 438ndash459

Lewicki R J Litterere J A Minton J W and Saunders D M (1994)Negotiation Sydney Irwin

Business strategy in PM procurement 173

Markowitz H M (1991) Portfolio Selection Efficient Diversification ofInvestments Cambridge MA Blackwell

Martino J P (1995) Research and Development Project Selection New York WileyMeyer J P and Allen N J (1991) lsquoA Three-Component Conceptualization

of Organizational Commitmentrsquo Human Resource Management Review1(1) 61ndash89

Mintzberg H (1989) Mintzberg on Management Inside Our Strange World ofOrganisations New York MacMillan

Mintzberg H (1996) lsquoReply to Michael Gooldrsquo California Management Review38(4) 96

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Mintzberg H Pascale R T Rumelt R P and Goold M (1996) lsquoThe HondaEffectrsquo California Management Review 38(4) 80

Morris P W G and Jamieson A (2004) Translating Corporate Strategy intoProject Strategy Newtown Square PA PMI

Morris P W G and Pinto J K Eds (2004) The Wiley Guide to ManagingProjects Series The Wiley Guide to Managing Projects New York Wiley

Murray P (2004) The Saga of Sydney Opera House The Dramatic Story of theDesign and Construction of the Icon of Modern Australia New York Spon Press

Myers I B (1962) Introduction to Type A Description and Application of theTheory of the Myer-Briggs Type Indicator Palo Alto CA ConsultingPsychologists Press

Nelson R R (1991) lsquoWhy Do Firms Differ and How Does It Matterrsquo StrategicManagement Journal 12(Winter) 61ndash75

Norrie J L (2006) Improving Results of Project Portfolio Management in thePublic Sector Using a Balanced Scorecard Approach Doctor of ProjectManagement School of Property Construction and Project ManagementMelbourne RMIT University

Oliver C (1997) lsquoSustainable Competitive Advantage Combining Institutional andResource-based Viewsrsquo Strategic Management Journal 18(9) 697ndash713

Pascale R T (1984) lsquoPerspectives on Strategy The Real Story Behind HondarsquosSuccessrsquo California Management Review 26(3) 47

Peansupap V and Walker D H T (2005) lsquoFactors Affecting ICT DiffusionA Case Study of Three Large Australian Construction Contractorsrsquo EngineeringConstruction and Architectural Management 12(1) 21ndash37

PMI (2003) Organizational Project Management Maturity Model (OPM3)Knowledge Foundation Newtown Square PA PMI

PMI (2004) A Guide to the Project Management Body of Knowledge Sylva NCProject Management Institute

PMI (2006) The Standard for Portfolio Management Newtown Square PAProject Management Institute

Porter M E (1985) Competitive Advantage Creating and Sustaining SuperiorPerformance New York The Free Press

Porter M E (1990) The Competitive Advantage of Nations New YorkFree Press

174 Walker et al

Poskela J Korpi-Fippula M Mattila V and Salkari I (2001) Project PortfolioManagement Practices of a Global Telecommunications Operator In ProjectPortfolio Management ndash Strategic Management Through Projects KarlosArtto M M amp Taru Aalto Eds Helsinki Project Management Association ofFinland 81ndash102

Prahalad C K and Hamel G (1990) lsquoThe Core Competence of the CorporationrsquoHarvard Business Review 68(3) 79ndash91

Quinn J B (1992) lsquoThe Intelligent Enterprise a New Paradigmrsquo Academy ofManagement Executive 6(4) 48ndash64

Rad P (2001) lsquoIs Your Organization a Candidate for Project Management Office(PMO)rsquo AACE International Transactions PM0701ndash04

Rad P F and Levin G (2002) The Advanced Project Management Office AComprehensive Look at Function and Implementation Boca Raton FL St LuciePress imprint of CRC Press

Schumpeter J A (1934) The Theory of Economic Development An Inquiry IntoProfits Capital Credit Interest and the Business Cycle Cambridge MAHarvard University Press

Shaw G Brown R and Bromiley P (1998) lsquoStrategic Stories How 3M isRewriting Business Planningrsquo Harvard Business Review 76(3) 41ndash50

Shenhar A J and Dvir D (1996) lsquoToward a Typological Theory of ProjectManagementrsquo Research Policy 25(4) 607ndash632

Shenhar A J Dvir D and Shulman Y (1995) lsquoA Two-Dimensional Taxonomy ofProducts and Innovationsrsquo Journal of Engineering and Technology Management12(3) 175ndash200

Snowden D J (2006) lsquoStories from the Frontierrsquo ECO 8(1) 85ndash88Spender J-C (1996) lsquoMaking Knowledge the Basis of a Dynamic Theory of the

Firmrsquo Strategic Management Journal 17(Winter Issue) 45ndash62Spender J-C and Grant R M (1996) lsquoKnowledge and the Firmrsquo Strategic

Management Journal 17(Winter Issue) 5ndash9Strogatz S H (2003) Sync The Emerging Science of Spontaneous Order

New York THEIA Hyperion BooksTeece D Pisano G and Shuen A (1997) lsquoDynamic Capabilities and Strategic

Managementrsquo Strategic Management Journal 18(7) 509ndash533Turner J R (1999) The Handbook of Project-based Management Improving the

Processes for Achieving Strategic Objectives London McGraw-HillTurner J R (2006) lsquoTowards a Theory of Project Management The Nature of the

Project Governance and Project Managementrsquo International Journal of ProjectManagement 24(2) 93ndash95

Turner J R and Cochrane R A (1993) lsquoThe Goals and Methods Matrix Copingwith Projects With Ill-defined Goals andor Methods of Achieving ThemrsquoInternational Journal of Project Management 11(2) 93ndash102

Turner J R and Muumlller R (2003) lsquoOn the Nature of the Project as aTemporary Organizationrsquo International Journal of Project Management21(3) 1ndash8

van Eijnatten F M and Putnik G D (2004) lsquoChaos Complexity Learning andthe Learning Organization Towards a Chaordic Enterprisersquo The LearningOrganization MCB University Press 11(6) 418ndash429

Business strategy in PM procurement 175

Weick K E (1989) lsquoTheory Construction as Disciplined Imaginationrsquo Academy ofManagement Review 14(4) 516ndash531

Weick K E (1995) Sensemaking in Organizations Thousand Oaks CA SageWinch G M (1998) lsquoZephyrs of Creative Destruction Understanding the

Management of Innovation in Constructionrsquo Building Research amp Information26(5) 268ndash279

Wind J Y and Main J (1998) Driving Change ndash How the Best Companies arePreparing for the 21st Century London Kogan Page

176 Walker et al

Chapter 6

Performance measures andproject procurement

Derek HTWalker and Kersti Nogeste

Chapter introduction

Projects are procured to fulfil one or more project outcomes Chapter 2referred to a range of project types and their characteristics and a discussionof project vision and how it can be used to determine what is expected to bedone and how to do it Chapter 3 discussed the importance of stakeholdersand identifying their expected project outcomes and also how developingtechniques and processes to address these should shape performancemeasures and provide an effective mechanism to engage with themIn Chapter 4 we discussed triple-bottom-line (TBL) concepts ethics andgovernance and the governance model presented in Figure 41 of that chapterillustrates how performance measures can be linked to accountability andtransparency and the way that disclosure to stakeholders of how the projectis to be delivered was to be performed Chapter 5 discussed how strategy isthe starting point in working out what gaps exist between a current value-generating situation and maintaining sustainable existing value or generatingnew value Chapter 8 discusses how learning and innovation are dependenton feedback and consequently how project performance measures canprovide crucial (feedback) knowledge to enhance an organisationrsquoscontinued success

Figure 61 illustrates the basis for this chapter Project performancemeasures should be defined to reflect the full complement of project stake-holdersrsquo expected project outcomes ndash both tangible and intangible Well-defined performance measures will comprise a combination of lag and leadindicators which satisfy audit and control requirements and also providethe basis for continuous quality improvement

This chapter deliberately avoids detailed discussion on traditional projectperformance techniques relating to time cost and quality planningmonitoring and control because they are adequately addressed in manyother texts on project control (Cleland and King 1988 Harris andMcCaffer 1995 Turner 1999 Cleland and Ireland 2002) Instead we takea more holistic view of how project performance measurement can be

defined to align with stakeholdersrsquo expected project outcomes This chapteris therefore structured as follows

The following section discusses the concept of project success and how itmay be measured This involves a brief discussion of several tools that haveemerged over the past decade or two especially those related to a balancedscorecard approach that recognises lsquohardrsquo and lsquosoftrsquo measures The lsquoA moresophisticated view of successrsquo section discusses lsquointangiblersquo outcomes in par-ticular The last section discusses how capability maturity models are relatedto project performance measures

The prime objective of this chapter is to demonstrate how stakeholder-based definitions of project performance can be used to define projectprocurement performance specifications for both tangible and intangibleoutcomes Outcomes include the full complement of benefits or value whichis often delivered but poorly defined monitored and reported upon Inaddition this chapter will help readers to understand how procurementchoices might incorporate performance measures that drive improved internaland supply chain team quality and innovation cultures Encouraging andfacilitating these cultures through shaping project procurement choices maythen lead to improved effectiveness and efficiency in delivering value

The concept of project success

There has been a lot of interest in the concept of project and PMsuccess Anton de Wit (1988) distinguishes between project success and

178 Walker and Nogeste

Figure 61 Basis of the chapter

What issuccess

Oranisationalperformance

needs

Clientrsquosperformance

needs

Societyrsquosperformance

needs

Identifiedexternal stakeholder

performanceneeds

Projectperformance

measures

Performancecommunication

processes

Performancemonitoringprocesses

How do wemeasuresuccess

Project control

Stakeholder performance needs

PM success He states that project success is judged by the degree to whichproject objectives have been met We can extend this distinction to arguethat a successful project also delivers outcomes which provide the potentialfor benefits and that successful PM sustains or enhances the value of aprojectrsquos objectives

PM success refers to the extent to which efficiency-focused PM processesare applied It is important to note that PM success cannot compensate foran organisation choosing the wrong problem to solve or for poor projectdefinition and design (as indicated in Figure 12) The choice of the wrongproblem to solve may be due to a number of factors including the projectsponsorrsquos own personal motivations We discussed the cognitive school ofstrategy in Chapter 5 which included examples provided by FlyvbjergRothengatter and Bruzelius (2003) of project strategies based on poorlydefined or suspect project sponsor motivations

The concept of PM success has evolved over time Early literatureequated outputs with success primarily in terms of time cost and qual-ity standards (de Wit 1988) This then evolved to a broader definition ofPM success including scope management stakeholder management com-munication management the linking of causes and effects and theproven ability to learn from experience (Cooke-Davies 2002) PM suc-cess has also been defined through a process lens focused on project lead-ership and coordination spanning the project phases of conceptionplanning production and handover (Munns and Bjeirmi 1996) Morerecently the concept of PM success has evolved to include the definitionand alignment of expected project outcomes and outputs includingintangible outcomes and tangible outputs (Nogeste 2004 Nogeste andWalker 2005) The definition and alignment of expected project out-comes and outputs will be discussed in more detail later in this chapterPM success has also been defined by relating an organisationrsquos PM matu-rity to capability maturity models (CMMs) (Ibbs and Kwak 2000 PMI2003 Cooke-Davies 2004)

In a widely cited PM paper Baccarini (1999) outlines how the LogicalFramework Method (LFM) an approach developed in the 1970s by theAmerican Aid Agency may be applied to defining project success and howit can lead to the development of a balanced approach to measuring projectperformance The LFM traces the links between goal purpose outputs andinputs The project goal is understood to be the overall orientation andalignment with the organisationrsquos strategic direction The project purposedescribes the near-term effects upon stakeholders outputs are specifictangible results and deliverables and inputs are the resources and activitiesused to deliver the outputs Baccarini describes the LFM as a howndashwhylogic chain where the relationship between the project objectives are trans-parently presented ndash the lsquohowrsquo describing the means and the lsquowhyrsquo the endsProject success is defined by starting with the project goals and asking howthey can be achieved ndash thus generating a description of the project purpose

Performance and project procurement 179

Asking in turn how the purpose will be achieved generates a description ofthe project outputs and again asking how the outputs will be achievedgenerates a description of the necessary project inputs Working in reverseorder from project inputs through project outputs purpose and goals thelogical basis for a project can be defined by asking the question lsquowhyrsquo ateach step in the logic chain

A more sophisticated view of success

Projects may meet one or more of the following needs as outlined by de Wit(1988 166)

1 A functional reason drsquoecirctre such as responding to a commercialopportunity or delivering necessary infrastructure In these casesthe project

a will work and should pay for itselfb is justified on the basis of engineering and economic rationale andc performance measures will include economic and technical such

as fitness for purpose

2 A prestige need based on the overriding logic that the project is toboost the ownerrsquos brand image (examples being the Eiffel Tower or theSydney Opera House ndash both of these may create large amounts oftangible and intangible value simply through their existence) In thesecases the project

a Will be judged on political criteriab Is justified on the basis of ephemeral rationale such as pride

spiritual uplifting and the expected long-term intangible benefitsfrom the project generating culturally transformational icons

c Performance measures will most probably include political andperception-oriented criteria such as popularity increased standingenhanced reputation or even the increased power of sponsors and

3 A research need that is based on pure or applied research projects suchas medical research or experimental projects In these cases the project

a Will be judged according to how well it provides a platform forfuture pure or applied research initiatives

b Is justified on the basis of reaching a solution to a complex problemthat satisfies key stakeholders (even though goals and targets maybe somewhat unclear at the outset of the project)

c Performance measures will most likely focus on the developmentof absorptive capacity and enhanced agility to react to newopportunities (see Chapter 8 for further discussion on this aspect)

180 Walker and Nogeste

Other categories of projects could also be added Nevertheless the point isthat project success is closely tied to motive and need and as Flyvbjerg et al(2003) stress motivation should be expressed as transparently as possibleto help resolve any conflicts of interest at the pre-feasibility and feasibilitystages of a project Standard project performance measures of time costand quality should not automatically be given highest priority Insteadproject performance measures need to accurately reflect the lsquotruersquo priorityof stakeholdersrsquo expected project outcomes both tangible and intangible

As discussed in Chapter 2 of this book Shenhar et al have undertakenmuch work to define different types of projects Of particular interest istheir relatively sophisticated association of the four dimensions of successwith the time frame of expected results which is based on their argumentthat lsquoproject success planning should be an integrated portion of the organi-sationrsquos strategic thinking and strategic managementrsquo (Shenhar et al 2001b719) Table 61 illustrates and comments on several emergent successdimensions the way that they may be measured and comments upon thesemeasures This table illustrates the presence and the degree of attainment ofthe highlighted emergent success dimensions together with comments onthese measures (Shenhar et al 2001b 712)

Figure 62 adapted from Shenhar et al (2001b 717) illustrates the asso-ciation of the four (4) dimensions of success with the time frame of expectedresults Dimension 1 has the short-term goal of project efficiencyDimension 2 has the medium-term goal of customer success Dimension 3has the long-term goal of business success and Dimension 4 has the verylong-term goal of preparing for the future Figure 62 indicates a relativelyhigh concern for project efficiency and customer impact whilst only mod-erate importance is placed upon business success with virtually no impor-tance placed upon actively preparing for the future Shenhar et al suggestthat this framework can be used as the basis for defining project perfor-mance success measures for different types of projects

The concept of success would not be complete without understanding therole of a project vision that translates into a mission statement and explicitobjectives There are numerous well-publicised examples of failed projectsThe Standish Group have reported numerous examples of failed IT projects(1994 2003) In a recent book the founder and chairman of the StandishGroup presents 10 lessons learnt on the basis of the Grouprsquos experience andmany case studies (Johnson 2006) Two of these lessons learnt are of directrelevance to this chapter First that of having a clear vision and secondthat of having a well-primed project champion One of the more spectacu-lar project failures is the London Stock Exchange Taurus project wherepoor project vision led to massive scope creep and subsequent classical case-book failure resulting in the project being cancelled after spending pound500million (Drummond 1998) The failure of Project Taurus is attributed to anumber of reasons including poor stakeholder management and the

Performance and project procurement 181

Table 61 Emergent success dimensions

Success dimension Measures Comments

1 Project efficiency Meeting schedule goal Goals need to be realistic If Meeting cost goal lsquostretch goalsrsquo are to be used

then they need to be definedclearly along with theconsequences of meetingthe goals only part way

2 Impact on the Meeting technical Many of these relate tocustomerstakeholder specifications orthodox quality measures

Meeting functional and can be addressed usingperformance total quality management

Solving a customerrsquos (TQM) philosophicalproblem approaches

Fulfilling customer needs Shenhar et al (2001b) refer to Customerrsquos use of the customers defining project

project product success However as noted Customer satisfaction in Chapter 3 a variety of Meeting intangible needs stakeholder groups can Meeting unarticulated influence the perception of

needs project successThereforethe relevant stakeholdergroups need to be clearlyidentified along with theirrespective success criteria

Consideration also needs tobe given to clearly definingexpected intangibleproject outcomes

Effort must be expended toclearly articulate as manyexpected outcomes aspossible Otherwiseunarticulated expectationsmay not be addressed

3 Business success Commercial success While commercial success is Gaining increased important authors such as

market share Shenhar et al (2001b) ignorethe situation where someorganisations may chooseto limit themselves to aparticular niche market

4 Preparing for the Developing a new Shenhar et al (2001b)future technology identified that these types

Creating a new product of measures have been Creating a new market relatively poorly represented

in the relevant body ofliterature

inability to effectively and accurately gauge how well project objectiveswere being met

A project first needs to have a clear vision of the transformation that it isexpected to achieve and how it will add value Development of a vision byinteracting with stakeholders is discussed in depth in Chapter 3 What isrelevant here is that a clear and unambiguous vision be developed andcommunicated to all project participants so that the image of success isclear in the minds of all concerned with the project On at least onereported project a clear image of success kept the project team and stake-holders focused upon achieving success ndash even when PM processes werebeing poorly applied (Christenson and Walker 2003) A project visionstatement can be assessed according to how easy it is to understandwhether it is motivational inspirational credible promotes workingsmarter and specifies stretch goals (Christenson and Walker 2003 50)Project vision statements should be translated into specific mission statementsthat explain how the vision will be transformed into reality The missionstatements should clearly define project goalsobjectives Cascading fromthe vision mission and objectives will be the detailed specification of theproject composition and the methods and processes that will be used torealise the project These methods and processes can include the definitionand alignment of expected project outcomes with project outputs (Nogesteand Walker 2005 Nogeste 2006a)

Performance and project procurement 183

Figure 62 Relative importance dimensions of project success Adapted from Shenhar et al(2001b 717) with permission from Elsevier

4-Prepare for the future

3-Business success

2-Impact on customer

1-Project efficiency

Projectcompletion

Shortterm

Mediumterm

Longterm

Timeframe

Future

In the short- to medium-term view after project completion there is very highimportance on project effiency and customer impact moderate importance of

business success and no importance of preparing for the future

Low

Mod

erat

eR

elat

ive

impo

rtan

ceH

igh

A balanced scorecard (BSC) approach

For about 50 years it has been known that there is a need to clarify the linksbetween a broad range of performance indicators and productivity (Likert1958) The value of a balanced approach to highlighting performancemeasures and linking these to the projectrsquos objectives and organisationalvision has been more recently demonstrated on commercial projects (Norrieand Walker 2004) and not-for-profit projects (Norrie 2006) The principaladvantage shown by using this approach was that a clear and significantcause-and-effect link between the PM methodology adopted and the goalsand vision is achieved This achieves the same level of clarity between a goaland its rationale as was noted earlier with the LFM During the early 1990sin particular the literature began to acknowledge the short-sightedness andlack of cause-and-effect clarity between inputs and performance As Eccles(1991 134) argues lsquodeveloping a coherent companywide grammar isparticularly important in the light of an ever-more stringent competitiveenvironmentrsquo Eccles also highlighted how short-term (often lagging)indicators represented by financial performance measures can skewperceptions of performance Companies need to report on leadingperformance indicators that illuminate the cause-and-effect links betweeninputs and outcomes

Robert Kaplan and David Norton introduced the ideas of a BSC in theearly 1990s They recognised the value of leading indicators and successfullydeveloped and operationalised these into a BSC tool that became widelyknown and used The BSC comprises the following four elements (Kaplanand Norton 1992 72)

1 the financial perspective that poses the question lsquohow do we look toshareholdersrsquo

2 the internal business perspective that poses the question lsquowhat must weexcel atrsquo

3 the innovation and learning perspective that poses the question lsquocan wecontinue to improve and create valuersquo and

4 the customer perspective that poses the question lsquohow do customerssee usrsquo

A small number of critical goals are defined for each of these perspectivesalong with associated measures For example Kaplan and Norton describethe financial perspective of a case study example as having three goals ndash tosurvive (measured by cash flow) to succeed (measured by quarterly salesgrowth and operating income by division) and to prosper (measuredby increased market share and return on investment) In addition theinnovation and learning perspective of a case study example had four goals ndashtechnology leadership (measured by time to develop the next generation)manufacturing learning (measured by process time to maturity) product

184 Walker and Nogeste

focus (measured by percentage of products that equal 80 of sales) andtime-to-market (measured by new product introduction versus competi-tion) (Kaplan and Norton 1992 76)

Kaplan and Norton also described how vision strategy and a BSC couldbe linked providing the example of how Rockwater (a part of Brown ampRootHalliburton) and Apple used the BSC to plan long-term performance(Kaplan and Norton 1993) During the mid-1990s Kaplan and Nortonexpanded their BSC methodology beyond objectives and measures to alsoinclude targets and initiatives This led to the BSC becoming both a strategicand operational instrument (Kaplan and Norton 1996) able to be used forproject performance management More recently Kaplan and Norton havefurther developed the BSC into a strategy mapping tool that can be used tospecify goals in terms of plans and initiatives Kaplan and Nortonrsquos StrategyMaps have helped to further clarify cause-and-effect links (Kaplan andNorton 2000 2004c) which is particularly useful when seeking support forinitiatives that are linked to leading performance indicators The combinationof cause-and-effect links and leading performance indicators allowed Kaplanand Norton to include the definition of intangible assets within StrategyMaps including the use of traffic light reporting to graphically representperformance (Kaplan and Norton 2004a)

While Kaplan and Norton were working on the whole-of-businessperspective others were applying these ideas to project environments forexample in IT and ICT projects (Stewart and Mohamed 2001 Stewartet al 2002 2004) Stewart (2001) describes how the BSC was applied ona case study project to evaluate project health (based on the project phasesof initiationconceptualisation planning implementation execution andcloseout) In addition Norrie (2006) describes how the BSC was used by arange of not-for-profit projects to filter project proposals and cull non-strategic projects resulting in the realignment and reassignment of scarceresources to strategic projects

By improving project monitoring communication and control Kaplanand Nortonrsquos BSC has clearly been shown to be of value to both in-houseand outsourced projects

Hypothetical example of a BSC

TheSource PL is an organisation that helps local councils within a denselypopulated region of Australia to source sub-contractors suppliers and skilledcontract management staff for small-scale projects ranging from constructionand maintenance that many builders or facilities management organisationsmay not be interested in through to sports events product launches andproduction of marketing and community interaction communication servicesThe stated vision of TheSource is lsquoTo provide local council organisations witha best-in-class level of procurement decision-making infrastructure supportrsquo

Performance and project procurement 185

The organisationrsquos mission is lsquoTo maintain knowledge and intelligence ofhow to deliver best-in-class procurement decision-making infrastructuresupport and to continue to deliver that level of service to local councils whodo not have the background or resources to do sorsquo The organisationrsquos keyobjectives are as follows

1 to remain a sustainable and viable business so that they can delivertheir mission

2 to develop and maintain business processes to support their missionwhich are at least equal to best-in-class procurement support infra-structure in the best resourced PM organisations

3 to ensure access to knowledge about best-in-class innovations thatensure that the organisation continuously learns from the experience ofitself and best-in-class PM organisations and

4 to maintain a commitment to delighting customers and other stake-holders with the results of service delivery whilst also maintaining acommitment to continuous improvement

TheSource started its journey with a handful of experienced senior managerswho were retrenched during the mid-1990s from a large city council whencost cutting demanded a drastic head-count reduction These foundingmembers had experience in building and maintenance event management ITand social service delivery All founding members had gained tertiary-levelacademic qualifications and remained passionate about learning andinnovation The founding members also had a strong social consciousand strong belief in the value of the TBL They especially wished to assistsmaller councils that did not have broad business and environmentalsustainability skills to offer their communities public services and facilitiesthat met TBL goals The founding members of TheSource formed a collectivethat evolved over a two-year period into a consultancy organisation similarto the TGC organisation described in Chapter 8 (Miles and Snow 1995Miles et al 2005) As part of their commitment to maintain and improvetheir service delivery core members of TheSource conducted a series ofstakeholder workshops to investigate stakeholdersrsquo needs and identify gapsin the existing service delivery process and systems Following the workshopTheSource core staff developed a strategic plan which included the definitionof a small number of critical objectives for each of the four BSC perspectivesalong with a matrix of goals measures targets and corresponding initiativesThe matrix was validated by reviewing it with the most articulate stake-holders A sample BSC is presented in brief in Figure 63

When defining goals it is important to focus on lsquothe critical fewrsquo (Murrayand Richardson 2000) Based on interviews with key executives froma sample of 20 organisations from large companies (some being subsidiariesof global corporations) operating in Canada Australia and Chile about theirstrategic planning and performance measurement practices Murray and

186 Walker and Nogeste

Richardson concluded that successful strategy implementation was morelikely to occur when organisations and staff concentrated on the critical fewhigh-impact initiatives Their findings can be considered to be quite logicalsince a long lsquoshopping listrsquo of initiatives would prove to be quite distractingand overwhelming with the potential for people to focus on what they wantto do rather than necessarily tackling high-impact initiatives In addition inan environment comprising many concurrent initiatives it may prove almostimpossible to track the true impact of each initiative

The aim therefore should be to identify and analyse difficult performanceissues into a consolidated list of the top 3 or at most top 5 ranked andprioritised issues This allows the organisation to maintain focus on thecritical few issues that matter most to business sustainability and more easilyrecognise cause-and-effect loops between the measure and a sustainableoutcome It is worth noting that the definition of lsquofewrsquo is context sensitiveand therefore should be determined according to the number of initiativesrequired to achieve an organisationrsquos vision mission and goals Table 62provides an example of how TheSource defined its learning and growthperspective in terms of the initiatives that would be implementedmonitored and reported upon

As a result of their strategic planning exercise TheSource defined 2ndash3initiatives per year per BSC perspective This was done with the expectationthat as the whole group of engaged stakeholders (including TheSource staff)became familiar with this approach the number of improvement initiativescould be increased and the measures targets and initiatives would becomebetter articulated and designed forming a virtuous circle of improvement

Performance and project procurement 187

Figure 63 BSC showing strategy and high-level objectives

To ensure that its customers andstakeholders are not only delightedwith the results from their expected

service delivery from us but thatour knowledge transfer of what is

possible allows them to lead avirtual spiral of continuous sustainable

improvement in service delivery

Customer

To develop and maintainbusiness processes to supporttheir mission that can deliverat least equal to best-in-class

procurement supportinfrastructure in the most

well-resourced PM organisations

Internal business process

Learing and growth

Vision

Financial

To ensure access to knowledgeabout best-in-class and to

enact innovations that ensurethat it continuously learns from

the experience of itselfand best-in-class PM organisations

To remain a sustainable andviable business so that

they can deliver their mission

To provide local councilorganisations with a

best-in-class level of procurementdecision making

infrastructure support

Ta

ble

62

Illus

trat

ion

of le

arni

ng a

nd g

row

th p

ersp

ectiv

e

Goa

lPur

pose

Mea

sure

Targ

etIn

itiat

ive

To a

chie

ve o

ur g

oal

how

Goa

lTo

eng

age

our

Num

ber

(n)

and

qual

ity3

cher

ry p

icki

ng in

itiat

ives

Che

rry

pick

ing

will

we

sust

ain

our

abili

tyst

akeh

olde

rs in

a p

roce

ss(1

ve

ry lo

w5

ve

ryw

ith lo

w im

pact

as

a tr

ial

1 ndash

esta

blis

hing

the

to

cha

nge

and

impr

ove

of fe

edba

ck im

prov

emen

thi

gh)

inte

nsity

with

in fi

rst

6 m

onth

sw

ithfo

rmat

of d

etai

ls a

bout

a

thro

ugh

join

t le

arni

ngIm

pact

sca

lei

mm

edia

cyndash

3 hi

gh-in

tens

ive

beta

ver

sion

info

rmat

ion

wor

ksho

ps(1

1ndash

2 ye

ars

to 5

fu

ndam

enta

l exe

rcis

esba

se o

n pl

umbe

rs

Purp

ose

To le

ad t

o ac

tual

with

in 1

ndash2 m

onth

s)in

sec

ond

6 m

onth

sel

ectr

icia

nsa

ndim

prov

emen

tIm

prov

emen

t sc

ope

ndash jo

bbin

g bu

ilder

s(1

ch

erry

pic

king

2

ndash in

cent

ive

syst

em t

rial

ea

sy s

ucce

sses

to

5

that

hel

ps p

eopl

e m

ake

tack

ling

fund

amen

tal

sens

e of

iden

tifie

d ef

fect

ive

deliv

ery

flaw

s)co

mpe

titiv

e ad

vant

age

know

ledg

e

Performance and project procurement 189

Figure 64 illustrates the process that was followed It must be acknowledgedthat TheSource was established under relatively unusual circumstances Asredundant employees from several councils the founding members hadalready developed considerable social capital in the form of trust andrespect intimate customer knowledge and process knowledge gained byworking for their previous employers who had now become their clientsSimilarly the founding members had developed considerable social capitalwith their supply chain including people they had previously contracted viatheir employer-councilsrsquo relatively bureaucratic procurement processesTherefore the founding members had a ready pool of stakeholders willingto work with them to develop and implement lsquoa new way of doing businessrsquoStakeholder discussions varied from the more formal to the less formal andspontaneous in quasi-social settings Because core staff had a community-centric ideology and focus they frequently met stakeholders in socialsettings where the topic of conversation naturally flowed towards feedbackand validation of their projects Therefore their combined forms of stake-holder engagement resembled an action learning research project (Peters1996 Peters and Smith 1996 Coghlan 2001 Smith 2001 Zuber-Skerritt2002 Coghlan and Brannick 2005)

After five years TheSource occupied a niche market being awardedmany small works projects without a need to tender for work The openbook policy and open mind approach adopted by TheSource allowed theirclients to satisfy all reasonable probity requirements and while the companyincome was not excessive (key staff earned about 20ndash30 more than theywould have had they remained in their council positions) the organisationhad built up considerable knowledge capital Staff members continued tomaintain and develop relationships with their clients and supply chain

Figure 64 Typical BSC operationalisation cycle

feedback

draft

validate

Stakeholderworkshop to unearth

issues

DevelopVISION missionkey objectives

Internalstaff input

Stable finalisedVISION missionkey objectives

Identify andoperationalise the

lsquocritical fewrsquo

Broadstakeholder

input

Monitorand review

Refine

Activate

OperationalisedBSC

In addition process improvement initiatives resulted in much previously tacitknowledge being made explicit TheSource now has a formidable lessons-learned knowledge base comprising an ICT web portal (see Chapter 7) awell-supported and ICT-enabled COP (see Chapter 8) and sophisticatedprocess knowledge Since its inception more than ten years ago TheSourcehas re-engineered and fine-tuned its business processes and systems to apoint which would be nearly impossible to imitate without relatively largeinvestments in time money and expertise On this basis the organisationrsquosvision of business sustainability expressed in terms of its own position inrelation to its competitors has been realised In addition TheSource hasalso accumulated stores of lsquogoodwillrsquo that have become tangible in terms oftheir being the first organisation to be contacted by many councils forsmaller projects and also an increasing number of larger and more complexprojects This situation has resulted in TheSource now competing withsignificant PM and Facilities Management operators

Interestingly with their move into the sphere of larger and more complexprojects TheSource was approached by some of its lsquonew competitorsrsquoto franchise TheSource business model Franchise-related negotiationscurrently under way indicate that TheSource is an organisation that isworth many millions of dollars

This hypothetical case study illustrates how the BSC when linked tobusiness strategy and a strong upstream and downstream value chain focuscan provide a vehicle for both a quality culture and innovation culture BSCmeasures can be used to make internal procurement and PM activityperformance more transparent as well as more focused on sustainabilityUsed as a reporting tool the BSC allows clients to gain a better appreciationof all the value elements When designing reward systems the BSC alsoallows probity requirements to be clearly addressed

Particular aspects of this hypothetical case study lead into the nextsection of this chapter which focuses on the improved identification anddefinition of tangible and intangible project outcomes

Fully realising value ndash from tangiblesand intangibles

Since the early 1990s when Kaplan and Norton were developing andpublishing their ideas about a BSC there has been a veritable explosion ofideas about the true nature of value ndash perhaps in support of the economicrationalist debate or perhaps providing an alternative view

In parallel with Kaplan and Nortonrsquos ongoing development of the BSCand Strategy Maps there was a movement under way in Scandinavia andthe UK The Scandinavians had a particular interest in the generation ofsocial capital value through cooperation knowledge sharing and caringabout human workplace issues Karl Erik Sveiby (1997 11) compared

190 Walker and Nogeste

the visible and invisible and tangible and intangible parts of a balancesheet He classified invisible intangible assets into three categories externalstructure (brands customer and supplier relationships) internal structure(an organisationrsquos management legal and relationship structureprocedures and processes IT research and development initiativespatentable ideas and corporate knowledge or memory) and individualcompetence (education experience personal networks and so on) Sveibydescribed how the difference in the total share price (market) value and thebook value of a firm can be partially (if not substantially) explained byintangible assets

Other parallel efforts in Scandinavia included the development of Skandiarsquosintellectual capital (IC) navigator (Edvinson 1997) and the definitionof intellectual capital by Roos and Roos (1997) as comprising organisationalrelationship and human resources

Another strand of related work in the UK was generated by the accountingprofessions (Neeley 2002 Neeley et al 2002) This work was based on thegrowing interest in the TBL concept (Elkington 1997) and acknowledgementthat balance sheets were limited to providing information about laggingperformance indicators

Fully realising project value ndash from tangibleand intangible outcomes

The importance of an organisationrsquos tangible and intangible assets combinedwith projects being procured to implement organisational strategy leads tothe need for stakeholders to align the strategic importance of tangibles andintangibles through to the project level (refer Figure 65) One means ofdoing so is for project stakeholders to use the Outcome ProfileTM template1

Performance and project procurement 191

Figure 65 Using Outcome ProfileTM templates to document the strategic alignmentof tangibles and intangibles through to the project level

BenefitBenefitBenefit

BenefitBenefitBenefit

Strategic organisationl objectives

Project objectives

IntangibleProjectOutcomes

IntangibleProjectOutcomes

Outcome profile

Project outputs

Project activities and resources

192 Walker and Nogeste

to guide them through the process of defining tangible and intangibleproject outcomes (Nogeste 2006b)

The Outcome ProfileTM template comprises the following subheadingseach for the described purpose

Outcome name

A commonly agreed descriptive Name for the expected outcome

Outcome description

A clear and common description of the expected outcome

Outcome realisation time frame

Specification of the outcome realisation time frame ensures a clearand common understanding of when the outcome can reasonably beexpected to be realised ndash either during or after the project

Outcome Owner

The Outcome Owner is assigned responsibility for the realisationof the outcome If the outcome is to be realised some time aftercompletion of the project then it is impractical to assign the respon-sibility to the Project Manager

Benefits

The Benefits of an Outcome are described in terms of the advantagesprovided by the outcome (Ward et al 2004 7) ndash the underlyingreasons for pursuing the outcome

Whilst outcomes and benefits are often confused with each other(Ward et al 2004 8) they are different Benefits are only able to berealised as a result of an lsquoobservable outcomersquo ndash lsquothe outcome isneeded for the benefit to be realisedrsquo (Ward et al 2004 54) Forexample if an outcome of an Information Technology project is thatpersonnel are able to do their work more quickly freeing up timethen the ensuing benefit is lsquowhat is actually done with the time that isfreed up since clearly if managers do not find ways to utilise the timereleased then no benefit will materialisersquo (Ward et al 2004 8) lsquoOnlywith the conscious intervention of managersrsquo will an outcome yieldbusiness benefits (Ward et al 2004 8)

Performance and project procurement 193

In some cases project stakeholders may also wish to define potentialdisbenefits This will help project stakeholders to agree that thepotential disbenefits lsquoare a price worth paying to obtain the positivebenefitsrsquo (Ward et al 2004 15)

Benef iciaries

The recipients of the benefits (or disbenefits)

Success Criteria

It is important to explicitly define Success Criteria especiallyto avoid multiple and possibly contrary definitions of projectsuccess Project stakeholders may define success in different ways(Shenhar et al 2001a 716) by referring to different sets of data oreven when referring to the same set of data interpret it differentlyaccording to their particular perspective (Rad 2003) In additionto interpreting data differently lsquothe success rating of a projectmay also differ according to subjective individual judgementrsquo(Dvir et al 2002)

Success Criteria may be defined in either quantitative or qualitativeterms It is currently considered acceptable to define the SuccessCriteria of intangible outcomes in terms of lsquo ldquoguesstimatesrdquo backed upwith explanations of assumptionsrsquo (Keen and Digrius 2003) sincelsquoit is better to be approximately right rather than absolutely wrongrsquo(Andriessen and Tissen 2000) This is an approach which is inkeeping with Kaplan and Nortonrsquos findings that lsquoeven if the measures(of intangible assets) are imprecisersquo the simple act of attempting togauge them lsquocommunicates the importance of these drivers for valuecreationrsquo (Kaplan and Norton 2004b)

Outputs

Aligning an outcome with its associated outputs defines the need forthe project to generate particular outputs an approach which isconsistent with the UK Treasury Departmentrsquos Green Book whichdescribes outcomes being able to be expressed in terms of outputs(HM Treasury 2003 13)

In addition it is important to define which outputs areare notwithin the scope of the project For example if a project is to gener-ate a signed contract the generation of a contract renewal may be anoutput to be delivered after completion of the project

Using the Outcome ProfileTM template to define expected project outcomesbenefits and outputs in business outcome vocabulary will increase the likeli-hood of procuring successful projects because the use of this vocabularymaintains a focus on (business) outcomes rather than (project management)processes (Dallas 2002) This is an especially important information to pro-vide to project managers and project teams given the results of recentresearch studies which have identified that lsquoProject managers infrequentlytie project management outcomes to corporate business outcomesrsquo (Phelan2004)

The following three-step method can be used to complete the OutcomeProfileTM template

Step 1 ndash plan and conduct a stakeholder workshopStep 2 ndash document the workshop reportStep 3 ndash use the workshop report as a key input to project planning

review

The purpose of each of these key steps is as followsStep 1 ndash plan and conduct a stakeholder workshopThe purpose of the workshop is for a selected group of project stakeholders

to use the Outcome ProfileTM template to identify prioritise and defineexpected tangible and intangible project outcomes

Step 2 ndash document the workshop reportThe workshop report comprises a number of sections including each

expected project outcome defined according to the Outcome ProfileTM

template an outcomesoutputs cross-reference matrix (refer Figure 66) andany additional notes recorded during the workshop

194 Walker and Nogeste

Dependencies

The successful realisation of an outcome its benefits and outputs willbe dependent on a number of factors that need to be clearly definedand documented as dependencies

Risks

The successful realisation of an outcome its benefits and outputs willbe subject to a number of risks which need to be identified andassessed along with corresponding mitigationcontingent actions whichwill need to be incorporated into the project plan A good startingpoint for risk identification is to examine the risks associated withpreviously defined dependencies

The outcomesoutputs cross-reference matrix highlights the relationshipbetween project outcomes and outputs This cross-reference table illustratesthe potential for one output to affect multiple outcomes (Department ofFinance and Administration 2003a) and prevents the situation where therelationship between outputs and outcomes is a lsquomatter of judgementrsquo(Department of Finance and Administration 2003b)

Step 3 ndash Use the workshop report as a key input to project planningreviewThe workshop report comprising the completed Outcome ProfileTM

templates outcomesoutputs cross-reference table and any additional work-shop notes are used by the project manager to planreview the project plan

For example

1 The completed Outcome ProfileTM templates are used to define theproject scope and schedule in terms of the project outputs and theactivities and resources required to generate them

2 The outcomesoutputs cross-reference table provides a project reportingframework whereby the progress of individual outputs can be relatedto the delivery of related outcomes

3 The individual Outcome ProfileTM detailed risk assessments arecombined to become the basis of the project risk register

4 IssuesAction Items identified during the workshop and documentedin the workshop report become the basis of the project issuesactionitems register

Whilst relatively simple in structure this three-step process for completing theOutcome ProfileTM template requires significant energy and rigour It relies

Performance and project procurement 195

Figure 66 Outcomeoutput cross-reference matrix

Output Name Outcome Outcome Outcome Outcome Outcome

1 2 3 4 n

Outputs Within the Scope of the

Project

Outputs Outside the Scope of the

Project

upon what Peter Senge (1990) refers to as dialogue the dialogue between theworkshop facilitator and stakeholders helps to revealidentify define and pri-oritise expected outcomes In addition the workshop facilitator needs to havewell-developed social and relational skills Therefore the PM and facilitationexperience of the workshop facilitator needs to be taken into account

A key breakthrough contribution of the Outcome ProfileTM template is itsability to guide stakeholders through the process of cross-referencing bothtangible and intangible expected project outcomes to tangible outputs Inparticular by explicitly cross-referencing intangible outcomes to tangibleoutputs all parties involved have a better appreciation and understandingof causendasheffect links between outcomes outputs and the actions andresources required to develop the corresponding outputs and deliver theexpected outcomes Causal ambiguity is reduced because cause-and-effectloops are easier to understand This aspect is of particular relevance whenconsidering that causal ambiguity has been identified as one of the princi-pal reasons why best practice and other forms of knowledge transfer islsquostickyrsquo and difficult to transfer (Szulanski 1996 2003)

We illustrate the use of the Outcome ProfileTM template2 with one of fiveaction research cases used to develop and validate the Outcome ProfileTM

template and the three-step process (Nogeste 2006a)

The CYPRASS project

The CYPRASS Project is a youth-oriented crime prevention project based inan Australian regional town (population 10000) with the key objective ofaddressing the risk factors that lead to youth crime The project is spon-sored by a law enforcement agency and overseen by a multi-agencyManagement Committee

Success of the CYPRASS project is recognised as being dependent on thedelivery of both tangible and intangible outcomes Relatively satisfied withtheir definition of expected tangible project outcomes the CYPRASSManagement Committee was keen to improve the definition of expectedintangible project outcomes Therefore the Management Committee agreedto participate in a doctoral level research study focused on the improved def-inition and alignment of intangible outcomes and tangible outputs

The three-step process previously described was applied to theCYPRASS Project as follows

Step 1 ndash Plan and conduct a stakeholder workshopDuring the stakeholder workshop members of the CYPRASS

Management Committee identified prioritised and defined the five priorityintangible outcomes of

1 youth personal development2 networks of positive relationships

196 Walker and Nogeste

3 cultural change within the law enforcement agency (to accommodatemore of a crime prevention mindset)

4 the positive image and reputation of the CYPRASS project and5 an improved perception of youth by the broader community

The Management Committee was able to clearly link expected intangibleoutcomes to tangible project outputs defining intangible project outcomes intangible terms For example the priority intangible outcome of lsquonetworks ofpositive relationshipsrsquo was defined as comprising three tiers of networksformal links partnerships and personal relationships

Step 2 ndash Document the workshop reportFor the CYPRASS Project the workshop report included an Outcome

ProfileTM per expected intangible project outcome as illustrated by thefollowing abbreviated version of the Outcome ProfileTM developed forthe expected outcome of Partnerships

Performance and project procurement 197

Outcome name

Partnerships

Outcome description

The purpose of the Partnership outcome is to establish and maintainformal one-to-one inter-organisational sharing links between theCYPRASS programme and other organisations supported by formalagreements (eg Memorandums of Understanding) that define ashared and combined commitment to the provision of youth referraland support services in the local shire

Partnership organisations will comprise local representation oforganisations that have established formal links with CYPRASS Forexample Department of Justice

Outcome realisation time frame

Short (months) to mediumlong term (depending on the currentstatus of a partnership)

Outcome owners

CYPRASS Management Committee CYPRASS Project Officer

Benefits

1 capability to provide strategic holistic services based on sharedand combined contributions

198 Walker and Nogeste

2 shared and combined resources skills and experience capable ofproviding larger range of services and

3 CYPRASS is seen as a lsquonetworking agentrsquo introducing partners toeach other for example could be formalised with lsquopartner eventsrsquo

Beneficiaries

Local at-risk youth their families peers and the broader community

Success criteria

Quantitative success criteria

1 number of partnerships2 number of partnerships that have delivered personal relationships

for example mentors3 increasedecrease in number of partnerships and4 in-kind resources contributed by partners

Qualitative success criteria

1 positive testimonials or feedback from partnership members

Outputs

1 Proforma Partnership Agreement including mention of whohowmakes public statements about the CYPRASS programme

2 Contact List to include which Management Committee member isresponsible for managing which partnerships including medialiaison partnerships with local media

3 Management Committee meeting agenda includes standing itemsfor reviewing partnership-related activities including resourceestimates for developingmaintaining partnerships

Dependencies

1 Management Committee membersrsquo time2 Management Committee member organisationsrsquo support3 CYPRASS formal links are capable of delivering a sufficient

number and diversity of partner organisations and4 lsquoSufficientrsquo number and diversity of partnering organisations

Risks

In summary six partnership-related risks were identified Of these fiveare medium risks and one is a Low risk With the majority of risks beingassessed as Medium partnership-related risks need to be actively man-aged by the Management Committee to prevent them from becomingHigh risks and placing the realisation of partnership outcomes at risk

Step 3 ndash Use the workshop report as a key input to project planningreviewBy cross-referencing intangible project outcomes to hitherto unplanned

(lsquomissingrsquo) tangible project outputs the Management Committee and moreparticularly the Project Officer were able to identify why expected intangi-ble project outcomes were not being realised The Project Officer was thenable to define the resources and activities required to develop the lsquomissingrsquoproject outputs The process also enhanced the projectrsquos risk managementprocess

Capability maturity models (CMM) andproject performance

Organisations that prefer to either pre-qualify potential tenderers ornegotiate with a preferred alliance-type partner may find it convenientto use a tool that evaluates the organisationrsquos maturity in delivering keytangible or intangible project benefits For example if innovation is akey element of a BSC that is important to the client organisation then itmay wish to benchmark the partner organisation with itself Alternativelyit may wish to monitor its organisational partner to assist that partner toimprove its organisational innovation maturity in any given BSC dimensionFor example an organisation commissioning in-house projects may wish toassess the maturity of its internal business units that deliver projectsWhatever the reason for the evaluation the following section should beof interest

An early initiator of the CMM concept was developed by a research teamfrom Carnegie Mellon University in the USA supported by the softwareengineering industry sector (Paulk et al 1993) Paulk et al (1993 2)started this work in November 1986 The result was a five-stage model thathas been widely adopted and adapted ndash for example in assessing construc-tion management processes in the Australian construction industry (CIDA1994) and for Knowledge Management and Organisation Learning (the K-Adv) (Walker et al 2004 Walker 2005) The most familiar of more recentCMM tools is the PMIrsquos Organisational Project Management MaturityModel (OPM3) (PMI 2003) Maturity levels are generally described in fivestages Initial (1) leads through a disciplined approach to applying bestpractices to being Repeatable (2) Standard consistent application of theseprocesses leads to level (3) Defined and once the processes become pre-dictably and routinely applied the maturity level becomes Managed (4)Through continuous process improvement it reaches level (5) Optimised(Paulk et al 1993 6 PMI 2003 28) OPM3 is being progressivelydeployed by organisations concerned with improving productivity andeffectiveness of their PM teams

The (K-Adv) provides us with an example of how a CMM tool mightallow us to understand how organisations create competitive advantagethrough effective use of knowledge

Performance and project procurement 199

200 Walker and Nogeste

The K-Adv model envisages a knowledge competitive advantage as flowingfrom the organisationrsquos ability to better manage its knowledge resourcesFigure 67 indicates that the pivotal feature of the K-Adv is delivered bypeople and only people can effectively manage knowledge so the lsquopeopleinfrastructurersquo is the key element of the knowledge advantage An effectivepeople infrastructure does not easily occur it needs to be nurtured by aneffective lsquoleadership infrastructurersquo that facilitates and frames an effectivepeople infrastructure because the leadership group controls access to muchof the needed resources With effective leadership in place a supportinginformation and communication (ICT) infrastructure can be put in place

Figure 68 further illustrates the three infrastructure elements of theK-Adv model Each of the three elements has two sub-elements and eachof these can be further described in terms of critical attributes The socialcapital part of the people infrastructure sub-element for example requiresfour further attributes ndash trust and commitment knowledge creation knowl-edge sharing and transfer and knowledge use and lsquosensemakingrsquo Each ofthese boxes illustrated in Figure 68 can be used as the basis of a CMM

The people infrastructure is the key to the K-Adv delivering competitiveadvantage and value because it is this facility which when supported byleadership and ICT infrastructures actually delivers value through organi-sational learning (OL) (Walker et al 2004 Walker 2005) In our illustra-tion of how a CMM can be used we focus on the attribute lsquoknowledge useand sensemakingrsquo This is because it closely links with the BSC lsquoLearningand Growthrsquo theme that we have followed in this chapter and is furthercomplemented by discussion in Chapter 8

Figure 67 K-Adv main elements

Source Walker 2005

The peopleinfrastructure

Delivers

The GoalCompetitive advantagethrough a knowledge

advantage

Feedbackloop

Feedbackloop

Feedbackloop

Facilitates+ Frames

Supports +Enhances

Leadershipinfrastructure

ICTinfrastructure

Frames Strategises+ Project managers

Performance and project procurement 201

The K-Adv tool can be used to facilitate performance measurement in twoways First through focusing upon stakeholder goals (prior to or at the timeof procuring projects) the relevant K-Adv attribute can be evaluated to testthe organisationrsquos capability to deliver the identified necessary value Secondif projects are being undertaken internally the tool can be used to bench-mark and strategically plan how to increase the organisationrsquos CMM levelThis process will shortly be explained and illustrated

The capability maturity level for a specific identified attribute (eg forknowledge use and sensemaking) can be measured using a scenario orlsquoword picturersquo that describes how a particular maturity level may appear toa CMM evaluator These word pictures can use the CMM matrix descrip-tion already developed by Walker (2004) or the CMM matrices can becustomised to reflect a specific learning and growth BSC initiative identified(as illustrated in Table 62) An example follows to illustrate the process

We will now focus on the lsquoknowledge use and sensemakingrsquo attribute (box)in Figure 68 Walker (2004) identified four performance characteristics forthis attribute from the literature ambiguity and creative chaos redundancyand thinking requisite variety and reflection and curiosity The key questionfor this attribute is lsquoHow can we make sense of our knowledge to best useit for competitive advantagersquo This can be applied to the lsquoambiguity andchaosrsquo attribute measure in terms of the answer lsquoby providing a demanding

Figure 68 K-Adv elements and sub-elements

Source Walker 2005

Knowledge advantage

Leadership Peopleinfrastructure

ICT Enablinginfrastructure

Envisioning

ICT hw amp swinfrastructure

FunctioningHardware

FunctioningNetworks

Functioningsoftware

Functioningportals

+ Interface

ICT systemsupport

Personalassistant

Identifyingstakeholder K-value

Developing corevision issues

Developing vision options

Articulatingthe vision

Training +develpment

Capacityplanning

Example of CMM for this attribute

Visionrealisation

Socialcapital

Processcapital

Trust + Commitment

Knowledge creation

Knowledge sharing+ Transfer

Knowledge use+ Sense making

Business systems+ Rejuvenation

Problem solvingexperimentation

+ Learning

Knowledgesharing processes

Rewards systemsPlanning vision realisation

Mobilising resources

Deploying the vision

Maintaining the vision

Archiving

202 Walker and Nogeste

stretch challenge in ambiguous terms that provides creative chaos thatpeople respond positively torsquo The level of maturity is determined by theorganisation through self-assessment and providing evidence that mostclosely fits the CMM matrix cell Each cell provides a word-picture thatapproximately indicates the maturity level These descriptors were carefullydeveloped from the literature and validated through workshops with stake-holders but we recognise that they will need refinement customisation andupdating to reflect each organisation

The levels have been determined by the construction of the CMM Fivelevels have been broadly identified throughout the model Level 1 InactiveAWARENESS is evidenced by lsquoPeople seem generally uneasy and unreceptiveto unconventional thinkingrsquo Level 2 Pre-active INITIATION is evidencedby lsquoRigid rules and processes make it difficult and demotivating for people tooffer creative ideasrsquo Level 3 Active ADOPTION is evidenced by lsquoSmall-scalelocal ldquoskunkworksrdquo initiativesrsquo Level 4 Pro-active ACCEPTANCE andADAPTATION is evidenced by lsquoThe workplace culture appears chaoticwith a buzz of new and conflicting ideas being debated and exploredrsquoLevel 5 Embedded ROUTINISATION and INFUSION is evidenced bylsquoTop management periodically creates crises and facilitates both senior-levelmanagement to deliver challenging goals and empowers the coal-faceworkforce to find delivery strategiesrsquo

This process can be repeated for each of the performance characteristicsof the attribute illustrated in Table 63 and each attribute indicated in thesummary model Figure 68 and for each of their identified performance indi-cators For simplicity of illustration we follow with our focus on the socialcapital sensemaking attribute The process of benchmarking using the CMMfollows by proceeding through each attribute of CMM in the table Theresults can yield a current state situational analysis that is useful for audit-ing and establishing a baseline and understanding the current performancelevels for lsquoliftingrsquo that performance CMM level at a defined future time lsquoTrsquo

Figure 69 illustrates how the tool can be used for benchmarking andstrategic planning Key relevant leaders in an organisation participating ina K-Adv study would be asked which matrix cell illustrated in Figure 69best describes where they consider themselves to be currently performingand where they would like to be at time lsquoTrsquo in the future Gap analysis(identifying the range between the now and preferred future state) revealsthe degree of change necessary Strategic and tactical plans can then bemade based on the analysis of how to lift positions in the CMM from thecurrent to desired position This process can be helpful for planning whatis needed and undertaking a feasibility analysis as part of preparing a busi-ness plan to instigate the desired change It is also a useful tool for workingwith a partner or business unit prior to procuring PM services so that thelsquoLearning and Growthrsquo part of the BSC can be addressed as part of the

Tabl

e 6

3 Se

nsem

akin

g an

d its

con

trib

utio

n to

the

K-A

dv C

MM

tab

le

Mat

urity

Perfo

rman

ce amp

cha

ract

erist

ic

Ambi

guity

and

cre

ative

cha

osRe

dund

ancy

and

thi

nkin

gRe

quisi

te v

arie

tyRe

flect

ion

amp c

urio

sity

QU

ESTI

ON

How

can

we

By p

rovi

ding

a d

eman

ding

By

pro

vidi

ng s

uffic

ient

By e

ncou

ragi

ng p

eopl

e to

By p

rovi

ding

suf

ficie

nt

mak

e se

nse

of o

urst

retc

h ch

alle

nge

inre

sour

ces

to d

eliv

er

be o

pen

to a

var

iety

of

time

and

spac

e fo

r kn

owle

dge

to b

est

use

it am

bigu

ous

term

s th

atbo

th t

ime

and

a su

itabl

evi

ews

and

chan

nels

of r

ich

peop

le t

o co

ntem

plat

efo

r co

mpe

titiv

e ad

vant

age

prov

ides

cre

ativ

e ch

aos

venu

e to

be

able

to

thin

kco

mm

unic

atio

nan

d re

flect

so

that

the

yA

nsw

er rarr

that

peo

ple

resp

ond

and

expl

ore

men

tal

map

con

sequ

ence

spo

sitiv

ely

tom

odel

s an

d hy

poth

eses

Inac

tive

Aw

aren

ess

Peop

le s

eem

gen

eral

lyT

he o

rgan

isat

ion

purs

ues

A s

tric

t co

de o

f bus

ines

sR

efle

ctio

n an

d cu

rios

ityun

easy

and

unr

ecep

tive

a le

an-a

nd-m

ean

appr

oach

dete

rmin

es h

ow t

hing

sis

reg

arde

d as

indu

lgin

gto

unc

onve

ntio

nal

whe

re a

ll no

n-co

rear

e do

ne w

ithin

the

beha

viou

rsth

inki

ngac

tivity

has

to

be ju

stifi

edor

gani

satio

nPr

e-ac

tive

Initi

atio

nR

igid

rul

es a

nd p

roce

sses

As

a by

-pro

duct

of k

eepi

ngT

here

is a

cha

otic

ad

hoc

Ref

lect

ion

and

curi

osity

ism

ake

it di

fficu

lt an

dco

re id

eas-

peop

le

appr

oach

to

form

s of

supp

orte

d in

the

ory

but

dem

otiv

atin

g fo

r pe

ople

em

ploy

eds

ome

leve

l of

com

mun

icat

ing

in p

ract

ice

is v

iew

ed a

sto

offe

r cr

eativ

e id

eas

indi

vidu

al t

ime

for

inno

vativ

e id

eas

was

tefu

lre

gene

ratio

n is

pos

sibl

eT

here

are

no

rule

sA

ctiv

e A

dopt

ion

Smal

l-sca

le lo

cal

A fo

rmal

ised

per

iod

ofT

he o

rgan

isat

ion

bala

nces

Pe

ople

are

enc

oura

ged

lsquosku

nkw

orks

rsquo ini

tiativ

eslsquos

abba

tical

rsquo tim

e-ou

t is

chao

s w

ith r

igid

to

be

curi

ous

and

tore

sour

ced

thro

ugh

proc

esse

s fo

r in

nova

tion

refle

ct b

ut o

nly

in t

heir

com

petit

ive

prop

osal

expl

orat

ion

pers

onal

tim

esu

bmis

sion

Pro-

activ

e A

ccep

tanc

eT

he w

orkp

lace

cul

ture

A

ll bu

sine

ss u

nits

are

T

he o

rgan

isat

ion

supp

orts

The

org

anis

atio

n

ada

ptat

ion

appe

ars

chao

tic w

ith a

ex

pect

ed t

o fu

nd a

set

a w

ide

vari

ety

of fo

rms

faci

litat

es p

rese

ntat

ions

buzz

of n

ew a

ndre

sour

ce

age

budg

etof

com

mun

icat

ing

and

by t

houg

ht le

ader

s to

conf

lictin

g id

eas

bein

gto

ena

ble

new

initi

ativ

esex

plor

ing

new

idea

sst

imul

ate

refle

ctio

n an

dde

bate

d an

d ex

plor

edto

em

erge

curi

osity

Embe

dded

Rou

tinis

atio

nTo

p m

anag

emen

tT

he o

rgan

isat

ion

sets

T

he o

rgan

isat

ion

links

with

The

org

anis

atio

n ho

sts

In

fusi

onpe

riod

ical

ly c

reat

esas

ide

a re

gene

rativ

e ou

tsid

e ag

enci

es in

an

d fu

lly s

uppo

rts

acr

ises

and

faci

litat

es b

oth

inve

stm

ent

fund

to

stra

tegi

c al

lianc

es a

ndco

rpor

ate

univ

ersi

tyse

nior

-leve

l man

agem

ent

supp

ort

initi

ativ

es fo

rre

war

ds in

divi

dual

s an

d th

at s

pons

or a

ctio

nto

del

iver

cha

lleng

ing

emer

ging

inno

vatio

nBU

s to

col

labo

rate

with

lear

ning

inte

rnal

res

earc

hgo

als

and

empo

wer

s th

ede

velo

pmen

t ac

ross

the

mul

ti-di

scip

line

team

s an

das

wel

l as

part

icip

atin

g in

coal

-face

wor

kfor

ce t

oor

gani

satio

ndi

vers

e gr

oups

cros

s in

dust

ry o

r se

ctor

find

deliv

ery

stra

tegi

esre

sear

ch a

ctiv

ities

204 Walker and Nogeste

intangible outcomes from the project This process can also be linked backinto an Outcome ProfileTM developed using the tools described earlier3

Chapter summary

This section provides some useful examples of tools that can be used toidentify and measure expected project outcomes that satisfy stakeholderneeds and provide a basis for measuring project performance in terms thathave been missing from much of the PM literature to date The chapterrsquosgoal was to provide a transformational view (from the orthodox lsquoirontrianglersquo cost time quality) of project performance A chapter sectionidentified project success in broader terms than delivering a project on coston time and to specified and explicit quality requirements We purposelywent further to include the need to develop a performance managementsystem that meets the need of a broader level of stakeholders and suggestthat even implicit and intangible needs can be made sufficiently explicit andunderstood that performance measures can be developed to monitorachievement of delivering on these needs

We have provided insights into how the two clouds illustrated in Figure 61can be defined and addressed Chapter 3 relating to stakeholder influenceon project procurement delivery clearly indicated the importance of

Figure 69 Example of benchmarking and gap analysis

Source Walker 2005

Current position

The workplace culture appears chaoticwith a buzz of new and confliction ideasbeing debated and explored

Desired positionat time lsquoTrsquo

lsquoWord picturesrsquo describescenarios to populate thebenchmarking matrix

People seem generally uneasy andunreceptive to unconventional thinking

Performance and project procurement 205

identifying influential high-impact stakeholders whose opinion of how wellthe project met their needs will shape perceptions of project and PMsuccess In that chapter we stressed the need for stakeholder engagementand communication to present useful and meaningful performance statusreporting that not only provides a monitoring and control tool but alsoprovides an engagement tool so that relevant joint decision making whereand when appropriate can effectively take place

We provided in this chapter examples of three types of tool that can beusefully employed a BSC an outcomendashoutput definition and alignmenttool and a CMM tool We argue that deployment of tools such as theseshould be factored into the project procurement brief so that project stake-holders and sponsors can better visualise and understand the true level ofvalue they are receiving and can make their judgements of project and PMsuccess on a more reasoned and informed basis

Vignette

We provided a vignette in the hypothetical example of TheSource inits efforts to develop a BSC for its business At this point we can addthat TheSource has been toying with the idea of more formally linkingmany of the intangible outcomes that produced lsquocustomer delightrsquo toits BSC measures It decided to do this so that it could better engagewith its customers and supply chain partners and so that it could morefully identify specific (but previously inexplicit) benefits that it hasdelivered to further place its brand ahead of any of its competitorsespecially that it is now considering franchising and thus would needto develop more easily understood procedures to be able to franchiseits business idea Further it realised that it needed to benchmark itsbusiness units as it expanded the scale scope and reach of the servicesit could deliver and the CMM appears a reasonable tool to use todo this as well as to develop through gap analysis plans for futureimprovement

Issues to ponder

1 Develop a coarse-grained CMM for the process of procurementperformance measurement and try to assess where your currentorganisation lies in relation to TheSource

2 Just concentrating upon the BSC for the moment make a list ofthe tasks that you think would need to be completed to develop afirst draft of a BSC for TheSource and make some preliminaryestimates of time resources and costs likely to be incurred

206 Walker and Nogeste

Notes1 Refer to wwwprojectexpertisecomau for details on this tool and how it can be

used2 For a fuller discussion of the following readers should refer Nogeste K and

Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Making the IntangibleTangiblersquo Measuring Business Excellence 9(4) 55ndash68 where this material wasoriginally published in more detail than appears in this section of the chapter

3 See note 1

References

Andriessen D and Tissen R (2000) Weightless Wealth Harlow Great BritainPearson Education Limited

Baccarini D (1999) lsquoThe Logical Framework Method for Defining ProjectSuccessrsquo Project Management Journal 30(4) 25ndash32

Christenson D and Walker D H T (2003) Vision as a Critical Success Factor toProject Outcomes The 17th World Congress on Project Management MoscowRussia June 3ndash6 On CD-ROM

CIDA (1994) Two Steps Forward One Step Back ndash Management Practices in theAustralian Construction Industry Sydney Construction Industry DevelopmentAgency

Cleland D I and Ireland L R (2002) Project Management Strategic Design andImplementation 4th ed New York McGraw-Hill

Cleland D I and King W R (1988) Project Management Handbook 2nd edNew York Van Nostrand Reinhold

Coghlan D (2001) lsquoInsider Action Research Projects Implications for PractisingManagersrsquo Management Learning 32(1) 49ndash60

Coghlan D and Brannick T (2005) Doing Action Research in Your OwnOrganization 2nd ed London Sage Footprint

3 Again concentrating on the BSC for TheSource make a list ofexpected tangible and intangible outcomes for developing BSCbenefits

4 The tools techniques and processes described in this chapter couldpresent additional management overhead for any organisationespecially a small one like TheSource To what extent do youthink that the cost and management attention required to followthis path is worthwhile Detail 3 examples

5 What performance measurement issues would you expect mightemerge for a franchisee of TheSource regarding stakeholderengagement and measurement of intangible outcomes that deliverbenefits in terms of training and awareness operational trainingdevelopment and knowledge sharing

Performance and project procurement 207

Cooke-Davies T (2002) lsquoThe ldquoRealrdquo Success Factors on Projectsrsquo InternationalJournal of Project Management 20(3) 185ndash190

Cooke-Davies T (2004) Maturity and Measurement What Are the RelevantQuestions about Maturity and Metrics for a Project-based Organization to Askand What Do They Imply for Project Management Research PMI ResearchConference 2004 London 12ndash14 July Slevin D P D I Cleland and J K PintoPMI CD-ROM Disk 1ndash15

Dallas M (2002) Measuring Success The 5th European Project ManagementConference ndash PMI Europe 2002 Cannes France Davis Langdon

de Wit A (1988) lsquoMeasurement of Project Successrsquo International Journal of ProjectManagement 6(3) 164ndash170

Department of Finance and Administration (2003a) Specifying Outputs wwwfinancegovaubudgetgroupCommonwealth_Budget_-_Overviewspecifying_outputshtml 27 January

Department of Finance and Administration (2003b) Specifying Outputs Case StudieswwwfinancegovaubudgetgroupCommonwealth_Budget_-_Overviewspecifying_outputs__case_studihtml 17 May

Drummond H (1998) lsquoRiding a Tiger Some Lessons of Taurusrsquo ManagementDecision 36(3) 141ndash146

Dvir D Raz T and Shenhar A J (2002) lsquoAn Empirical Analysis of the Relationshipbetween Project Planning and Project Successrsquo International Journal of ProjectManagement 21 89ndash95

Eccles R G (1991) lsquoThe Performance Measurement Manifestorsquo Harvard BusinessReview 69(1) 131ndash137

Edvinson L (1997) lsquoDeveloping Intellectual Capital at Skandiarsquo Long RangePlanning Elsevier Science Limited 30(3) 366ndash373

Elkington J (1997) Cannibals with Forks London Capstone PublishingFlyvbjerg B Rothengatter W and Bruzelius N (2003) Megaprojects and risk an

anatomy of ambition New York Cambridge University PressHarris F and McCaffer R (1995) Modern Construction Management 4th ed

Oxford Blackwell ScienceHM Treasury U (2003) The Green Book ndash Appraisal and Evaluation in Central

Government httpgreenbooktreasurygovuk 6 AugustIbbs W C and Kwak Y H (2000) lsquoAssessing Project Management Maturityrsquo

Project Management Journal 31(1) 32ndash43Johnson J (2006) My Life is Failure ndash 100 Things you Should Know to

be a Successful Project Leader West Yarmouth MA The Standish GroupInternational Inc

Kaplan R S and Norton D P (1992) lsquoThe Balanced Scorecard ndash Measures thatDrive Performancersquo Harvard Business Review 70(1) 171ndash179

Kaplan R S and Norton D P (1993) lsquoPutting the Balanced Scorecard to WorkrsquoHarvard Business Review 71(5) 134ndash142

Kaplan R S and Norton D P (1996) Using the Balanced Scorecard as a StrategicManagement System 1

Kaplan R S and Norton D P (2000) lsquoHaving Trouble with Your Strategy ThenMap Itrsquo Harvard Business Review 78(5) 167ndash176

Kaplan R S and Norton D P (2004a) lsquoMeasuring the Strategic Readiness ofIntangible Assetsrsquo Harvard Business Review 82(2) 52ndash63

208 Walker and Nogeste

Kaplan R S and Norton D P (2004b) lsquoMeasuring the Strategic Readiness ofIntangible Assetsrsquo Harvard Business Review (February) 52ndash63

Kaplan R S and Norton D P (2004c) Strategy Maps Converting IntangibleAssets into Tangible Outcomes Boston Harvard Business School Publishing

Keen J and Digrius B (2003) lsquoThe Emotional Enigma of Intangiblesrsquo CIOMagazine (April) 104ndash107

Likert R (1958) lsquoMeasuring Organizational Performancersquo Harvard BusinessReview 36(2) 74ndash83

Miles R E and Snow C C (1995) lsquoThe New Network Firm A SphericalStructure Built on a Human Investment Philosophyrsquo Organizational Dynamics23(4) 5ndash18

Miles R E Snow C C and Miles G (2005) Collaborative entrepreneurshiphow communities of networked firms use continuous innovation to createeconomic wealth Stanford Calif Stanford Business Books

Munns A K and Bjeirmi B F (1996) lsquoThe Role of Project Management inAchieving Project Successrsquo International Journal of Project Management14(2) 81ndash87

Murray E J and Richardson P R (2000) lsquoShared Understanding of the CriticalFew a Parameter of Strategic Planning Effectivenessrsquo International Journal ofPerformance Measurement 2(123) 5ndash14

Neeley A (2002) Business Performance Measurement ndash Theory and PracticeCambridge UK Cambridge University Press

Neeley A Bourne M Mills J Platts K and Richards H (2002) Strategy andPerformance Getting the Measure of Your Business Cambridge UK CambridgeUniversity Press

Nogeste K (2004) lsquoIncrease the Likelihood of Project Success by Using a ProvenMethod to Identify and Define Intangible Project Outcomesrsquo InternationalJournal of Knowledge Culture and Change Management 4 915ndash926

Nogeste K (2006a) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project Outputs Doctorof Project Management DPM Graduate School of Business Melbourne RMIT

Nogeste K (2006b) Development of a Method to Improve the Definition andAlignment of Intangible Project Outcomes with Tangible Project OutputsGraduate School of Business Melbourne RMIT University

Nogeste K and Walker D H T (2005) lsquoProject Outcomes and Outputs ndash Makingthe Intangible Tangiblersquo Measuring Business Excellence 9(4) 55ndash68

Norrie J L (2006) Improving Results of Project Portfolio Management in thePublic Sector Using a Balanced Scorecard Approach Doctor of ProjectManagement School of Property Construction and Project ManagementMelbourne RMIT University

Norrie J and Walker D H T (2004) lsquoA Balanced Scorecard Approachto Project Management Leadershiprsquo Project Management Journal PMI35(4) 47ndash56

Paulk M C Curtis B Chrisses M B and Weber C V (1993) lsquoCapabilityMaturity Model Version 11rsquo IEEE Software 10(4) 18ndash27

Peters J (1996) lsquoA Learning Organizationrsquos Syllabusrsquo The Learning Organization3(1) 4ndash10

Peters J and Smith P A C (1996) lsquoDeveloping High-potential Staff ndash An ActionLearning Approachrsquo Journal of Workplace Learning 8(3) 6ndash11

Phelan T M (2004) The impact of effectiveness and efficiency on project successHoboken NJ Stevens Institute of Technology

PMI (2003) Organizational Project Management Maturity Model (OPM3)Knowledge FoundationNewtown Square Pennsylvania PMI

Rad P F (2003) lsquoProject Success Attributesrsquo Cost Engineering 45(4) 23ndash29Roos G and Roos J (1997) lsquoMeasuring Your Companyrsquos Intellectual

Performancersquo Long Range Planning Elsevier Science Limited 30(3) 413ndash426Senge P M (1990) The Fifth Discipline ndash The Art amp Practice of the Learning

Organization Sydney Australia Random HouseShenhar A J Dvir D Levy O and Maltz A (2001a) lsquoProject Success

A Multidimensional Strategic Conceptrsquo Long Range Planning InternationalJournal of Strategic Management 34(6) 699ndash725

Shenhar A J Dvir D Levy O and Maltz A C (2001b) lsquoProject SuccessA Multidimensional Strategic Conceptrsquo Long Range Planning 34(6) 699ndash725

Smith P (2001) lsquoAction Learning and Reflective Practice in Project Environmentsthat are Related to Leadership Developmentrsquo Management Learning 32(1)31ndash48

Standish (1994) The Chaos Report (1994) Company Research Report DennnisMA 14

Standish (2003) Latest Standish Group CHAOS Report Shows Project SuccessRates Have Improved by 50 httpwwwstandishgroupcompressarticlephpid2 25 March

Stewart R A and Mohamed S (2001) lsquoUtilizing the Balanced Scorecard for ITISPerformance Evaluation in Constructionrsquo Journal of Construction Innovation1(3) 147ndash163

Stewart R A Mohamed S and Daet R (2002) lsquoStrategic Implementation ofITIS Projects in Construction A Case Studyrsquo Automation in Construction11(6) 681ndash694

Stewart R A Mohamed S and Marosszeky M (2004) lsquoAn EmpiricalInvestigation into the Link Between Information Technology ImplementationBarriers and Coping Strategies in the Australian Construction Industryrsquo Journalof Construction Innovation 4(3) 155ndash172

Stewart W E (2001) lsquoBalanced Scorecard for Projectsrsquo Project ManagementJournal 32(1) 38ndash53

Sveiby K E (1997) The New Organizational Wealth Managing and MeasuringKnowledge-based Assets San Francisco Berrett-Koehler Publishers Inc

Szulanski G (1996) lsquoExploring Internal Stickiness Impediments to the Transfer ofBest Practice within the Firmrsquo Strategic Management Journal 17(Winter specialIssue) 27ndash43

Szulanski G (2003) Sticky Knowledge Barriers to Knowing in the Firm ThousandOaks CA Sage Publications

Turner J R (1999) The Handbook of Project-based Management Improving theProcesses for Achieving Strategic Objectives 2nd London UK McGraw-Hill

Walker D H T (2004) The Knowledge Advantage (K-Adv) Unleashing Creativityand Innovation Unpublished report draft manuscript Melbourne 183

Performance and project procurement 209

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T Wilson A J and Srikanathan G (2004) The KnowledgeAdvantage (K-Adv) For Unleashing Creativity amp Innovation in the ConstructionIndustry Brisbane CRC in Construction Innovation httpwwwconstruction-innovationinfoimagespdfs2001ndash004-A_Industry_Bookletpdf

Ward J Murray P and David E (2004) Benefits Management Best PracticeGuidelines Bedford United Kingdom School of Management CranfieldUniversity

Zuber-Skerritt O (2002) lsquoA Model for Designing Action Learning and ActionResearch Programsrsquo The Learning Organization 9(4) 171ndash179

210 Walker and Nogeste

Chapter 7

E-business and projectprocurement

Derek HTWalker Guillermo Aranda-MenaMario Arlt and Justin Stark

Chapter introduction

E-business in its variety of forms that use information communicationtechnologies (ICT) has changed the way that business transactions can takeplace (Sawhney and Parikh 2001) E-procurement has drastically alteredthe value-generation equation by ICT reducing transaction costs (Duyshart1997 Duyshart et al 2003) and facilitating internet commerce (Lawrenceet al 2003) In todayrsquos market many companies present themselves to theworld via their internet site they tender and respond to tenders using web-enabled technologies manage and control their accounting and informationexchange using electronic means and they also use groupware internettechnologies for sharing knowledge decision making coordination andproject control Moving from paper-based to object-oriented data modelshas transformed much of the procurement process and improves supplychain integration

There has been a clear journey along a value curve over time for manycompanies that suggests the following trajectory stand alone datainformationprocessing (for internal applications) communication and informationdataexchange between business units within an organisation processingtransaction data ndash for example electronic data exchange (EDI) betweenorganisations relationship marketing processes that bind parties moreclosely together using customer relationship management (CRM) applicationsand inter-operability of data exchange and e-business (Sharma 2002)Also the journey takes us from substantially paper-based to fully integratedelectronic forms of information exchange financial transactions coordinationand monitoring and control of resources and activities This is illustratedin Figure 71

The literature presents case study examples of e-business for majorcompanies such as BHP Billiton1 one of Australiarsquos largest companies anda major global resource company (Chan and Swatman 2000) as well asmedium-sized construction companies such as Kane Construction2 inAustralia which are typical of many organisations that undertake projects

using ICT to not only present themselves to potential customers and supplychain partners but also as part of a portal that allows them to interact withtheir supply chain using e-business applications This particular organisationuses its web presence to project its corporate image and market its servicesKane Constructionrsquos web site3 provides an example of how this project-basedorganisation can interact with the world as well as presenting its e-face toprospective clients and supply chain partners who may use e-business as amatter of course

The relevance of linking e-business to procurement in a book such as thisrelates to general changes in procurement patterns that includes closeralignment (and hence the need for ICT interoperability) as well as businessprocess alignment Companies that use ICT as a lsquogivenrsquo may be unlikely towant to deal with organisations that have failed to develop e-businesscapability or might choose to exploit a superior ICT capability The ratio-nale is that much of the value that integrating organisations in a supplychain through common platform ICT with interoperable data provides acritical competitive advantage (Sawhney and Parikh 2001) The nature andextent of this capability varies amongst organisations involved in projectsand so this chapter seeks to help us understand what is meant by e-businesshow it operates so that we can gain a historical perspective and betterappreciate this evolving business paradigm and to be better prepared fore-business demands in a turbulent demanding and highly competitiveglobal business environment Finally government has seen e-business as astrategic interest for procurement and has established or sponsored

212 Walker et al

The organisation

Level 4ndash full ICT and transactional exchanges across supply chain

Level 3ndashEDI transactional between organisation communications

Level 2ndashcommunication and data organisation-internal exchange systems

Level 1ndashstandalone independent transactional IT systems

BU n

BU n

BU 3

BU 3

BU 2

Clients

Paper based

E-commerce

E-business

BU 2

BU 1

BU 1

BU 1

IntegratedOnline + Offline

IsolatedOnline or Offline

Sub-contractors

Suppliers

Linked

Figure 71 E-business trajectory

organisations to help develop standards and to promote e-procurementThe Australian Procurement and Construction Council Inc4 is one example(Australian Procurement amp Construction Council Inc and DOLAC 1997)

This chapter is presented in three broad sections A vignette at the end ofthe chapter presents a scenario and prompts relevant questions flowingfrom that scenario

The first section deals with definitions commonly used a brief descriptionof the evolution of e-business with respect to project procurement driversand inhibitors legal issues and issues about system compatibility (bothfrom a business function and technology viewpoint) The purpose of thissection is to familiarise readers with the main e-business issues that relateto project procurement The second section deals with the role of ICTportals in project procurement This ranges from technical developmentssuch as wireless portals and facilitating technological infrastructures to thebusiness systems and regulations that need to harmonise with technologyadvances to enable e-business to be embraced and to facilitate data-miningThe systems and regulation issues that are discussed revolve aroundgovernment policy legal aspects and business process alignment issues thatmake effective use of advantages that e-business offers The third sectionprovides readers with a historical perspective of e-business for projectprocurement In this section the trends that developed in the 1990s whene-business took off as a concept through to the early part of this decadewill be discussed The discussion continues to the present with a perspectiveof current examples of how e-business has evolved Finally in this sectionwe speculate about how project procurement may be undertaken in comingyears Of course our experience of history is that change overlaps with fewif any schisms The Stone Age did not end because we ran out of stones(Lovins 2000) Similarly while the picture we paint from the 1990s may befamiliar to some readers in 2007 others may see the 2010 speculations asshort-term plans within their own workplace

Fundamentals of procurement using e-business

The above section intimated what e-business means and a history of itsdevelopment was briefly provided Before proceeding further we willprovide definitions and a more detailed history of this trend Firstdefinitions there are many derivations of the term e-business that may beconfusing so a few definitions are provided to clarify what we arediscussing in this chapter

Fundamentals

Poon and Swatman (1999) describe e-commerce as sharing business informa-tion maintaining business relationships and conducting businesstransactions using internet-based technologies The focus is clearly upon

E-business and project procurement 213

using e-technologies to conduct business transactions where purchases andpayments are made electronically However using e-commerce does notnecessarily gain an organisation a competitive advantage because it is anenabling or facilitating technology and not a solution as pointed out byBarnes et al (2004) They undertook a series of case studies of 12 e-businessesand compared how these businesses linked their e-commerce activities withtheir full business operations such as the front order-entry and procurementof resources area logistics operations management productservicedelivery and the strategic alignment of all these aspects They adapted a1980s four-stage maturity model of organisational strategic role and con-tribution of the operations function (Hayes and Wheelwright 1984) toevaluate maturity of e-business This approach helps us better understande-business development stages and indicates where various e-business formsfit into the Figure 71 e-business trajectory

Stage 1 relates to inadequate technology holding back operationsOrganisations may use e-commerce applications but their technology or itsintegration with the logistics and delivery side may cause problemsbottlenecks and inefficiencies For example an e-business system may beused to generate business (sales commitments to project or whatever) butthis part of the business system does not lsquotalkrsquo to the production end sodelivery suffers Stage 2 follows industry norms and best practice but as anunthinking follower so the results can be hit and miss ndash perhaps as good asmany but not gaining any clear competitive advantage because the overallstrategy has not yet been fully developed or implemented Stage 3 may haveaddressed the need to integrate e-commerce with e-operations perhapsthrough an enterprise resource planning system (ERP) that is internallyfocused to address efficiencies and thus derive competitive advantagethrough a cost advantage This stage can be described as deploying e-businessbecause business activities are e-enabled in a well-linked manner and linkedto the business strategy Stage 4 represents a more transformational stagewhere the integration at Stage 3 is present but it allows greater engagementwith external stakeholders so that new opportunities are searched for thelinked strategy is more outward looking and leads the organisation togreater differentiation and focus on potential market niches

Christopher Barnatt (2004) provides a useful historical account of howe-business has emerged He traces the origins back to a fiction writerWilliam Gibson who in a book written in 1984 (now updated (Gibson2004) to reflect upon current developments emerging from the fantasy ofthe original edition) first coined the term cyberspace to describe theconsensual hallucination of an abstract electronic world that human beingscould occupy across computer networks Barnatt (2004 80) also providesan evolutionary maturity model in four stages In Stage 1 he discusses howin the early 1990s the electronic frontier first mooted by Gibson could beconceptualised as a business model with the advent of the concept of

214 Walker et al

lsquovirtualrsquo communities businesses and teams and the increasing use of LotusNotes as a groupware tool Businesses still interacted with the client andcustomer using traditional technologies During the second half of the1990s Stage 2 emerged with the rise and fall of the dotcom The dotcomsused purely internet-based e-commerce technologies to undertake onlinebusiness activities while traditional businesses did business with customersoffline and the term lsquobricksrsquo or lsquoclicksrsquo became shorthand ways todifferentiate between these two radically different business models In theaftermath of the dotcom collapse which was attributed to poor businesssustainability issues the Stage 3 emerged as an integration stage This stagerepresents an evolution towards e-business where the online and offline cus-tomers were able to conduct business with traditional businesses that hadembraced e-commerce and were integrating these technologies with theiroperational business processes ndash thus moving towards e-business Stage 4represents the current mid-2000s situation where many lsquotraditionalrsquo organ-isations are now using multiple integrated online and offline interfaces thatcustomers can use to respond to a customerrsquos preferred interaction withthese companies This stage also relates well to the Stage 4 situationdescribed by Barnes et al (2004)

We can see from this discussion there is a range of possible ways ofunderstanding e-business from its pure focus on e-commerce tools forinteracting with a client to procure goods or services to a fully integratedsuite of software tools and enabling systems and business processes thatallows seamless electronically enabled procurement through deliveryprocesses that have been strategically thought through and aligned to thedelivery mode Thus e-business can be seen to refer to the integration ofe-commerce with electronically enabled business processes to deliver goodsand services E-business maturity can be measured in terms of the levels ofintegration of processes from procurement to delivery and its interactionwith development of business strategy from reactive through to proactive

Forms of e-commerce and e-business

We have introduced some fundamental concepts and this now allows us tounderstand how e-commerce and e-business may be undertaken We cannow consider some of the many e-procurement derivatives that areexplained below Interaction between customers and suppliers (and allparticipants within a supply chain) can be enabled through informationfiles and transactions being transmitted electronically by

P2P ndash peer-to-peer networks where individuals deal with otherindividuals within a network The company PayPal5 has recentlyestablished a P2P payment system and there are a number of P2P fileswap networks in existence

E-business and project procurement 215

B2C ndash Business to customer Selling online to individuals or organisationssuch as Amazon for books CDs and so on

B2G ndash Business to government This is widespread in tendering andacross the Globe this is becoming a common feature For example theCommonwealth Government of Australia6 whose purpose is for citizensto obtain information as well as be able to transact business and searchfor tender requests or to respond electronically to tenders and so on

C2G ndash Citizens to government Many governments have extensive websites for interacting with citizens to provide information and to receivefeedback

C2C ndash Consumer to consumers In many ways EBay is a C2C facilitatoras its business model is to allow consumers to interact as if in an open(physical) market place swapping bartering and buying and sellingthrough an online intermediary Hobbyists and people interested inmemorabilia also get together to interact and swapbuy makingtransactions through using the e-facilitator

C2B ndash Consumer to business This may use the reverse auction modeloffered by a number of organisations including airline discounterswhere bidders set their price limit and the intermediary facilitatessubscribing businesses to decide whether to accept these bids Someorganisations have sophisticated electronic agents which allowconsumers to configure their options to order items Dell7 is one ofmany that has this capacity

G2G ndash Where governments can be linked communication betweenthese entities can be invaluable In Australia like the USA Germanyand other countries with a federal and state (or province) constitutionthis kind of cross-government electronic interaction is most usefulGovernments also interact as mentioned earlier with business in G2Band with consumers in G2C transactions

E-procurement drivers and inhibitors

E-procurement has created new enablers for providing information (aboutproducts services companies corporate actions etc) and communication(audio video and data in real-time or near-time) in addition to facilitatinga transaction (purchase auction or other forms) between businesses andtheir customers Through computer networks (extranets ndash business specificinteractions) and the internet in particular businesses and consumers canobtain information cheaper and faster In many cases they can communicateat virtually no cost8 and transact instantaneously

While e-commerce is typically associated with the emergence of theinternet it dates back to the facilitation of transactions in the 1970s usingEDI standards for electronic invoicing Many banks and their business

216 Walker et al

partners have been extensively using electronic funds transfers since the1980s as a fast and cost-efficient payment model

E-procurement can entail various procurement facilities from electronicorder systems (whether used in online stores or electronic exchanges) toelectronic market places and desktop purchasing systems (DPS)

E-procurement yields a series of benefits

reduction in (administrative transaction and back-office) costs improvement of process efficiency shortening of order fulfilment cycle times improved commercial relationships with suppliers lowering of inventory levels improvement in management of the supply chain and lower price paid for goods

However e-procurement is not a one-size-fits-all approach due to thefollowing disadvantages

significant increase in IT maintenance costs ongoing management andupdates standardisation of processes between differing systems andgeneral interoperability issues

significant upfront cost for enablement IT security risks and increase in prices paid for goods is possible especially for small order

volumes

The main driver for e-procurement is cost reduction achievable throughprocess automation reduced inventories identification of and procurementat lowest market prices for commodities and the better use of economies ofscale and other effects

Five e-procurement models and their impact on projects are explained asfollows These present not only how e-commerce transactions are conductedbut also the ways in which it enables the procurement transactions totrigger e-business processes for delivery of products or services

E-sourcing

Strategic sourcing is a systematic process for reducing the total cost ofexternally purchased goods or services at a defined quality level E-sourcingis the automation of this process It allows identifying new suppliers for aspecific category of purchasing requirements using internet technologyacross spatial boundaries Benefits of E-sourcing include increased decision-making flexibility and (potentially) lower prices through a broader range of

E-business and project procurement 217

suppliers However sales personnel are often more effective at negotiatingthe best deal possible with a customer than can a customer whenconfronting an electronic system ndash especially for non-commoditisedofferings with many and varied options available Also large companies areunlikely to start undertaking business with unknown suppliers which tothem can constitute a large risk factor though preferred supplier lists mayalleviate this risk

For the procurement of project services e-sourcing may not be a relevantapproach due to their characteristic as a lsquounique endeavourrsquo Howeverproject organisations may use e-sourcing for the efficient procurement ofcommodities required as factor inputs on projects

E-enabled (reverse) auctions

In a typical auction a seller puts up an item for sale multiple buyers bid forthe item and the highest bidder will buy the goods at a price determined bythe result of the bidding In a reverse auction a buyer issues a request forquotations to purchase a particular item Multiple suppliers quote the price atwhich they are willing to supply the requested item or service Thetransaction is awarded to the supplier that provided a combination of thelowest price or best service delivery (time quality assurance etc)

E-enabled auctions can be found in many industries (automotiveaviation chemical construction health care food amp beverage agriculture)horizontal marketplaces and can apply to B2B B2G B2C and C2Cmarkets Global e-exchanges like Auto Exchange9 and AUTOVIA10 haveattracted automotive supplier and customers alike due to the commoditisednature of the products and services in this industry

There are many claims for cost savings from e-enabled auctions Onereport from the consulting group IDC indicates that lsquowhen asking 68purchasing managers about the amount of savings generated by usinge-procurement applications in the past 12 months 44 said they were ableto reduce their costs by between 1 and 4 of their budget Another 13said the range was between 5 and 9rsquo (IDC and Pang 2001 3) Howevere-enabled auctions are not the silver bullet of procurement some of thesavings from using reverse auctions are absorbed by higher costs related toerrors in supplier data post-auction negotiation quality problems of newand unknown suppliers late deliveries or non-delivery and other factors Afunctioning market place for e-enabled auctions should minimise the risksby inviting only pre-qualified suppliers which meet certain criteriaregarding quality and the ability to deliver

The biggest drawback of the approach is that the diminishing buyerndashsupplierrelationships may cause harm in the long run Since a supplier loses whatthe buyer gains from a game theoretical perspective where some form ofretaliation is likely to happen add-on services maintenance and support

218 Walker et al

beyond the contractually agreed service levels and follow-up contracts arelikely to be higher priced than in a traditional buyerndashsupplier relationshipFor a project business this insight is very relevant if a sustainablerelationship is intended a relationship-minded procurement approach ismore likely to succeed Other project scenarios such as a one-timetransaction may warrant using e-enabled auctions

Web-based Enterprise Resource Planning

Web-based Enterprise Resource Planning (ERP) procurement modules use asoftware system that is based on internet technology to create and approvepurchasing requisitions place purchase orders and record the receipt ofgoods and services It describes essentially the integration of ERP solutionsbased on SAP Oracle Peoplesoft JD Edwards (both now absorbed byOracle) or other platforms which used to be insular solutions restricted tothe company using the ERP system with its suppliers and customersTypically transactions are facilitated through Electronic Data Interchangeusing standards such as EDI ANSI X12 EDIFACT and most importantlythe current de facto standard XML which are supported by recent versionsof ERP solutions In order to effectively and efficiently use web-based ERPfunctioning ERP systems must be in place clear buyerndashsupplier processes(workflows) have to be defined and implemented and a high-volumeinteraction between the buyer and long-term suppliers is meaningful torecover implementation cost and realise efficiency gains Project organisationswhich meet these criteria will benefit from web-based ERP

As a result of web-based ERP integration efforts buyerndashsupplierrelationships are typically strengthened which makes this e-procurementapproach suitable for relationship businesses

In a Delphi study of 23 Dutch supply chain executives on the impact ofERP on supply chain management that is of itself an important procure-ment choice consideration reveals some interesting findings that are rele-vant for future e-business considerations (Akkermans et al 2003 284)Their findings report that there are five main issues facing these supplychain executives

1 further integration of activities between suppliers and customers acrossthe entire supply chain

2 on-going changes in supply chain needs and required flexibilityfrom IT

3 more mass customisation of products and services leading to increasingassortments while decreasing cycle times and inventories

4 the locus of the driverrsquos seat (the group lsquoin chargersquo) of the entire supplychain and

5 supply chains consisting of several independent enterprises

E-business and project procurement 219

Their study revealed an only modest role for ERP in improving supply chainmanagement due to the current (at the 2003 time) focus of ERP as being onintegrating and harmonising business processes within an organisationrather than across the supply chain This they maintain presents consider-able inhibitors for innovation within firms however they flag a movetowards ERP re-focusing itself on a supply chain with provision for facili-tating either common standards or common interface protocols that allowdifferent firms within a supply chain to gain advantage from informationdata and knowledge flows across the chain This interesting aspect may bemore dominant at the time of publication or shortly thereafter of thisbook The promise that ERP systems offers is that those firms which linkinto an ERP-enabled supply chain may be able to be both innovative andeffective ndash they may be able to further stretch improvement boundarieswhile maintaining benefits of data information and knowledge transferFor a useful review of the history and analysis of critical factors relating toERP readers can refer to Al-Mashari et al (2003) They present a model ofa taxonomy for ERP critical factors (Al-Mashari et al 2003) that is some-what similar to other studies into the diffusion of innovation for examplesee Peansupap and Walker (2005)

The second main finding is that the panel experts saw only a modest rolefor ERP in improving future supply chain effectiveness and a clear risk ofERP actually limiting progress in SCM (Akkermans et al 2003) ERP waspresented as offering a positive contribution to only four of the top 12future supply chain issues that were identified in their study (1) morecustomisation of products and services (2) more standardised processesand information (3) the need for worldwide IT systems and (4) greatertransparency of the marketplace Implications for subsequent research andmanagement practice are discussed The following key limitations ofcurrent ERP systems in providing effective SCM support emerge as the thirdfinding from this exploratory study (1) their insufficient extended enterprisefunctionality in crossing organisational boundaries (2) their inflexibility toever-changing supply chain needs (3) their lack of functionality beyondmanaging transactions and (4) their closed and non-modular systemarchitecture These limitations stem from the fact that the first generationof ERP products had been designed to integrate the various operations ofan individual firm In modern SCM however the unit of analysis hasbecome a network of organisations rendering these ERP productsinadequate in the new economy

The key lesson that can be gathered from the ERP literature is that it hassubstantial potential to influence procurement decisions based upon e-businessfrom integration and harmonisation that can gain strategic ICT and IT-related competitive advantage to participating organisations (and thatincludes the client in an outsourcing procurement arrangement or internallywhere projects are being managed from inside an organisation)

220 Walker et al

E-MRO

Similar to web-based ERP e-MRO (Maintenance Repair and Operating)enables non-product-related MRO supplies Channels for e-MRO includedirect or DPS standardised catalogues (eg at buyerrsquos site) brokerintermediaries (Application Service Providers which purchase goods on thebuyerrsquos behalf within certain price limits) and supply-side shop systems

Like web-enabled ERP e-MRO is suitable for processes that showhigh standardisation little human agent involvement and a supply-sidefocus on price

Advantages of e-MROs include the following

straightforward set-up for standardised purchasing processes of e-goods potential realisation of significant cost savings and upgrade of purchasing agents to fulfil more complex and demanding

tasks

Downsides are the following

no personnel interaction between contracting parties no discretion over quality and prices no complex decision making possible content rationalisation leads to potential loss of valuable product

information and across-the-board lack of Universal Product Codes (UPC)

For project organisations the implications are the same as for web-enabledERP

E-informing

E-informing describes the gathering and distributing of purchasinginformation both from and to internal and external parties using webtechnology In this context channels like email brochure-ware web sitespermission marketing online newsletters listserv discussion groups onlinechat rooms are used Typical problems of e-informing surround reliabilityand relevance of information found A number of online research data andnews services which emerged from the market research community haveestablished information services about companies their performancefeedback from customers and records of corporate action which allowmuch faster evaluation of existing and potential suppliers

E-informing is critical for the project procurement process as itenables inexpensive and immediate access to information about businesspartners

E-business and project procurement 221

E-procurement implementation

This should follow general PM best practices and can be summarised ascomprising five distinctive phases which should be considered for anye-procurement implementation

Defining objectives and a strategy for the effort

As with any business improvement effort objectives and a strategy shouldbe defined upfront Is the effort merely geared at cost savings How will thischange impact on the supplier relationships of the company Whichproducts and services should be boughtsold through e-procurementchannels and which should not Can we achieve further processimprovement and reduce the number of defects in the procurement processThese and other questions should be answered prior to pursuing thetransformation effort

Establishing a business case for gains from e-procurement

As discussed before business benefits from e-procurement will notmaterialise for every procurement scenario A quantitative business casewill help identify the merits and measure their achievement during and afterthe improvement project

Process re-engineering

As mentioned before the primary benefit from e-procurement implementationmay reside in the improvement of internal or buyerndashsupplier processessince these processes typically involve frequent manual interaction and maybe barely standardised or even defined A re-engineering effort for theseprocesses should be conducted with the emphasis on optimal interactionbetween buyer and supplier with information technology as a constraint Alesson learned from e-procurement projects is that they are often assignedto a chief information officer (CIO) or chief technology officer (CTO) of acompany and therefore IT-centric Implementing existing inefficientprocesses into a new technology platform will only partially (or not at all)realise the potential gains from e-procurement enablement E-procurementbares the potential to radically improve process management throughworkflow definition and (automated) workflow management

Technical implementation

The implementation of e-procurement solutions such as web-enabled ERPscan come at substantial cost Provided the company already possesses a

222 Walker et al

modern ERP system e-procurement capabilities will be embedded or easyto add through additional modules or (web) services If however an olderor proprietary ERP solution is used substantial custom development ofe-procurement functionality and especially interfacing capabilities toelectronic markets or the systems of the business partners may be requiredwhich may destroy the business case for the implementation Lastlytraining of the procurement stakeholders ongoing support and maintenancealso have to be considered as part of the implementation cost As in any ITimplementation user acceptance component and integration testing will berequired to assure a functioning platform from Day One

Change management

Lastly process and system changes as described bring significant change toan organisation In order to achieve acceptance of the e-procurementsolution change management plans have to be developed and executed toachieve adaptation of the e-procurement solution by the procurement staffSince change management always constitutes a challenge this componentof the effort can be critical to the success of the project

Legal ethical and security issues

Undertaking e-business transactions with partners or procuring goods orservices using e-business entails considering legal and ethical obligations(though these may be complicated by jurisdiction issues) In theory tradingusing e-business should be conducted under the same rules and regulationsas with paper-based word-of-mouth or telephonic systems The maincomplication that e-business presents is centred on copyright ownership ofdatainformation and matters of censorship

Another aspect is fraud Fraud was mentioned in Chapter 4 and referencewas made to the KPMG survey11 Wilson (2004 2) argues that fraud can beunderstood by considering the Cresseyrsquos Fraud Triangle model that positsfraud to occur where there is opportunity pressure and rationalisationPressure comes from the fraudsterrsquos motivational drives be that greedneed malice or ego Rationalisation derives from the individualrsquos ethicalstance and as explained in Chapter 4 people may be moral chameleons andthus join in a fraudulent act with others rationalising it to be an act that iscongruent with the norms of the group or as is more commonly the case itmay be an individual who rationalises the act as lsquopay backrsquo at someone oran organisation for a perceived injustice or because of some other sense ofthe act being lsquonot immoral unethical or illegalrsquo These two drivers dependupon the individual The third part of the triangle relates to opportunityand that has procurement and e-business ramifications A procurementsystem may afford opportunity for corrupt or unethical practices such as

E-business and project procurement 223

collusion or bribery E-business affords the opportunity to hack intosystems manipulate transactions and commit other fraudulent acts It isthis reason and the widening vulnerability of individuals and organisationsthrough electronically linked devices systems and data bases that behovesus to ensure that procurement systems design-in and enact appropriatesecurity and protection measures these go beyond what is legally requiredto what is sensible and prudent

A further issue is the degree to which locking in a supply chain to aspecific set of tools or approaches can restrict competition or collaborationIn an interesting example while not related to e-business but sharingcommon issues a study of 30 projects associated with the Taipei MassRapid Transit (MRT) programme showed that the governmentrsquos deliberaterestrictive procurement practices locked out local contractors for biddingand when these practices ceased costs for the same type of work dropped atan average of 26 (Wei et al 1999) The issue related to pre-qualificationcriteria which favoured large multi-national contractors with high levels oftechnical and management expertise that should have provided excellentvalue for money as well as knowledge transfer However due to politicalfactors at the time many global companies did not find tendering for thework attractive so that the pool of potential bidders was drasticallyreduced thus leading to higher bids A similar danger presents itself whena common set of e-business tools are required to be used that may restrictpotential supply chain partnersrsquo ability to collaborate through these strictpre-qualification hurdles being in place

Finally there are valid concerns about the ownership and right of use ofe-collected meta-information such as details about searches undertakenusing search engines Indeed it has been speculated that the meta-dataabout each individual using the search engine Google currently comprises amassive (as far we know) untapped information base that can be mined forsale as marketing data for e-businesses (Carlisle 2005) Organisations suchas Boeing have already seen the value in selling meta-data derived fromfacilities management (FM) and maintenance feedback information toclients thus transforming itself from a manufacturer to a services and FMorganisation and then to consultant and targeted informationknowledgeprovider In the final transformation it uses a range of data miningtechniques to use historical repair maintenance and other data about itscustomersrsquo use of its products and services to enable it to develop newinformation and knowledge-based business activities (Szymczak andWalker 2003) To enable customer data in whatever form that takes to beused either for project effectiveness improvement or for additional businessopportunities requires acknowledgement of data-information ownershiptogether with access and use rights This project procurement concernshould be addressed to facilitate informed consent of knowledge andinformation to be shared

224 Walker et al

Compatibility and interoperability issues ndash information modelling

This section discusses and explores how procurement choices can changethe relationship between parties in a supply chain so that what wasintended (the concept and design of a change action product or service) iseffectively translated into delivery of the expected outcome Often inconstruction and manufacturing for example the process required by theprocurement choice imposes barriers to creativity stemming from theoriginal concept to be transformed into a product that retains the creativevalue envisaged We will now explain how compatibility or incompatibil-ity between sub-systems (ie interoperability issues) can enhance or inhibitthe delivery of value encapsulated in the conceptual design beingtransformed into the change product or service project outcome The coreissue from this perspective is How in e-business can the supply chain usea common platform for developing design information that can be usedseamlessly in the production phase The solution to this problem that cantransform the way that projects are designed and physically delivered isthrough a common information model To do this all the supply chainmust be working on the basis that information is shared and automaticallytranslated from one user to the next This is an interoperability issueRecent research and development work on the development of informationmodelling is now presented to be explain this using the construction industryas its focus

Building Information Modelling (BIM) is a fundamentally differentapproach to project design and implementation (or architectureengineeringand construction from a building industry perspective) It can be said thatthe traditional way of documenting information has not fundamentallychanged in the last 500 years when symbolic language and orthographicdrawing methods where used to design and construct the buildings of theRenaissance period Orthogonal methods provided the communicationmeans for master builders to represent compressed information Drawingwas then introduced as a method of projection in which an object isdepicted on a surface using parallel lines to represent its shape onto abi-dimensional plane With the advent of Computer Assisted Design (CAD)in the 1980s (arguably computer-assisted drafting or drawing ndash but notdesign) a new means to produce and re-produce orthogonal drawingsemerged Although it offers clear improvements on using ink and paperdrawing as the communication medium has changed only from physicallyusing drawing paper on drawing boards to producing digital CAD-drafteddrawings This new CAD medium has provided improvements for accessreplication and sharing of building geometrical information however CADdrawings are still generated using straight and curved lines Thus whileinformation contained in project CAD drawing documentation has become

E-business and project procurement 225

much more complex and the medium to generate and share documents hasevolved the method to represent it has not substantially changed for overfive centuries

BIM is a method to represent building geometrical information in a three-dimensional (3D) space thus generating objects instead of orthogonaldrawings In a BIM environment individual 3D objects also become therepositories of embedded information and attributes related to a particularbuilding material or appliance Completed project information ordocumentation can be stored in a single-centralised database or federateddatabases where information is saved by individual teams in specialiseddomains If BIM is generated applying consistent rules and protocols BIMfiles can be shared across various software packages This would includethe ability to display and modify information in a range of formatsaccording to usersrsquo roles within a project or within the organisationVarious software applications could import a single file and viewperformcost tabulations 2D floor plans and 3D flow diagrams also interact withperformance dashboards where a range of scenarios could be explored withthe client or team members

Therefore generating BIM in consistent ways is important as it enablesthe exchange of information across software applications enabling improveddesign decisions and collaboration amongst project team members TheStandard for the Exchange of Product Model Data which reached the statusof Draft International Standard in 1994 (STEP ISO-10303) is amongst thebetter known standards in industry The STEP standard has successfullybeen implemented in mechanical engineering and manufacturing for overtwo decades now However this standard has proven to be less popular inthe building and construction industry ndash perhaps as a consequence of themore casual contractual nature in which the industry operates As aresponse to this an industry-purpose standard emerged about a decade agothis is called Industry Foundation Classes (IFCs) The IFC standard wasdeveloped by the International Alliance for Interoperability (IAI) and isdefined as follows12 lsquoIFCs are data elements that represent the parts ofbuildings or elements of the process and contain the relevant informationabout those parts IFCs are used by computer applications to assemble acomputer readable model of the facility that contains all the information ofthe parts and their relationships to be shared among project participantsThe project model constitutes an object-oriented database of the informationshared among project participants and continues to grow as the projectgoes through design construction and operationrsquo

The IFC has not seen its full potential so far some impediments mightinclude fear of losing intellectual property (IP) through sharing projectinformation Originally BIM data access was restricted to a common singledata repository ndash with all its attendant trust and security implications Thisis not currently the case Data can now be locally stored and distributed and

226 Walker et al

accessed according to individual project teamsroles In this way the IFCstandard for interoperability has evolved since the time when there was nointernet broadband and the storage mechanisms comprised central datarepositories Trust and security issues remain as current impediments forBIM adoption because designers still fear losing intellectual property

Since the emergence of the International Alliance of Interoperability (IAI)in 1995 various generations of IFCs have appeared including IFCs 10 in1997 IFCs 2 edition 2 released in May 2003 including the more recentIFCs eXtensible Markup Language (ifcXML) that uses extensible markuplanguage (XML) (Nisbet and Liebich 2005) This means that the standardfor data storage and interoperability is now aligned with todayrsquos webdevelopment thus this standard is more likely to reach a wider audienceThis should accelerate its pool of potential users across design client andcontracting organisations and into a wider supply chain

The active promotion of BIM interoperability and the IFC standard by theEU Software Copyright Directive has been instrumental in promoting BIMand interoperability at a European level Lueders (1991 3) in demystifyingIP and security issues cites the directive13 explaining interoperability betweencomputing components as being lsquothe ability to exchange information andmutually to use the information which has been exchangedrsquo This does not bydefinition mean that each component must perform in the same way orcontain all of the same functionality as every other one does

In a more global perspective the IAI has lobbied for and promoted the useand adoption of IFCs (and more recently for internet-based exchange meth-ods IFC ifcXML and the semantic web) to improve representation and inter-pretation issues (Nisbet and Liebich 2005) These may include the following

Automatic compilation of bills of material in digital form as input datato cost estimations and time scheduling The quantities can then beused for production preparation and on call deliveries from themanufacturers (savings ndash shorter time and fewer errors)

Automatically generated foundation for climate and energy simulationof all the spaces (savings ndash shorter time better solutions and energysavings during the lifetime) and

Fewer co-ordination errors (savings ndash reduced redesign and re-construction)

The European Interoperability Framework (EIF) definition identifies threeaspects to Interoperable BIM (Lueders 2005)

Technical ndash linking up computer systems by agreeing on standards forpresenting collecting exchanging processing and transporting data

Semantic ndash ensuring that transported data shares the same meaning forlink-up systems and

E-business and project procurement 227

Organisational ndash organising business processes and internal organisationstructures for better exchange of data

Examples of BIM adoption aligned with web technologies include thefollowing

Singaporersquos lsquoePlan Checkrsquo a government-driven initiative whichautomates the review process for drawings and checks planningproposals more accurately and in less time approving or rejecting themThis is because parametric information is loaded into a system (ieGovernment e-planning)

lsquoHITOSrsquo is a Norwegian governmental initiative to contextually andgeographically assess building proposals in a BIM especially on areasof urban context and geographical information systems (GIS)

Finland also leads in the adoption of BIM and has developed a series ofIFC compliant software applications including thermal andenvironmental analysis software such as Riuska and Ecotect

In Australia the Cooperative Research Centre for Construction Innovation(CRC-CI) in collaboration with the Commonwealth Scientific andIndustrial Research Organisation (CSIRO) has developed and tested a set ofIFC-compliant BIM tools and applications Some include LCAdesign forthe assessment of greenhouse emissions and embedded energy assessmentespecially during the selection of materials and building methods OtherCRC-CICSIRO application development includes the lsquoContract PlanningWorkbenchrsquo (CRC-CI 2002-056-C)14 which links 3D models with workschedules (also referred to as 4D models) Specifically the constructionplanning workbench automates the production of schedules withvisualising building site progression especially for in-situ concretestructures A current project includes the BIM Estimator which automatesquantity take-off in bridge design for the Queensland Department of MainRoads (CRC-CI 2006-037-D)15 and these are two amongst several IFCcompliant software applications recently developed in Australia

Other leading BIM development and implementation by privateinitiatives include Gehry Technologies with SOM architects who are cur-rently implementing BIM methodologies for building design and documentmanagement A current project includes a high rise building in Hong Kongwhich uses Digital Project (DP) as its BIM platform DP is based on CATIAby Dassault Systems16 which is a leading design software utilised in theaerospace and automotive industries DP is a software application whichperforms as CATIArsquos interface for architects structural engineers buildingservices engineers contractors and fabricators SMO architects reportedly17

have improved their relationship with the client and contractors BIM meth-ods are also enabling SOM to improve communication and collaboration

228 Walker et al

amongst architects engineers and team members improving thus designdecisions and collaboration amongst team members These improvementswould include the use of BIM as a construction planning and communicationtool including the use of work space allocation in building sites This isdone with zoning by colour coding ndash for instance work space demarcationand materials This has direct implications for site safety engineeringcommunication and logistics

A recurring question posed by most design practitioners exposed to BIMis whether BIM is worth the trouble Interestingly anecdotal reports indicatethat BIM will not be an option in the near future but suggest that it isexpected to evolve to be the method and the industry standard The questionthen becomes how to accelerate its adoption by the industry at largeImpediments such as the fear of losing intellectual property training issuesand cost concerns are amongst the main concerns for design consultants toadopt BIM (see Chapters 8 9 and 13 for more discussion on innovation andculture implications) However according to Gallaher et al (2004) interop-erable BIM documentation will be required by most private and public clientorganisations Various official reports relate to on the cost of ignoring inter-operability among software systems used in the construction industry suchas architectural and engineering tools project programming costing andscheduling tools (Gallaher et al 2004) Their report suggests that the costof non-interoperability is about US$158 billion in the US alone Arguablythose organisations not looking to implement interoperability will have topay a higher cost Although there is no hard evidence to back up this state-ment there will be a cost for ignoring it

BIMIFCs compliant software includes Autodeskreg Revitreg Nemetscheckreg

Archicad Vector Works and Bentlyreg TriFormareg Other standards forInteroperability include Autodesk Design Web Format (DWFreg) which isa shareware that enables users of other CAD applications that do notoffer built-in DWF publishing such as Bentleyreg MicroStationreg andSolidworksreg to create DWF files The fundamental difference between BIMand standards such as DWF is in the form and nature of the data becauseCAD-layered drawings are not understood by BIM as data objects

Some value propositions for the adoption of BIM are offered

spending more time on design and less on documentation intensifying collaboration because BIM models contain information

supplied and needed by all participants in a project until recently BIMimplementations mainly focused on using 3D models to improvedrawing production but the real promise of BIM lies in its applicationacross the entire project team especially in the area of improvedbuilding performance

automating 2D drawing production automating links between specifications and drawings

E-business and project procurement 229

improving the integrity and accuracy of information improving visualisation and communication especially for contractors

builders and other stakeholders encouraging the design team to think about an integrated design practice

and integrated design process as this forces all design consultants tothink about practical construction implications as they design

being an enabler for innovation parametric planning becoming a natural interface with GIS systems intensifying involvement of architects and other designers in construction

as they will be modelling virtual buildings improving direct control of computer-aided manufacturing (CAM) and

fabrication (previously known as CADCAM) this has already beenused successfully on the National Museum of Australia for example(Walker et al 2003 251ndash254)

improved explorations of form resulting in more innovative yet practicaldesign

modelling sustainability and mass customisation

A fundamental change in industry has to happen if BIM is to work Changecan come from Government enforcement client organisations identifyingadded value through its use the private sector identifying businessopportunities through its use or simply through general education acrossusers and designers Suggested value propositions for education includemeeting the following needs

for greater understanding among students and graduates of theprocess implications of design upon construction delivery

for integrating design and construction courses for promoting 3D thinking among students for facilitating a culture of collaboration through integrated learning by

the various disciplines involved in design and delivery of constructionprojects

for teaching BIM tools and applications for students to be ready to usethem

for understanding of buildability principles for improving decision-making riskbenefit assessment ndash defineforesee

impacts for introducing project management principles (4D modelling that is

integrating 3D design with project management tools) and for students to better understand the construction process and site

logistics through simulation and visualisation

CAD has perhaps been the major problem for BIM adoption asdrawings have been invariably committed to a hard copy version at

230 Walker et al

numerous (if not at every) stage of a construction project BIM alsosupports automation of drawings and blueprints production for examplethere is no need to draw floor plans cross sections or isometrics but onlyselect and print various views from the BIM model Another fundamentaldifference between CAD and web-enabled BIM is the ability to implementnew approaches for design assessment and obtaining planning permission

One of the main fears expressed by many design consultants is riskexposure to losing their design and intellectual property This has also beendiscussed and demystified First access to data and project information canbe restricted by password control in a similar fashion to that currentlyused by project intranets Second from a legal perspective breaking intosystems is no different to a burglar breaking into an office to stealinformation Third BIM and interoperability are not synonymous withcloning ndash interoperability means that building components which maydiffer in functionality can share information and use that information tofunction accordingly

Researchers who have studied this area of interest for over a decade18

suggest that the key to improve construction productivity relies upon itsability to operate more efficiently and effectively with less informationwaste and more knowledge sharing Information being transposed as iscurrently often the case even with CAD results in the potential formiscoding mistaken interpretation and other errors of transposition Inaddition needless multiple handling of information and data is a waste oftime and energy Similarly as has been discussed in Chapters 8 and 13knowledge sharing to achieve innovation is best facilitated throughcollaborative problem solving ndash BIM facilitates this In relation to electronicinformation management especially in the form of web-enabled buildinginformation modelling this means that managing and coordinating notonly blue prints but all documentation and project information fromdesign to property maintenance phases This presents a unique and newopportunity to diverse industries such as property construction and projectmanagement It is expected that electronic information management canprovide commercial efficiencies through more effective project procurementand supply chain management This is fundamentally different to CADeven web-enabled CAD (Design Web Format DWFreg)

The internet-enabled BIM as a network-enabled environment remainsin its infancy but we will see the situation swiftly change in the near futureThis principle is now giving rise to many new services previously tied to thephysical value chain and has resulted in completely new value chains beingcreated These include online BIM building product catalogues enablingengineers and architects to build BIM models and run simulation and visu-alisation scenarios It also facilitates prototyping and codes and specificationchecking Internet developments are offering new means for project collab-oration not just in collocated groups but also in virtual global team-workingand supply chain integration in a truly e-commerce environment

E-business and project procurement 231

Figure 72 illustrates how the BIM concept in the ArchitectEngineerConstruction (AEC) and FM professional group has been evolving anddiffusing over time It indicates BIM evolving from initial IFC centraldatabases to e-catalogues then into GIS into e-business as ifcXMLfacilitates opportunities for the expansion of BIM capabilities using webtechnologies

To conclude we argue that the IFCs and the Standard for the Exchangeof Product model data (STEP ndash ISO) are the most promising standards forinteroperability in the property and construction sectors The move towardsifcXML aligns with major web development initiatives and we envisagethat ifcXML will become one of the main enablers for its speedy adoptionand dissemination

For those interested in learning more about BIM model viewers you canlink to

IAI Karlsruhe Germany at wwwiaifzkdeifc TNO Delft Holland at wwwifcbrowsercomdownloadsBETAIFC

Engine Viewerexe DDS Oslo Norway at ftpftpddsnopubinstallIfcViewer

DDSIFCViewerexe

For further information about interoperability readers can access the IAI atwwwiai-naorg

The role of ITICT portals in procurement

Perhaps one of the most practical developments over the recent years is theway that web portals have dominated the user interface between system anduser and user and user During 1997 and 1998 research into use of ICT by

232 Walker et al

GIS

e-catalogue

IFC centraldatabase

BIM

in A

EC

FM

e-business

new directions BIM alignment with WEBtechnologies

ifcXML

Figure 72 BIM diffusion

major construction industry contractors and consultants in Australia andHong Kong revealed that most parties were only somewhat aware (havingheard of or read about) intranets but very aware use frequently as a matterof course the internet (Walker and Rowlinson 1999 chapter 8) Now mov-ing on a decade they appear ubiquitous for many if not most commercialgovernment and not-for profit organisations ndash Arthur Tatnall reports thatwhen undertaking a Google search for the word lsquoportalrsquo it revealed 356million hits He explains the term from its archaic roots meaning lsquoanentrance or gatewayrsquo and he discusses nine types of portals (Tatnall 20043ndash7) that we expand upon

Mega portals that link users to other portals that can be highlyextensive There seems to be a trend for much cross indexing of weblinks between organisations so that most portals now share this extensivemeans of linking those who conduct searches or seek information torelevant portal links

Vertical industry portals that are based around specific players such asthe construction procurement portal SITE19 also these can be part of avalue chain gaining access to special areas of business transactionthrough an extranet of linked internet web sites

Horizontal portals when used by a broad base of users across ahorizontal market ndash for example a site that links a range of businessesin a physical location to promote e-commerce such as Buzewest asdescribed in Pliaskin and Tatnall (2005) a wider scale network portalof this type would be Vicnet20 the Victorian (Australia) web site thataims to link a state-wide range of businesses as well as other usefulcommunity information

Community portals often set up by community groups to foster aspecific interest ndash for example one portal communitybuildersnsw21 isa site that helps people in communities to set up community activitiesexplains how to encourage volunteering and provides a range of accessto electronic resources and services that do not quite fall into a for-profitactivity These sites might also link to media outlets such as radio orprint or may contain blogs

Enterprise information portals (EIP) that are often gateways to acorporation contain the sort of information that interested parties candownload such as annual reports newsletters an email access point forfurther information and so on The global construction group BovisLend Lease provides a good example22 where a whole series of infor-mation particularly under their lsquopublicationsrsquo or lsquonewsroomrsquo areas isreadily available Apart from immediate responsiveness from requestinga download (annual report for example) the saving to both reader andhost corporation is considerable as it eliminates the need for staffproducing and packing off hard copy materials

E-business and project procurement 233

E-marketplace portals as described earlier in this chapter Pliaskin andTatnall (2005 6) provide an example of the Swiss company ETA SAFabrique drsquoEbauches23 that manufactures watches as a group ofindividual companies and presents itself through this portal as a unitedfront to customers as well as its suppliers

PersonalMobile portals this is a wide and expanding area ofdevelopment Pliaskin and Tatnall (2005 6) note that this technologyis being embedded in mobile phone technology That book publishedin 2005 indicates how quickly things have moved as now we seeBlackberryTM and many major mobile phone manufacturers offeringweb through phone video messaging and a host of services Some ofthe more remarkable developments include taking mobile phonetechnology and personal data assistants (PDAs) and linking them tohome appliances such as a robot dog that can wander throughout anarea like a watchdog sense danger (in terms of traces of smoke etc)and be accessed entirely by a mobile phone portal24 Clearly this has majorproject procurement implications as more integrated and e-connectedcomponents restrict the number of providers and force many organisationsinto highly relationship-based transactions

Information portals are moving beyond the printed media offering e-magsand e-newspapers25 The more widespread use of digital ration and TVstreaming as well as podcasting has revolutionised many media outletsThe Australian Broadcasting Corporation (ABC) Radio National (RN)has provided transcripts of programmes for several years26 and theyhave extended this to listening to programmes that have been set up forstreaming as well as automatic links between iPods and the ABC RNweb site so that as soon as you link your iPod to the internet it auto-matically downloads programmes that you have specified as beingmade available to you With a trend towards organisations in the sup-ply chain feeling the need to provide current information and commu-nicate 247 this technology is most likely to move from being generatedby media outlets and also many other organisations

The final portal type identified by Pliaskin and Tatnall (2005 7) isspecialisedniche portals that cater for special interest groups This typeof portal merges with the notion of communities of practice (COPs)and ICT tools that support these An example of one of these is the UKconstruction industry using the product Sigma Connect that connectsthe workforce within an organisation or across a range or organisationsvia the portal to share knowledge and maintain social contact (Jewelland Walker 2005)

The role and functioning of portals is rapidly changing with new ideasproducts and services coming on stream constantly All of these offeropportunities to rethink how the entire communication aspect of project

234 Walker et al

procurement will function In Chapter 3 we discussed stakeholders andtheir influence upon projects Maintaining contact with stakeholders toprovide information and data about projects is already becoming a keycompetence of PM (PMI 2003 2004) Using portals to do this is the nextlogical step

E-procurement trends and emerging themes

Organisations have recognised the benefit of e-procurement and spentsignificant efforts and funds on implementing e-procurement solutions It isforeseeable that electronic procurement will become lsquobusiness as usualrsquo andthe term e-procurement will disappear

Over the past 5ndash10 years e-procurement was mostly focused one-sourcing achieving cost savings due to the achievement of greater infor-mation efficiency and better use of economies of scale Greater informationefficiency since potential suppliers beyond spatial boundaries could besought and finding the lsquobest pricersquo for a certain commodity required lesstime and search cost

Similar to B2C price search mechanisms such as Pricegrabber FroogleEpinions and Shoppingcom pricing information for businesses has overallbecome more transparent Similar to the B2C search engines besides netprice additional information on product availability and shipping costs aswell as customer satisfaction feedback may be available Industry portalstypically provide contact information and in some cases directly allowprice queries There are however barriers to the adaptation of the B2Cmodel often goods are not commodities but highly customised andtherefore not easily comparable Up-front pricing for custom-engineeredgoods continues to require a request for proposal (RFP) process in order todefine the requirements which leads to a certain price for a certain scenarioFurther complexity emerges from taxes tariffs and export restrictions ininternational transactions which cannot always be anticipated and maysignificantly impact on cost scope and timeline for delivery

A better use of economies of scale through centralised procurement inlarge corporations or government entities or purchasing alliances forsmaller businesses which allowed generating economies of scale similar tolarger entities

One example for such use of economies of scale is MarketplaceNovation a purchasing alliance of approximately 2500 health care organi-zations in the US According to company sources (wwwnovationcocomaboutfact_sheetasp) Novation maintains agreements with over 500suppliers and distributors of medical laboratory and safety equipmentcapital equipment and services office supplies and other goods andservices The combined purchasing power of this e-sourcing provideramounts to US $25bn in annual purchases According to an early study in

E-business and project procurement 235

2000 the initial 31 hospitals to join this alliance saved approximately$12m annually a substantial amount of their procurement-relatedexpenses which spurred rapid growth of the service

Three major trends could further propel e-procurement

Seamless Process Integration Further Reduction of traditional procurement activities and Comprehensive Decision Support

Seamless process integration and process outsourcing

While e-procurement efforts over the past 10 years have focused onpurchase transactions these transactions need to be integrated into thelarger picture of the end-to-end supply chain

For example a radio frequency identification (RFID)-enabled inventorymanagement system in a warehouse may enable a more responsive andhighly automated procurement process Shelf-mounted readers will detectthe removal of a palette containing boxes of a product and report thereduction in inventory to the procurement system Based on this real-timeinventory data and assumptions of future demand which may result frombuying trends developed from historical and seasonal informationcommodities can now be ordered automatically based on rules defined bythe procurement officer Such rules can look as follows lsquoProcure x amountof product y to be delivered no later than on date z at the lowest possibleprice point using a preferred vendor listrsquo Such automation of the actualprocurement process allows procurement officers to focus on high-valueactivities such as the definition and validation of procurement strategiesEven greater precision will be achieved with a more granular tracking ofcommodities as costs for RFID tags and readers continue to decline andlarge wholesalers and retailers (eg Wal-Mart) aggressively push theirsuppliers towards the adoption of RFID box- and item-level tagging willallow the most accurate and timely prognosis of product demand

Other applications where RFID tags are integrated into the product willalso allow triggering early procurement For example tags which monitorwear and tear on mechanical equipment will permit more precise mainte-nance forecasts a machine operator would identify early wear on machinetools or motors a fleet operator could more accurately predict the need fortyre replacements (and orders) based on actual wear rather than mileage-basedestimates

Such a seamless process integration where human intervention is limitedto exception cases and process control will allow further increases in savingsfrom e-procurement since

standardised procurement tasks can be further automated

236 Walker et al

procurement specialists can focus on

ndash the definition and implementation of procurement strategies ratherthan order execution Such strategies include vendor andproductservice selection standards scenarios for procurementvendor due diligence and market analysis

ndash exceptional cases which require special attention due to largeorders lsquounusual requirementsrsquo orders which are critical to thesuccess of the business and so on and

order processes can be accelerated which in return allows lowerinventories and therefore further reduced inventory cost

From a technical perspective such process integration is catalysed by webservices which allow the integration among heterogeneous and distributedsystems Due to the nature of web services which are independent fromprogramming languages hardware platforms and operating systems trueinteroperability can be achieved

Further reduction of traditional procurement activities

If procurement is an auxiliary rather than a core process for an organisa-tion the entire process may be outsourced and managed by a serviceprovider with speciality expertise in e-procurement (see The Next Level ofE-Procurement Laura Powell Public Utilities Fortnightly Nov 2006 14411 20ndash21) Besides the core expertise in e-procurement such a serviceprovider can offer two additional cost-related benefits (a) throughproviding additional economies of scale for example by establishingeMROs and (b) by executing remaining manual procurement activities inlow-cost locations off-shore

Another change related to traditional procurement activities is the replace-ment of human negotiating processes through e-negotiations E-negotiationsare executed through electronic agents who exchange offers (quotes) acquiremarket information and subsequently engage in negotiations towards anacceptable agreement for detail on e-negotiation strategies27 Replacing thehuman negotiating processes with e-negotiations represents another changeto traditional procurement practice

Comprehensive decision support

Lastly e-procurement will further accelerate information efficiency ofmarkets allow better analysis of supplier satisfaction market prices termsand conditions and other procurement parameters In return this informationwill allow further fine-tuning of procurement decisions whether executedby procurement specialists or through electronic agents

E-business and project procurement 237

As stated before procurement specialists will be less involved intransactional processes around the order execution but rather focus onstrategic procurement aspects such as selection of preferred vendorsdefault procurement methods and negotiation strategies and so on

Successful e-procurement initiatives will hinge on the ability to buildscalable and adaptable solutions which will grow and develop withchanging business needs and allow for new procurement mechanismswhich cannot be foreseen at this point In this regard process maturity andthe ability to use ICT effectively and efficiently can become a criticalbusiness success factor

Lastly decision making will be assisted by continued development ofe-tools that measure monitor and compare procurement options Forexample the construction industry uses a lsquobill of quantitiesrsquo that is aschedule of all items comprising the project scope to assist in costmanagement at the design stage This will be extended to provide similarinformation on project scope in terms of water use impact embodiedenergy and CO2 footprint impact

Chapter summary

In this chapter we began with Figure 71 which illustrated how manyorganisations are moving along a trajectory of increasing integration ofcommon information knowledge and data The current term that mostpeople recognise as describing this process is e-business which has movedbeyond the transfer of financial data and information such as invoices billspayments and so on to the transfer of complex models of the project outcomethat can be viewed by all participants in a way that suits their needs

We explained some of the fundamental terms in current use that describethe various forms of e-commerce which is an important part of e-businessWe discussed drivers and inhibitors of e-business and also discussed legalsecurity and ethical issues The movement of organisations in supply andvalue chains along the e-business maturity continuum led us to discuss animportant barrier that is being overcome through great research and devel-opment effort into interoperability so that a project can reduce informationand wasted management effort caused through re-creating informationmodels at each step in a supply chain We devoted a substantial part of thechapter to interoperability issues This is because a common platform forrepresenting an electronic form of project design (that can be presented tosupply chain parties in the form shape and structure that best suits their useof the information) provides an exciting opportunity to substantiallyeliminate current information duplication and waste practices It also offersmany improvements in visualisation and simulation modelling A BIM canbe used to measure a projectrsquos environmental lsquofootprintrsquo This could providea powerful e-business application to facilitate development of the kind of

238 Walker et al

instruments and decision support tools able to determine the basis for acarbon trading currency that (as was mentioned in Chapter 4 carbonemission control is an important emerging triple-bottom-line issue) willneed to be addressed in making project procurement choices

The section on the role of ITICT portals linked previous concepts to atool portals that allow a convenient interface between users and thevarious e-business applications These will be and are governed by thedesign of security and access designed by portal developers Monitoring andtracing user preferences and search patterns can help such systems tocustomise the appearance of the portals to fit the userrsquos habits as we expe-rience when using standard packages such MS Word which can lsquorememberrsquothe latest nine documents accessed for example However as was indicatedin the section on legal ethical and security issues users continually leave atrace of data on preferences and search history that can be mined to targetand shape business opportunities This aspect of business development maynot be welcomed by users ndash customers or supply chain participants This isbecause it could represent an infringement of privacy or cooption ofintellectual property relating to user habits and preferences and soprocurement systems need to address this important and potentiallycontentious side effect of e-business applications This section offered anatural prompt for us to discuss future and emerging e-business trends

The key theme to this book is project procurement and a recurringelement has been value that can be realised through collaboration andinformation and knowledge sharing and use We have endeavoured todiscuss the wide and disparate topic of e-business with a focus on how itcan be used in a project procurement context Our research into thisinteresting and evolving topic area leads us to believe that e-business canenable improved procurement systems however the implications for PMand all in the supply chain are that participants will need to be ICT literateand will also need to accommodate fears of sharing data information andknowledge so that supply chain management becomes value chainmanagement linked to a procurement choice that demands participants arelinked through protocols that allow this to happen

Vignette

E-business and project procurement 239

The election of 2010 devastated the government of Howard Shrubpresident of lsquoEmulandrsquo as satirists referred to the country whosegovernment had steadfastly refused to acknowledge rising electoralconcerns about climate change sustainability and offshore outsourcingthat had left many companies hollowed out shells with small numbersof very highly paid senior managers based in regional headquarters

240 Walker et al

and hoards of resentful ex-employees Many of the recentlyunemployed had been forced to down-scale their expectations of acareer by taking less attractive jobs when changing employmentTheir vote was their sole legal remaining means of protest Shrubretired to his ranch while many of his erstwhile governmentcolleagues sought refuge in returning to their electoral homes asquietly as possible The new government elected with a massivemajority based on a platform of radical change set about trying toimplement its political agenda through a series of innovativeinfrastructure projects The PublicPrivate Partnership (PPP) approachwas still deemed viable by the new President Greenyard administrationbut it was considered to need a radical overhaul A few pilot demon-stration projects had been mooted as an innovative way forwardvalidated by the election promises made in the winning campaign thatwas still fresh in everyonersquos minds

One of the programme of projects that Greenyard announced wasthe expansion of an integrated public transport system in Sunburnethe capital city of one of the southern states The vision for that pro-gramme was not only to improve transport but also to move thenation towards complete energy self-sufficiency This was to be a 15-year programme of integrated projects to change the transport cultureof the millions of citizens who had overwhelmingly voted for policytransformation For several years an increasing number of them hadbeen using gasoline-electric hybrid cars Also these commuters hadthe capacity to use their residential solar panels to power their carsand home and feed back surplus energy into the power grid

A new 200 kilometre mid-city rail beltway was to be constructed tolink the spoke-and-hub rail line configuration that currently existedThe beltway was to use an above-ground electric monorail systemFourteen new stations were to be constructed with park-and-ridefacilities for commuters to reach stations by bike or car the carshaving docking stations where they could be recharged Those partic-ipating in residential energy co-generation to feed the electricitypower grid could gain benefit from an electronic metering system thatcalculated debits and credits for parking offset by power generationfrom electricity co-generation

A bill was quickly passed by Greenyardrsquos government affectingconstruction of the stations The bill required permits for all newbuildings to be issued only when the owners provided sustainabilityplans that projected each onersquos carbon emission lsquofootprintrsquo specifiedcounter measures and had an electricity co-generation implementationplan Generous credits were indicated as an incentive and increasinglysevere penalties for non-compliance were proposed over a 10-year

E-business and project procurement 241

period A further requirement imposed upon those parties in anysupply chain that would be involved in the pilot projects (and inferredfor most future projects) was that all project design documentationwould be based upon a commonly accessible BIM and that a newproject portal development was part of the lsquoprojectrsquo to link notonly the supply chain for the pilot project delivery but also citizensto be able to gain information from government and feed backcomments and suggestions as it was being developed delivered andoperated

This programme was linked to an industry renewal strategy thataimed to turn lsquoEmulandrsquo into a highly e-business and ICT literatenation A significant barrier to participation in any government pro-ject was lack of ability to work to the new procurement policies Theindustry renewal policy aimed to refresh the nationrsquos capacity moti-vation and ability to develop solar energy farming technologies It hadonce been a world leader before the Howard Shrub government hadignored supporting or nurturing this sector preferring to rely on off-shore solar and alternative energy developments An education andtraining renewal strategy was aimed at providing the necessary sup-port to improve the skills of citizens and business

The pilot projects particularly the Sunburne Public Rail TransportBeltway project were recognised as very expensive but valuablelearning exercises to trigger ambitious innovation on a scale neverattempted before With an overwhelming political mandate and arealisation that a step change was desperately needed Greenyardanticipated that his government had at least two if not three or moreterms of office to clearly demonstrate positive results and radicaltransformation Procurement policies held a pivotal place inGreenyardrsquos government strategies

Issues to ponder

1 Provide examples of three forms of e-business that is inferred inthis vignette

2 Discuss the three most important drivers and barriers to theproposed adoption of e-business as indicated in the programme

3 The PPP approach would tend to severely narrow the field ofpotential participants in such an ambitious and bold programmeProvide three examples and discuss their implications of legalethical and security issues that you feel may challenge thedevelopment of this project

4 The above project assumes that a BIM can be provided to linkproject participants Discuss what you consider are the three most

Notes1 See wwwbhpbillitoncombbhomehomejsp accessed on 27 May 20062 See wwwkaneconstructionscomau accessed on 27 May 20063 See note 24 See wwwapccgovau accessed on 27 May 20065 See wwwpaypalcomauau accessed on 27 May 2006 6 See wwwaustraliagovau accessed on 27 May 20067 See www1apdellcomcontentdefaultaspxc auampl enamps gen accessed on

27 May 20068 However the cost for establishing the infrastructure for e-business may also be

quite expensive because while the transaction cost might be very low it is notzero (eg procuring market data etc)

9 See wwwautoexchangecom accessed on 27 May 200610 See wwwautoviaukcomindexhtm accessed on 27 May 200611 KPMGrsquos bi-annual Forensic Fraud survey wwwcgsconzfilesFraud-Survey-

2004pdf accessed on 27 May 200612 Source wwwiai-naorgtechnicalfaqsphp IAI accessed 20 January 200713 See httpeuropaeuintsmartapicgisga_docsmartapicelexapiprodCELEX

numdocampnumdoc 31991L0250ampmodel guichettamplg en accessed on 27May 2006

14 See CRC-CI 2002-056-C Cooperative Research Centre for ConstructionInnovation Contract Planning Workbench wwwconstruction-innovationinfoindexphpid 32 accessed on 27 May 2006

15 See CRC-CI 2006-037-D Cooperative Research Centre for ConstructionInnovation Automated Estimator Commercialisation wwwconstruction-innovationinfo accessed on 27 May 2006

16 See www3dscomproducts-solutionsplm-solutionscatiaoverview accessed on27 May 2006

17 See GT 2006 Gehry Technologies ndash Digital Project wwwgehrytechnologiescom18 For further details on standards many papers and reports see wwwiai-

internationalorgResourcesRelated_PublicationsSourceshtml accessed on 27May 2006

19 See wwwciteorguk which is described by its home page as CITE is acollaborative electronic information exchange initiative for the UK constructionindustry where data exchange specifications are developed by the industry forthe industry enabling the industry to move forward together

20 See wwwvicnetnetau its stated reason for being on its home pagestates lsquoThe Vicnet Division provides community internet services to Victoriannot-for-profit organisations Through Vicnet the State Library of Victoriadelivers information and communication technologies and support services

242 Walker et al

value-adding advantages that it may produce Also highlightthree challenges to its use and how these may be mitigated

5 The project has an extremely long time horizon for its implemen-tation Discuss the most important (in your opinion) example ofemerging trends that may significantly impact upon this vignetteprogramme in terms of FM collaborative decision making andthe balance of on-shore and off-shore supply chain participation

which aim to strengthen Victorian communities Vicnet works with a wide rangeof not-for-profit community organisations including sporting recreationaleducation multicultural health and arts groups It also provides services to thegovernment education and welfare sectorsrsquo

21 See wwwcommunitybuildersnswgovaubuilder accessed on 27 May 200622 See wwwbovislendleasecom and explore that site23 See wwwetach accessed on 27 May 200624 See web-japanorgtrendssciencesci030414html Japanese companies seem to

be concentrating heavily on providing innovative services for elderly or disabledpeople living alone that are linked to mobile phone technology

25 See wwwprintdirectcom accessed on 27 May 200626 See wwwabcnetaurntranlisthtm and wwwabcnetaurnbackgroundbriefing

for downloading sound and podcast files accessed on 27 May 200627 See the research work of Prof John Debenham University of Technolgy Sydney

for example www-staffsocsutseduau~debenhampapersES03pdf) accessedon 27 May 2006

References

Akkermans H A Bogerd P Yucesan E and van Wassenhove L N (2003) lsquoTheImpact of ERP on Supply Chain Management Exploratory Findings from aEuropean Delphi Studyrsquo European Journal of Operational Research 146(2)284ndash301

Al-Mashari M Al-Mudimigh A and Zairi M (2003) lsquoEnterprise ResourcePlanning A Taxonomy of Critical Factorsrsquo European Journal of OperationalResearch 146(2) 352ndash364

Australian Procurement amp Construction Council Inc and DOLAC (1997) NationalCode of Practice for the Construction Industry Code of Practice Deakin ACTAustralia Department of Labour Advisory Council (DOLAC) Secretariat ndashDepartment of Workplace Relations and Small Business

Barnatt C (2004) lsquoEmbracing E-businessrsquo Journal of General Management 30(1)79ndash96

Barnes D Hinton M and Mieczkowska S (2004) lsquoThe Strategic Management ofOperations in E-businessrsquo Production Planning amp Control 15(5) 484ndash494

Carlisle W (2005) Googlemania Background Briefing Australia ABC RadioNational httpwwwabcnetaurntalksbbingstoriess1556705htm

Chan C and Swatman P A (2000) lsquoFrom EDI to Internet Commerce The BHPSteel Experiencersquo Internet Research Electronic Networking Applications andPolicy 10(1) 72ndash82

Duyshart B H (1997) The Digital Document Oxford Butterworth-HeinemannDuyshart B Mohamed S Hampson K D and Walker D H T (2003) Enabling

Improved Business Relationships ndash How Information Technology Makes aDifference In Procurement Strategies A Relationship Based Approach Walker DH T and K D Hampson Eds Oxford Blackwell Publishing Chapter 6 123ndash166

Gallaher M P OrsquoConnor A C Dettbarn Jr J L and Gilday L T (2004) CostAnalysis of Inadequate Interoperability in the US Capital Facilities IndustryResearch Report Gaithersburg Maryland US Department of CommerceTechnology Administration National Institute of Standards and Technology(NIST)NIST GCR 04-867 Final Report 2ndash8 210

E-business and project procurement 243

Gibson W (2004) Neuromancer New York Ace BooksHayes R H and Wheelwright S C (1984) Restoring Our Competitive Edge

Competing Through Manufacturing New York WileyIDC and Pang A (2001) eProcurement Ensures Visionary Companies a Place in the

New Economy httpwwworaclecomapplicationsprocurementIDC_wp_Compaqpdf accessed on 28 May 2006

Jewell M and Walker D H T (2005) Community of Practice PerspectiveSoftware Management Tools A UK Construction Company Case Study InKnowledge Management in the Construction Industry A Socio-TechnicalPerspective Kazi A S Ed Hershey PA Idea Group Publishing 111ndash127

Lawrence E Lawrence J Newton S Dann S Corbitt B and Thanasankit T(2003) Internet Commerce Digital Models for Business Sydney John Wiley ampSons Australia

Lovins A (2000) 8 October Natural Capitalism ndash A Lecture by Amory LovinsBackground Briefing Sydney ABC wwwabcnetorgrntalksbbingstoriess196391htm

Lueders H (1991) Interoperability and Open Standards for eGovernment ServicesBrussels The Council of the European Communities Volume 1 P 0111 42ndash46

Lueders H (2005) Linking up Europe The Importance of Interoperability fore-Government Services EU Commission Staff Working Paper Initiative forSoftware Choice Secretariat Interoperable Delivery of European eGovernmentServices to Public Administrations Businesses and Citizens 1ndash23

Nisbet N and Liebich T (2005) ifcXML Implementation Guide InternationalAlliance for Interoperability Modeling Support Group 1ndash48

Peansupap V and Walker D H T (2005) lsquoExploratory Factors Influencing ICTDiffusion and Adoption Within Australian Construction Organisations A MicroAnalysisrsquo Journal of Construction Innovation 5(3) 135ndash157

Pliaskin A and Tatnall A (2005) Developing a Portal to Build a BusinessCommunity Web Portals The New Gateways to Internet Information andServices Tatnall A London IDEA group 335ndash357

PMI (2003) Organizational Project Management Maturity Model (OPM3)Knowledge Foundation Newtown Square PA PMI

PMI (2004) A Guide to the Project Management Body of Knowledge Sylva NCProject Management Institute

Poon S and Swatman P (1999) lsquoAn Exploratory Study of Small Business InternetCommerce Issuesrsquo Infomation and Management 35 9ndash18

Sawhney M and Parikh D (2001) lsquoWhere Value Lives in a Networked WorldrsquoHarvard Business Review 79(1) 79ndash86

Sharma A (2002) lsquoTrends in Internet-based Business-to-business MarketingrsquoIndustrial Marketing Management 31(2) 77ndash84

Szymczak C C and Walker D H T (2003) lsquoBoeing ndash A Case Study Example ofEnterprise Project Management from a Learning Organisation Perspectiversquo TheLearning Organization MCB University Press 10(3) 125ndash139

Tatnall A (2004) Web Portals The New Gateways to Internet Information andServices Hershey PA Idea Group

Walker D H T and Rowlinson S (1999) Use of World Wide Web Technologiesand Procurement Process Implications In Procurement Systems A Guide to Best

244 Walker et al

Practice in Construction Rowlinson S and P McDermott Eds London EampFNSpon 184ndash205

Walker D H T Hampson K D and Ashton S (2003) Developing in InnovationCulture In Procurement Strategies A Relationship Based Approach Walker DH T and K D Hampson Eds Oxford Blackwell Publishing Chapter 9236ndash257

Wei L Raymond J K and Ahmad H (1999) lsquoEffects of High PrequalificationRequirementsrsquo Construction Management amp Economics 17(5) 603ndash612

Wilson R A (2004) lsquoEmployee Dishonesty National Survey of Risk Managers onCrimersquo Journal of Economic Crime Management 2(1) 1ndash25

E-business and project procurement 245

Chapter 8

Procurement innovation andorganisational learning

Derek HTWalker and Tayyab Maqsood

Chapter introduction

We have stressed throughout this book that effective project procurementconcerns value generation not simply cost minimisation The interfacebetween business strategy (see Chapter 5) and procurement often links inwell with performance measures (Chapter 6) and both culture (Chapter 9)and how to foster innovation and leverage knowledge and learning ndash thefocus of this chapter The purpose of this chapter is to help make explicitthe link between strategic intent developing learning strategies throughprocurement and PM practice and making project procurement choices

To achieve the objectives set for this chapter it is separated into threesections together with a vignette that presents a hypothetical situationalong with relevant questions that if answered will reinforce learning fromthis chapter

The first section deals with business strategy and innovation to identifyhow innovation and creativity can be important to many organisations andhow they may frame strategies to remain sustainable and competitive indelivering stakeholder value The second section discusses the nature ofinnovation and learning and provides some recent models that link it tostrategic engagement through procurement The third section focuses uponorganisational learning opportunities its advantages and its link toprocurement

Business strategy and project procurement

In Chapter 5 we discussed the nature of the firm how organisationsdevelop strategy and how that links to project procurement to gain andmaintain competitive advantage We explained how the resource-basedview (RBV) of the firm can shape an organisationrsquos strategy to useprocurement strategies as well as its internal development to shape itscompetitive niche We also indicated how a sub-set of the RBV argues thatlearning is a critical resource with which to develop and hone an

Innovation and organisational learning 247

organisationrsquos dynamic capabilities ndash so that it can be nimble and lean andquickly respond to competitive forces In this section we will furtherexplore how strategy develops and results in a procurement decision thatdefines the extent to which the organisation will integrate itself with itssupply chain (including its customers and other stakeholders)

Strategy and innovation level

We briefly explore Porterrsquos 5-forces model to link it to delivering competitiveadvantage Porterrsquos competitive strategy (Porter 1985 1990) identified fiveforces that shaped competitive advantage These are listed as follows

1 threat of new entrants2 bargaining power of suppliers3 threat of substitute products4 bargaining power of buyers and5 intensity of rivalry among competitors

Through analysing the nature and trajectory of these forces a firm couldadopt a competitive advantage by focusing on a narrow or broad targetwith the aim of positioning itself with a cost advantage (being the lowestcost provider) or a differentiation strategy (having a unique offering orposition in terms of brand reputation and gaining loyalty) Being innovativeand a better manager of knowledge than competitors means that if anorganisation is seeking a cost advantage then knowledge and innovationcan enable it to be efficient and keep abreast (if not ahead) of its competitorsIf the organisation is seeking a differentiation advantage doing somethingdifferent providing a (near) unique product or service or having systemsand procedures that are efficient effective and difficult to replicate then itwill likely have a more lasting competitive advantage than having atemporary cost advantage ndash which may be breached through being readilyreplicated (or improved upon) or undermined through substituting inputsthat are commonly available Procurement choices are concerned withdeciding which organisations and clients a firm will collaborate with todeliver projects so that its business strategy should shape its decision ndash itmay for example seek out complementary resources if these are lackingAlso strategic procurement choices involve looking inwards and outwardsand making decisions about whether (1) either an exploration (outwardlooking) stance to discover new things should be taken or an exploitationof external resources or (2) to focus upon internal capabilities andresources (March 1991 Rothaermel and Deeds 2004)

The Porter model allows us to understand procurement from theperspective of the competitive forces he identified The new entrantschallenge revolves around building a competitive advantage that is difficult

248 Walker and Maqsood

to breach however it may well be the case that a new entrant may have anascent idea that can be capitalised upon by a dominant player In this caseit is in the interest of the dominant player to join forces with the lsquobrightsparkrsquo and attempt to develop a sum that is greater than the potential oftheir parts Thus alliances joint ventures and partnering arrangements canmake sense so long as the parties have appropriate levels of trust anddistrust (see Chapter 9 for more detail on this) The bargaining power ofsuppliers can be accommodated by taking a lean supply chain approach(Womack et al 1990 Womack and Jones 2000) Alternatively a leadsupplier position can be taken through looking at the strategy of workingwith global providers at various levels Ferdows (1997) provides a modelfor achieving this strategy based upon global factory production andoutsourcing where players advance up the value-adding supply chain Theethical and business costbenefit needs to be considered when making achoice Threat of substitute products can and should be seriouslyconsidered so that (as in judo) a confrontational force can be not onlydeflected but turned against the aggressor In procurement strategy termsthis is concerned with building upon good ideas to match organisational-internal strengths and competencies to flip the substitute idea either out ofthe field or to morph it with other innovations and absorb it into a morepowerful and sustainable offering The bargaining power of buyers can alsobe accounted for One way is to overwhelm them by being a sole supplieror make it very difficult to switch Alternatively as has been suggested byDorothy Leonard-Barton (Leonard-Barton 1992 1995 Leonard andRayport 1997 Leonard and Sensiper 1998) a firm can work with itsclients and buyers to provide more value than either parties separatelyproviding the end productservice Intensity of bargaining power ofsuppliers can be strategically dealt with by offering non-obvious advantagesto form alliances that can form synergies so as to equalise or reassert a moresecure position at lsquothe tablersquo ndash where sophisticated negotiation in procurementcomes in to play Rivalry among competitors can be handled with adefensive strategy that allows co-opting competitor competence (Prahladand Ramaswamy 2000) or domination

In this section we may have given the impression that being innovative toachieve a differentiation competitive advantage is a path worth taking Ofcourse in doing so we are assuming a level of business sophistication thatmay well be beyond many organisations However most organisations state(judging by the rhetoric of the business press and by annual reports) thatcost competitiveness is lsquokingrsquo Certainly producing value for money requiresa keen eye on costs as well as innovative and smart ways of deliveringoutcomes (both tangible and intangible) So we need to consider the formsof competitive strategy that organisations adopt These forms differ fromthe lsquoschoolsrsquo of strategy described in Chapter 5 in that they are actionsrather than philosophical stances

Innovation and organisational learning 249

Miles and Snow (2003) provided a neat typology of strategic characteristicsof a firmrsquos strategy under four organisational types ndash prospector analyserdefender and reactors As Croteau and Bergeron (2001) note firms chooseone type over another depending upon the perceived business environmentProspectors wish to have access to the largest possible market and arehighly innovative in bringing change to unsettle their competitors Theyintroduce innovative offerings and aim to be the supplier of first choice tothose organisations that are willing and wish to pay a premium to be lsquoaheadof the packrsquo Defenders are less innovative than prospectors or rather theyare less agile so they need to select niches that they are comfortable in anddefend these aggressively They will concentrate on finely honing their costsand quality of offering so that they fend off competitors as long as is possi-ble to make the costbenefit worthwhile Analyser firms have a bit of bothprospector and defender in them They tend to resemble the early adoptercategory of innovator as outlined by Rogers (2003) These organisationsruthlessly select their market segments and position themselves where theycan best maximise their outcomes They are happy to hold second place andlearn from the innovators to improve their offerings relative to thosechallenging them These organisations believe that they can maintain astrongly competitive position from learning from the mistakes andexperiments of innovative prospectors and do so more effectively than theirlsquoalso-ranrsquo competitors The final group are reactors This group expendenergy in countering competitors in value-negative or at best neutral wayssuch as spending money on marketing public relations legal battles and

Organisationrsquosenvironment

Competitive approaches

Strengths

Threats

WeaknessesCompetencies

CultureResourcesCompetitorrivalry

Prescriptive

CoalescenceCollaborationCooperationCompetition

Reactor

Defender

Analyser

ProspectorConfigurativeDescriptive

Suppliersrsquobargaining

power

Threat of newentrants

Threat of substituteproducts

Buyersrsquobargaining

power

Strategic penchant

Opportunities

Figure 81 Firmrsquos characteristics shaping its procurement decisions

250 Walker and Maqsood

other superficial ways to try to exclude competitors or reduce the surfacingof innovative ideas that challenge their ability to deploy these ideas In thefirst three of this four-typology model the emphasis is upon innovationand alliancing or finding value-adding ways to deal with change andopportunity In the fourth example energy is not aimed at productserviceinnovation ndash rather perception management

In Chapter 5 we discussed the summary of strategic schools of thoughtoffered by Mintzberg et al (1998) This helps us to discern the penchantthat influences or dominates an organisationrsquos strategic stance When thatinfluence is combined with an understanding of an organisationrsquos environ-ment governed by the competitive forces that Porter (1985 2001) envis-ages (informed by an organisationrsquos knowledge of the limitsscope of itsresources competencies and culture to perceive the strengths weaknessesopportunities and threats that it faces) organisations can begin makingdecisions about how its procurement strategy might be shaped Its naturalcompetitive approach (based upon its perception of its lsquoworld viewrsquo andhow that affects it) further shapes an organisationrsquos procurement approachFigure 82 illustrates this set of forces that shapes procurement decisionmaking

An organisationrsquos strategy-making group will see the task of procurementdecision making with a penchant for one or more schools of thoughtoutlined in Chapter 5 that will help explain the way that such decisions aremade The result can determine the extent to which it will form relation-ships with its supply chain Walker and Hampson (2003a 45) describe howenterprise networks partnering and alliances develop They use the idea of

Coalescence

Collaboration

Cooperation

Competition

One-off contract Repeat businessPartnering

OpportuniticJVAlliance

CommittedJVAlliance

Incr

easi

ng v

alue

thr

ough

Tru

stC

omm

itmen

tK

now

ledg

e sh

arin

gJo

int

coor

dina

ted

prob

lem

sol

ving

Figure 82 Increased value from forming relationships

Innovation and organisational learning 251

a continuum of the degree of objectives alignment between supply chainentities from low to high as providing increasing potential benefits throughpartnering and cooperation based on Thompson and Sanders (1998 74)

The lowest level is competition where there is a complete disconnectbetween the partiesrsquo objectives and often this results in each link in thesupply chain trying to take advantage of gaps in scope specification to claimlsquoextrasrsquo and generally devoting a lot of energy into anticipating conflicts orreacting to attacks from others (in the form of claims and counter-claims)This changes to a point where through cooperation the parties have somelimited commonality of objectives There may be a formal attempt to alignthe project delivery goals through partnering arrangements as discussed inChapter 2 This releases some of the reactive energies and reduces theburden of administrative effort in preparing for conflict Well-definedescalation plans allow problems and conflicts to be better dealt with bythose with appropriate authority to make commitments lsquostickrsquo As thealignment increases towards collaboration there is a substantial overlap ofinterests organisation-specific objectives and benefits (including innovationand knowledge generation and transfer) that become more evident As thisrelationship becomes more encompassing it can reach a stage of coalescencewhere genuine mutual objectives are addressed by the parties and thealignment reaches a point where there is a tight rather than loose fit ofgoals methods processes infrastructure support and even culture This ismanifested in intense joint problem solving and communication that canimprove both innovative capacity and knowledge management (KM) asillustrated in Figure 82 here Tightness of fit between strategy andoperational delivery is recognised as being more productive and likely tolead to successfully meeting objectives (Miles and Snow 1984)

Figure 82 illustrates the links between level of cooperation andrelationship between organisations in a project supply chain and increasedvalue generated through increasing trust commitment knowledge sharingcoordinated joint problem solving and other cultural understanding aspectswhich permit energy to be directed towards innovation and coordinatedeffort rather than defensive routines In this way organisations are placedcloser to strategically acting like prospectors or analysers (Miles and Snow2003) not so much by strategising productservice offerings to the marketbut rather in their attitude towards their contribution towards the projectgoals and vision

Given the holistic nature of this book it is not surprising that wepromote the idea that most organisations that are likely to be sustainableare better advised to follow an innovation and knowledge intensiveroute to achieve development of products and services that are sustainablebusiness prospects We have stated our bias as leaning towards innovationand learning and so we will proceed upon that path To that end it is worthbriefly discussing how alliances joint ventures and close collaborative

252 Walker and Maqsood

groups can synergise their efforts towards producing value-adding projectoutcomes

Relational-based project delivery ndash partneringjoint venturing alliances

In Chapter 2 (procurement choices section) we discussed relational-basedproject delivery systems broadly under partnering arrangements (oftenunder competitive tendering arrangements) and the formation of joint ven-tures and alliances In this chapter we concentrate on these as facilitators ofinnovation and learning

The literature on partnering and its advantages is substantial Numerousstudies and reviews have been undertaken in many countries in the USA(Weston and Gibson 1993 CII 1996) in the UK (Bennett and Jayes 1995Mathews 1999 Akintoye et al 2000 Bresnen and Marshall 2000 Daintyet al 2001 Bresnen 2003) and in Australia (Lenard et al 1996 Lenard1999 Uher 1999 Walker and Hampson 2003b) The general consensus isthat partnering assists and facilitates an environment in which trust candevelop and in which an orderly dispute resolution process can be agreedupon so that cross-organisational teams can work together for joint benefitHowever as was pointed out by Walker et al (2002) in partneringindividual organisations in a project supply chain may sink while othersmay swim A principal point of departure that is evident from their casestudy of the National Museum of Australia (NMA) which was deliveredunder a project alliance arrangement was that the alliance locked in(through its rewards and penalty arrangements) that team members onlyfelt consequences of gain or pain from acting jointly rather than separately

Project joint ventures are legal arrangements whereby separate organisa-tional entities form a project team together to deliver projects Large-scaleconstruction infrastructure projects common for example in Hong Kong(HK) have tended to be delivered using joint ventures (JVs) of global andlocal construction organisations The main reason why individual oftenvery large construction companies do so is to offer a customer-focusedservice package which meets that customerrsquos needs (Walker and Johannes2003a) While one motivation for establishing JVs has been to spreadfinancial and other risks there is a strong motivation to better capturelearning so that this hidden and intangible asset may be later applied toimprove JV partnersrsquo competitive advantage (Walker and Johannes2003b) Figure 83 illustrates this motivation based upon interviews withnine CEOssenior executives of JV partners and 40 site management staffon three case studies undertaken in HK (Johannes 2004) The benefitshighlighted that including intangible benefits such as enhanced reputationbrand image improved organisational learning and enhanced businessopportunities are consistent with the literature dealing with other industries

Innovation and organisational learning 253

For example in e-commerce JVs originators develop content syndicatorspackage content and distributors deliver the product (Werbach 2000 87)Doz and Hamel (1998) provide many examples of advantages of formingalliances which bring together separate skill sets that may lead to JVs in aseparate entity that develops new businesses though they caution us abouthow one firm may take advantage of another firm in a JV in a hiddencompetitive ploy to dominate a market Cross-border alliances and JVscan provide valuable knowledge insights through close interaction betweenpartners This was particularly the case with US and Japanese alliancesin the 1980s and 1990s (Bleeke and Ernst 1993) An important point madein most of the literature is that JVs and alliances should be managed with acareful power symmetry in mind (based on financial or intangiblecontributions) so that strategic decision making is not dominated by oneparty that way trust and commitment is more likely to survive

It is evident from the more current literature (Miles and Snow 1995Miles et al 2005) that the most successful business models that promoteagility innovation and rapid adaptation to turbulence that is so prevalenttoday are for organisations to form formal or informal networks Thesego beyond the kind of regional alliances found in the Milan region forfashion or Silicon Valley for electronics (Porter 1998) or keiretsu links

Skillscompetenciesidentified

Projectopportunityidentified

$ Profits

Org 2Org 1

1- Realise project outcomeswith maximum return to JV

partners 2 - Realise learning fromJV partners

Intellectualproperty

Reputation andbrand image

Learningapplied to

future JVs orstand alone

Betterunderstanding ofJV partners for

future JV projects

Andthrough joint

learning

JVformed

leading toOrg n

Figure 83 JV and learning

Source Walker and Johannes 2003b 111

254 Walker and Maqsood

in Japan or chaebol in Korea (Dyer et al 1998) The current crop of allianceorganisations form virtual and global linkages based upon common cultureand trust that ensures that contributions made by partner organisationsreceive due benefit (Miles et al 2005) These types of organisations haveresponded to the difficulty in attracting talent and fully utilising that talent inone central organisation by forming alliances (both formal and informal)as a cluster of atomic-like small firms that focus around a constellation oftalented entrepreneurs This is what Miles and Snow (1995) refer to as thespherical form and they cite an Australian Sydney-based firm technical andComputer Graphics (TCG) as an example of this kind of CAD organisationalform that procures its required resources through a loose alliance of like-minded players This concept moves them well beyond their earlier prospectorand analyser type firms to a form that deploys a business model in which it

1 identifies a market niche (much like an analyser would do)2 finds a development partner (probably as a JV partner)3 locates a major customer (which may involve the customer being a

significant interactive problem-solving contributing partner)4 involves other TCG firms (part of their alliance network which

typically has 5ndash10 professionals) and5 extends the triangle in new directions (often new and innovative

applications will emerge as part of the creative and innovative process)

This new organisational form has a governance regime dominated by astrict set of ethical codes of practice along with cultural norms (Miles andSnow 1995 9) This form of procurement and its governance structurevalidates the importance of transparent ethical frameworks being estab-lished (see Chapter 4) and a strong culture (see Chapter 9) because thealliance works effectively through affective commitment simply becauseenergy is not wasted in dispute resolution rather conflict is centred oncreative abrasion (Leonard and Straus 1997) which stimulates innovativeideas The organisational form typified by TCG overcomes many of themore structured and formal internal and legally complex arrangementsidentified as causing failures in network organisations during the 1990s ndashthe paradox of coping with a turbulent environment using tightly linkedorganisational structures (Miles and Snow 1992)

Figure 84 illustrates how the core organisation will need to respond insourcing its required talent in this networked organisation age The coreorganisation will require well-aligned infrastructure ndash this is not new andhas been advocated for a long time (Miles and Snow 1984 Pettigrew andFenton 2000) The key message is that by managing the central elements ofthe organisational infrastructure particularly information communicationtechnology (ICT) supporting people to be innovative the sum is far greaterthan its constituent parts Pettigrew and Whittington (2003) argue that

Innovation and organisational learning 255

managing structures processes and boundaries (relating to deciding the scopeand scale of what will be internally managed and what will be outsourced)is crucial and that mismanaging one can have a leveraged adverse affect asmuch as managing all of these three elements well can have a leveragedimprovement in performance Figure 84 illustrates its core activities asleadership (stressing both strategy and deployment) stakeholder relationshipmanagement ICT support financial and resource support and strategichuman capital (see Chapter 10 for more discussion on this issue) Four humancapital activities are highlighted as needing to be excellent a customer rela-tionship management (CRM) system that can track individual employeeswith rare and valuable skills as knowledge workers (ESkies) facilitatingskills development opportunities ndash these could include a community of prac-tice (COP) approach mentoringcoaching knowledge events training andseminar type events leadership development to ensure that those in leader-ship roles in the organisation have sufficient acumen and ability to persuadeand inspire others and an active facilitation of KM and organisationallearning (OL) recognising knowledge and innovative capacity-delivery asthe most significant asset that this type of organisation possesses People insmall organisations with the type of person required for complex projectwork of this nature will work on the projects and there will be manyprojects managed by this type of organisation More detail of this concepthas been presented elsewhere (Walker 2005)

This section argues that the competitive environment exerts pressuresupon organisations that may hold a particular competitive approach (thatthey tend to respond with) and that coalescence into a committedrelationship best serves most of todayrsquos knowledge-intensive organisations

Project organisations

Coreorganisation

Project 2Project 1

ICTsupport

Leadership

Stakeholderrelationship

MgtStrategic

HC

$ + otherresources

Project n

ESKie n

ESKie 2ESKie 1

Individual employeeskilledcontracting knowledgeworker (ESkies)

Strategic human capital (HC)function activities1 CRM2 Facilitating skills development opportunities3 Leadership development4 Facilitating KM and OL

Figure 84 Alliance implications for procurement

Source Walker 2005

256 Walker and Maqsood

These organisations need to be highly adept at effectively managing theirinfrastructure and particularly need a superbly functioning strategic HRdepartment that nurtures not only its employees but also its lsquoextendedfamilyrsquo of regular value contributors This view sets procurement choiceupon a new plane and requires new levels of sophistication of how to relateand collaborate with people and supply chain members This view moveswell beyond the limits of relying on an organisationrsquos legal or contractsadministration department to ensure that projects are successfully delivered

Learning and innovation ndash a procurement perspective

This section focuses upon how learning and innovation can be encouragednurtured and facilitated through an appropriate procurement strategy

The literature from the USA UK Australia and elsewhere confirms thatdemanding clients and users are good for triggering innovation In a large-scale study of innovation in the Australian construction industry it is clearthat demanding clients expect and through their explicit or implicitexpectations and procurement practices trigger their project delivery teamsto develop innovative products processes or services (Manley 2006 Manleyand Mcfallan 2006) a case in point is the NMA project mentioned earlierin this chapter where one of the selection criteria was a lsquodemonstrated abilityto add value and bring innovation to the projectrsquo (Walker and Hampson2003c 91) Examples from the UK include a demand-side set of driversthough the pressure emerges from both the client and the deliverer trying togain a competitive edge by offering valuable alternatives to those initiallyexpected (Gann and Salter 2000) Other UK studies also indicate a role fordiscerning clients and project providers as well as the role of the professions(Winch 1998 2005) US studies indicate a similar pressure that arises fromconstruction clients who demand cleverer solutions to their projectproblems and professionals who wish to deliver more value (Tatum 1984Slaughter 1998) Added to this is the influence that some of the USliterature suggests is exerted by lead users of innovations who undertakebeta testing or forms of alliance can influence development of products andprocesses (Von Hippel et al 1999) Organisations work with such usersthrough a process termed lsquoempathic designrsquo where solutions are developedin the field through trial-and-error experimentation and observation oflead users who can help perfect innovative solutions when developingproducts services and processes (Leonard-Barton 1992 1995 Leonardand Rayport 1997 Leonard and Straus 1997) All these examples fromacross many continents and disciplines share a central idea that innovationis unleashed from the creative and curious interface between clients andusers who wish to explore new and more useful ways to do their job(Leonard-Barton 1992 1995 Leonard and Rayport 1997 Leonard and

Innovation and organisational learning 257

Straus 1997) This supports the inference that if clients choose to include arequirement to demonstrate innovative capacity in delivering projects thatserendipitous value may be generated as an outcome provided that theclient side of the team has the capacity motivation and open mind toengage in experimentation

Recent research provides a useful model that helps to explain the processAt first Figure 85 appears somewhat crowded and complex but it is com-posed of several simple ideas that are highly relevant to PM procurementchoices It acknowledges that the external environment with its inherentcompetition and opportunities and threats exerts a powerful dynamic thatdrives motivation to innovate Opportunities for access to knowledgerepositories exist for firms through their professional bodies universitiesand shared sources such as COPs These sources pushoffer access toresearch outcomes and other knowledge forms such as theoretical frameworksand case study data often with an expectation or hope that the organisa-tion will reciprocate by feeding back some of the firmrsquos internal knowledgebank into that source for validation or enhancement through collaborativeinvestigation Thus there are both knowledge push-and-pull forces exertedbetween the external source and the organisation The organisationpossesses existing knowledge through its people and processes and this is

External sources of innovations contributing to external knowledge bankincreasing with time

Pull PullPullGAPGAPGAP bw

researchamppractice

Push

Culture

Existing knowledgein organisation

People

Process TechnologyProcess

Process

Stage 3Ideal transformed stateStage 2

Transformation in processStage 1Before transformation

Learning organisation

Knowledge management initiativesKnowledge management

initiativesKnowledge management initiatives

Exte

rnal

env

iron

men

t C

ompe

titio

n T

hrea

ts

People

Innovation

Innovation

People

Cycle repeatsand refines

Internal knowledge

bank improved

Internal knowledge

bank further

improvedInternal

knowledge

bank

Innovation

Culture

Culture

Knowledge after certainlearning

Knowledge in theorganisation afterfurther learning

Technology

Technology

Time line

PushFeedback

FeedbackFeedback

Push

Figure 85 An innovation trajectory

Source Maqsood (2006b 174)

258 Walker and Maqsood

enabled by its technology infrastructure Knowledge is mainly forced intothe organisation with much effort as a push force with very weak pull forcesallowing knowledge to be fed back to the outside world for validation andenhancement This represents a state in which there is a low level of organ-isational learning influence from outside While this may be adequate forshort-term survival if the organisationrsquos internal knowledge capital base isstrong it will inevitably miss signals of external change and turbulence sayfrom substitute offerings by competitors or players outside the lsquoindustryrsquothat could enter the competitive field In this sense an organisation may beeither a prospector defender or reactor in the Miles and Snow (2003)typology An organisation at this stage is also missing valuable opportunitiesto innovate through empathic design as indicated by Leonard and Rayport(1997) and Von Hippel et al (1999)

Stage 1 illustrated in Figure 85 indicates the stage that most organisationsare currently experiencing People processes and technology may be poorlyaligned so that there are barriers to the generation and flow of knowledgeand while it is used it may be sub-optimally applied ndash this is indicated by theseparation of these three elements and the weak link by dotted linesProcesses may be traditional for the industry with little experimentationandor they may be somewhat ad hoc Technology support could includewidespread use of groupware and portals as discussed in Chapter 7 but theaim of its deployment would centre on data processing rather than informa-tion processing and coordination storage and retrieval of explicitly recordedinformation rather than developing and extending communities of practicePeople would be linked to technology and processes through more formalmeans in standard ways with little experimentation on how to lsquotweak thesystemrsquo and there may be a general satisfaction with the way things workwhen compared to past times when IT was solely about data processingand processes were recorded in lsquothe manualsrsquo The organisational culture isinward looking and hence the barriers to outside influence are impeded by animpervious barrier ndash indicated by the thick boundary lines Organisationsmore acutely aware that they should continuously improve would be under-taking limited experiments in using groupware as a KM tool such as LotusNotes Yellow Pages for finding and sourcing within-firm experts etc In arecent study of three of Australiarsquos leading construction contractors observedKM initiatives included development of portals for information retrievallimited within-firm communities of practice for ICT use enhancement andinformation and knowledge storage through the portal for aspects such assafety reporting lessons learned and other explicit knowledge repositories(Peansupap 2004 Peansupap and Walker 2005a)

The greater the number and more intense the scope of these KMinitiatives the greater is the chance that the organisation is moving towardsor entering the Stage 2 development Experimentation and reflection onexperiments undertaken are key elements in an organisation increasing its

Innovation and organisational learning 259

capacity (to assimilate external knowledge) to absorb further change andembed learning moving towards being a learning organisation (Cohen andLevinthal 1990 Gann 2001 Caloghirou et al 2004) This is becauseexperimentation and actively seeking external knowledge assists in (1) devel-oping language and meaning (ie jargon lsquoin-termsrsquo and technical language)that can be shared easily with outside sources (2) being better able tocategorise and conceptualise external knowledge and thus be in a positionto internalise this knowledge and apply it to the workplace (3) better ableto discern patterns and the potential value of external knowledge (Cohenand Levinthal 1990)

The degree to which an organisation is oriented towards seeking externalknowledge varies according to the type of organisation According toMeacheam (2006) an organisationrsquos KM stage of development can be cat-egorised by analysing it in a 9-cell matrix On the vertical axis he createsthree rows representing the lsquoknowing cyclersquo (1) the way it makes sense ofknowledge received transferred and generated (2) the way it createsknowledge and (3) the way that it uses knowledge for decision making Onthe horizontal axis he constructs three columns representing support struc-tures identified by Croteau and Bergeron (2001) the organisations infra-structure (its technology physical assets that allow people to interact andtools) its infostructure the rules and processes that allow people to com-municate and infoculture the background knowledge that actors haveembedded about their world and workplace and the way that the organisa-tion encourages or restricts knowledge transfer Meacheam (2006) arguesthat using the Miles and Snow (2003) typology of prospector analyserdefender and reactor can help explain how and why different organisa-tional types seek knowledge from external sources in different ways Thistypology is useful in assessing where an organisationrsquos maturity level maylie in terms of Figure 85 as well as explaining what level best fits thatorganisation For example a prospector will be seeking knowledge aboutwhat external markets fail to currently deliver and what internal innova-tions it can hone reshape or further develop to aggressively lead its com-petitors An analyser would need to carefully seek external knowledge fromthe market and identify potential for finding a specialised niche market forits productsservices and learning as an early adopter (Rogers 2003) how itcan improve upon lead innovators A defender organisation would be con-centrating to a large extent on knowledge that it can muster to stay in themarket and lower costs and raise barriers to entry by others perhapsthrough continuous improvement and incremental improvements in itsofferings A reactor organisation is poor at knowledge absorption and findsitself continually under threat and perhaps uses external and internalknowledge to mount campaigns to fend off competitors use spin-doctoringto advertise its offerings in the most favourable light possible and restrictwhat it may view as dangerous or subversive leakage of proprietary

260 Walker and Maqsood

knowledge from the organisation Meacheam (2006) offers insights thathelps to explain an organisationrsquos likely trajectory along the Maqsood(2006a) model presented in Figure 85

Stage 2 of the Figure 85 model indicates an organisation that has reducedthe imperviousness of the boundaries between the organisation and the out-side world and has also better integrated its people processes and technol-ogy There is stronger evidence of knowledge creation transfer and use forproblem solving as well as a greater degree of feedback of knowledge to betested and validated by external sources such as academia professional asso-ciations clients and competitors (perhaps through undertaking benchmark-ing exercises) This stage indicates a more or less equal push and pull ofknowledge KM initiatives are more prevalent and intense in scope and thesepropel the organisationrsquos learning and develop its absorptive capacity

At Stage 3 an idealised condition is contemplated The people processesand technology is completely seamless and embedded The boundaries arehighly permeable and there is a greater export of knowledge for validationthan is being imported This model appears similar to the sphericalorganisational form advanced by Miles and Snow (1995 Miles et al 2005)as discussed earlier While this appears to many organisations a dangerous andinsecure way of managing its critical knowledge assets it may be that such astate provides greater advantages for rapid innovation and commercialisationthan its downside of being vulnerable to exploitation by its competitors AsMiles and Snow (1995 9) indicate organisations that operate in this way needto have a strong culture clear governance and cultural protocols filteringmechanisms to exclude predatory organisations and as indicated by Walker(2005) in Figure 84 a superb strategic human capital management system

The main implications for procurement choices discussed in this sectionrelate to how organisations may present themselves as a learning partner offirst choice in alliances or in developing their internal dynamic capabilitiesand knowledge resources Further the models presented thus far indicatethat organisations that work closely together (either by collaborating onprojects or developing innovations through synergising their particularskills base) need to align their development and use of ICT Before we leavethis part of the discussion we should look at how some of the underpinningtechnologies such as ICT may best be diffused Results from a recent studyundertaken by Peansupap (2004) for his PhD extensively published in theliterature with Walker provides revealing insights into the drivers of andbarriers to ICT diffusion that operate at the organisation (macro) project(meso) and individual (micro) level (Peansupap and Walker 2005ab2006ab) The study surveyed 117 management staff from three largeAustralian construction organisations and was supplemented by a follow-up qualitative study that assists us understand how three large Australianconstruction contractors that routinely use ICT in a project environmentdiffuse ICT innovation

Innovation and organisational learning 261

Innovation diffusion is defined as the process in which a new idea conceptor technology has been introduced throughout a social system over a timeperiod (Rogers 2003) The term lsquoICT diffusionrsquo is defined in this chapter asthe process by which an ICT application is adopted and implemented by anorganisation until its expected users accept and transfer knowledge of howto use these ICT applications throughout the organisation

Wolfe (1994 407) identifies three streams of innovation diffusion researchDiffusion of innovation (DOI) research addresses patterns of how innovationspread throughout a studied group of adopters Organisational innovative-ness (OI) addresses the determinants of how innovation occurs ndash focusedupon the organisation Process theory (PT) addresses the process of innova-tion and how and why adopters carry out innovation Stages of innovationhave been classified in various ways He notes 10 stages idea conceptionawareness matching appraisal persuasion adoption decision implementa-tion confirmation routinisation and infusion (Wolfe 1994 410) whileRogers (2003 199) offers five stages knowledge persuasion decisionimplementation and confirmation The outcome of the study reported upon inthis chapter was specifically focused upon PT for the actual implementationstage of the ICT applicationrsquos deployment

Using factor analysis the Peansupap (2004) study identified 11 factorsinfluencing ICT diffusion in these organisations These fell into four cate-gories ndash management (M) technology (T) individual (I) and environment (E)Also the model indicates (thick-lined elements in Figure 86) how ICTdiffusion takes place from initial adoption to actual implementationthrough six key ICT diffusion processes and how each factor impacts uponthose diffusion processes

1 developing new business practicesprocesses2 organisational adoption of the ICT decision3 preparing for the initial use of ICT applications4 reinforcing the actual use of the ICT applications5 clarifying benefits of ICT application use and6 developing a positive perception towards ICT and ICT diffusion

The extent of the influence of these factors is presented in Table 81Results from two phases of the study are presented in Table 81 The 11 factors are grouped by factor categories as illustrated in Figure 86The rounded mean values are based on 1 very low to 5 very highfrom the survey results of the three Australian organisations a governmentdepartment a global consultant and a major contractor The three casestudy results for the factors are based on qualitative research based uponinterviews with a representative sample of staff from three majorconstruction contracting firms the major contractor in the survey wasincluded in the qualitative study All organisations are based in Australia

262 Walker and Maqsood

1 New Business PracticesProcess

2 Organisationaladoption decision of ICT

External ICT knowledge andconstruction knowledge

Basic IT skills Capabilityto learn Previous

experience

Technologycharacteristics

Improvement [M I T E]

Yes

Act

ual i

mpl

emen

tatio

n st

age

Initi

al a

dopt

ion

stag

e

No

Develop negative emotionstowards ICT

3 Initial of ICTapplications

4 Actual use of ICTin world

5 Clearbenefits of use

6 Develop positive per-ception towards ICT use

Supervisor andOrganisation support

Professional development(ie Training)

Technical support(ie help desk)

Problems

M

I

T

E

Colleaguersquos help andsharing environment

Open discussion environment Assist

Communities of practicesICT Diffusion ICT Resistance

Assist

No

Yes

Assist

Assist

AssistLimited

knowledge

Management category

Thickened indicate organisational ICT diffustion processrs each is numbered

Industrial category Technology category Environment category

Figure 86 The framework of ICT innovation diffusion with an organisation

and the contractors typically turn over in excess of AU$1 bn per year andall three have experience of using IT for well over a decade An implicationthat can be drawn from this study is that there is consistent support for thenature of ICT diffusion amongst these ICT-sophisticated users to be seen asrequiring

1 users that have already experimented with IT applications and thushave built up an absorptive capacity for grasping how to use new ICTtools and have developed some confidence in their ability to tackle andovercome problems when learning how to use new ICT tools

2 management needs to financially support and resource an ICT help orassistance infrastructure that includes training help desk facilitiesone-on-one lsquohand holdingrsquo and providing a reward system even if thisis focused on less tangible rewards such as promotion prospects

3 an ICT infrastructure that provides real and tangible benefits from itsuse and is sufficiently free from technical problems to not hinder orfrustrate users Users commented negatively about ICT infrastructurewhen it tended to relate to low speedlow bandwidth access on site orwhen technical issues interrupted their access and use of ICT tools and

Innovation and organisational learning 263

4 A workplace culture and environment that supports collegial help andknowledge exchange deters or at least not rewards knowledgeinforma-tion hoarding and allows the safe lsquospacersquo for criticism and feedback whenpoor performance is evident for management support or technical support

It becomes clear from the above research study that if a procurementapproach is intended to include the need for a supply chain to engage in theshared use of common or well-interfaced ICT tools outlined in Chapter 7e-business then participating organisations will need to

source staff with requisite entry-level ICT skills have a minimum ICT infrastructure that includes management support

as well as technical tools equipment and support develop and maintain a workplace culture that is rich in sharing knowl-

edge and information and allows dissenting voices to be assertive indemands for support to use available tools and foster enthusiastic com-mitment to achieve benefits through collaborating with users of thisessential ICT infrastructure

Table 81 Comparison of ICT user experience of resulting innovation diffusion factors

Factor description Survey Case Case Case rounded study study studymeans org A org B org C

Individual (I) factors 38F3 Supporting individualpersonal 42 bull bull bull bull bull bull bull bull bullcharacteristics

F2 Clear benefits of ICT use 41 bull bull bull bull bull bull bull bullF9 Positive feelings towards ICT use 36 bull bull bull bull bull bull bull bullF10 Negative emotions towards ICT use1 18 bull bull bull bullEnvironment (E) factors 39F6 Supporting an open discussion 39 bull bull bull bull bull bullenvironment

F8 Collegial help 39 bull bull bull bull bull bull bull bull bullManagement (M) factors 32F5 Supervisor and organisational support 38 bull bull bull bull bull bull bull bullF1 Professional development and 33 bull bull bull bull bull bull bull bull bulltechnical support

F7 Supporting tangible and intangible reward 24 bull bull bullTechnology (T) factors 35F4 Supporting technology characteristics 37 bull bull bull bull bull bull bull bullF11 Frustration with ICT use1 17 bull bull bull bull

Notes1 Negative factors therefore a low value implies high emotions towards ICT applicationsbull Low level of perceived present factorsbull bull Medium level of perceived present factorsbull bull bull High level of perceived present factors ndash comparison between results of case study of threelarge global ICT sophisticated contractor organisations

264 Walker and Maqsood

The main gap in the discussion in this chapter so far relates to helping usunderstand how to better manage knowledge and its effective transfer thatacts as an effective trigger to spur innovation

Organisation learning KM and innovation

Many of the underpinning assumptions expressed in earlier sections in thischapter relate to how organisations undertake KM through the creationsharing transfer and then use of knowledge in a value chain However wehave not yet explained the KM process in this book Fortunately there is alarge and growing body of literature and several world class academicjournals that a key word search at a university library will readily locate

While many lsquofactsrsquo about objects may be said to be independently outthere (eg a sun that rises each day etc) it is only people who constructand create knowledge in their minds We could say that much knowledge isrecorded explicitly the knowledge we gain from manuals protocols andprocedures for example However even that type of knowledge is toodense and rich to be fully recorded and there are always acceptableexceptions to rules and workarounds We could say that such codifiedknowledge is partial knowledge or that manuals merely contain informationand data not knowledge Polanyi (1997) made the famous often quotedstatement that we know more than we can say and referred to knowledgeas being tacit that is unspoken and embedded His illustration of this wasour ability to instantly identify a familiar face out from a crowd and beingunable to explicitly and fully explain how we do that A business examplewould be how we solve a particular problem use a protocol or proceduresmanual or even to operate many software packages

A further knowledge-type concept is self-transcending knowledge thatlies beneath tacit knowledge and is knowledge that is not embodied ndash anexample of this is when an artist lsquoseesrsquo a painting or sculpture and knowsits form but the actual artefact remains within the stone or paints and mate-rials until liberated by the artist (Scharmer 2001) ndash a procurement solutiondesign could fit this metaphor where knowledge of the end product existsin part in a projectrsquos drawings or specifications but the artefact is not tan-gible until liberated by those involved in its production to lsquoliberate itrsquothrough their self-transcending knowledge process

One of the early KM theorists Nonaka (1991) offered some early KMconcepts He explained KM in terms of a spiral process referred to as theSECI cycle where tacit knowledge is shared between people in a socialsetting (S) this knowledge is then made explicit (E) through discussion ofexamples and metaphor that hone in on lsquodetailsrsquo it is then combined (C)with existing explicit codified knowledge in notes memos and proceduresand manuals and finally it is institutionalised (I) where it is formallyreframed by an organisation and embedded in the culture as lsquothe way that

Innovation and organisational learning 265

things are done around herersquo This all occurs in a setting where suchknowledge sharing is encouraged and fostered in a knowledge sharing spaceor environment ndash a lsquobarsquo (using the Japanese term) (Nonaka and Konno1998) This view of how knowledge is created captured transferred usedand then reframed in a KM cycle is more directly applicable to small groupsand individuals in its philosophy than for organisations

When applying this thinking more broadly to larger organisations wecan use the model developed by Crossan et al (1999) who envisaged theKM process in a larger organisational context as comprising the lsquo4IsrsquoIntuiting happens when experiences images and metaphors help to socialisean individualrsquos knowledge through expressing feelings and other tacitknowledge This is then processed by others through Interpreting thisknowledge and making sense of it it is further refined through Integratingthis new knowledge with the organisationrsquos existing knowledge base andthen finally Institutionalising it by embedding it into its culture androutines All this happens at the individual group and organisational levelwith the potential for insights and re-framing of knowledge to growmeaning rather than have it locked up as tacit individual knowledge Theprocess dynamic is driven by a feed forward lsquopushrsquo of knowledge and feedback lsquopullrsquo set of forces This looks at knowledge organisationally as aseries of stocks and flows (Bontis et al 2002) in which knowledge reservesare accessed and used restocked and replenished within an organisationand sustained by the organisation through people also with the organisationalimpact being more obvious than with the SECI model (Nonaka 1991Nonaka and Takeuchi 1995) This Crossan et al (1999) model howeverwhile being further refined than the SECI model failed to recognise thepowerful institutional and cultural forces at play For example peerpressure exerts a supportive or restrictive force at the individual levelGroup norms and leadership styles similarly affect the feedback and feedforward flows at the group level on individuals and also can force changeupwards Similar forces along with corporate governance (see Chapter 4)have a significant impact at the organisational level through providingdiscipline and domination drivers (Lawrence et al 2005)

The net effect of considering these forces is that a 4Is model with theimpact of power and influence considered provides us with a clearerpicture of the forces and pressures at work in managing knowledge This isillustrated in Figure 87

Influence during the intuition process can be episodic ndash affected bybehaviours such as moral suasion reward systems derived throughnegotiation It has implications regarding the way that champions of ideasemerge or are made available for those with intuitive ideas than can lead tosuccessful productive innovation Ideas need champions to argue andnegotiate for often scarce resources and they need to be backed by expertiseand a culture that readily brings these together Integration is also episodic

266 Walker and Maqsood

and requires force to regulate available behaviours to lsquopush throughrsquoinnovative ideas which may require organisational routines to facilitate theflow of ideas from a group or filter them in some way that helps contrastweak ideas with powerful ones The organisational systemic response toinstitutionalisation of innovative ideas and knowledge is through disciplineand domination ndash procedures and protocols that should ideally enhanceknowledge feedback and feed forward

The addition of the social political elements help make the Figure 87model more useful for us in attempting to design an optimal system tomaximise the potential for knowledge to flow more freely In the previoussection we discussed an organisationrsquos infrastructure (its technologyphysical assets that allow people to interact and tools) its infostructure (itsKM practices) and infoculture the background knowledge that actors haveembedded about their world and workplace and the way that the organisationencourages or restricts knowledge transfer (Croteau and Bergeron 2001Meacheam 2006)

A weakness in the above model that restricts our full understanding ofthe KM and innovation diffusion process is that knowledge is notoriouslylsquostickyrsquo ndash difficult to transfer and tends to stick to the person or groupgenerating it KM is about not only creating knowledge but its effectivetransfer for further refinement and use The above model makes the

Individual

Group

Intuition

Influence

Interpretation

Discipline anddomination

Force

Organisation

Institutionalisation

Institutionalisation

Integration

Social psychologicalprocesses

Feedback

Feed

back

Social politicalprocesses

Figure 87 The 4Is plus power

Source Lawrence et al 2005 183

Innovation and organisational learning 267

assumption that knowledge naturally flows but it does not indicate the flowspeedrate Szulanski (1995 1996 2003) undertook a PhD on the stickinessof knowledge and identified seven sources of knowledge stickiness Sourcelacks motivation (unwillingness to share knowledge) Source lacks credi-bility (the source lacks authority expertise or is perceived as unreliable oruntrustworthy) Recipient lacks motivation (doesnrsquot care) Recipient lacksabsorptive capacity (has not the background to perceive cause-and-effectlinks lacks underpinning knowledge or experience in experimentation toknow how to use the knowledge) Recipient lacks retentive capacity (forgetsvital details) Barren organisational context (the culture or governancestructure inhibits knowledge sharing) and Arduous relationship betweensource and recipient (lack of empathy trust or commitment to collaboratein the task of sharing knowledge)

He concluded from testing his model using canonical correlation analysisof a data set consisting of 271 observations of 122 best-practice transfers ineight companies that contrary to conventional wisdom blames primarilymotivational factors his findings show major barriers to internal knowl-edge transfer are knowledge-related factors such as the recipientrsquos lack ofabsorptive capacity casual ambiguity and an arduous relationship betweenthe source and the recipient (Szulanski 1996) These factors relate to indi-vidualrsquos and organisationrsquos ability to build and sustain social capital thatcould be designed into a procurement system

Nahapiet and Ghoshal (1998) argue that social capital relates to thestructural links and ties that facilitate a network of people who have therequired quality of knowledge to make it worth their interacting to manageknowledge and that they have a cultural match that allows sharing andtransfer to take place This is determined by the way they interact ndash howthey access and share knowledge their motivational drivers the value thatis expected from their interaction and their ability to share knowledgeThis links to knowledge stickiness which determines the rate scope andscale of knowledge transfer Figure 88 was developed from the abovetheory and adapted by Manu and Walker (2006) to enable benchmarkingof knowledge transfer among teams of foreign aid experts and a localconstruction supply chain on a Pacific Island aid project The model servesto illustrate how elements of social capital form part of the general threeinfrastructures identified by Croteau and Bergeron (2001) are relevant todesigning a procurement system with these three structures in mind

The thrust of this section has been focused upon exploring how KMoccurs People jointly solve problems and in doing so use and re-frameknowledge and they tend to transfer this to colleagues within and outsidetheir organisations One facilitating structure for this has been a COPdescribed as lsquoa group of people informally bound together by sharedexpertise and passion for a joint enterprisersquo (Wenger and Snyder 2000 139)

268 Walker and Maqsood

This notion of cooperation and collaboration to create and share knowledgeparticularly in a non-formal structure that was not initiated by organisa-tions following a KM strategy is an interesting construct that has beeninternalised by firms Also a COP has been shown to be a powerful situa-tional learning tool with small groups working on projects and reflectingupon their experiences (Orr 1990 Sense 2003 2004 2005) COPs haveevolved into forms that include their original informal arrangements butnow also include more formally structured and organisation-initiated forms(Storck and Hill 2000 Wenger et al 2002) COPs not only can be effectiveKM initiators but they also can significantly contribute to the delivery ofsocial capital that is an important intangible asset for organisations asit facilitates KM activities and can help build strong organisational culturesto assist effective governance Examples of a construction organisationestablishing a COP software infrastructure tool in the UK are provided byJewell and Walker (2005) and more informal COPs that involved ICT inAustralia (Peansupap and Walker 2005a) It is evident from these case studiesthat considerable social capital was being formed through that process

This chapter has focused upon how KM can assist in innovation inproject environments Several models were presented to illustrate theimportant underpinnings that are required to build social capital that assistsKM and can help reduce stickiness of knowledge so that it can be readilyshared and used The main point made is that KM can facilitate innovationthat in turn can provide value that would not otherwise be derived from

Social capital dimensions

Structural

Cognitive

Relational

The quality of theirlinks = establishment

The quality of knowledgeinteraction

People

Values

Networks

Expected valueof exchange

Determine thequality of

Motivationto exchange

Ability + capacityto exchange

Access to share +exchange

Determine the qualityknowledge created

SharingCombiningRe-framing

The cultural matchthat enables peopleto share knowledge

Social capital knowledgeuse activities

Stickiness

Transferredknowledge

Figure 88 Social capital and knowledge transfer

Source Manu and Walker (2006 480)

projects We stress that collaborative procurement arrangements best suitthis model and we also suggest and urge those making procurement choicesthat they should design the procurement system to maximise collaborationand easy knowledge transfer across the supply chain The authors developthis argument more specifically elsewhere (Maqsood et al 2007) While itmay be argued that relationship-based procurement approaches are morelikely to achieve this end it may be possible that more cost competitivearrangements could achieve the same end However when considering theorganisation type referred to at the start of this chapter (prospectordefender analyser and reactor) it is unlikely that reactors have the capacityto understand the subtle nature of how the infrastructure infostructure andinfoculture can be used to provide innovation and value beyond costreduction strategies

Vignette

Innovation and organisational learning 269

Helen Stakeholder First Developments (SFD plc) Pacific Regionrsquosnewly appointed Director of Procurement commissioned a managementconsultantrsquos report into how to best encourage innovation within thecompany and to strategically develop its business developmentplanning and implementation Six months ago the organisation hadlost a long-term alliance deal with a dynamic and the highly prizedclient PharmaXL who had been establishing pharmaceutical researchand production facilities across the region The stated reason for SFDnarrowly missing out to a rival SmartBuilt (that they had beenunaware even existed) was because that their rival was more proactivelyinnovative and this better matched PharmaXLrsquos corporate supplychain management philosophy SFD had always felt confident that itsnumerous awards and prizes for innovative construction and designby the Master Buildersrsquo organisations and several professional bodieswas proof of its leadership in this area Losing out to this lsquounknownrsquocompany had been a shock

The consultants report indicated that SFD was patchy in its uptakeof ICT innovations and other operationally technical innovations inconstruction technology While SFD had some great supply chainpartners who relished challenges most preferred to have contractresponsibilities well spelled out particularly with regard to trial anderror on innovations The SFD board had several solid engineers whohad been energetic leaders in the 1970s and were justifiably proud ofthe awards and excellence prizes that they had won in recent yearsand they felt that they had much to offer the lsquoyoungstersrsquo in theorganisation ndash if only everyone could find some extra time

270 Walker and Maqsood

SmartBuilt had been in existence for only five years and was a smallorganisation with a CEO and three principals with 60 permanentemployees based mainly in their Vancouver head office The threeprincipals comprised a Chief Operations Officer (COO) ChiefKnowledge Officer (CKO) and Chief Relationships Officer (CRO)The Vancouver head office provided total ICT support and theyseemed to have a string of alliances with construction contractors andengineering consultants all over the globe They had very smalldormitory offices that maintained a presence in a number of citiesSan Francisco Toronto Princeton NJ Singapore ShanghaiMelbourne Buenos Aires Santiago Helsinki St PetersburgStockholm Panama The Hague Cape Town Bangalore Dubai andSatildeo Paolo They also seemed to be linked with several leading univer-sities and several of the senior staff described as project managershad been co-authors on about 15 keynote conference presentationsjournal papers and book chapters with others from their universitycollaborators as well as some authors who appeared to be associatedwith some very heavy corporates that included PharmaXL and two ofits competitors

Helen read the report with deep interest so that she could makesome sensible suggestions to the board tomorrow She had tappedinto her university friends and network of colleagues from Arupengineering Skanska and Bechtel Most had heard of SmartBuilt andhad some interesting observations Trying to pin this organisationdown was like nailing jelly to a wall It had an alliance with manymore specialist PM groups individuals with wide global experiencebut this all seemed to have crept up over the horizon since 2000 Itsweb site and annual report seemed a bit unconventional as it stressedthat it only worked with clients and supply chain partners who wereprepared to join in a knowledge-impact evaluation system whichSmartBuilt administered There appeared to be a pre-alignment (pre-project start) agreement on identifying improved innovative practicesand the development of some kind of points system that worked likecurrency or assets but had future potential returns add-on valueand transformational value it was unclear from the web sites howthis unusual system worked One thing that was clear SmartBuiltseemed to work with a common group of supply chain partners andclients and the project teams floated in and out from somewherealmost at call The more that Helen tried to fathom how thisorganisation operated the more confused she became This seemed topresent a totally different business model to any she had previouslyencountered

Innovation and organisational learning 271

References

Akintoye A McIntosh G and Fitzgerald E (2000) lsquoA Survey of Supply ChainCollaboration and Management in the UK Construction Industryrsquo EuropeanJournal of Purchasing amp Supply Management 6(3ndash4) 159ndash168

Bennett J and Jayes S (1995) Trusting the Team Reading UK Centre forStrategic Studies in Construction The University of Reading

Bleeke J and Ernst D (1993) Collaborating to Compete ndash Using StrategicAlliances and Acquisitions in the Global Marketplace New York John Wiley

Bontis N Crossan M M and Hulland J (2002) lsquoManaging An OrganizationalLearning System by Aligning Stocks and Flowsrsquo Journal of Management Studies39(4) 437

Bresnen M (2003) The Seven Deadly Paradoxes of Partnering (Seven DeadlySins) TG23 ndash Culture in Construction International Conference onProfessionalism in Construction ndash Culture of High Quality Hong Kong 27ndash28October Fellows R pp 1ndash15

Bresnen M and Marshall N (2000) lsquoPartnering in Construction A CriticalReview of the Issues Problems and Dilemmasrsquo Construction Management andEconomics 18(2) 229ndash238

Caloghirou Y Kastelli I and Tsakanikas A (2004) lsquoInternal Capabilities andExternal Knowledge Sources Complements or Substitutes for InnovativePerformancersquo Technovation 24(1) 29ndash39

CII (1996) The Partnering Process ndash Its Benefits Implementation andMeasurement CII Bureau of Engineering Resources University of Texas atAustin CII Source Document 102ndash11

Cohen W M and Levinthal D (1990) lsquoAbsorptive Capacity A New Perspectiveon Learning and Innovationrsquo Administrative Science Quarterly 35(1)128ndash152

Issues to ponder

1 What level of alignment of process people and technology doesSmartBuilt appear to have achieved relative to SFD

2 Discuss three vital clues that are missing from the consultantrsquosreport that would help Helen better understand how an innovationculture was developed by SmartBuilt

3 Discuss three clues that suggest how SmartBuiltrsquos supply chainand customer partner choices might have evolved

4 Describe the top three innovations that SmartBuilt appears tohave been developing

5 Draw up a plan and justify how Helen may counter the competitivethreat that SFD faces when trying to align with other key customersor supply chain partners not currently aligned with SmartBuiltWhat are the options facing Helen and SFDrsquos board

272 Walker and Maqsood

Crossan M M Lane H W and White R E (1999) lsquoAn Organizational LearningFramework From Intuition to Institutionrsquo Academy of Management Review24(3) 522ndash537

Croteau A-M and Bergeron F (2001) lsquoAn Information Technology TrilogyBusiness Strategy Technological Deployment and Organizational PerformancersquoThe Journal of Strategic Information Systems 10(2) 77ndash99

Dainty A R J Briscoe G H and Millett S J (2001) lsquoSubcontractor Perspectiveson Supply Chain Alliancesrsquo Construction Management amp Economics 19(8)841ndash848

Doz Y L and Hamel G (1998) Alliance Advantage ndash The Art of Creating ValueThrough Partnering Boston Harvard Business School Press

Dyer J H Cho D S and Chu W (1998) lsquoStrategic Supplier Segmentation TheNext ldquoBest Practicerdquo in Supply Chain Managementrsquo California ManagementReview 40(2) 57

Ferdows K (1997) lsquoMaking the Most of Foreign Factoriesrsquo Harvard BusinessReview 75(2) 73ndash88

Gann D (2001) lsquoPutting Academic Ideas into Practice Technological Progress andthe Absorptive Capacity of Construction Organizationsrsquo ConstructionManagement and Economics 19(3) 321ndash330

Gann D and Salter A J (2000) lsquoInnovation in Project-Based Service-EnhancedFirms The Construction of Complex Products and Systemsrsquo Research Policy29(7ndash8) 955ndash972

Jewell M and Walker D H T (2005) Community of Practice PerspectiveSoftware Management Tools A UK Construction Company Case Study InKnowledge Management in the Construction Industry A Socio-TechnicalPerspective Kazi A S (Ed) Hershey PA Idea Group Publishing pp 111ndash127

Johannes D S (2004) Joint Venture Contracting Relationships Between Foreignand Local Contractors in the Construction and Engineering Industry of HongKong Implications of Understanding Collaborative Practice PhD ThesisMelbourne RMIT University School of Management

Lawrence T B Mauws M K Dyck B and Kleysen R F (2005) lsquoThe Politics ofOrganizational Learning Integrating Power into the 4I Frameworkrsquo Academy ofManagement Review 30(1) 180ndash191

Lenard D (1999) lsquoFuture Challenges in Construction Management Creating aSymbiotic Learning Environmentrsquo Journal of Construction Procurement 5(2)197ndash210

Lenard D J Bowen-James A Thompson M and Anderson L (1996) Partnering ndashModels for Success Adelaide Australia Construction Industry Institute Australia

Leonard-Barton D (1992) lsquoThe Factory as a Learning Laboratoryrsquo SloanManagement Review 34(1) 23ndash38

Leonard-Barton D (1995) Wellsprings of Knowledge ndash Building and Sustainingthe Sources of Innovation Boston MA Harvard Business School Press

Leonard D and Rayport J F (1997) lsquoSpark Innovation Through EmpathicDesignrsquo Harvard Business Review 75(6) 102ndash113

Leonard D and Sensiper S (1998) lsquoThe Role of Tacit Knowledge in GroupInnovationrsquo California Management Review 40(3) 112ndash132

Leonard D and Straus S (1997) lsquoPutting Your Companyrsquos Whole Brain to WorkrsquoHarvard Business Review 75(4) 110ndash121

Innovation and organisational learning 273

Manley K (2006) lsquoThe Innovation Competence of Repeat Public Sector Clients inthe Australian Construction Industryrsquo Construction Manangement andEconomics 24(12) 1295ndash1304

Manley K and Mcfallan S (2006) lsquoExploring the Drivers of Firm-level Innovationin the Construction Industryrsquo Construction Management and Economics 24(9)911ndash920

Manu C and Walker D H T (2006) lsquoMaking Sense of Knowledge Transfer andSocial Capital Generation for a Pacific Island Aid Infrastructure Projectrsquo TheLearning Organization 13(5) 475ndash494

Maqsood T (2006a) An Investigation into the Role of Knowledge Management inSupporting Innovation for Construction Projects PhD Thesis Melbourne RMITUniversity School of Business Information Technology

Maqsood T (2006b) The Role of Knowledge Management in SupportingInnovation and Learning in Construction PhD Thesis Melbourne RMITUniversity School of Business Information Technology

Maqsood T Walker D H T and Finegan A D (2007) lsquoFacilitating KnowledgePull to Deliver Innovation through Knowledge Management A Case StudyrsquoEngineering Construction and Architectural Management 14(1) 94ndash109

March J G (1991) lsquoExploration and Exploitation in Organizational LearningrsquoOrganization Science A Journal of the Institute of Management Sciences2(1) 71

Mathews J (1999) Applying Partnering in the Supply Chain In ProcurementSystems A Guide to Best Practice in Construction Rowlinson S andP McDermott (Eds) London EampFN Spon pp 252ndash275

Meacheam D W (2006) The Effects of the Miles and Snow Organisational Typeon the Knowledge Management Methods of Organisations PhD Thesis SydneyMacquarie University Graduate School of Business

Miles R E and Snow C C (1984) lsquoFit Failure And The Hall of Famersquo CaliforniaManagement Review 26(3) 10ndash28

Miles R E and Snow C C (1992) lsquoCauses of Failure in Network OrganizationsrsquoCalifornia Management Review 34(4) 53ndash73

Miles R E and Snow C C (1995) lsquoThe New Network Firm A SphericalStructure Built on a Human Investment Philosophyrsquo Organizational Dynamics23(4) 5ndash18

Miles R E and Snow C C (2003) Organizational Strategy Structure andProcess Stanford CA Stanford University Press

Miles R E Snow C C and Miles G (2005) Collaborative EntrepreneurshipHow Communities of Networked Firms Use Continuous Innovation to CreateEconomic Wealth Stanford CA Stanford Business Books

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Nahapiet J and Ghoshal S (1998) lsquoSocial Capital Intellectual Capital and theOrganizational Advantagersquo Academy of Management Review 23(2) 242ndash266

Nonaka I (1991) lsquoThe Knowledge Creating Companyrsquo Harvard Business Review69(6) 96ndash104

Nonaka I and Konno N (1998) lsquoThe Concept of ldquoBardquo Building a Foundation forKnowledge Creationrsquo California Management Review 40(3) 40

274 Walker and Maqsood

Nonaka I and Takeuchi H (1995) The Knowledge-Creating Company OxfordOxford University Press

Orr J (1990) Talking About Machines An Ethnography of a Modern Job PhDThesis Ithaca NY Cornell University

Peansupap V (2004) An Exploratory Approach to the Diffusion of ICTInnovation a Project Environment PhD Thesis Melbourne RMIT UniversitySchool of Property Construction and Project Management

Peansupap V and Walker D H T (2005a) Diffusion of Information andCommunication Technology A Community of Practice Perspective InKnowledge Management in the Construction Industry A Socio-TechnicalPerspective Kazi A S (Ed) Hershey PA Idea Group Publishing pp 89ndash110

Peansupap V and Walker D H T (2005b) lsquoExploratory Factors InfluencingICT Diffusion and Adoption Within Australian Construction OrganisationsA Micro-Analysisrsquo Journal of Construction Innovation 5(3) 135ndash157

Peansupap V and Walker D H T (2006a) lsquoInformation CommunicationTechnology (ICT) Implementation Constraints A Construction IndustryPerspectiversquo Engineering Construction and Architectural Management 13(4)364ndash379

Peansupap V and Walker D H T (2006b) lsquoInnovation Diffusion at theImplementation Stage of a Construction Project A Case Study of InformationCommunication Technologyrsquo Construction Management and Economics 24(3)321ndash332

Pettigrew A and Fenton E M Eds (2000) The Innovating Organization (SeriesThe Innovating Organization) Thousand Oaks CA Sage

Pettigrew A and Whittington D (2003) Complementarities in ActionOrganizational Change and Performance in BP and Unilever 1985ndash2002 InInnovative Forms of Organizing Pettigrew A R Whittington L Melin et al(Eds) Thousand Oaks CA Sage pp 173ndash207

Polanyi M (1997) Tacit Knowledge In Knowledge in Organizations ndash Resourcesfor the Knowledge-Based Economy Prusak L (Ed) Oxford Butterworth-Heinemann pp 135ndash146

Porter M E (1985) Competitive Advantage Creating and Sustaining SuperiorPerformance New York The Free Press

Porter M E (1990) The Competitive Advantage of Nations New York Free PressPorter M E (1998) lsquoClusters and the New Economics of Competitionrsquo Harvard

Business Review 76(6) 77ndash90Porter M E (2001) lsquoStrategy and the Internetrsquo Harvard Business Review 79(3)

63ndash78Prahlad C K and Ramaswamy V (2000) lsquoCo-Opting Customer Competencersquo

Harvard Business Review 78(1) 79ndash87Rogers E M (2003) Diffusion of Innovation 5th Edition New York The Free

PressRothaermel F T and Deeds D L (2004) lsquoExploration and Exploitation Alliances

in Biotechnology A System of New Product Developmentrsquo StrategicManagement Journal 25(3) 201ndash221

Scharmer C O (2001) Self-transcending Knowledge Organizing AroundEmerging Realities In Managing Industrial Knowledge ndash Creation Transfer andUtilization Nonaka I and D Teece (Eds) London Sage pp 69ndash90

Innovation and organisational learning 275

Sense A J (2003) lsquoLearning Generators Project Teams Re-ConceptualizedrsquoProject Management Journal 34(3) 4ndash12

Sense A J (2004) lsquoAn Architecture for Learning in Projectsrsquo Journal of WorkplaceLearning 16(3) 123ndash145

Sense A J (2005) Cultivating Situational Learning Within Project ManagementPractice PhD Thesis Sydney Macquarie University Macquarie Graduate Schoolof Management

Slaughter E S (1998) lsquoModels of Construction Innovationrsquo Journal ofConstruction Engineering and Management 124(2) 226ndash231

Storck J and Hill P A (2000) lsquoKnowledge Diffusion Through ldquoStrategicCommunitiesrdquorsquo Sloan Management Review 41(2) 63ndash74

Szulanski G (1995) Appropriating Rents from Existing Knowledge Intra-FirmTransfer of Best Practice Institut Europeen drsquoAdministration des Affaires(France) INSEAD ndash The European Institute of Business Administration

Szulanski G (1996) lsquoExploring Internal Stickiness Impediments to the Transfer ofBest Practice Within the Firmrsquo Strategic Management Journal 17(Winter)27ndash43 [Special Issue]

Szulanski G (2003) Sticky Knowledge Barriers to Knowing in the Firm ThousandOaks CA Sage Publications

Tatum C B (1984) lsquoWhat Prompts Construction Innovationrsquo Journal ofConstruction Engineering and Management 110(3) 311ndash323

Thompson P J and Sanders S R (1998) lsquoPartnering Continuumrsquo Journal ofManagement in Engineering ndash American Society of Civil EngineersEngineeringManagement Division 14(5) 73ndash78

Uher T (1999) lsquoPartnering Performance in Australiarsquo Journal of ConstructionProcurement 5(2) 163ndash176

Von Hippel E Thomke S and Sonnack M (1999) lsquoCreating Breakthrough at3Mrsquo Harvard Business Review 77(5) 47ndash57

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T and Hampson K D (2003a) Enterprise Networks Partneringand Alliancing In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishingchapter 3 30ndash73

Walker D H T and Hampson K D (2003b) Procurement Strategies ARelationship Based Approach Oxford Blackwell Publishing

Walker D H T and Hampson K D (2003c) Project Alliance MemberOrganisation Selection Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishing chap-ter 4 74ndash102

Walker D H T and Johannes D S (2003a) lsquoConstruction Industry Joint VentureBehaviour in Hong Kong ndash Designed for Collaborative Resultsrsquo InternationalJournal of Project Management Elsevier Science UK 21(1) 39ndash50

Walker D H T and Johannes D S (2003b) lsquoPreparing for OrganisationalLearning by HK Infrastructure Project Joint Ventures Organisationsrsquo TheLearning Organization MCB University Press UK 10(2) 106ndash117

276 Walker and Maqsood

Walker D H T Hampson K D and Peters R J (2002) lsquoProject Alliancing vsProject Partnering A Case Study of the Australian National Museum ProjectrsquoSupply Chain Management An International Journal 7(2) 83ndash91

Wenger E C and Snyder W M (2000) lsquoCommunities of Practice TheOrganizational Frontierrsquo Harvard Business Review 78(1) 139ndash145

Wenger E C McDermott R and Snyder W M (2002) Cultivating Communitiesof Practice Boston Harvard Business School Press

Werbach K (2000) lsquoSyndication ndash The Emerging Model for Business in the InternetErarsquo Harvard Business Review 78(3) 85ndash93

Weston D C and Gibson G E (1993) lsquoPartnering ndash Project Performance in USArmy Corps of Engineersrsquo Journal of Management in Engineering AmericanSociety of Construction Engineers 9(4) 410ndash425

Winch G M (1998) lsquoZephyrs of Creative Destruction Understanding theManagement of Innovation in Constructionrsquo Building Research amp Information26(5) 268ndash279

Winch G M Ed (2005) Managing Complex Connective Processes InnovationBroking (Series Managing Complex Connective Processes Innovation Broking)London Ashgate Press

Wolfe R A (1994) lsquoOrganizational Innovation Review Critique and SuggestedResearchrsquo Journal of Management Studies 31(3) 405

Womack J P and Jones D T (2000) From Lean Production to Lean EnterpriseIn Harvard Business Review on Managing the Value Chain Review H B (Ed)Boston Harvard Business School Press pp 221ndash250

Womack J P Jones D T and Roos D (1990) The Machine that Changed theWorld ndash The Story of Lean Production New York HarperCollins

Chapter 9

Culture and its impact uponproject procurement

Steve Rowlinson Derek HTWalker and Fiona Y K Cheung

Chapter introduction

How is organisational and national culture relevant to making projectprocurement choices This is a question that is not in the view of many ofus concerned with the study of procurement asked frequently enough andanswered sufficiently clearly to impart the required sense of relevance

Projects are delivered by people Effective PM and procurement of all thepeople-related elements of a project and programmes of projects is acompetence that has a critical impact upon project success that cannot bedismissed Aspects of project leadership are embedded in many of thechapters of this book

Underpinning leadership is an ability to understand people understandtheir values and traits and understand how this may affect the way that theprocess of PM is conducted Understanding what makes people lsquotickrsquo andindeed how whole systems of people processes and technology interact isabout understanding peoplesrsquo and organisationsrsquo values and the deepestformative assumptions about what is fair and reasonable This is vital toundertaking stakeholder analysis (Chapter 3) making sense of how ethicsand governance influence procurement choices (Chapter 4) comprehendingthe basis of what strategic approach or school of thought is most useful toexplore procurement decisions (Chapter 5) developing and enforcing aperformance measure system that is relevant and fair (Chapter 6) how toencourage value generation through innovation (Chapter 8) and how toattract enlist and maintain the most talented team to deliver projects(Chapter 10) It also strongly links with case studies in Chapter 12 andChapter 13 Understanding what makes people tick is about understandingtheir cultural perspective what they see as attractive incentives and howthey see lsquofair playrsquo so that they can trust and be confident that theycan make a contribution that is worthwhile valued and engenders theircommitment Culture when looked at from this perspective is a vitalcomponent and the lifeblood of an organisation

This chapter is structured in three parts This introduction section posedthe question why culture is central to project procurement and indicated

how this may be so The second section provides some insights into themeaning and definition of cultural value terms that will frame the rest of thechapter We argue that trust and commitment is vital to any commercial orindeed internal team working relationship in which effort is expended forrewards and benefits so we need to be clear what we mean by these termsand their relevance to project procurement We also discuss culture from itsnational and organisational perspective because of cultural orientation andunderpinning assumptions and because PM is undertaken using teams ofcross-cultural composition In the third section we will then explore howunderstanding culture can be effective and useful when negotiating eitheras a part of a procurement process or as part of a mutual adjustmentprocess within teams and as part of a dispute resolution system devised todeal with misunderstandings disputes and clarification of ambiguoussituations PM is a process that is undertaken within a fog of ambiguity (atleast in terms of the detail) and turbulence because it is about change Wesummarise the chapter and then end the chapter with a vignette

The significance of culture

Culture refers to the way of life of a group of people patterns of behaviourthat are seen to be useful and valuable to the people concerned and worthyof being passed on from one generation to another Schein (1985) explainsculture in terms of operating at three levels of depth At the superficial levelit is expressed by artefacts such as badges logos a printed missionstatement or a project charter This level hints at espoused values what thatcommunity claims to be best represented by At a deeper level lies theespoused value of that community This may be explained as lsquorespect foremployeesrsquo or lsquocustomer focusrsquo or lsquocan-dorsquo mentality However while thatprovides a more explicit example of what to expect from (and is expectedof) that community there is a deeper layer of embedded behavioural traitsthat epitomises culture that is underlying these assumptions These can beillustrated by observed and ingrained behaviour such as lsquonot letting theteam downrsquo so that people appear from nowhere to help when a crisis ordifficulty arises

Figure 91 illustrates culture in its generic systemic form There is a worldof cultures Nations share some common humanitarian values and asindicated in Chapter 4 central ethical tenets can be traced across nationsHistory and specialisation has fostered the emergence of professions and arange of professions generally can be seen to work within organisationsand as discussed in Chapter 4 professions are defined by their culture oftheir ethical standards Professions cross organisational and nationalborders Project team groups also exist within and across organisationaland national boundaries It can be seen from this representation thatcultural diversity extends across many boundaries People work within the

278 Rowlinson et al

complex network of competing and common interests and belief systemsFor each lsquoculturersquo there is as Schein (1985) explains varying intensity ofshared culture from the superficial to the profound At the superficial levelartefacts such as badges or uniforms or lsquonormsrsquo can be observed that areunderpinned by values that are represented by those artefacts Examples ofthese are lsquoan innovative approachrsquo lsquorespect for the customer-professional-clanmemberrsquo or lsquodelivering the lowest costsuperb qualityrsquo etc These arefounded upon assumptions of what is lsquogoodrsquo or lsquobadrsquo

Culture takes time to evolve Assumptions feed values that triggersymbolic representation in artefacts whereas artefacts can be more readilyswitched and changed It takes time to change or to evolve into a set oflsquonewrsquo culture values and changing assumptions is something that can onlybe internally realised ndash often through a difficult and complex process ofpersuasion It is very difficult to define each type of culture on its own Nomatter which type of culture we look at they all overlap with each otherand cannot be separated from one another Culture needs to be looked atas a whole American anthropologists Kroeber and Kluckhohn (1952)presented 160 different definitions of culture Bodley (1994) defines cultureas involving what people think what they do and what they produce Jenks(1993) argues the term lsquoculturersquo became widely accepted due to the changesto the structure of social life during the industrial revolution

Culture is thus broadly defined as the dominant set of learned sharedand interrelated behaviour within a society (Vecchio et al 1992) Terpstraand David (1985) also see culture as a lsquocompelling set of symbols whichprovides a set of orientations for members of a societyrsquo This is in tune withmany other recent texts on culture for example in Brown (1998) so thebasic view of culture has remained consistent over recent decades Whentaking these orientations together solutions are provided to problems that

Culture and project procurement 279

A world culture world of cultures

Observable artefacts

Professions

PeopleProject

teamgroups

Organisations

Nations

Shared values

Commonassumptions

Intensity level ofshared culture

Taproot

Deeper

Low

Figure 91 A systems view of culture

all societies must solve if they are to remain viable As Punnett (1998)suggests culture is interrelated and provides orientation to people

Owens (1987) and Schein (1985) see organisation culture as patterns ofshared beliefs and values that evolve into norms of behaviours which areadopted in solving problems Rousseau and Parks (1993) view culture aslayers of elements which all lie along a continuum of subjectivity and acces-sibility These layers range from physical manifestations of culture to fun-damental assumptions which are hidden deeply in the centre of culture andare most difficult to uncover (Thorsdottir 2001) Hofstede (1991 7ndash10)argues that the process of engraining cultural values the manifestation ofculture is embedded through cultural practices being immersed within aculture Symbols such as words and gestures carry specific meaningrecognised by those within that culture There is usually a set of heroes whopossess highly prized characteristics that represent the idealised values heldby that culture Culture is shaped by the collective activities that areessential rituals that bind the members of the culture Those outside theculture may see all this as peculiar practices that provide a set of markersthat identify a particular culture We see this at all the levels illustrated inthe right-hand side of Figure 91 Trompenaars (1993) uses the analogy ofculture as an onion which has many layers The products of the basicvalues are on the outer layer and assumptions are deep inside the onionwhich reflects Rousseaursquos view on culture Schein (1985) proposes threelevels in organisation culture ndash surface (by means of structure and rules ofconduct) organisation values and underpinning assumptions as alsosuggested by Wood et al (2001)

Culture is knowledge behaviour and value and evolves over timeCulture is built over time (Handy 1985) National culture has an effect onorganisational behaviour It creates divergent mindsets regarding character-istics of interaction and assumptions defining the boundaries of behaviour(Vecchio et al 1992) National culture assumptions are also made duringbusiness and workplace interaction For example

Australians would expect open and honest communication and are notafraid of confrontation

Chinese custom expects that there should be no direct confrontationwith superiors relationship and job security are highly valued and

The English exhibit a strong sense of pride and show politeness to otherseven though a strong sense of distrust might exist between parties

In essence national culture influences the attributional basis for evaluatingbehaviour and the consequences of behaviour (Vecchio et al 1992)

As shown in Figure 91 the surface aspects of organisational culturerelate to observable culture These are the methods that the group hasdeveloped and which have to be learnt by new members (Wood et al 2001)

280 Rowlinson et al

where the behaviours are clearly visible Observable aspects of the cultureemerge from the collective experience of its members Some of these aspectsmay be observed from day-to-day practice others may have to bediscovered by asking subordinates about past events and the history of theculture Going further down the next level in culture is shared valuesbetween members in an organisation Shared values play a critical part inlinking people together They also provide a set of orientations for membersof a society These orientations when taken together provide solutions toproblems that all societies must solve if they are to remain viable Punnett(1998) suggests that culture is interrelated and provides orientation to peo-ple However the shared values may not be agreed by every member in theorganisation but they have all been exposed to the values and have oftenbeen reminded that they are important (Wood et al 2001) While at thedeepest level of culture there are common assumptions or truths developedand shared by members through their joint experience in the organisationCulture is learnt shared and interrelated

In searching for a practical way of understanding how systems work orwhat makes people lsquotickrsquo we can use these models of culture to analyse andmake sense of what we see so that we can build effective environments inwhich to shape action in the desired manner The value intended to be deliv-ered through this section is that it should provide a pathway to help us under-stand the forces at play in organisations and groups In doing so we are betterprepared to design procurement systems or make procurement choices andshould better predict likely outcomes to actions triggered by the procurementprocess As we have stressed throughout this book recent PM procurementtrends and ambitions relate to proactively rather than reactively influencingoutcomes through gaining a holistic view of procurement as being a changeagent Culture lies at the core of managing change Further all members of aproject team constantly engage in negotiation of what to do when to do it andwhat resources (including time energy and favours as well as more obviousresources such as money equipment etc) can be traded In any negotiationunderstanding the value proposition of lsquothe otherrsquo is both vital and culturallybound (Fisher and Ury 1983 Lewicki et al 1994 Thompson 1998 Ting-Toomey and Kurogi 1998 Munns et al 2000 Williams and Miller 2002)

Organisational culture is an interconnected web of relationships (Tierney1988) Handy (1985) identifies four primary forms of organisational culturebased upon the work of Roger Harrison (see for example Harrison andStokes 1992)

1 Power culture ndash which is configured as a web with the primary powerat the centre and is frequently found in entrepreneurs

2 Role culture ndash in which functions and professions provide the structuralpillars to support the overarching top management and is typical ofpublic service organisations

Culture and project procurement 281

3 Task culture ndash in which the structure can be represented as a net and isjob or project orientated such culture can usually be found in a matrixorganisation and

4 Person culture ndash in which people interact and cluster relatively freely

Although national culture and organisational culture cannot be studiedin isolation from each other there is a clear distinction between the twotypes of culture It is important to understand the connections betweenorganisational culture and national culture because organisational culturefrequently derives from national culture Many of the shared beliefs andvalues that develop in organisations can be traced to commonly heldassumptions in society (Wood et al 2001) Organisations seek a set ofcommon beliefs and values amongst personnel which accord with thebeliefs of the organisation while people retain levels of individuality whichimpact on organisational performance (Liu and Fellows 2001) Nationalculture is where people in the same nation share the same beliefs values andpractices It creates divergent mindsets regarding characteristics ofinteraction and assumptions defining the boundaries of behaviour (Vecchioet al 1992) National culture is learnt early in life without awarenessIt is reflected in behaviour and reinforced by rules and procedures Forexample in Germany business plans would be for 20 or even 50 years inthe future whereas in America the business planning intervals are oftenmuch shorter

Organisational culture is beliefs values and practices shared by mostmembers of an organisation Like national culture each organisation has itsown unique culture Members of an organisation need to learn their ownculture When one moves to a new organisation one needs to learn the rulesof the new culture Compared with national culture organisational cultureis acquired at a later stage in life at a conscious level Also values changewhen the top management introduces new beliefs and attitudes to thesubordinates National culture originates from the root and is more difficultto change than organisational culture as illustrated in Table 91 originallypresented in Cheung (2006 35)

National culture is reflected in organisational culture Members of anorganisation would resist plans to impose a culture which does not reflector which goes against their national values (Laurent 1986) Althoughorganisational culture values are learnt later in life at the workplace theyalso have an influence on behaviour just as national culture does The extentto which the individual is influenced by the organisational culture dependsvery much on how long heshe has stayed with the organisation (Mead1998) Organisational culture has a much stronger influence on a long-termemployee than a lsquojob-hopperrsquo who moves rapidly between companiesSimilarly supply chains linked into long-term relationships may develop aprogramme or project culture After all culture takes time to lsquotake rootrsquo

282 Rowlinson et al

Culture and value

Sharing common values lies at the very heart of culture Hofstede (1991)argues that culture is a system of values Indeed if culture is viewed as anemergent social process values are very important because the values of thecollective form the foundations of an emerging culture (Root 2000)However as with culture values are very complicated and cannot be easilydefined In human society the removal of value means no value judgementsand so no quality (Pirsig 1974 Root 2000) All that remains in animaginary world of no art variety or trade is pure science mathematicsphilosophy and logic Of course there are certain concepts within the mindthat are not affected by the removal of the lsquovaluersquo concept because they arenot part of the physical perceived reality yet other concepts such as lovewhich has a strong relationship to objects in the world are greatly affected(Root 2000) Value is a set of relationships between the mind (self) and theworld (Robinson 1964 Pirsig 1974 Morrill 1980) If values are purelysubjective they can then be equated with the satisfaction of a perceivedneed or an object being of interest (Perry 1954) It was argued by Pirsig(1974) and Robinson (1964) that value then just becomes a term foranything the individual likes and is meaningless within a social group Onthe other hand if values are objective they can be described as self-existentessences whose reality is independent of the feelings of the observer(Morrill 1980) Again Pirsig (1974) argues that the world can be split intosubjects and objects quality and values cannot be measured objectively dueto their subjective nature and cannot be subjective because they are linkedto the object Thus value is neither subjective nor objective Root (2000)suggests existentialism provides a way out of this paradox by quotingMagee (1988) lsquothe objects of our consciousness do exist as objects ofconsciousness for usrsquo Thus culture may be viewed as an object as long asit is treated as our consciousness and is real in its effects (Root 2000)

In sociological terms an individual is lsquoculturedrsquo when the valuing processis conscious Taking a child as an example the valuing process of a child is

Culture and project procurement 283

Table 91 Comparison between national culture and organisational culture

National culture Organisational culture

Share same beliefs values and practices Share same beliefs values and practices Nation Organisation Learnt early in life Learnt at a later stage in life Learnt subconsciously Learnt at conscious level Difficult to change Changes when moving to a new

organisation or when new beliefs orattitudes are introduced by topmanagement

flexible and depends highly on context food is valued highly when the childis hungry but once fed is negatively valued (Rogers and Stevens 1967) At theearly stage values are driven by the child as an organism representing a clearapproach to values As the child develops the valuing process becomesdependent on the external environment The child learns the good and thebad from others and absorbs them as hisher own values The valuing processchanges from organism-driven to being dependent on the norms of behav-ioursvalues expected by others (Rogers and Stevens 1967 Root 2000)Such ideas align with Terpstra and Davidrsquos (1985) belief ndash culture is learnt

However the mechanism for acquiring values is dependent on thecollective level of mental programming (Hofstede 1980) whichdistinguishes people from one group to another by classifying groups Itdoes not only focus on an individual but also individuals with similar cul-tures would cluster together and form groups of different cultures Somesuccessful organisations share some common cultural characteristicsOrganisations with strong cultures possess a broadly and deeply sharedvalue system (Mead 1998 Wood et al 2001)

Dimensions of culture

Cultures vary in their underlying values and attitudes (Wood et al 2001)The way people think about such matters as achievement and work wealthand material gain risk and change may influence how they view work andtheir experiences in organisations Using an example of Western and Asianculture a Western manager may value autonomy and therefore not providedetailed operational directions to his Asian subordinates Based on thefindings of Hofstedersquos study in early 1980s Koreans can be described ascollectivists whereas Americans are individualists In this case subordinatesmay look up to the manager for direction and treat him (usually male) withtotal respect Because of cultural differences when the subordinates do notperform appropriately the manager may attribute this to their incompetenceand the subordinates may come to believe the manager cannot be trustedSuch consequences then act to reinforce cultural stereotypes and in turnlead to more divergence between cultures and increase misunderstanding(Vecchio et al 1992)

One of the most ambitious studies of how cultural differences relate toorganisational issues was undertaken by Hofstede in 40 different countriesHe developed a framework that offers an approach for understanding valuedifference across national cultures Based on his findings and evidence inthe field of cultural differences Hofstede (1980) identifies four (later fiveafter visiting Hong Kong) cultural dimensions The five dimensions used todifferentiate between cultures are

1 Large or small power distance Power distance reflects the degree towhich a society accepts a hierarchical system and unequal distribution

284 Rowlinson et al

of power Large power distance indicates larger inequalities betweenthe members in these societies with power and those without People inthese societies also find it normal that usually a small number of peoplehave much power while most of the people have less power Incountries with small power distance the basic idea is that in principleeverybody is born equal and the principles of say social democracydominate

2 Masculinity versus femininity Masculinity reflects the degree to whicha society defines achievement in terms of success and the acquisition ofmoney or material possessions Some societies with sharp and strictdivisions turn masculine others when the divisions are loose andblurred turn feminine In masculine societies people admire the oneswho have success In feminine societies people pursue a different set ofvalues such as relationship orientation concern for quality of lifemodesty and caring

3 Individualism versus collectivism Individualism reflects the degree towhich a society values independence from group membership It isconcerned with the form and manner of the relationship between anindividual and others in the society In individualist cultures people aresupposed to look after themselves and their direct families only peopleare expected to conform while in collectivist cultures people belong toa larger group (eg in-group extended family etc) which takes care oftheir interests in exchange for loyalty and relationships are more tightlystructured

4 Strong or weak uncertainty avoidance Uncertainty avoidance reflectsthe degree to which a society tolerates ambiguous situations and theextent to which it has created institutions and beliefs to minimise oravoid these situations In some societies people are socialised to acceptambiguity and uncertainty and do not feel threatened In othersuncertainty is seen as disruptive and makes people psychologicallyuncomfortable Strong uncertainty avoidance societies reduceuncertainty and limit risk by ordering and structuring things imposingrules and systems

5 High and low Confucian dynamism Confucian dynamism isassociated with the teaching of Confucius This dimension is the degreeto which people in a country emphasise values associated with thefuture over values that focus on the past or present In societies withhigh scores on Confucian dynamism people tend to be pragmaticfuture-oriented and focusing on obligations and tradition whereas inthose with low scores people tend to be normative and short-termoriented quick results are expected and people are more concernedwith stability

Further studies on cross-cultural impact on leadership and managing peoplewere undertaken across 61 nations under the global leadership organisational

Culture and project procurement 285

behaviour and effectiveness (GLOBE) study (Ashkanasy et al 2002 Guptaet al 2002 Gupta et al 2002 House et al 2002 Szabo et al 2002Javidan et al 2005) These extended the type of questions asked byHofstede The GLOBE study investigates values that participants perceivealong the dimensions for both the lsquoas isrsquo and lsquoshould bersquo situation Thisdistinction is important because a person may be in a situation where theyfind themselves in a high power distance work environment (the as issituation) and they may feel that the work environment should exhibitlower power distance characteristics The investigation of the gaps betweenlsquoas isrsquo and lsquoshould bersquo values revealed that national cultures could beexamined in terms of nine rather than five dimensions performanceorientation future orientation assertiveness power distance humaneorientation institutional collectivism in-group collectivism uncertaintyavoidance and gender egalitarianism The survey involved thousands ofmiddle managers in food processing finance and telecommunicationsindustries in these countries GLOBE compared their cultures and attributesof effective leadership

While it is beyond the scope of this chapter to discuss the details of thisimportant research it is worth our considering that the additionaldimensions described as future orientation and performance have beendealt with in this book under Chapter 5 (Strategy) and Chapter 6(Performance measurement) supports our inclusion of these topics as beingrelevant to designing a procurement choice system to deliver projectsClearly national cultural values have a bearing on the details of aprocurement system design and how choices may be made

We should also consider how national culture may influence organisationalculture from the point of view of what it means to be a team player Thiswould apply within organisations and in supply chains across organisationsserving a project or programme Gibson and Zellman-Bruhn (2001 247)conducted an investigation using five different metaphors for teamwork(military sports community family and associates) They derived thesefrom the language team members used during interviews in four differentgeographic locations of six multinational corporations Results indicatedthat after controlling for gender team function and total words in aninterview use of the teamwork metaphors varied across countries andorganisations They analysed specific relationships between nationalcultural values and categories of metaphor use between dimensions oforganisational culture and categories of metaphor use Their resultsrevealed patterns of expectations about team roles scope membership andobjectives that arise in different cultural contexts Their study provided aninsight relevant to this book

A strong implication of these findings is that multinational managerscannot assume that their own conceptualization of teamwork will be

286 Rowlinson et al

shared Team members in different nations or organisational contexts arelikely to have different expectations for how the team will be man-aged our research challenges the assumption that the meaning of team-work is commonly held across contexts and thus represents a first steptoward a cultural contingency framework for the meaning of teamwork

(Gibson and Zellman-Bruhn 2001 300)

It becomes necessary when negotiating within teams or engagingorganisations in project teams as supply chain members to consider howlanguage symbols metaphors and other artefacts represent the workplaceculture These may be either thoughtfully used to take into account cultureor they may be poorly used resulting in the project goals beingmisconstrued goals misaligned expectations of actions to be taken beingmisunderstood The above aspect could be viewed negatively and fearfullyor it could be used positively Tom Grisham in his doctoral thesis (Grisham2006) developed a useful model of using cross-cultural leadership toenhance cross-team and within-team interactions that is applicable to theabove discussion This can be applied in both dispute resolution as well asnegotiation ndash both applicable to this project procurement discussion

Conflict is placed at the centre of his model (Grisham 2006 179)illustrated in Figure 92 here Conflict is addressed through a discoursebetween parties in which details under discussion are viewed through threesets of lenses The size of each lens indicates the amount of time appropriateto be spent on each activity illustrated

In the knowledge lens in the context of culture lsquothe use of metaphors isa critical technique for developing a richer knowledge of cultures (personal

Culture and project procurement 287

Knowledge

Diagnosis

Conflict

Lessons

Diagnosis

Knowledge

Intervention

Figure 92 The conflict hourglass model

societal commercial etc) A cultural knowledge of the cultural individualityof the contestants including religion customs folklore music art literaturephilosophy language history geography ethics power gender and eco-nomic status are criticalrsquo (Grisham 2006 178) The diagnosis lens involvesactive listening to pick up salient clues and make sense of these clues thuscultural knowledge is vital here The intervention lens can be difficult as itrequires intervening in a manner that matches the cultural lsquonormsrsquo of theparties ndash there may be serious mismatches that present barriers The processand experience of addressing conflict results in lessons learned to begenerated These lessons need to be diagnosed and the synthesis of thisknowledge fed back into building the knowledge base of parties

As people participate and interact conflict inevitably occurs This canrange from discussions about meaning and reframing knowledge about per-ceptions (making sense of actions and other day-to-day problem-solvingnegotiation) through to serious disagreements requiring resolutionCommunication and understanding is a major part of this and is closelylinked with cross-cultural competence

Cultural implications of commitment on value

We discussed in Chapter 3 aspects of trust commitment and power in termsof stakeholder management This is highly relevant to issues revolvingaround the negotiation for resources and the design of procurementprocesses whether that is undertaken in-house or outsourced We discussedin that chapter models that explain how trust is generated and applied dif-ferent types of trust and how these relate to project phases and how trustand distrust can co-exist We also illustrated an extension to the typologyof commitment offered by Meyer and Allen (1991) and finally we linkedthat with a discussion of a power typology presented by Greene and Elfrers(1999 178) We will therefore limit our discussion in this chapter sectionto how culture may influence these concepts

Many successful organisations share some common culturalcharacteristics Organisations with strong cultures often also have adeeply shared value system (Deal and Kennedy 1982 Wood et al 2001)Wood et al (2001) argue that unique shared values have the followingbenefits they

1 provide a strong corporate identity2 enhance collective commitment3 provide a stable social system and4 reduce the need for formal and bureaucratic controls

Culture is a system of shared values that distinguish one group of peoplefrom another (Fang 2001) and value can be explicitly or implicitly

288 Rowlinson et al

desirable to individuals or groups which also influences their selections ofvarious modes means and ends of actions (Adler 2002) Value alsoprovides a guide for desired patterns of behaviour and explains why peopleselectively attend to certain goals while subordinating others A high levelof commitment by members also implies a strong value system within theorganisation Individuals express culture and its normative qualitiesthrough the values that they hold about life and the world around them(Adler 2002)

Affective continuance and normative commitment should be consideredas components rather than types of commitment because an employeersquosrelationship with an organisation might reflect varying degrees of all three(Meyer and Allen 1991) The definition of culture given by Liu and Fellows(1996) reflects a similar theme They argue that culture comprises a sharedunderstanding of what is correct proper and normal for the conduct ofrelationships and has both normative and behavioural components Ascommonly accepted by scholars culture defines peoplersquos behaviour Astrong commitment to the organisation by an employee results in behavioursuch as being more punctual and getting to work on time more flexible atwork hours to the organisationrsquos benefit willing to take up tasks outside thejob specification more self-motivated a good team player and good atdeveloping relationships with subordinates Although strong commitmentto the organisation by employees influences their performance Meyer andAllen (1991) argue continuance commitment to the organisation isnegatively related to job performance The suggested relation was observedin many studies as being supported (Meyer et al 1989 Konovsky andCropanzano 1991) but also refuted in some studies (Moorman et al 1993Angle and Lawson 1994 Bycio et al 1995) A strong positive relationshipwas found between affective commitment and job performance (Ingram etal 1989 Meyer et al 1989 Konovsky and Cropanzano 1991 Moormanet al 1993 Leong et al 1994 Bycio et al 1995) Similar results werefound between normative commitment and job performance (Randall et al1990 Ashforth and Saks 1996) (eg Randall et al 1990 Ashforth andSaks 1996) although the results were weaker than for affectivecommitment Rowlinson (2001) points out that organisational culture andstructure must be matched if employees are to retain commitment to theorganisation

Clearly a strong culture and value system can reinforce a remarkablypositive view of the organisation and its environment However a strongculture can also be a double-edged sword creating great resistance todramatic changes in an organisation (Wood et al 2001) Organisationswith strong power dynamics and role prescriptions can impede the promo-tion of staff empowerment (Goodstein and Boyer 1972 Serrano-Garcia1984 Gruber and Trickett 1987 Foster-Fishman and Keys 1997Cunningham and Hyman 1999) Implementing changes to an organisation

Culture and project procurement 289

effectively requires strong commitment from top management (Oakland1993 Bresnen and Marshall 2000 Prabhu and Robson 2000)

Staff empowerment was cited by Walton (1985) as a powerful means toengender commitment Fawcett et al (1994) refer to empowerment as theprocess of gaining influence over events and outcomes of importance to anindividual or group Staff at lower organisational hierarchy levels feel thatthey are given greater responsibilities in decision making This may lead tomore commitment to the project and to achievement of its missions(McDonough III 2000) leading to greater job satisfaction and sense ofownership The decision-making process in projects is shorter since local(hands-on) knowledge is acquired (Griffin and Hauser 1996) Project staffwork in a more cooperative manner as a team and in so doing enhanceproject process (Moenaert et al 1994 Jassawall and Sashittal 1998) andproject performance such as timely completion (McDonough III andBarczak 1991)

In laymanrsquos terms culture is lsquohow we do things herersquo Culture and itsinteraction with the organisational structure expresses commitment andhas the potential to affect a projectrsquos success In unsuccessful projects it isoften found that people in the project or the organisation do not understandthe organisational culture and the existing culture is often not supportiveof their efforts Also having supportive workplace culture procedures inplace is the first challenge getting staff in the organisation or the projectteam to follow it is another issue We will take contract administration inthe construction industry as an example Traditional contracting has anadversarial effect on the project team people tend to work in opposition toeach other rather than cooperatively as a team However as with nationalculture the organisational culture also has an effect on the project teamthrough the project culture Experience shows that project performance isoften hindered by the parent organisation This is commonly seen in aconstruction project with a high staff turnover when the parent companyremoves staff from the project especially when a new project arises Thenew project member(s) need to learn about the project including theproblems facing it and its history as well as building up their relationshipswithin the project team If the parent organisation has a culture ofcommunicating in black and white terms with everything being referredback to the contract document then staff working on the project will tendto act in a similar manner Rather than concentrating on working efficientlyand effectively on the project work staff may spend a large portion of theirtime on correspondence lsquofighting the paper warrsquo with letters back andforth between the contractor and the client representative

Organisational structure also plays a major role in project success It isthe way in which the interrelated groups of an organisation are heldtogether Yet to develop or to change an organisational structure takesmuch less time when compared with initiating a different organisational

290 Rowlinson et al

culture Changes in organisational structure can also be carried out morefrequently for example by changing the organisation chart and reportingrelationships

Organisational structure can be described as being based on organisationsize number of supervisory levels number of sections and job titles numberof operating sites administrative intensity (based on the supervisorndashstaffratio spans of control by top manager and the percentage of supervisorsabove the bottom-level supervisors) number of divisions and the form ofdepartment (eg functional project product or matrix forms) (Van de Venand Ferry 1980 Galbraith 1995 2002)

Cultural implications of trust on value

We discussed models of trust and distrust in Chapter 3 The modelillustrated in Figure 33 showed that trust is defined as the willingness torely upon the actions of others to be dependent upon them and thus bevulnerable to their actions (Mayer et al 1995 715) Trust is also perceivedas a result of an effective collaborative relationship and higher level ofpartnercustomer satisfaction (Zineldin and Jonsson 2000 Mohamed2003) Trust is seen as representing a lsquodiffuse loyalty to the organisationrsquowhich prompts the individual to lsquoaccept as the occasion demandsresponsibilities beyond any specific contracted functionrsquo (Parson andSmelser 1984) Moorman et al (1993) believe that trust is built up over aseries of interpersonal encounters in which the parties establish reciprocalobligations However Gambetta (1998) and his contributors see trust as aprecondition of cooperation because partners need some assurance that theother parties will not defect

The traditional Chinese way of doing business exhibits a high level oftrust at an interpersonal level Trust has a very strong moral content whenseen in the Chinese way (see ConfuciusLun Yu)1 Trust has the meaning ofintegrity as well as the meaning of trustworthiness and compliance In theRecords of Historian it states in a similar way lsquoby commending the soldierthe empire should trust him (in the sense of trustworthiness and ability)with all his heart once he is recruitedrsquo Trust in this context has the meaningof integrity as well as the meaning of trustworthiness and compliance (Lauand Rowlinson 2005 20)

The implication of high trust is that one would be confident and psycho-logically secure One is more relaxed less suspicious and defensive towardsthe organisation one is entrusted to (Westwood 1993) High trust betweenparties not only reduces the transaction costs it makes possible the sharingof sensitive information permits joint projects of various kinds and alsoprovides a basis for expanded moral relations in business (Brenkert 1998)Trust may have a direct effect on work group process and performance andin Dirksrsquo (1999) findings it is shown that better coordination and greater

Culture and project procurement 291

efficiency are found in a high-trust group and hence better performanceBarney and Hansen (1994) believe that a firm characterised by a culture oftrustworthy values and beliefs will often behave with a strong form of lsquotrustin exchangersquo relationship

Wood and McDermott (1999b 108ndash109) define trust from a socialperspective with the following statement

Trust is a multidimensional (Sako 1992 Ganesan 1994 McAllister1995) multifaceted social phenomenon (Fukuyama 1995 Misztal1996) which is regarded by some as an attitude (Luhmann 1979Flores and Solomon 1998) by others as a personality trait (Wolfe1976) and as a vital social lubricant (Luhmann 1979 Flores andSolomon 1998 Gambetta 1998)

Ganesan (1994) and McAllister (1995) identified two dimensions oftrust whereas Sako (1992) and Mittal (1996) have argued for threedimensions of trust namely competence (behaviour) motives (feelings) andcommitment (beliefs) (Wood and McDermott 1999a) Das and Teng(1998) refer to trust as the expectation of positive motives (behaviour) ofthe trustee while Lewicki et al (1999) see trust as positive conduct wheremorality comes from the individual Trust also has a social meaning con-cerning both individual and organisation Social trust described by Earleand Cvetkovich (1995) is a bridge from State A (disequilibrium or non-normal) to State B (equilibrium or normal) It constitutes the in-group andout-group theory where people will behave differently in groups and isculture-specific (Earle and Cvetkovich 1995 Fukuyama 1995) Nevisrsquosmodel of hierarchy of needs (Nevis 1983) shows that social need is higherin Chinese culture than in Western culture

Trust is also seen to have different levels which is an essential preconditionfor a successful negotiation (Fisher and Ury 1983) It is interesting to seehow and where trust is implied in different cultures French negotiators maycome to the table mistrusting the other party until they can establish an elementof trust while American negotiators may come fully trusting the otherunless led to believe that the other person is untrustworthy (Jackson 1993)Japanese tend to have a tolerance of ambiguity and rely on mutual trustwhile facing internationalisation of business Westwood (1993) finds this isa way of avoiding making offensive statements Many managers in Asiancountries negotiate in a subtle and indirect manner to avoid confrontationThe Chinese negotiation process is in an order of preference compromising(1) avoiding (2) accommodating (3) collaborating and (4) competing(Westwood 1993) with competing being the last resort (Lau 1999 Lauand Rowlinson 2005)

Trust is described as calculative with constituents of self-interest andvested benefits in the economic dimension (Williamson 1975 1985)

292 Rowlinson et al

Williamson (1993) further suggests two other kinds of trust namely personaland institutional Personal trust is suggested to be non-calculative and isirrelevant to commercial exchange institutional trust refers to the socialand organisational context on a contractual basis (Sako 1992 Williamson1993) In management Deming (1994) states that trust is mandatory foroptimisation of a system where a network of interdependent componentswork together to try to accomplish the aim of the system In organisationalmanagement trust is shown in the form of achieving results demonstratingconcern and possessing integrity (Shaw 1997) and in an employeersquosperception of trust in performance appraisal trust is measured by abilitybenevolence and integrity (Mayer and Davis 1999) These items aremeasured as antecedent factors (Wong et al 2000) for trust relationships inorder to evaluate trustworthiness between trustor and trustee

Trust is particularly important when a relationship contains the followingelements

entering into any form of contract exchange of information uncertainty arising from unforeseeable future contingencies risk sharing a degree of interdependence between agents the threat of missing opportunities acting as a means of enhancing the effectiveness of a relationship that

depends upon extensive cooperation at both inter-organisational andintra-organisational levels

developing the business relationship to a higher level reaching alternative goals by group members and negotiating to avoid confrontation

Construction project teams are unique entities created through a complexintegration of factors with inter-disciplinary players and varying rolesresponsibilities goals and objectives (Goodman and Chinowsky 1996)Collaboration and teamwork are therefore crucial since sharing up-to-dateinformation between participants leads to minimising errors reduction oftime delays and breaking the widespread rework cycle Benefits of collabo-rative rather than adversarial working relationships within constructionorganisations are well documented (Walker and Hampson 2003a)

Successful collaborative relationships rely on relational forms ofexchange characterised by high levels of trust Higher levels of trustencourage more open communication between individuals (Argyris 1973Ruppel and Harrington 2000) which subsequently increases understandingof other partiesrsquo perspectives (Johnson and Johnson 1989) Hosmer(1994ab) suggests trust leads to commitment which in turn leads toenthusiastic cooperation and innovative effort in people However it has

Culture and project procurement 293

been shown in the past that the construction industry has a strongerpreference for distrust rather than the full benefits of cooperation (Woodand McDermott 1999a) There is a need for culture change to bring aboutincreased cooperation between parties on a long-term basis With relationalcontracting based on a long-term relationship and trust a winndashwinsituation can be created for both the client and contractor The developmentof trust between organisations is seen as a function of the length of therelationship between them (Bresnen and Marshall 2000) It is also believedthat the construction industry is one that requires more trust betweenparties due to the high uncertainty in the industry

Partnering has been criticised as benefiting the clientsrsquo side only (Green1999) Bresnen and Marshallrsquos (2000) work shows that contractors wouldabsorb extra costs in the interest of maintaining good relationships with theclient and increasing chances of gaining future work Yet one may ask whycontractors are still involved if they gain no benefit The reasoningbehind this may be the global pressure for change Partnering is seen to bea pre-qualification requirement in recent years

In essence should the client attempt to spend as little money as possibleto get the work done and the contractor attempts to earn as much as possiblefrom the project the goals and values of each become incompatible Thisreflects human behaviour from an economic point of view all humanbeings are selfish that is contractors compete for the project Competitivetendering is the most common approach used in the construction industryThe norm behind the tendering process is that the lowest bid wins the con-tract The downside of this mechanism is the lower the proposed projectcost the higher the risk for work to be low quality with extra costs incurredduring andor after work After all the contractor also runs a business andwould not carry out work which would result in a financial loss Rather aminimum amount of profit to be made is set With a low bidding price onthe tender what is most likely to happen is that cost cutting on items suchas labour cost will affect the quality of labour (something which is difficultto state in the contract) with extensive sub-contracting which makes workdifficult to supervise and has a great impact on the quality control of workdone Also chosen materials suppliers might perform poorly with noguarantee of prompt delivery of materials Such problems have beenaddressed by implementing a pre-qualification system ndash ISO certification

However with relational contracting benefits accrue not just to the clientbut also to the contractors because of the high chance of future workMaintaining a good relationship to sustain a long-term relationship canlead to reduced tendering cost by means of lower transaction costs and thisbenefits both the client and contractor A cynical view might be expressedfirst-generation partnering suits the public sector as it provides no guaranteesof future work but commits the contractor to a non-contractual relation-ship alliancing suits the private sector as long-term business relationships

294 Rowlinson et al

and mutual benefits can accrue ndash in both cases probity issues can bemanaged as illustrated in the case study in Chapter 12

Characteristics and benefits of relational contracting include long-termrelationship trust commitment interpersonal attachment and cooperativeand collaborative attitudes towards problem solving Partnering alliancingPrivate Public Partnerships and joint ventures are examples of relationalcontracting approaches and were introduced to the Australian constructionindustry during the twentieth century

Studies show that role cultures are barriers to change (see for exampleFoster-Fishman and Keys 1997 Cunningham and Hyman 1999) They areparticularly unsuitable for a continuously changing and competitiveenvironment Interactions in the organisation between functional groupsand individuals are controlled by rules and procedures restricting staffempowerment especially at the lower or team levels Role culture is oftenstereotyped as bureaucracy On the other hand task culture is job or projectorientated This culture is extremely adaptable it reacts quickly to changesand is most appropriate where flexibility and sensitivity to the environmentare important (Handy 1985) This culture suits a project team environmentvery well after all the whole emphasis of the culture is on getting the jobdone Project teams are formed for specific purposes and can be reformedabandoned or continued Individuals in task cultures are found to have ahigh degree of control over their work can be judged by results and haveeasy working relationships within the project team with mutual respectbased upon capacity rather than status

Perceived effectiveness of relational contracting

The following reflections on the effectiveness of relational contracting aredrawn from research within Queensland Governmentrsquos Departments ofMain Roads and Public Works and their relationships with their primecontractors

General observations and comments

Positive correlations exist between the extent of commitment by bothcontractor and client with high levels of commitment from both partiesresulting in a more productive relationship Indeed a high level ofcommitment from all parties is needed in order for the relationship and theproject to be successful Furthermore unsuccessful relationship managementpartnering projects were found to have one common theme ndash lack ofcommitment from all levels that is from project director at head officethrough site management down to the inspectors and foremen at the worksite Such levels of commitment must be built up through effective workshopsprior to and during the project process by experienced facilitators

Culture and project procurement 295

In this manner it is important to recognise that personal relationships arevery important for successful partneringrelational contracting Partiesbecome more cooperative problems are discussed rather than disputedthere is positive problem solving rather than confrontation and there issharing of information which leads to reduction of risks and unreasonableclaims

Cooperation with team members is a fundamental requirement forrelational contracting When professionals rate contribution to companysuccess as of great importance for an ideal job there is often a strong linkagewith a high score on affective commitment Engendering a strong emotionalattachment to the organisation and contributing to the companyrsquos successbecomes highly important Thus facilitating a common and positive goalalignment to company success between professionals and the organisationis imperative Relational contracting cannot be implemented effectively ifproject team members at all levels have no common goal

A common problem on projects is that cultural barriers to change existat both management and operation levels Problems arise when there is amismatch between the organisational culture as perceived by theprofessionals and the organisational structure that is implementedProfessionals generally prefer working in a task culture but often inbureaucracies they find themselves working in a role culture Matrixorganisation is particularly suitable to the construction project environment(Bresnen 1990 Rowlinson 2001) and such an organisation will onlywork effectively with a task culture In the Hong Kong study conducted byRowlinson (2001) the mismatch between the actual organisation cultureand organisation structure is one of the factors that created barriers toimplementing changes in the department studied

Relational contracting can be said to suit for example the Australianculture very well Due to the nature of the Australian culture professionalsare not afraid to express their ideas or disagreement Direct confrontationbetween individuals is accepted and is the preferred method of collaborationas well as conflict resolution Australian professionals have strongindividualist attitudes open discussion of matters is preferred which has animplication for decision-making styles and problem-solving techniquesFurthermore compared to say their Chinese counterparts in Hong KongAustralian professionals are not afraid to express disagreement with theirsupervisors

However uncertainty avoidance is an issue that might impact on theefficiency of implementation of relational contracting Ineffective rules andprocedures can be imposed to satisfy peoplesrsquo emotional need for formalstructure Studies have demonstrated that professionals prefer a flatorganisation structure and have a strong desire for decentralisation yet alsoexpect a medium level of formality (this may reflect a sentient or profes-sional culture issue with engineers) Although having roles clearly specified

296 Rowlinson et al

assists the relationships between parties excessive formalisation rules andprocedures do not necessarily contribute to relationship building and pro-ductivity and might in fact have a negative effect on the decision-makingprocess Decision-making processes are often prolonged due to extensivelayers of procedures that affect work efficiency The importance of havingboth formal and informal mechanisms in place is an important issue to bearin mind in relational contracting projects

Strong support and commitment from project parties is crucial forproject success and implementation of changes Also the more the partiesare satisfied with their relationships the more productive their relationshipsare and both levels of relationship satisfaction and productivity tend toincrease with the degree of personal acquaintance These organisationalstructure and management style issues have been highlighted as being nec-essary for providing an innovative workplace environment (see Chapter 13)and for effective knowledge management (see Chapter 8)

The model illustrated in Figure 93 presents an input-processndashoutputmodel for successful relationship contracting (RC) originally presented inCheung (2006 152)

Culture and project procurement 297

Figure 93 Relationship contracting inputndashoutput map

Parent organisationculture

Relational contractingenvironment

Relationship start-up

Relationship process evaluation

Processmaintenance

Learning registerProblem-solvingtechniquesTeam building

Physical sitelocation

Job satisfactionIndividual level

OutcomesOrganisation level

Fast trackprojectproblemresolutions andvariationsStaff up-skillingFuture jobopportunities

RelationalcontractingcultureAbility to meetor close upissues at ownlevel

Project cultureCommitmentGoal alignmentCommunicationRelationshipmanagementunderstanding

Foundationworkshop

Monthlyrelationshipmeeting

On-goingfacilitations

On-goingworkshops

Training andeducation

RM processattendeesInvolvement of major sub-contractors(s)

Leadership andmanagement

Commitment

Internal factors

Process set-up

Selection ofproject teammembersFiltration of RCconcept to alllevels

Relationshipmaintenanceprocess

Tender system

(Process maintenance)

External Factors

DocumentationEvaluation

Marketcondition egover-heatedmarketResource andmaterialsavailablitiesPoliticalinfluence

Input Process Output

Relationshipmanagementprocessstructure

Lessons learned from project alliancing

The following lessons are derived from research (Rowlinson 2005Cheung 2006 Rowlinson et al 2006) undertaken on the experiences of anAustralian infrastructure alliance the Brisbane Water EnvironmentalAlliance Supply (BWEA) and is supplemented by learning from numerousother alliance projects studied by the authors including the NationalMuseum of Australia project alliance reported in Walker and Hampson(2003b)

Rowlinson et al (2006) in reporting on the BWEA project identified aset of skills which could be applied to alliance projects and which werein many ways essential if the alliance was to operate in an innovative andcollaborative manner The first attribute was an ability to work as a team ndashthis ability applied to both individuals and to groups Second they identi-fied the importance of stakeholder engagement and communicationskills This engagement needed to take place both within the team andacross the teams in order to ensure collaboration cooperation andunderstanding Finally the ability to think broadly to think outside of thebox and creatively to innovate in both project and process was seen as anattribute which everyone within the team needed to both develop andrespect along with the overriding culture of collaboration and an attitudeof lsquono-blamersquo

A number of process issues were identified as important influences ofeffectiveness including processes that provide cultural artefacts thatsymbolically represented the values of the alliance team and the workenvironment in general A number of issues were seen as positive influ-ences on the work group culture that was common to the BWEA theNational Museum of Australia (NMA) alliance as well as being observedby Dr Peter Davis in his PhD research (2006) in which he interviewedsome 50 alliance participants (see Chapter 12 in this book) The processissues includes the following

specific merchandise and equipment that symbolically focused lsquotheprojectrsquo as the prime organisational lsquohomersquo of participants deliveringthe project

informal social occasions such as barbecues induction processes and team-building workshops

Of the activities and initiatives that assisted in team development andcontributed to project success the following appear to be most influentialbrainstorming innovation days coaching risk manager role innovationmanager role facilitation services group team building sessions and theconcept of zero-in targets (a process of focusing on initiatives to be literally

298 Rowlinson et al

zeroed-in on as a level 1 priority) Such initiatives although generally wellaccepted can create their own problems such as

universality (ie equity and consistency) of coaching level of involvement in performance measure determination by lsquolowerrsquo

levels of the project hierarchy buy-in (and invitation in) by subcontractors who are often excluded

from the lsquoteamrsquo despite being part of this supply chain and significantcontributors to innovation and solution building and

a neglect of documentation and reliance on word of mouth whichin the life of the project and given personnel changes may lead toambiguity misunderstanding and subsequent souring of relations

It is a commonly held belief that flexibility is an important capabilityrequired of individuals for success of projects and that the initiatives abovehelp to develop and foster just such flexibility in both individuals andgroups However it is worth noting that barriers to flexibility are alsopresent such as lack of proximity (distance between offices and sites) thebudget and how it has been negotiated and lsquoadversarialrsquo traditional issuessuch as approval processes for project variations The move away from thelsquooldrsquo culture of confrontation and dispute needs constant reinforcementfrom the (alliance) manager innovation manager and even the (alliance)psychologist This all reflects the overriding concern to develop andmaintain a positive team culture across organisational boundaries

It is important for the maintenance of a positive culture that innovation isseen as one of a number of output measures In order to reinforce this it isimportant to regularly organise activities such as innovation days in order tocontinuously develop creativity and innovation which in most instances leadto successful outcomes However this has to be reinforced by a no-blameculture (Hutchinson and Gallagher 2003) inevitably not all innovations aresuccessful and the concept of lsquoresponsible risk takingrsquo has to be recognisedand rewarded Sounding a note of caution however many relational contractscan easily revert to being mired in a culture of conservatism where there isnot enough on-going innovation and this is often linked to the time work-load and work life balance constraints (see the Wivenhoe Alliance case studyreferred to in Chapters 10 and 13 for an interesting view on this issue)

So how does one define project and team success A current and verypersuasive view is that project team effectiveness can be demonstrated by

individuals having developed new skills individuals having obtained knowledge understanding and a tolerance

of other disciplines individuals having been given decision-making opportunities and

having developed skills commensurate with this responsibility and the team that has worked well together and would like to do it again

Culture and project procurement 299

How project success is measured is a more problematic issue as it involveshard criteria such as dollars and days and soft criteria such as stakeholdervalue attainment and personal development ndash see Chapter 6 for somefurther discussion of PM performance measures Hence a whole range ofcriteria are appropriate such as

community benefit personal development adopting innovative solutions (perhaps through effective value

management) high levels of teamwork esprit de corps and empowerment client satisfaction outstanding key performance indicators (KPIs) quality attainment on time performance and at or under budget

In addressing the functioning of alliance and relational contracts it isimportant to bear in mind what members of the project wish to strive toachieve personally in order to cultivate commitment and a culture ofcollaboration and innovation It has to be recognised at the very outset ofthe project and proactively managed through facilitation that manychallenges must be faced and dealt with throughout the duration of a pro-ject such as

Barriers between design and construction organisations and processeswhich often result in frustration and miscommunication In order toaddress these key issues particularly the problem of lsquobuy-inrsquo byconsultants it is necessary to implement initiatives such as team-buildingworkshops proximity of the workplace information- and problem-sharing and dispute-resolution

The number of companies and procedures which may mean it istime-consuming and conflict-inducing to standardise systems andprocedures for the project Often the chosen system will result in asteep learning curve for both project team members and their homeoffice ndash an inevitable source of both inter- and intra-organisationalconflict and

The decision-making process will be time-consuming which isparadoxically incompatible with the fast pace of the project This is nota new phenomenon the introduction of matrix organisations in theearly 1960s faced a similar situation enabling people to change theirattitudes and accept this multi-organisational multi-tasking environmentas an essential pre-requisite for success

300 Rowlinson et al

All collaborative alliance type organisations face future challengessuch as

maintaining the momentum of the project and the project team withinand between projects

commitment of parent organisations The pulling out of key teammembers back to the parent organisation before completion is a seriousproblem in many projects and generates both transaction costs anduncertainty and

the assimilation of members back into their own organisation once theproject or series of projects come to an end People become used to andlsquoenjoyrsquo the new culture of collaboration and innovation and return tolsquohome basersquo with new expectations and agendas making re-assimilationdifficult

Chapter summary

This chapter builds upon the discussion of how trust and commitment arecore elements that affect the manifestation of national and organisationalculture We discussed the concepts of trust and commitment in depth asthese formed the focus to link what may be considered a lsquogeneralmanagementrsquo topic to project management theory and PM procurement ndashthe link being the impact of culture upon designing developing and makingprocurement choices We also provided insights from practice morespecifically our research on project alliancing

A useful way to conclude this chapter is by indicating the benefits ofrelational contracting Well-run relational contracting projects are satisfyingto work in they make work enjoyable and lead to enhanced professionaldevelopment However not everyone is suited to relational contractingGetting the right mix of people in a project team has been identified as oneof the most crucial elements for the success or failure of a relationalcontract In order to maintain harmony and an effective working atmos-phere senior management andor the parent organisation must be preparedto remove unsuitable member(s) from the project team Through a structuredcontext relational contracting increases both formal and informal commu-nications amongst team members Higher frequency of communicationdoes not necessarily lead to better team relationships or more collaborativeproblem-solving behaviour Instead good team relationships and collab-orative behaviour are found where respect and acknowledgement areexpressed amongst team members The range of participants from acrossthe organisation who take part in meetings in relational contractingprojects has a positive impact on the quality of communication andinformation flow and is a stimulus to timely and appropriate action

Culture and project procurement 301

Informal communication is essential for relational contracting but it needsto be undertaken in an appropriately structured environment withappropriate procedures

The degree of match and mismatch between organisation culture andstructure has an impact on commitment levels The fundamental criterionfor successful implementation of changes is strong buy-in from topmanagement but buy-in is not only crucial at the senior managementlevel but at all levels for successful implementation Indeed the relationalcontracting concept needs to filter down to all levels in the project teamif team members are to retain commitment and buy-in to relationalcontracting There are multiple levels at which relational contractingneeds to operate and that each level has its own issues which mustbe reflected upon Findings show that a lack of prompt follow-up actionsor not closing up issues leads to downturn or failure in relationalcontracting

In addition mismatches between organisation and project (temporaryintra-organisation) cultures must be recognised and accepted byorganisation staff The parent organisation influences project culturecommitment to the goals and objectives of an organisation is crucialin facilitating successful implementation of relational contracting ororganisational changes

Relational contracting should not be seen as a one-off approach whichcan be switched on and off as one wishes It is an overriding philosophy andsea-change in the industry culture The basic concepts of relational con-tracting should be promoted as lsquobusiness as usualrsquo Relational contractingneeds to be constantly maintained and facilitated to retain effectiveness Arelational contracting maintenance and review process should be set upbefore a project begins Facilitation is needed to enable open blame-freecommunication and this facilitation must be ongoing throughout the life ofa project The role of facilitator in achieving a relational contracting cultureis highlighted in this research

The involvement of subcontractors in the relational contracting processhas been proven to be highly valuable for knowledge exchange andinnovations (see the Wivenhoe case study discussion in Chapter 13)Major subcontractors should be introduced to the relational contractingprocess and be formally engaged in the project organisation structureThus all project parties need to be familiar with relational contractingprinciples and relational contracting in practice for effective integrationSo education and training are crucial elements for achieving effectiverelational contracting A relationship management culture must bechampioned in organisations through in-house workshops Relationshipmanagement culture and principles should be embedded in peoplersquosmindset at an early stage

302 Rowlinson et al

Culture and project procurement 303

Vignette scenario

Borat Industries a recently privatised company formed through theamalgamation of a spin-off oil and gas field development organisationpreviously owned by a former Soviet Republic Government agency witha US logistics provider formed an alliance with a major oil companybased in Europe together with a major German-owned constructiongroup and a US steel producer operating from its Argentinean subsidiary

The alliance was established with the aim of negotiating andfinalising an agreement to develop a pipeline and a series of pumpingstations to transport oil from newly developed oil fields in south-westSiberia and several former Soviet republics to serve the Europeanmarkets The project or rather programme of projects required state-of-the-art ICT development of remote controls and monitoring sys-tems that would specifically be aimed to detect earth movementscaused by seismic sabotage or terrorist activity The security systemspart of the project required links with government agencies in a num-ber of countries to be crossed by the pipeline

The lsquoblue skyrsquo nature of the project required mitigation of politicaldesign development and marketing risks For this reason the principalparticipants decide that a project alliance would offer the bestenvironment to encourage innovative thinking appropriatelydesignated risk management and operational effectiveness The timeframe of completion by 2015 at the latest was considered tobe extremely tight and so given its complex and politically sensitivenature an alliance seemed to offer the greatest chance of success

The first set of alliance workshops was planned to take place inMarch 2008 in Dubai UAE and all parties have pledged their totalcommitment to the workshops The alliance acknowledged thatlsquoProject Glorious Boratrsquo would be the focal point of the programmersquosidentity and a US public relations firm prepared a presentation toillustrate how the project could present itself with its icons andsymbolic artefacts that might be used to form a single project cultureAll partners also agreed that the project would need an educationalproject to be developed in which systematic training and personaldevelopment would help participants and employees to know how towork within this alliance The first educational project was trainingfor the alliance executive board which would be convening in Dubaiin March 2008 The initiation of the project lsquoidentityrsquo was seen asbeing a key to setting the cultural environment This vignette is

Vignette

Note1 For a web site with translation of his writing see wwwconfuciusorg

References

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Angle H L and Lawson M B (1994) Organizational Commitment andEmployees Performance Ratings Both Type of Commitment and Type ofPerformance Count Psychological Reports 75 1539ndash1551

Argyris C (1973) On Organizations of the Future Beverly Hills CA SageAshforth B E and Saks A M (1996) Socialization Tactics Longitudinal Effects

on Newcomer Adjustment Academy of Management Review 39 149ndash178Ashkanasy N M Trevor-Roberts E and Earnshaw L (2002) The Anglo Cluster

Legacy of the British Empire Journal of World Business 37(1) 28ndash39Barney J B and Hansen M H (1994) Trustworthiness as a Source of Competitive

Advantage Strategic Management Journal 15(Winter) 175ndash190 [Special Issue]Bodley J H (1994) Culture Anthropology Tribes States and the Global System

Mountain View CA Mayfield

304 Rowlinson et al

concerned with the lsquoprojectrsquo of mounting the initial Dubai workshopsin which the senior executives and organisational sponsors will startto develop a single lsquoprogrammeprojectrsquo culture that will be critical inestablishing the cultural environment in which the programme ofprojects will be delivered

Issues to ponder

1 Discuss three key national culture issues that may presentproblems with the lsquoProject Glorious Boratrsquo programme thatwould need to be addressed in this first workshop

2 Discuss three key organisational culture issues that may presentproblems with the lsquoProject Glorious Boratrsquo programme thatwould need to be addressed in this first workshop

3 What three top priorities for the education programme do yourecommend should be addressed Justify your choice

4 What three key issues do you think will need to be considered inpreparing the alliance to present its programme plan to its majorstakeholders

5 Present three key performance measures that you think would beappropriate for assessing the impact of the first stage of thisprogramme the initiating workshops in Dubai

Brenkert G G (1998) Trust Morality and International Business Business EthicsQuarterly 8(2) 293ndash317

Bresnen M (1990) Organising Construction London RoutledgeBresnen M and Marshall N (2000) Partnering in Construction A Critical Review

of the Issues Problems and Dilemmas Construction Management andEconomics 18(2) 229ndash238

Brown A (1998) Organisational Culture 2nd Edition Harlow UK FinancialTimes-Prentice Hall

Bycio P Hyackett R D and Allen J S (1995) Further Assessments of Bassrsquos(1985) Conceptualization of Transactional and Transformational LeadershipJournal of Applied Psychology 80 468ndash478

Cheung F Y K (2006) Determinants of Effectiveness in Relational ContractingMaster of Applied Science by Research Faculty of Built Environment andEngineering Brisbane Queensland University of Technology

Cunningham I and Hyman J (1999) The Poverty of Empowerment A CriticalCase Study Personnel Review 28(3) 192ndash207

Das T K and Teng B S (1998) Resource and Risk Management in the StrategicAlliance Making Process Journal of Management 24(1) 21ndash42

Davis P R (2006) The Application of Relationship Marketing to Construction PhDThesis School of Economics Finance and Marketing Melbourne RMIT University

Deal T and Kennedy A (1982) Corporate Cultures The Rites and Rituals ofCorporate Life Reading MA Addison-Wesley

Deming W E (1994) The New Economics for Industry Government Education2nd Edition Cambridge Massachusetts Institute of Technology Center forAdvanced Engineering Study

Dirks K T (1999) The Effects of Interpersonal Trust on Work GroupPerformance Journal of Applied Psychology 84 445ndash455

Earle T C and Cvetkovich G (1995) Social Trust Towards A CosmopolitanSociety Westport CT Praeger

Fang T (2001) Culture as a Driving Force for Interfirm Adaptation A ChineseCase Industrial Marketing Management 30 51ndash63

Fawcett S B White G W Balcazar F E Suarez-Nalcazar Y et al (1994) AContextual-Behavioral Model of Empowerment Case Studies Involving Peoplewith Physical Disabilities American Journal of Community Psychology 22(4)471ndash496

Fisher R and Ury W (1983) Getting to Yes Negotiating an Agreement WithoutGiving In London Penguin Books

Flores F and Solomon R C (1998) Creating Trust Business Ethics Quarterly8(2) 205ndash232

Foster-Fishman P G and Keys C B (1997) The PersonEnvironment Dynamics ofEmployee Empowerment An Organizational Culture Analysis American Journalof Community Psychology 25(3) 345ndash369

Fukuyama F (1995) Trust The Social Virtues and the Creation of ProsperityHarmondsworth Penguin Books

Galbraith J (1995) Choosing an Effective Design ndash Designing Organisations SanFrancisco Jossey-Bass

Galbraith J (2002) Designing Organizations ndash An Executive Guide to StrategyStructure and Process San Francisco Jossey-Bass

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Gambetta D (1998) Trust Making and Breaking Cooperative Relations BasilBlackwell

Ganesan S (1994) Determinants of Long-Term Orientation in Buyer-SellerRelationships Journal of Marketing 58(April) 1ndash19

Gibson C B and Zellman-Bruhn M E (2001) Metaphors and Meaning AnIntercultural Analysis of the Concept of Teamwork Administrative ScienceQuarterly 46(2) 274ndash303

Goodman R and Chinowsky P (1996) Managing Interdisciplinary Project Teamsthrough the Web Journal of Universal Science 2(9) 597ndash609

Goodstein L and Boyer R (1972) Crisis Intervention in a Municipal Agency AConceptual Case Study Journal of Applied Behavioral Science 8 318ndash340

Green S (1999) Partnering The Propaganda of Corporatism Journal ofConstruction Procurement 5(2) 177ndash186

Greene R and Elfrers J (1999) Power the 48 Laws London Profile BooksGriffin A and Hauser J R (1996) Integrating Mechanisms for Marketing and

RampD Journal of Product Innovation Management 13(3) 191ndash215Grisham T (2006) Cross Cultural Leadership Doctor of Project Management

School of Property Construction and Project Management Melbourne RMITGruber J and Trickett E J (1987) Can We Empower Others The Paradox of

Empowerment in the Governing of an Alternative Public School AmericanJournal of Community Psychology 15 353ndash371

Gupta V Hanges P J and Dorfman P (2002) Cultural Clusters Methodologyand Findings Journal of World Business 37(1) 11ndash15

Gupta V Surie G Javidan M and Chhokar J (2002) Southern Asia ClusterWhere the Old Meets the New Journal of World Business 37(1) 16ndash27

Handy C (1985) Understanding Organisations 3rd Edition London PenguinHarrison R and Stokes H (1992) Diagnosing Organizational Culture San

Francisco PfeifferHofstede G (1991) Culture and Organizations Software of the Mind New York

McGraw-HillHofstede G H (1980) Culturersquos Consequences International Differences in

Work-Related Values Beverly Hills CA SageHosmer L T (1994a) Strategic Planning as if Ethics Mattered Strategic

Management Journal 15 17ndash34Hosmer L T (1994b) Why be Moral A Different Rationale for Managers

Business Ethics Quarterly 4(2) 191ndash204House R Javidan M Hanges P and Dorfman P (2002) Understanding Cultures

and Implicit Leadership Theories Across the Globe An Introduction to ProjectGLOBE Journal of World Business 37(1) 3ndash10

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd Phillips Fox Lawyers p 33

Ingram T N Lee K S and Skinner S (1989) An Empirical Assessment ofSalesperson Motivation Commitment and Job Outcomes Journal of PersonalSelling and Sales Management 9 25ndash33

Jackson T (1993) Organizational Behaviour in International ManagementOxford Butterworth-Heinemann

Jassawall A R and Sashittal H C (1998) An Examination of Collaboration inHigh-Technology New Project Development Processes Journal of ProductInnovation Management 15 237ndash254

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Javidan M Stahl G K Brodbeck F and Wilderom C P M (2005) Cross-Border Transfer of Knowledge Cultural Lessons from Project GLOBE Academyof Management Executive 19(2) 59ndash76

Jenks C (1993) Culture London RoutledgeJohnson D W and Johnson R T (1989) Cooperation and Competition Theory

and Research Edina Interaction Book CompanyKonovsky M A and Cropanzano R (1991) Perceived Fairness of Employee Drug

Testing as a Predictor of Employee Attitudes and Job Performance Journal ofApplied Psychology 76 698ndash707

Kroeber A L and Kluckhohn C (1952) Culture A Critical Review of Conceptsand Definitions Boston Harvard University

Lau E and Rowlinson S (2005) The Value Base of Trust for the ConstructionIndustry Journal of Construction Procurement 11(1) 19ndash39

Lau H L (1999) Trust as a Human Factor in Management in General and inConstruction CIB W92TG23 Symposium Thailand Ogunlana S O EampFNSpon pp 117ndash126

Laurent A (1986) The Cross-Cultural Puzzle of International Human ResourceManagement Human Resource Management 25(1) 91ndash102

Leong S M Randall D M and Cote J A (1994) Exploring the OrganizationalCommitment-Performance Linkage in Marketing A Study of Life InsuranceSalespeople Journal of Business Research 29 57ndash63

Lewicki R Saunders D and Minton J (1999) Negotiation Boston McGraw-HillLewicki R J Litterere J A Minton J W and Saunders D M (1994)

Negotiation 2nd edn Sydney IrwinLiu A M M and Fellows R F (1996) Towards an Appreciation of Cultural

Factors in the Procurement of Construction Projects CIB W92 SymposiumDurban South Africa Taylor R pp 301ndash310

Liu A M M and Fellows R (2001) An Eastern Perspective on PartneringEngineering Construction and Architectural Management 8(1) 9ndash19

Luhmann M (1979) Trust and Power Chichester WileyMcAllister D J (1995) Affect- and Cognition-Based Trust as Foundations for

Interpersonal Cooperation in Organizations Academy of Management Journal38(1) 24ndash59

McDonough III E F (2000) An Investigation of Factors Contributing to theSuccess of Cross-Functional Teams Journal of Product Innovation Management17(3) 211ndash235

McDonough III E F and Barczak G (1991) Speeding up New ProductDevelopment The Effects of Leadership Style and Source of Technology Journalof Product Innovation Management 8(3) 203ndash211

Magee B (1988) Men of Ideas London BBC BooksMayer R C and Davis J H (1999) The Effect of the Performance Appraisal

System on Trust in Management A Field Quasi-Experiment Journal of AppliedPsychology 84(1) 123ndash136

Mayer R C Davis J H and Schoorman F D (1995) An Integrated Model ofOrganizational Trust Academy of Management Review 20(3) 709ndash735

Mead R (1998) International Management Cross-Cultural Dimensions OxfordBlackwell

Meyer J P and Allen N J (1991) A Three-Component Conceptualization ofOrganizational Commitment Human Resource Management Review 1(1) 61ndash89

Culture and project procurement 307

Meyer J P Paunonen S V Gellatly I H Goffin R D et al (1989)Organizational Commitment and Job Performance Itrsquos the Nature of theCommitment that Counts Journal of Applied Psychology 74 152ndash156

Misztal B A (1996) Trust in Modern Societies Cambridge The Polity PressMittal B (1996) Trust and Relationship Quality A Conceptual Excursion In

Contemporary Knowledge of Relationship Marketing Center for RelationshipMarketing Parvatiyar A and J N Sheth (Eds) Atlanta GA Emory Universitypp 230ndash240

Moenaert R K Souder W De Meyer A and Deschoolmeester D (1994) RampD-Marketing Integration Mechanisms Communication Flows and InnovationSuccess The Journal of Product Innovation Management 11 31ndash45

Mohamed S (2003) Determinants of Trust and Relationship Commitment inSupply Chain Partnerships Unpublished Working Paper School of EngineeringGriffith University Brisbane Australia

Moorman C Deshandegrave R and Zaltman G (1993) Factors Affecting Trust inMarket Research Relationships Journal of Marketing 57(January) 81ndash101

Morrill R L (1980) Teaching Values in College San Francisco Jossey BassMunns A K Aloquili O and Ransay B (2000) Joint Venture Negotiation and

Managerial Practices in the New Countries of the Former Soviet UnionInternational Journal of Project Management 18(6) 403ndash413

Nevis E C (1983) Using an American Perspective in Understanding AnotherCulture Toward a Hierarchy of Needs for the Peoplersquos Republic of China TheJournal of Applied Behavioral Science 19 (3) 249ndash264

Oakland J S (1993) Total Quality Management 2nd Edition OxfordButterworth-Heinemann

Owens R (1987) Organisational Behaviour in Education Eaglewood Cliffs NJPrentice Hall

Parson T and Smelser N J (1984) Economy and Society A Study inthe Integration of Economic and Social Theory London Routledge ampKegan Paul

Perry R B (1954) Realms of Value Cambridge Harvard University PressPirsig R M (1974) Zen and the Art of Motorcycle Maintenance London The

Bodley HeadPrabhu V B and Robson A (2000) Achieving Service Excellence ndash Measuring the

Impact of Leadership and Senior Management Commitment Managing ServiceQuality 10(5) 307ndash317

Punnett B J (1998) Cross-National Culture In The Handbook of HumanResource Management Poole M and M Warner (Eds) London InternationalBusiness Press pp 9ndash26

Randall D M Fedor D B and Longenecker C O (1990) The BehaviouralExpression of Organizational Commitment Journal of Vocational Behaviour 36210ndash224

Robinson J (1964) Economic Philosophy Middlesex Penguin BooksRogers C R and Stevens B (1967) Person to Person The Problem of Being

Human A New Trend in PsychologyWalnut Creek CA Souvenir PressRoot D S (2000) The Influence of Professional and Occupational Cultures on

Project Relationships Mediated Through Standard Forms and Conditions ofContract PhD Thesis University of Bath

308 Rowlinson et al

Rousseau D M and Parks J M (1993) The Contracts of Individuals andOrganizations Research in Organizationsrsquo Behaviour 55 1ndash43

Rowlinson S (2001) Matrix Organisation Structure Culture and Commitment ndashA Hong Kong Public Sector Case Study of Change Construction Managementand Economics 19(7) 669ndash673

Rowlinson S (2005) Implementation of Relational Management CRC CI ReportBrisbane 2002ndash022-A-41 33

Rowlinson S Cheung F Y K Simons R and Rafferty A (2006) Alliancing inAustralia ndash No Litigation Contracts A Tautology ASCE Journal of ProfessionalIssues in Engineering Education and Practice 132(1) 77ndash81 [Special Issue onLegal Aspects of Relational Contracting]

Ruppel C P and Harrington S J (2000) The Relationship of CommunicationEthical Work Climate and Trust to Commitment and Innovation Journal ofBusiness Ethics 25 313ndash328

Sako M (1992) Prices Quality and Trust Interfirm Relations in Britain andJapan Cambridge Cambridge University Press

Schein E H (1985) Organisational Culture and Leadership San FranciscoJossey Bass

Serrano-Garcia I (1984) The Illusion of Empowerment Community DevelopmentWithin a Colonial Context In Studies in Empowerment Steps TowardUnderstanding and Action Rappaport J C Swift and R Hess (Eds) New YorkHaworth pp 9ndash35

Shaw R B (1997) Trust in the Balance San Francisco Jossey-Bass PublishersSzabo E Brodbeck F C Den Hartog D N Reber G et al (2002) The

Germanic Europe Cluster Where Employees Have a Voice Journal of WorldBusiness 37(1) 55ndash68

Terpstra V and David K (1985) The Cultural Environment of InternationalBusiness 2nd Edition Southwestern Publishing

Thompson L (1998) The Mind and Heart of the Negotiator London PrenticeHall International

Thorsdottir T (2001) Merging Organizational Culture Lessons for InternationalJoint Ventures In International Business Partnership Issues and ConcernsTayeb M H (Ed) New York Palgrave

Tierney W (1988) Organisation Culture in Higher Education Journal of HigherEducation 59(1) 2ndash21

Ting-Toomey S and Kurogi A (1998) Facework Competence in InterculturalConflict An Updated Face-Negotiation Theory International Journal ofIntercultural Relations 22(2) 187ndash225

Trompenaars F (1993) Riding the Waves of Culture Understanding CulturalDiversity in Business London Economics Books

Van de Ven A H and Ferry D H (1980) Measuring and Assessing OrganizationsNew York Wiley

Vecchio R P Hearn G and Southey G (1992) Organisational Behaviour Lifeat Work in Australia Sydney Harcourt Brace Jovanovich

Walker D H T and Hampson K D (2003a) Developing Cross-TeamRelationships In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson (Eds) Oxford Blackwell Publishingchapter 7 169ndash203

Culture and project procurement 309

Walker D H T and Hampson K D (2003b) Procurement StrategiesA Relationship Based Approach Oxford Blackwell Publishing

Walton R (1985) From Control to Commitment in the Workplace In ManagePeople Not Personnel Motivation and Performance Appraisal Boston HarvardBusiness Review 63(2) 77ndash84

Westwood R I (1993) Organisational Behaviour South East Asian PerspectivesHong Kong Longmans Asia

Williams G A and Miller R B (2002) Change the Way You Persuade HarvardBusiness Review 80(5) 65ndash73

Williamson O E (1975) Markets and Hierarchies Analysis and AntitrustImplications A Study in the Economics of Internal Organization New York TheFree Press

Williamson O E (1985) The Economic Institutions of Capitalism FirmsMarkets Relational Contracting New York The Free Press

Williamson O E (1993) Calculativeness Trust and Economic OrganizationJournal of Law and Economics 36(April) 453ndash486

Wolfe R N (1976) Trust Anomie and the Locus of Control Alienation of USCollege Students in 1964 1969 1974 Journal of Social Psychology 100151ndash172

Wong E S Then D and Skitmore M (2000) Antecedents of Trust in Intra-Organizational Relationships Within Three Singapore Public Sector ConstructionProject Management Agencies Construction Management and Economics 18(7)797ndash806

Wood G and McDermott P (1999a) Building on Trust A Co-OperativeApproach to Construction Procurement Journal of Construction Procurement7(2) 4ndash14

Wood G and McDermott P (1999b) Searching for Trust in the UK ConstructionIndustry An Interim View CIB W92TG23 Symposium ndash Profitable Partneringin Construction Procurement Thailand Ogunlana S O EampFN Sponpp 107ndash116

Wood J Wallace J and Zeffane R M (2001) Organisational BehaviourA Global Perspective Australia John Wiley amp Sons Australia Ltd

Zineldin M and Jonsson P (2000) An Examination of the Main Factors AffectingTrustCommitment in Supplier-Dealer Relationships An Empirical Study of theSwedish Wood Industry The TQM Magazine 12(4) 245ndash265

310 Rowlinson et al

Chapter 10

Project procurement and thequest for talent

Beverley-Lloyd-Walker Helen Lingard and Derek HTWalker

Chapter introduction

This book has focused much of its content in one form or another on issuessurrounding project outsourcing In this chapter we concentrate on lookinginside project organisations to discuss how they may better presentthemselves as an employer of first choice This is entirely applicable to bothoutsourced and in-house project procurement We focus our attention onoutsourced project procurement strategies from the perspective of theprocurement aim as being the supply chain partner and team member offirst choice In our discussion of in-house project recruitment we will alsotackle this from the perspective of addressing the value proposition ofpotential team members We stress throughout this book that projects aredelivered by people A key procurement issue addressed in this chapter isdiscussing how organisations can attract and retain talented people who arecommitted motivated and highly competent to work on projects The keyquestion raised is how do we attract and retain such people to be projectteam members Also how do we present our project as being attractive toour supply chain partner teams

Figure 101 illustrates the main thrust of this chapter It starts with theprocurement decision in Chapter 1 that discussed the make or buyinsourcendashoutsource decision It then follows with the influence that negoti-ation makes as discussed in Chapter 9 Organisational internal labourmarket policy also has an impact upon how staff are recruited and madeavailable as well as terms and conditions of employment

This chapter also links with engaging with stakeholder (Chapter 3)particularly project team members making sense of how ethics andgovernance may influence procurement choices (Chapter 4) comprehendingthe importance of adopting a strategic approach to explore procurementdecisions (Chapter 5) developing and enforcing a performance measuresystem that is relevant and fair (Chapter 6) how to encourage valuegeneration through innovation (Chapter 8) and understanding the organi-sational culture and how cross-cultural teams can best complement what

each team member has to offer (Chapter 9) It also specifically links wellwith the Chapter 13 case study The main issue whether projects are deliv-ered in-house or outsourced in maximising the chances for project successstill rests to a major extent with attracting and acquiring the best projectteam (and supply chain teams) possible with a favourable combination ofskills abilities and commitment to successfully deliver the project Whenlooked at from this perspective strategic human resource management(HRM) is a vital component of gathering together the best project resourcesto contribute to a successful project Three factors identified in Figure 101are discussed substantially in Chapter 9 from an organisational cultureperspective these are the industry environment (its culture) the workplaceenvironment (its culture) and the organisationrsquos environment (its culture andalso its ethical and governance stance as discussed in Chapter 4) Rewardsand workplace conditions will also be more deeply explored These factorsthen impact upon the individualrsquos value proposition and the match betweenthat lsquowantrsquo and what is lsquoon offerrsquo as influenced by the industry organisationand workplace environments determines the attractiveness of the project toindividual and teams While getting the best talent does not ensure projectsuccess it does provide a strong potential contribution

The chapter is structured in three parts The introduction section posesthe question how can project leaders attract the best team to deliver theirproject The second section provides some fundamental issues surrounding

312 Lloyd-Walker et al

Outsourced

Influenced through tenderconditions and negotiations

External market viatender or negotiation

Industry environmentnorms culture

Rewards conditions

Sourced in-house

Beg borrow or steal

Acquire best team possiblewith right mix of skills

abilities and commitment

Workplace environmentnorms culture

The individualrsquos valueproposition Attractiveness

match

Organisationrsquosenvironment norms

culture

Potentialoutcome

Internal marketassignment or recruitment

Figure 101 Link between value proposition and job attractiveness

what the value proposition is for people and the way that people arerecruited integrated into project teams and their talents effectivelymarshalled Following that in the third section we then explore how astrategic HRM approach can best deliver the best potential for effectiveparticipation in project teams We will end the chapter with a vignette

Attracting talent ndash a people-centric value proposition

In Chapter 8 an alliance model was offered and illustrated (Walker 2005)in which the need was stressed for high-level strategic human capitaldevelopment so that a network of willing high achieving PM team memberscould be readily sourced for projects as and when the need arises Thismodel assumed outsourcing many PM functions and so many of the PMteam members would be contractors ndash this is the case currently in the ITindustry where expert specialists as well as generalists are hired to convergeon a project This situation is typical in the film TV and entertainmentindustries (DeFillippi and Arthur 1998 Hartman et al 1998) So from ahigh-intensity outsourced talent acquisition perspective there is a criticalneed to be able to source talent and key staff at very short notice This isbecause many project authorisations seem to drag on interminably whilelsquodetails are sorted outrsquo and then its all-systems-go and project managershave to magically create a team of top talent In these cases it is likely thatthe potential team members who can be recruited are known to the projectmanager and trust the project senior team and the organisation as well aswanting to work with them This requires affective (want to) commitment(see Chapter 3) (Meyer and Allen 1991) Such people may have motivationthrough a value proposition that includes experience or an opportunity togain further trust with a team as part of building their portfolio ofexperience (Handy 1997)

A similar situation occurs in many organisations that undertake in-houseprojects where the project manager may have to beg borrow and scroungea team that heshe wants to work on the project (Ensworth 2001) In thiscase the challenge facing project managers is to persuade employees withmany competing commitments to agree to be part of a particular projectSometimes a project manager may be fortunate and have carte blanche todemand resources but even then the issue is gaining affective rather thancontinuance (need to) or normative (ought to) commitment or evencompliance (must) commitment (Meyer and Allen 1991) Howeveranecdotal evidence suggests that many project managers assembling teamsinternally to work on projects that may be seen merely as lsquoinitiativesrsquo arefaced with the beg-borrow-steal model of team recruitment This makes thetask of project managers understanding a team memberrsquos value propositioneven more important than is most likely currently understood

Procurement and the quest for talent 313

Further as illustrated in Figure 84 in Chapter 8 current leading edge andfuture models of sourcing workplace talented staff requires excellence inHRM and human capital development that addresses a more sophisticatedvalue proposition for talented potential staff (Walker 2005)

Workndashlife balance ndash an employee value proposition perspective

Employers naturally seek employees who are highly skilled and specialised orat least highly experienced More forward thinking organisations supportemployeesrsquo personal and professional growth so this places another level ofexpectation the ability and desire to become more resilient flexible and inde-pendent (Waterman et al 1994) They are making demands about the levelof commitment in terms of hours worked notice potential travel disruptionsto life and they may well be trying to do this through persuasion or at worstintimidation to the extent that onersquos lsquocareer may depend on thisrsquo For exam-ple in a recent UK construction industry study of a major national construc-tion company using an in-depth case study approach interviewing 15 seniormanagers and 35 employees at a range of levels within the organisation byRaideacuten et al (2006 889) they state that formal written contracts of employ-ment required a 42 12 hour work week for site-based employees and 37 12for senior office staff though in practice many of these worked far longerhours as unpaid overtime This is consistent with an Australian study of simi-lar organisations where 85 of those surveyed worked on average more than40 hours per week and 40 worked more than 50 hours a week this has ledto a form of discrimination biasing those in the industry (predominantlymale) prepared to work long hours (Lingard and Francis 2005a) It is againstthis backdrop that some industries such as construction are fighting to remainattractive to the workforce as there are more employees in the generationnow in their twenties or early thirties who are more concerned about achiev-ing a workndashlife balance (Lingard and Francis 2005a Raideacuten et al 2006)

The changing workforce

Since the middle of the twentieth century demographic trends and attitu-dinal changes have had a dramatic impact upon the needs and aspirationsof the workforce One of the biggest shifts has been the entry of women intothe paid workforce For example in Australia womenrsquos overall participa-tion in the paid work force in Australia has risen from 437 in 1978 to555 in 2004 (Australian Bureau of Statistics 2004b) The most commonfamily form in most industrialised countries comprises two adults in thepaid workforce In 575 of Australian two-parent families (with childrenunder 15) both parents were in paid employment in 2003 (AustralianBureau of Statistics 2004a) Traditional work practices and career pathswere predicated upon the gendered notion of a full-time (usually male)

314 Lloyd-Walker et al

breadwinner supported by a full-time (usually female) home-makerJacobs and Gerson (2004) note that while individual workers in the USAare actually working fewer hours per week than they have in the past thefact that in most relationships both partners are employed outside thehome has created an intense time squeeze on American familiesSimilarly a report prepared by the Australian Bureau of Statistics foundthat in dual income couples 70 of all mothers and 56 of all fathersreported that they alwaysoften felt rushed or pressed for time Moen andSweet (2004) describe a lsquopolicy lagrsquo in which there is a mismatchbetween outdated work and career structures and the contemporaryreality of dual earner couples

This policy lag highlights an important gap in PM procurement practicesPerhaps as a result of these changes in family type there has also been asubstantial shift in the expectation of fathersrsquo involvement in parentingRussell and Bowman (2000) report that Australian fathers are spendingmore time with their children than they were 15 years ago and that therelationship between fathers and children is closer At the same time 68of the Australian fathers in the study felt that they did not spend enoughtime with their children and 57 identified work schedule demands andinflexibility as preventing them from being the kind of fathers they wouldlike to be

There also appears to be some generational change in workersrsquoexpectations with younger workers no longer being motivated by the samerewards as their parentsrsquo generation instead placing greater value onlsquonon-standardrsquo work models that enable them to enjoy a more satisfactoryworkndashlife balance (Loughlin and Barling 2001) In the words of oneparticipant in a recent Australian research study of construction industryemployees lsquoI find it hard to see myself staying in this field if I intend to starta family Not only do I feel drained each day it affects my relationshipsdramatically It seems as if you donrsquot have the view that you ldquolive to workrdquoyou are not committed to your job Todayrsquos generation are looking forself-fulfilment in a job rather than loyalty to a company and security Abalance needs to be kept and at present I donrsquot think that view is easilyacceptedrsquo (Francis et al 2006)

In addition the population is ageing and many couples are delayingchildbearing creating a situation in which many workers now face the situa-tion where they have simultaneous responsibilities for the care of dependentchildren and elderly family members ndash the so-called sandwich generationIndeed Gorey et al (1992) predict that between 1996 and 2041 the numberof aged dependants per 100 workers will increase from 181 to 348

Conflicting roles

Most employees in the twenty-first century are trying to lsquohave it allrsquocombining multiple roles in an attempt to achieve happiness fulfilment and

Procurement and the quest for talent 315

life satisfaction However there is considerable potential for roles toconflict Kahn et al (1964 19) described inter-role conflict as lsquothe simul-taneous occurrence of two or more sets of pressures such that compliancewith one would make more difficult compliance with the otherrsquo For manyadults paid work and family are central areas of life Workndashfamily conflicthas been defined as lsquoa form of inter-role conflict in which role pressuresfrom the work and family domains are mutually incompatible in somerespectrsquo (Greenhaus and Beutell 1985 77) They also identify threedimensions of workndashfamily conflict

1 Time-based conflict ndash this occurs when time spent on activities in onerole prohibits the fulfilment of responsibilities in another role

2 Behaviour-based conflict ndash this occurs when behaviour in one rolecannot be adjusted to be compatible with behaviour patterns inanother role

3 Strain-based conflict ndash this occurs when pressures from one roleinterfere with fulfilling the requirements of another role

Workndashfamily conflict is also known to occur in two directions from workto family and from family to work with research suggesting the former isstronger than the latter Workndashfamily conflict is consistently linked withdysfunctional attitudinal physical and psychological outcomes which havethe potential to cause serious harm to organisations individuals andfamilies For example research has demonstrated work interference withfamily life to be associated with job dissatisfaction life dissatisfactionintention to turnover general well-being psychological strain psychiatricdisorders and substance abuse and problem drinking (Netemeyer et al1996 Allen et al 2000 Frone 2000 Grzywacz and Marks 2000 Grant-Vallone and Donaldson 2001 Boyar et al 2003 OrsquoDriscoll et al 2003Hammer et al 2004) One recent Australian study reports that project-based employees in the construction industry suffer much higher levels ofwork-to-family conflict than their counterparts who work in the head orregional office suggesting unique pressures experienced by project personnel(Lingard and Francis 2004)

Why should organisations care about workndashfamily conflict

Traditional management strategies were predicated upon a separation ofwork and family life Conflict between work and family has been cast as aprivate matter for individual workers (and their families) to resolve Thereis now compelling evidence to indicate that work and family roles shouldbe understood as interlinked experiences in one domain affecting moodbehaviour and performance in the other For this reason the interface

316 Lloyd-Walker et al

between work and home life is increasingly a concern for organisationsseeking to recruit retain and motivate a talented workforce

Research consistently shows work-to-family conflict to be associatedwith less positive attitudes towards work For example work-to-familyconflict is negatively associated with affective organisational commitment(Netemeyer et al 1996 Thompson et al 1999) and job satisfactionreflecting the fact that workers who perceive their work to negativelyimpact upon their family life are resentful of this interference Greenhauset al (2001) suggest that when work and family life conflict a logicalresponse is to try to eliminate this conflict by withdrawing from its sourceTwo forms of withdrawal behaviour that are of interest to organisations areturnover and absenteeism from work Greenhaus et al (2001) provideevidence that employees who are dissatisfied with the balance between workand family life think more about quitting their jobs Similarly Batt andValcour (2003) report work interference with family to be significantly andpositively related to turnover intentions and employeesrsquo perceptions ofcontrol over managing work and family to be significantly negativelyrelated to turnover intention Boyar et al (2003) also found that both direc-tions of workndashfamily conflict predicted turnover intention Thus there issubstantial evidence to suggest that turnover which is extremely costly fororganisations may be reduced through providing workplaces that are sup-portive of workersrsquo family lives Workndashlife balance initiatives are alsoreported to improve organisationsrsquo competitiveness by increasing theirability to attract employees (Casper and Buffardi 2004) induce employeesto exercise discretionary effort in performing their work (Konrad andMangel 2000) and help employees to be more productive (Eaton 2003)Further Arthur (2003) reports a positive relationship between theannouncement of organisational workndashlife balance initiatives and share-holder returns indicating that investors view family-friendly firms morefavourably Grover and Crooker (1995) found that employees in companieswith organisational workndashlife balance benefits had higher levels of organi-sational commitment to the organisation and expressed lower turnoverintentions regardless of whether the employee individually benefited fromthe policy Thus it seems that workndashlife balance benefits have a positiveinfluence on employeesrsquo attachment to an organisation because they signifycorporate concern for employees and their families

Burnout

One widely reported outcome of workndashfamily conflict is employee burnoutThe most widely accepted definition of burnout conceptualises thephenomenon as a syndrome of emotional exhaustion cynicism and reducedprofessional efficacy (Maslach et al 2001) Burke and Mikkelson (2006 65)

Procurement and the quest for talent 317

describe burnout as lsquoa process in which the individualrsquos attitudes andbehaviours change in negative ways in response to job stresses It is aprocess of progressive disillusionmentrsquo Like workndashfamily conflict burnouthas been associated with the experience of psychological distress anxietydepression and reduced self-esteem To make matters worse some researchsuggests that burnout is contagious spreading to affect colleagues of thosewho experience it A recent large-scale survey of the employees of one largeprivate sector construction contracting organisation and one large govern-ment construction client organisation was undertaken in QueenslandAustralia The results of this survey (Francis and Lingard 2004) indicatealarmingly high levels of burnout in the employees of both organisations

The survey results indicate that employees in both the public and privatesector construction industry organisations experience higher levels ofburnout than international lsquonormsrsquo The mean burnout scores for the sur-vey respondents are provided in Table 101 along with a sample of meanburnout scores from a range of different occupations in internationalresearch (Maslach et al 1996) The data reveals that respondents in theconstruction sample experience higher levels of emotional exhaustion thanrespondents in the military technology and management fields The onlyoccupational group indicating a higher level of emotional exhaustion thanthe construction employees was nursing The construction employees alsoreported higher levels of cynicism and lower levels of professional efficacythan respondents in all other occupational groups

Lingard and Francis (2005b) explored workndashfamily conflict as a linkingmechanism between the job schedule demands and lack of schedule flexibilityexperienced by many employees and burnout They report that the relation-ship between job schedule demands and burnout is actually better cast as anindirect relationship because the perception that work interferes with familyor home life acts as a significant pathway link between job schedule demandswith burnout These results have important implications for the preventionof employee burnout because they suggest that job schedule demandscreate workndashfamily conflict In the context of this workndashfamily conflictemployees have less opportunity to recover from the physical and psycholog-ical impact of work during non-work hours leading (over time) to burnout

318 Lloyd-Walker et al

Table 101 Cross-occupational comparison of mean burnout scores

Construction Military Technologist Management Nursingmean (SD) mean (SD) mean (SD) mean (SD) mean (SD)

EE 276 (15) 205 (123) 265 (131) 255 (140) 298 (138)CY 225 (15) 163 (135) 172 (114) 132 (106) 180 (124)PE 429 (10) 460 (093) 454 (103) 473 (088) 441 (099)

Source Francis and Lingard (2004)

EE = Emotional exhaustion CY = cynicism PE = reduced personal efficacy

Thus organisations interested in reducing the risk of employee burnoutshould consider ways of preventing workndashfamily conflict for examplethrough the implementation of family-responsive management interventions

Workndashlife balance initiatives

A distinction is drawn between formal workndashlife balance benefits andinformal workndashlife support The former are mandated or proscribed by formalorganisational policies or programmes while the latter are less tangible andclosely related to aspects of the organisational culture (Behson 2005) Thereis considerable evidence to suggest that formal workndashlife benefits althoughvery important can be lacking in effect when organisational cultures discouragetheir use Workndashfamily cultures have been defined as lsquothe shared assumptionsbeliefs and values regarding the extent to which an organization values theintegration of employeesrsquo work and family livesrsquo (Thompson et al 1999 394)and lsquothe global perceptions that employees form regarding the extent to whichthe organization is family-supportiversquo (Allen 2001 416) Workndashlife culturesare said to be multi-dimensional comprising the following

Organisational time demands and the expectation that employeesprioritise work over family time

Managerial support and sensitivity to employeesrsquo non-workresponsibilities and

The perception of negative career consequences associated withutilising formal workndashlife benefits

Within project teams norms about the working hours that are expected ofemployees develop In some cases long hours spent at the workplace areseen to reflect high levels of commitment and productivity An example ofthis is vividly described by Perlow (1998) who investigated the workndashlifeculture of a product development team working in a large US-basedsoftware company Perlow describes how sacrificing family time for workwas considered to be an indication of commitment and one lsquostarrsquo employeeroutinely started work at 2am and worked through until 530pm each dayWithin the development project teams Perlow also reports a culture oflsquopresenteeismrsquo in which leaving work on time created a bad impression andannual pay increases were always justified in terms of hours spent at workIn performance reviews top-ranked employees were those who spentbetween 80 and 100 hours a week at work

Secret (2000) classifies formal workndashlife benefits into four categories

1 Alternate work arrangements2 Leave time policies3 Child care services and4 Mental health and wellness services

Procurement and the quest for talent 319

Alternate work arrangements include things like teleworking offeringpermanent part-time work options compressing the work week (see casestudy below) and the modification of start and stop times (sometimesknown as flexitime) and job-sharing Research strongly supports thepositive impact of alternate work arrangements on employeesrsquo workndashlifebalance Leave time policies are largely dictated by legislative provisions formaternity parental and carersrsquo leave and consequently vary from country tocountry It is noteworthy that Australia and the USA are the only industri-alised OECD countries that do not require organisations to offer paidmaternity leave to women However it is noteworthy that some Australianorganisations are offering paid maternity leave in an attempt to recruit andretain high calibre female workers Childcare services are more controver-sial than other categories of workndashlife initiative because they can be utilisedonly by people with children They can include on-site childcare or otherchildcare services like joint venture childcare centres employer-sponsoredplaces in local childcare centres pre-tax credits for childcare assistancesubsidies for childcare costs or childcare information and referral servicesIncreasingly as the population ages care for elderly dependants is likely tobecome an issue for workers For this reason some organisations areintroducing elder care services in addition to childcare supports The finalcategory of formal workndashlife benefit is mental health and wellness servicesThese include things like employee assistance programmes offeringcounselling to employees with work andor family difficulties

Lingard and Francis (2005a) report that employeesrsquo preferences forworkndashlife initiatives depend on their family structure (eg whether they arepartnered or single parents or child-free) and their age Younger workers(aged between 20 and 29) were more interested in wellness and personaldevelopment initiatives while workers aged between 30 and 49 were moreinterested in childcare services than older or younger workers Unsurprisinglychildcare services were valued more highly among couples with dependantchildren than single or child-free couples Crisis assistancesupport was alsomore highly valued by parents of dependant children than employees in otherfamily structures These findings are consistent with the view that workndashlifeexperiences change over employeesrsquo life course with an individualrsquos prioritiesand preferences changing as they move through different life stages (Moen andSweet 2004) The practical implication of the life course perspective is that nolsquoone size fits allrsquo solution to employeesrsquo workndashlife balance is likely to be foundInstead organisations need to be flexible enough to adapt and respond todiverse and changing needs of their employees as they move through the lifecourse Some organisations are for example recognising the value of alsquocafeteriarsquo style reward package in which employees can select the salary andbenefits combination that best suits their needs

However although the introduction of formal workndashlife benefits isrecommended these benefits will only help organisations to recruit retain

320 Lloyd-Walker et al

and motivate workers to the extent that they are used (Eaton 2003) Thereis evidence to suggest that in some organisational contexts workers arereluctant to use formal workndashlife benefits fearing negative careerconsequences or stigmatisation Veigaa et al (2004) suggest the fear thatusing workndashlife benefits will result in being seen as lacking in commitmentto onersquos job and a negative assessment by others is a major factor in thelow take-up of benefits in some organisations Butler et al (2004) reportemployees who anticipate negative work outcomes are less likely to useworkndashlife policies In certain masculine work cultures female employeesmight be more sensitive to the impact of benefit usage on careerconsequence For example in a study of female construction professionalsin Australia 495 of a sample of 109 indicated that they thoughttaking maternity leave or utilising part-time work options would have anegative impact on their career (Lingard and Lin 2003) Althoughas Bittman et al (2004) note gendered stereotypes about the characteristicsof an lsquoideal workerrsquo are equally likely to prevent men from using workndashlifebenefits

A project alliance case study

Chapter 13 describes innovative project management strategiesimplemented at the Wivenhoe Alliance Project in Queensland AustraliaBelow is an example of how innovative workndashlife practices were imple-mented in this case study project The case study presents evaluation datarelating to some of these work practices This case study reproduces datafrom a paper by Lingard et al (2007)

The Australian construction industry is characterised by traditional workpatterns There is a strong culture of long hours and weekend workespecially among site-based employees The industryrsquos rigid adherence tolong hours and inflexible work schedules is also believed to hinder its abilityto attract and retain talented employees The Australian construction indus-try is facing a critical shortage of skilled workers It is estimated that if theconstruction industry is to replace its retiring workers and meet growthdemands between 40000 and 50000 new skilled workers will be neededin the next five years (Anon 2005) The industryrsquos failure to respond toemployeesrsquo workndashlife balance expectations threatens to substantially reducethe industryrsquos long-term performance and competitiveness

There is a growing realisation that an organisationrsquos human resourcesare a primary source of competitive advantage because unlike capitaltechnology and other infrastructure workforce capability cannot easily beimitated by other organisations Management theorists argue that employ-ees are capable of performing at high levels when motivated to do so(Pfeffer 1998) Transformed workplaces in which decision-making poweris devolved information flows are increased and employees strongly

Procurement and the quest for talent 321

identify with the organisationrsquos goals have been called lsquohigh performancersquowork systems

These work systems are believed to arise as a result of a number ofhuman resources practices that enable organisations to recruit developmotivate and retain talented employees (Way 2002 Wood and Wall 2002)High-performance work systems are believed to develop when employeesare treated with respect enhancing commitment to the organisation andincreasing trust in management Higher levels of commitment and trust inturn lead to improved individual (and thereby organisational) performance(Wheatley 1997) High-quality work is a feature of high-performance worksystems Factors influencing the quality of work include the extent to whichemployees enjoy job decision latitude (Karasek and Theorell 1990) andautonomy (Parker and Wall 1998)

This case study explores the question of whether human resourcepractices implemented to support employeesrsquo workndashlife balance yield bene-fits for individuals and organisations In particular the paper evaluates theeffect of the introduction of a compressed work week in a prominent casestudy construction project the upgrade of an existing dam in QueenslandAustralia The impact of the compressed work week upon project-basedemployeesrsquo well-being satisfaction and workndashlife balance was evaluatedThe performance of the construction project using the traditional metrics oftime and cost was also subject to post hoc evaluation

The case study construction project the upgrade of an existing dam inQueensland Australia was delivered by means of a project alliance Themajor tasks involved in the project were building an additional spillway forthe dam and strengthening the existing concrete spillway by undertakingpost-tensioning works Over 425000 cubic meters of material wereexcavated for the new spillway The project also entailed the constructionof a five-span traffic bridge and placement of embankment materials withinthe additional spillway structure

The case study construction project was delivered by means of a projectalliance (see Chapter 12) The core principle of project alliancing is theachievement of positive outcomes for all alliance members through sharedcommitment to common project goals (Halman and Braks 1999 Walkeret al 2002) One defining feature of project alliancing is that participantsare selected on the basis of their capability approaches and systems as wellas their commitment chemistry and the likelihood of their deliveringoutstanding results (Hutchinson and Gallagher 2003)

Unlike traditional selection processes in project alliancing participantsare selected before a price is considered Typically project allianceobjectives extend beyond the traditional emphasis on price to includethe ability to innovate and manage relationships within and betweenalliance participants According to Walker et al (2002) there is an important

322 Lloyd-Walker et al

difference between project alliancing and partnering In partnering projectgoals are jointly agreed and dispute resolution procedures are established inan attempt to minimise litigation but participating firms remain indepen-dent entities and it is therefore possible for one organisation to gain whileanother suffers in the same project In contrast alliance participants form acohesive entity which jointly shares the risks and rewards arising duringand as a result of the project As such poor performance results in penaltyto all alliance participants and conversely rewards for excellent perfor-mance are shared between the participants Put simply lsquoa fundamentaldesign principle of a project alliance commercial framework is that if oneparticipant wins all win or if one loses all losersquo (Hutchinson andGallagher 2003 18)

The compressed work week which involved reducing the length of theworking week but increasing the length of the working day was introducedpart way through the construction phase of the Wivenhoe Dam project At thecommencement of the construction project the site was operating on (approx-imately) a 58-hour week spread over six days This comprised five 10-hourdays (Monday to Friday) plus an 8-hour day on Saturday Shortly before datacollection commenced in March 2005 the site moved to a 5-day week withworking hours extended to 115 hour per day on week days Weekend workwas no longer required By May 2005 the site was operating on winter hoursreducing work hours further to 105 hours per day

Questionnaires were administered to employees at the site in June 2005The questionnaires were designed with the objective of evaluatingemployeesrsquo reactions to the move from a six to a five-day week

Employees at the case study project rated their preferences for thecompressed work week on a seven point scale where lsquo1rsquo lsquovery stronglyprefer five-day weekrsquo and lsquo7rsquo lsquovery strongly prefer six-day weekrsquo Themean score was 179 (sd 155) indicating a strong collective preferencefor the five-day week The numbers of workers for each response option areindicated in Table 102 and indicates that the majority of both wages andsalaried employees expressed a preference for a five-day week However asmall number of wages staff indicated that they either had no preference orpreferred to work a six-day week

Employees were also asked to indicate the extent to which they believedtheir workndashlife balance had changed since the introduction of the compressedweek The change was rated on a seven point scale (from lsquo1rsquo lsquogreatly wors-enedrsquo to lsquo7rsquo lsquogreatly improvedrsquo) The average rating for salaried employeeswas 594 (sd 139) and for wages employees was 587 (sd 132)indicating that overall most employees felt their workndashlife balance hadlsquomoderately improvedrsquo since the introduction of the compressed work week

At the end of the questionnaire both wages and salaried employees wereinvited to lsquoadd any further commentsrsquo about workndashlife balance at the case

Procurement and the quest for talent 323

study project More comments were provided by salaried employees(n 15) than wages employees (n 2) In general the additional commentsprovided by respondents strongly supported the introduction of thecompressed work week Most salaried employees who provided additionalcomments expressed their satisfaction with the compressed work week Forexample one respondent wrote lsquoHave enjoyed the five day week ndash wouldprefer to put in extra hours during the week if it means having everyweekend offrsquo Another commented lsquoThe five day week is fantastic This isthe way the whole industry should operatersquo

Many salaried respondents also identified lsquoknock-onrsquo effects for work(eg productivity and loyalty to the organisation) and non-work activities(eg family activities and domestic duties) For example one wrote lsquoIn thelast (x) years Irsquove always worked a six day week and was often stressed andtired by Saturday On this job Irsquove felt very relaxed on the weekend Irsquovealso been able to complete all my jobs around the house Our crew ishappier because their money hasnrsquot changed much and they have a life I personally think that productivity has been excellent because everybody isfresh and happyrsquo

Several salaried employees directly linked the five-day week to employeeretention For example one commented lsquoA commitment to pursue a fiveday week across the business would help people make loyal decisions atproject completion rsquo and another wrote lsquoA five day week is what I andmy family now demand I will not work six days again even if it meanschanging to another industryrsquo

The interview data also supported the survey data in indicating that thecompressed work week was perceived to improve Wivenhoe employeesrsquoworkndashlife balance Example comments were lsquoThe five day week has justmade it incredible Irsquove talked to the workers out on site I mean they getto spend a whole weekend with their kids and their families now not justone dayrsquo (salaried staff) and lsquosince Wivenhoe has gone to a five day week ithas increased my enjoyable lifestyle substantiallyrsquo (wages staff)

324 Lloyd-Walker et al

Table 102 Employeesrsquo preference for five- or six-day week

Numbers of staff

Combined Wages only Salary only

Very strongly prefer 5 day 30 14 16Prefer 5 day 4 3 1Slightly prefer 5 day 2 1 1No preference 3 2 1Slightly prefer 6 day 0 0 0Prefer 6 day 2 2 0Very strongly prefer 6 day 1 1 0

The link between work hours workndashlife balance and productivity alsoemerged as an important theme in the interview data from Wivenhoeparticipants One salaried employee expressed his appreciation of the com-pressed work week in the following way lsquoI was actually contemplatingwhether the construction industry was not for me And I was becomingactive in seeking other roles And then the elimination of the Saturdaywork ndash really saved that So if it wasnrsquot for that [I] probably wouldnrsquot behere at the moment And not only had I felt the change and the huge ben-efit ndash my wife has as well She immediately saw a totally different personon the weekend So that was really positive But now I am much happiermuch more energetic at work So I concentrate for longer ndash well for theentire time I am here Whereas before there were times that were non-productiversquo

In the Australian construction industry a six-day week is the norm andthe move to a five-day week at Wivenhoe was an innovative and unusualmeasure Many of the employees interviewed suggested that undertraditional project delivery arrangements the introduction of the five-dayweek would be unlikely Reasons for this include the fact that undertraditional arrangements the risk associated with the move to a five-dayweek during the construction stage of the project would be borne entirelyby the construction contracting organisation In this situation if the five-day week improved performance the contracting organisation would reapthe benefit However if the five-day week hindered performance thecontracting organisation would stand to be heavily penalised For exam-ple a contractor would incur liquidated damages in the case of time over-runs As the outcome of different alternative work schedules is currentlyunknown in the construction context there is considerable uncertaintyabout the impact of a five-day week on project time performance undertraditional arrangements a contracting organisation may be unwilling totake such a risk However the commercial arrangement underpinning aproject alliance is based upon the sharing of risks and rewards Wheninterviewed the Wivenhoe Alliance Project Manager expressed this as fol-lows lsquo Then I guess the key for alliancing from that point on ndash everyoneshares in the pain or the gain So you havenrsquot got a clientcontractor men-tality where one wins one loses that sort of thing So if we all go welleveryone benefits all share in savings If things go badly and off the railswe will lose Obviously when it comes to decision time ndash yoursquove got a lotof decisions to make obviously throughout the course of the project Ithelps to align peoplersquos thinking to come up with the ldquobest for projectrdquosolutionrsquo

In the context of shared risk the likelihood that innovative solutionsto problems will be identified and implemented is greatly increased(Walker et al 2002 Hutchinson and Gallagher 2003) Thus at Wivenhoethe risk associated with implementing the compressed work week was

Procurement and the quest for talent 325

shared between participants who also all stood to gain if the measuresimproved productivity and performance

The construction work on the case study project was officially completedon 22 September 2005 six months ahead of the scheduled completion dateThe project also cost less to construct than originally estimated Thus tak-ing the traditional metrics of cost and time the project was a remarkablesuccess Owing to the fact that the introduction of the compressed workweek on the case study project was subject to a post hoc evaluation it isimpossible to determine to what extent the introduction of the compressedwork week caused the projectrsquos good performance in terms of cost and timeIn the absence of a rigorous experimental design inferences about cause andeffect cannot be made However the evidence suggests that the site-basedemployees perceived the compressed work week as being a very importantbenefit which the employees linked to productivity benefits Coupled withthe projectrsquos objective performance data this provides prima facie evidencethat alternative work schedules designed to help employees to achieve abetter workndashlife balance are not incompatible with the attainment of timeand cost objectives in the context of a construction project

This section on workndashlife balance issues provides convincing evidencethat current work arrangements have a significant impact upon commitmentand productivity levels and also strongly influences the organisationalculture We also highlighted a significant gap in PM procurement practicesfor sourcing talent

Strategic HR and the quest for talent

Whether staffing a project internally from the project-originatingorganisation or externally selecting employees to become members of a newproject team the principles are the same and driven by the knowledge thatpeople are an organisationrsquos greatest asset Indeed people are the primesource of competitive advantage today (Kaufman 1999 Ruona andGibson 2004 DiVanna and Rogers 2005) People and their competenciesknowledge and experience are vital for organisational success in this erawhen intangible knowledge-based resources that which only people canprovide are the most likely source of sustainable competitive advantage(Pringle and Kroll 1997 Chan et al 2004) The challenge is to attractdevelop motivate and retain talent (Frank and Taylor 2004) and the pres-sure to do so will increase with acute skills shortages already occurring insome professions and trades

Planning for the right people

Planning for people to ensure the needed skills and knowledge are availableacross the organisation when they are required is important Human

326 Lloyd-Walker et al

resource planning has been used to identify staffing needs at the level ofnumbers and skill types Today workforce planning and workforceprofiling are used to gain a greater level of understanding of the current andfuture availability of employees or potential employees In the pastsuccession planning was used to identify potential replacements for themost senior roles in an organisation Today succession planning is requiredat all levels of the organisation

In project environments the source of team members may be internalexternal with all or some team members provided by a specialist staffingorganisation met through forming strategic alliances with organisationsthat employ people with the required skills or the project or parts of it maybe outsourced With human resources being the key to project success it isimportant that current and future supply and demand of this vital resourcebe constantly tracked Industry-wide or profession-specific data may beavailable For instance in the USA a report by the University of Texas atAustin used workforce profiles to map likely retirement of engineers andpredicted supply to meet demand for engineers in the coming yearsAlthough only 15 of the current workforce was over 55 their workforceprofile showed that the industry had a window of about five years duringwhich the knowledge and social networks of the most senior engineerscould be transferred to younger employees before the retirement of thelargest portion of the workforce (Davis-Blake et al 2001) This informa-tion provided advance notice of a possible shortage in professional projectengineers and the time in which to address the shortfall Succession plan-ning can now occur not just at the senior executive level but in a mannerthat ensures that sufficient numbers of people are available across the rangeof technical and professional jobs in the organisation to replace those leav-ing and to meet future project needs This enables gaps in skills and knowl-edge to be avoided or at least reduced

When choosing members for project teams over the next 5ndash10 yearsstrategically positioning less experienced staff members with experiencedproject managers could assist in the transfer of knowledge and provide linksto social networks Researching current enrolment numbers at localuniversities and colleges would reveal whether there will be sufficientgraduates to replace those expected to leave in the coming years Otherplans may be required if over the coming years the number of graduateswill be insufficient to replace departing staff We will suggest other possibleapproaches to ensuring supply for projects throughout this chapter

Project workforce planning

Workforce planning is required to ensure that current and future knowl-edge skills abilities and other attributes (KSAO) needs are met Whenplanning reveals for instance that the supply of engineers accountants or

Procurement and the quest for talent 327

computer programmers will not meet future demand action can be takento address the situation before it adversely affects organisational performanceThis information can quite easily be gained by accessing university andcollege enrolment data With a 3ndash5 year time lag to qualification and expe-rience required to develop high-level skills it may be necessary to considerworking with preferred contractors or alliance partners to ensure thecontinuing supply of high-quality personnel This may involve sponsoringstudents via scholarships providing work experience opportunities toaccelerate learning and on-the-job experience to ensure supply

Alternative approaches may involve rethinking future projects ndash if thesupply of structural engineers is currently limited and university and collegeenrolments indicate that new entrants will not cover those expected to exitthe profession it may be necessary to reconsider the building technologiesto be used on a project

Global competitiveness comes from having world-best staff Majorprojects will require consideration of the current and future supplydemandsituation Recent examples demonstrate this The world-wide move to SAPin the petroleum and chemical industries created a high demand forspecialised IT staff Some of these technicians saw the opportunity toincrease their income and moved from one organisation to another wooedby increased financial rewards and responsibility They took with them notonly their skills but organisational knowledge much of which couldprovide competitive advantage Job changes here were usually betweencompeting organisations meaning business information could be lost to acompetitor Once the major required SAP installations were completed thedemand for SAP experts reduced and has now plateaued

As the new millennium approached we had the Y2K projects acrossindustries Again IT workers were in high demand After New Yearrsquos day2000 the demand for Y2K experts ceased to exist

Some reduction in enrolments in IT-related courses has occurred acrossuniversities and colleges because these changes in demand have beendiscussed in the media But there are other major projects which do nowand others that will in the future require specialised IT skills London haswon the right to stage the 2012 Olympic Games Many of the stadiums andother facilities required are already in existence or require upgrading onlyOthers need to be built One need that will require specialist staffing is thatof security With the current threat of terrorism around the world highlyskilled intelligence staff and IT staff with skills in surveillance technologiesand transaction tracking will be required

A similar situation exists for example in the construction industryWhen a project is nearing completion and this is obvious to all teammembers ndash how to retain people until the project is delivered then becomesa quandary We discuss this situation further under retention and rewards

328 Lloyd-Walker et al

By careful design of retention and reward strategies and plans workforceplanning is supported

Organisations that do not plan for their most important resource ndash people ndash will not be able to compete into the future Whether it is internalskills skills normally supplied via preferred or occasional contractors orthose usually provided through alliances how these needs are going to bemet has to be included in long-term planning

This situation highlights why retaining critical or key people isextremely important Job design management style and rewards systemscan assist in retaining key staff These people-management activities canalso address retention of those working in areas predicted to be in shortsupply in the future These people will be in high demand and others willattempt to lure them away It will be too late when the shortage beginsaffecting all organisations to begin re-training schemes or to developreward systems targeting workers in areas of skills shortages

Attracting and recruiting quality employees

Ensuring that teams contain the right mix of knowledge skills and abilitiesrequires superior selection skills whether team members are being chosenfrom within the organisation or recruited into the firm A clear statementof the job and of the philosophy of the organisation within which theincumbent will be working will be needed to guide appropriate attractionrecruitment and selection activities

Recruitment has in the past been viewed as initiating the employmentrelationship but with the skills shortages today attraction is where itbegins Organisations have to consider how attractive they appear to thepublic all the time Many potential employees and especially those soon tograduate have in mind the type of organisation they would like to workfor and take the initiative to locate a suitable position with one of their cho-sen organisations rather than waiting for jobs to be advertised The organ-isationrsquos culture its human resource strategy and people-managementphilosophy are a large part of its public image How the organisation doesbusiness whether it is viewed as socially responsible and as having a com-mitment to sustainability will impact on its image Potential employees arelooking for a personal valuesorganisation values match

Employer of choice

The motivation for organisations to become an lsquoemployer of choicersquo or lsquobestemployerrsquo drives the need to present a desirable image to the public andespecially to potential employees Shellenberger (1998) claims that bestemployers or employers of choice provide higher returns for shareholders

Procurement and the quest for talent 329

This is not surprising when increased productivity retention of top talentand overall retention rates are common for workplaces which could bedescribed as lsquosimply the bestrsquo (Hull and Read 2003)

Becoming a lsquogreat place to workrsquo or lsquobest company to work forrsquo (vanMarrewijk 2004) requires strong commitment from senior management ofthe organisation and support for a lsquopeople firstrsquo strategy Two-waycommunication between employees and management where the flow ofnegative information may occur without fear and where the divisionbetween management and employees is minimised are also features of bestcompanies to work for As a result employees take pride in their work theirteam and the company Van Marrewijk (2004) cites recent researchreporting that the top 100 Best Companies to Work for in the USA achieveextraordinarily good financial results These organisations achievedconsistently superior results to other organisations across a range ofmeasures Credibility integrity respect fairness pride and camaraderie areall present in Great Places to Work These organisations are consideredsocially responsible and have the reputation of being lsquogood employersrsquo

Reputation

What attracts a quality potential employee to an organisation It isnecessary to consider the organisationrsquos culture and its employmentphilosophy in order to become an employer of choice The culture of theorganisation is important Employees seek a match between their valuesand the culture and values of the organisation They want to feel proud ofthe company they work for (Rushton 2002) The reputation of anorganisation is important when seeking to attract and select high-qualityemployees high calibre employees seek to work in companies with highstandards (Lipman 2002) Employees are more likely to remain with anorganisation they are proud to work for and whose values are in line theirown values Corporate reputation has become vital for organisationalsuccess and survival a good reputation will attract creative employees whowant to work for an employer whose values are in harmony with their ownvalues (Dolphin 2004)

The employee value proposition

Research demonstrates that people are attracted to different professionsand trades according to at least to some extent their personality typeHollandrsquos Typology of Personality (1985) identifies personality characteristicsand congruent occupations for each personality type Using Hollandrsquostypology a better understanding can be gained of the type of person whowould best perform a particular job

330 Lloyd-Walker et al

It is necessary to consider what the employee value proposition (EVP) isor what an employee desires (values) in a job and in the organisation inwhich the job is performed Value in all contexts is defined by the receivernot the giver (Ulrich and Brockbank 2005) For this reason it is importantto listen to what employees want and in particular to what the type ofemployee you desire wants It is necessary to identify the knowledge andskills required to perform the job and the other attributes that will enablethe person to lsquofit the work grouprsquo For instance what engineers desire froma job and what nurses desire from a job may differ greatly Unless a deepunderstanding is gained of what it is that each of these employee groupsdesires and action is taken to develop a workplace environment thataddresses the specific EVP of the desired group efforts to attract motivateand retain these employees may be misdirected and ineffective

Understanding the EVP and using the knowledge from that understandingassists in attracting motivating and retaining employees

Employer branding and becoming an employer of choice

Competition is driving the need for organisations to develop a strategy tolocate and retain employees who will enable them to succeed into the futureIn an era of skills shortages the way that organisations manage humancapital has become the most critical strategic decision they make Thesepressures have created the need for organisations to consider new anddifferent ways of attracting recruits Increasingly employer branding isbeing used by organisations for this purpose

The staffing process now begins with attraction followed by therecruitment process and then selection where the best applicant is selectedThe quality of the attraction effort will affect the quality of the pool ofapplicants from which the selection choice is made The best person chosenfrom a poor pool of applicants will not be good enough today This is whythe quality of attraction activities strongly supported by employerbranding is extremely important It influences the quality of the overallstaffing of the organisation

Creating an employer brand is part of the process of becoming recognisedas a good employer It is about developing a way of defining and promotingan organisationrsquos employment attributes to prospective employees toattract them to apply for vacant positions It is also a retention tool It canmake current employees aware of the advantages of working for theorganisation and demonstrate that they can be proud to say they work forthe organisation (Dessler et al 2007) Employer branding thereforesupports both attraction and retention

Employer branding is used to establish an image that reflects what theorganisation stands for by projecting an image of a desirable workplace toattract quality employees This is done in a way that will ensure that there

Procurement and the quest for talent 331

will be a pool of suitable potential applicants waiting to apply when aposition becomes vacant Suitability is guided by an understanding ofpersonality types and their link to occupations

Research conducted in Canada found that in the hospitality industryprofessionals were attracted by messages that stressed issues such as theorganisationrsquos growth and diversity For frontline service employees themessage required to attract suitable applicants was one that emphasisedtheir personal role in delivering quality service (Vu 2006) We need toconsider the type of person who is likely to wish to perform the role whenattempting to target candidates for different roles What is required will varyaccording to group or in marketing terms according to market segment

Firms attempt to differentiate themselves from competitors by highlightingtheir characteristics as an employer through their employer brand Theorganisationrsquos values and the way in which they manage their employmentrelationship are conveyed through words signs symbols or a combinationof all of these (Backhaus and Tikoo 2004) The development of anemployer brand begins with the value proposition which is to be embodiedin the brand

The organisationrsquos web site can provide the ideal setting for establishingthe employer brand it is here that statements about values and the organi-sationrsquos philosophy in relation to its employees customers and suppliers canbe stated Details of the advantages of working for the organisation mayinclude flexible work arrangements providing career opportunities andother benefits which make it a great place to work Living up to theseclaims may not be as easy as making them Loss of trust follows if currentemployees or new recruits feel that the statements are hollow or if theirexperience of the organisation does not match the claims made Newemployees are likely to be disappointed and experience disillusionmentThis has been found to lead to an increase in employee turnover during thefirst year of service What this highlights is the need for organisations totake care in the development of their employer brand The organisationshould truly represent what it stands for and how it treats its employees

Employer branding can include statements that are extremely effective atattracting applicants however at times this may lead to too wide a groupof potential applicants It has been found that after several years of workinghard at becoming an lsquoemployer of choicersquo some organisations in Canadaencountered negatives attached to this label In particular being viewed aslsquothe organisation to work forrsquo was found to lead to organisations beinginundated with applicants including unsolicited applications As a resultconsiderable time and effort was required to screen and select from anincreased number of applicants (Vu 2006) In addition after enjoying thebenefits of working for an employer of choice employees didnrsquot want toleave their lsquobest employerrsquo Low turnover rates are good no turnoverthough can lead to stagnation and lack of new ideas Good selection

332 Lloyd-Walker et al

decisions using valid and reliable selection methods will be important whenselecting the best from a large pool of applicants Adequately inducting andtraining then managing the performance of new recruits will also berequired Applicants may be attracted to what the organisation has to offerbut not possess the knowledge and skills required for the jobs to be filledAs a result organisations are realising that they must become lsquothe employerof choice for employees of their choicersquo (Vu 2006 4) The way in which adesirable employer brand image is crafted is important (Backhaus andTikoo 2004)

Employees become quickly disenchanted with workplaces which claim tobe one thing but are experienced by their employees as anotherOrganisations that successfully use employer branding and gain the right tocall themselves lsquoemployer of choicersquo ensure that what they claim to be iswhat they are In this way the brand they use truly reflects the type oforganisation they are and new employees do not become disillusionedbecause they were attracted by a statement on the employerrsquos web sitewhich proves not to be the factual experience of employees

Selecting staff

It is said that retention begins with selection In the past recruitment andselection processes were designed to ensure personndashjob match In fact itwas often said that employees were hired for their ability to perform the jobbut terminated (fired) for lack of fitness for the job ndash because their valuesand those of the organisation did not match

General selection principles

Robertson and Smith (2001) rated selection methods accuracy The mosteffective methods were cognitive ability and integrity tests and structuredinterviews closely followed by work sample and job knowledge testsPersonality tests are less effective but importantly may enable reliableassessment of ability to work in a team

Assessment centres can be used for selection as a basis for promotiondecisions to identify training and development needs or to select suitableteam members to ensure a balanced and productive team Assessmentcentres incorporate a range of activities and tests Cognitive ability andintegrity tests combined with structured interviews and work-relatedactivities (a work sample test) and job knowledge tests can provide valuableinformation for good selection decision making

Personality tests or activities which assist in measuring leadershipand team skills when incorporated in an assessment centre will helpidentify people suited to working in project teams As with work sampletests this information can also be used to identify training needs of current

Procurement and the quest for talent 333

employees or development required in preparation for promotion to anew role

Assessment centres offer the opportunity to observe how potential orcurrent employees handle a range of situations that could occur in theiractual jobs (Applebaum et al 1998) Project managers are probably notgoing to have access to or be trained in the use of the range of tests requiredto make an effective selection and incorporated in an assessment centreIncreased emphasis on the management of people for organisational successhas led to each manager or supervisor becoming involved in an increas-ingly wide range of people-management activities formerly performed bythe HR department Initially some questioned whether this would signalthe end of the HR department as we knew it (Cunningham and Hyman1999) HRrsquos role has changed Involvement in such activities as promotiondecisions performance management coaching employee discipline andtermination decisions job design career planning and development andrecruitment and selection by project managers and line managers is nowgreater than is HRrsquos (Kulik and Bainbridge 2006) Policies and proceduresto guide the conduct of these activities are developed by HR Managers willwant to be directly involved in the interview process and therefore mayneed to be trained in structured interviewing skills

Project managers will be more directly involved in recruiting andselecting team members than perhaps in the past but they should make useof the expertise HR officers possess in this area to assist in making goodselection decisions

Employee referrals can provide a cheap source of job candidates andenable the staffing process to be quickly completed Current employeeswill not risk recommending a poor performer or an unreliable personthis would reflect poorly on them and perhaps hinder their personalcareer progress Project managers and other project team members mayrecommend to one another people to fill all remaining team rolesHowever this seemingly ideal method of recruiting and selecting newemployees or team members does have some drawbacks If all new jobcandidates have been referred by employees it may result over time in alack of diversity and creativity People who think or act differently willnot be recommended Indeed this can be one of the issues to watch forwhen using the personndashorganisation fit to select employees (discussedbelow) Though employing people who quickly fit into the establishedculture and do not question any of the norms and practices in the organ-isation may sound attractive there is no doubt that some questioning ofthe status quo can be healthy for organisations Employing people whohave had different experiences worked in different organisations andindustries can lead to more innovative and creative solutions being foundto problems for instance

334 Lloyd-Walker et al

Employee referrals can be the quickest and cheapest way of filling vacantpositions and of selecting team members however these advantages shouldbe weighed against the potential disadvantages of this practice over time

Personndashjob and personndashorganisation fit

The concentration in the past was on ensuring that the applicant couldperform the clearly defined role More recently it has been recognised thattodayrsquos workplace requires personndashorganisation fit The use of employerbranding is important here It can convey a true picture of the organisationand attract the type of person required to fit both the job to be performedand the culture of the organisation This suggests that it is important toclearly state both the values of the organisation and the role to be per-formed But in todayrsquos workplace especially one where project teams areregularly formed and disbanded this is not always possible Employees arenow selected to work in groups to form part of different project teams andare expected to frequently change roles (Lievens et al 2002) Here it isimportant to select people who are flexible those who will be willing totake on a range of roles over time They will though need to ft into theorganisationrsquos culture

Selecting team members

As mentioned before the value proposition of the employee will need tomatch that of the organisation Research has found that a closer matchbetween the values of a person and those of the organisation is linked to longertenure increased organisational commitment and improved job performance(OrsquoReilly et al 1991 Kristof-Brown et al 2005) Importantly the preferencesof newcomers should match those of their supervisor Recent research hasshown that where concern for people is high for both the employee and theirsupervisor newcomers will remain settle in to the organisation and be pro-ductive (Van Vianen 2000) Personndashenvironment fit occurs when the individ-ualrsquos characteristics are compatible with those of their work environment(Kristof-Brown et al 2005) Four components can be seen as present herepersonndashjob personndashorganisation personndashgroup and personndashsupervisor fitJob satisfaction and organisational commitment have been found to be strongfor personndashjob fit and personndashorganisation fit and to a lesser extent presentwhen personndashgroup fit and personndashsupervisor fit were present

Personndashgroup and personndashsupervisor fit

Selection processes traditionally include an emphasis on personndashjob fit andmore recently on personndashorganisation fit through the use of personality and

Procurement and the quest for talent 335

related tests Rarely is the same emphasis placed on personndashgroup andpersonndashsupervisor fit however these may be areas which need to beincluded if a project team performance is to be maximised When selectingpeople for team settings it has been found that social skills personality andteamwork knowledge should be assessed Measures of ability to workeffectively with others could be useful for assessing social skills Personalityassessment should include characteristics such as conscientiousnessextroversion agreeableness and emotional stability Effective team mem-bers are likely to possess knowledge and skills on how to function in a teamsetting or to possess team competencies (Morgenson et al 2005) Researchconfirmed that the use of structured interviews and tests to measure thepersonality characteristics of conscientiousness extroversion agreeablenessand emotional stability could increase team selection success In additionusing situational judgement tests to measure teamwork knowledge couldalso be beneficial (Morgenson et al 2005)

Using rewards to attract and retain employees

Rewards are strongly linked to retention Rewards include salary or wagesincentives benefits and the work environment in general ndash is it trulyrewarding Is the work environment friendly Is a lsquocontrollingrsquo or alsquocommitmentrsquo management style used Are employees valued Are theirefforts recognised Is employee health and safety a high priority Canemployees proudly state who they work for Money alone will not attractand retain good employees but paying poorly and not valuing employeeswill lead to increased employee turnover and failure to attract qualityapplicants

An understanding of motivation theories and their implications foremployee retention is not only of importance to HR professionals it isimportant for every manager in an era where an increasing range of HRactivities are being devolved to line managers and supervisors Linemanagers project leaders and supervisors now find they need to use theirunderstanding of people and what motivates them to get the best from theirdirect reports

Retention

In 1998 turnover in the USA stood at 13 per month (Ramlall 2004) Atthis rate an organisation could experience a 100 staff turnover in six anda half years Knowledge experience contacts and relationships are lostwhen people leave Vital roles on project teams may no longer be able to befilled by skilled and experienced people However deeper analysis mayreveal a different picture Waldman and Arora (2004) advocate focusing onmeasuring retention rather than turnover This involves analysing which

336 Lloyd-Walker et al

employees remain and which employees leave the organisation If it is thevaluable employees who are remaining for several years even if theturnover rate is higher than desired the right people are being retainedthose who will enable the organisation to achieve its goals What suchanalyses usually reveal is areas for improvement within the staffing processIf 30 of new recruits each year are leaving in their first year of employ-ment but the other 70 are remaining for three or more years this mayindicate problems with the recruitment and selection process especially ifthey were the group receiving the lowest performance ratings Why havepeople who are unable to perform to the required level or who donrsquot wishto work in the area been hired Attraction recruitment and selectionprocesses need to be better targeted to avoid hiring unsuitable people

When key players leave the effect on the organisation is greater stillClient and working relationships are broken important customer informationand organisational knowledge may be lost The costs of turnover are greatFitz-enz (1997) estimated that organisations lose approximately US$1 mn forevery 10 managerial and professional employees who leave The cost ofreplacing other members of staff including recruiting and training thereplacement and time to full effectiveness is somewhere around one yearrsquoswages Cost alone is great Loss of knowledge and impact on organisationaleffectiveness especially during the replacement period can result in largercosts in the long term

Retention is an important issue in an era of skills shortages Skillsshortages can occur even when there are large numbers of people seekingwork Skills shortages relate to the KSAOs which an employee brings to ajob A person without the necessary KSAOs may be able to develop thedesired skills gain the knowledge required or learn to take new anddifferent approaches to for instance customer service However this is notalways the case and it may take too long to reach the required level ofexpertise

Retaining staff in project-based industries

We mentioned earlier that retaining high-quality project team employeesuntil project completion can present challenges The tendency has been forhighly skilled staff to commence negotiations for a new role prior to projectcompletion Indeed if they have high-level skills they will be sought after byothers who are aware that the project is nearing completion The desire toobtain continuing employment is understandable Research has shown thatprofessionals willing to relocate to provide the flexible workforce desired inthe USA and other parts of the world today do tend to benefit with anincrease in income six years after moving of approximately 20 over thatwhich could have been expected if they had remained at their former site(Rodgers and Rodgers 2000) But this is not the case in all industries

Procurement and the quest for talent 337

Relocation for construction professionals is likely to mean moving to a rolewith a similar rate of pay the benefit of relocation being continuingemployment at the expense of uprooting their family Relocation willpresent family and financial pressures for some so shoring up a positionthat does not require the family to relocate can be attractive

Staff who leave before completion of the project especially those whohave been involved in the project from the outset will lead to loss of tacitknowledge As with the SAP example provided above someone withoutthe embedded knowledge will not be able to understand the context ofmany of the problems facing the project team because they have notexperienced them

Skills shortages and these exist across a range of specialist areas lead topower issues Those in demand will find it easier to locate a new role inorder to avoid a period of unemployment between projects To avoid thenegative consequences outlined the employer may feel the need to offerfinancial bonuses to those who remain to completion But how much isenough to retain a high-quality employee whose skills are in high demandThree months employment and an extra $10000 for example may notequate to three years employment on a new project A gap in employmentis a strong possibility for the employee who chooses to remain tocompletion In addition with construction projects as opposed to IT andother projects the need for geographic relocation is more likely to exist

Experience has seen financial bonuses paid to retain people tocompletion however there may be alternatives that could be consideredThe cost of losing a key performer three months prior to completion of athree-year project may be far greater to the employer than paying onemonth of salary for the high performer to take leave and return for the nextmajor contracted project Another approach may involve working out aplan with the person most likely with associated employee developmentcosts to retain the services of this identified key contributor thusaddressing both the organisationrsquos and the employeersquos value proposition

Research in the high-technology manufacturing industry in the USAfound that employee development was used both as a retention tool and asa benefit (Benson 2006) By providing tuition-reimbursement the organisa-tion encouraged employees to undertake formal qualifications In compar-ison to on-the-job training and company-run courses completion of atransportable qualification recognised by other organisations meant thatthese employees would have lsquomarketable skillsrsquo Qualifications gainedthrough tuition-reimbursement were viewed as increasing their careeradvancement opportunities within the organisation and their employabilityshould the company not be able to provide ongoing employment Employeecommitment was found to be more closely linked to tuition-reimbursementprogrammes if promotion followed within 12 months of completion ofstudies Gaining a transportable qualification one attractive to other

338 Lloyd-Walker et al

employers increased the likelihood of the employee leaving theorganisation if career advancement was not linked to completion of formalqualifications (Benson 2006) This highlights the need for an integratedapproach to workforce planning employee development and retention andrewards planning

Some organisations require tuition fee pay back with the percentage tobe returned to the employer reducing over time until there is no lsquodebtrsquo aftersay three years However contractual lsquohand cuffsrsquo as this practice is termed(Associates 1999) are not commonly used Baruch (2001) found HRmanagers did not believe that offering employees lsquoemployabilityrsquo as part ofthe new psychological contract would succeed in improving loyalty andcommitment and there was some questioning among HR managers of thecost involved Baruch questioned the feasibility of the lsquoemployabilityrsquopromise replacing the former loyalty-based relationship However evidencealready provided in this chapter that generations X and Y donrsquot expectlong-term employment may explain why Bensonrsquos (2006) more recentresearch demonstrated that better planning by linking developmentprogrammes to career path planning may make them more attractive to theworkforce of the future

People management

Human resource practices can be categorised as either lsquocontrolrsquo or lsquocom-mitmentrsquo practices (Wood and de Menezes 1998) two very differentapproaches that attempt to shape employee behaviour and attitudesControl human resource practices are commonly used to increase efficiencyand reduce labour costs This is achieved by introducing strict work rulesand procedures In these situations rewards are commonly linked tomeasurable outputs (Walton 1985) similar to piecework plans ndash employeesare paid per item produced or transaction completed

High commitment HR practices are designed to maximise commitmentand employee empowerment with the goal of increasing productivity andeffectiveness This is achieved through a range of linked HR practicesIncreasingly employees are being involved in decision making jobs arebeing re-designed to make them challenging and interesting and rewardssystems are being designed to encourage employees to identify with theorganisationrsquos goals (Whitener 2001) for instance through employee shareschemes The belief here is that employees will work harder to achieve goalsthey have been involved in setting and where they will directly benefit fromthe organisationrsquos success These efforts are all about developing committedemployees and mutual trust High commitment HR practices supportretention efforts

The control or commitment approach can also be applied to ensuringfuture staffing needs in a project environment On the one hand it is possible

Procurement and the quest for talent 339

to build into contracts a requirement that contractors guarantee the supplyof specified specialist skilled staff in order to be able to tender for a jobThis is the control approach On the otherhand it is possible to take thecommitment approach and work with preferred suppliers to ensure thatthey will be able to meet staffing requirements into the future Retrainingof current staff supporting university students through their studiesindeed attracting them into studies in an identified future high-demandarea in partnership with your supplier may yield better results along witha more co-operative long-term working relationship Trust commitmentand loyalty are important between partners in projects just as they arebetween employers and employees There is a mutual dependence in eachinstance

Rather than seeing people as a resource to be used and then disposedof when needs change high-commitment HR practices focus on theorganisationrsquos long-term needs and future success That is why employeesare viewed here as resources for achieving business goals and shouldbe developed to meet the changing needs of the business The IT andconstruction industries commonly employ large numbers of people tocomplete discrete projects and on completion of the project may no longerrequire the services of some or all of those employed for the project Thepeople employed to form the project team possess specialised skills requiredfor successful project completion However it is these skilled employeeswho expect to work for a range of organisations over their careers (Benson2006) Commitment to the one employer is not viewed as possible becauseof the short-term nature of the projects or in other industries becauseemployees wish to make their own career decisions using their high level ofskill to locate new roles thus avoiding the betrayal of trust experienced bytheir parents (Loughlin and Barling 2001)

In project-based industries forming an alliance may reduce this needwith specialist skills being provided from a constant pool available fromorganisations which work only in that specific area ndash computer program-ming web design site management quantity surveying civil engineering orothers The view that preferred sub-contractors will be able to continue toprovide the type and quality of staff required without discussing futurelong-term needs with them and considering together the relatedsupplydemand situation is one that could lead to disaster

Whether or not partners or contractors are involved planning futurestaffing needs is an important activity and part of overall strategic planningBrockbank (1999) sees HR activities as belonging to four possibledimensions of competitive advantage

Operational reactive Here the basics are implemented and in HR a lotof these will relate to legal compliance Paying the correct amountproviding safety training and equipment and so on

340 Lloyd-Walker et al

Operational proactive These activities involve doing the basics betterFinding easier cheaper quicker and better ways of doing what must bedone

Strategic reactive Though often seen as going far enough strategicreactive indicates that HR people are merely reacting to the strategicdirection set by others rather than helping to set a new and differentstrategic direction

Strategic proactive HR people will propose new and excitingopportunities for competitive advantage here and back them up byensuring the necessary human resources to deliver are available

Consider the following scenario in Box 101 as an illustration of anengineering and architectural design solutions organisation which wasnrsquotappropriately staffed

Procurement and the quest for talent 341

A skills gap continues to exist The client for example the governmentsays the train system isnrsquot working new trains tracks and signallingsystems are required After considerable expense driverless trainswere introduced six months ago but there have been a range ofproblems and the advantages expected from their introduction havenot been gained Worse still the public transport users are complain-ing bitterly about reduced and disrupted services and the governmentis feeling under pressure from these and other highly vocal groups inthe community

An investigation revealed that driverless trains require state-of-the-art signalling systems which were not installed in preparation forthe changeover The new signalling systems which will have to beinstalled quickly now to solve the problems created by the introduc-tion of driverless trains require highly specialised skills andknowledge to design implement and operate To this point HR havenot been involved in any of the discussions They were involved indeveloping the redundancy packages for the drivers who were maderedundant as a result of the introduction of the driverless trains butthey are no more aware of the causes of the current problems than isthe general public

A proactive strategic approach applied to the procurement system wouldhave avoided this problem in the first place Instead of involving HR onlyin a reactive operational role if HR had been involved in the planningfrom the beginning they would have asked questions and helped to narrowdown the total resource base including describing the people required in all

Box 101 Scenario

areas to support the new trains This would have required HR to writeposition descriptions describing all new roles required to support thedriverless train system outlining in detail all KSAOs The need to procurethe highly specialised skills would have then been identified and HRcould consider in discussions with other members of the strategic plan-ning team whether these services should be provided by a specialisedorganisation ndash outsourced ndash or whether appropriate employees should beattracted recruited and inducted in time for the introduction of the newtrain system

Working with the supplier of the new trains instead of being underpressure now to procure the new signalling system and the staff to supportit it would have been possible during the initial procurement stages toidentify all related needs By forming a team to cover all contingencies anddeliverables within the supply chain predicaments such as that experiencedhere can be avoided Using the new advanced rail system as an example itbecomes obvious that the project manager has a range of areas of expertiseto address as well as a complex supply chain to manage Experience wouldindicate that rarely are all complex components of the supply chainstrategically thought through to the extent that issues such as a signallingsystem required supporting operation of the new and expensive trainsystem being addressed It may have been possible to negotiate with thesupplier of driverless trains the best deal possible on the signalling systemand for it to be delivered with time for testing so it could be operational whenthe driverless trains were delivered By forming a team to cover all contin-gencies and deliverables within the supply chain during the pre-qualificationstage there would have been time to examine which organisations couldbest develop deliver and operate the signalling system

Pulling together a group of people from a range of areas from outside theorganisation when working in an alliance or with other contractorsrequires consideration of personality ndash Will these people work welltogether ndash and combined does the team contain the knowledge skillsabilities and other attributes required to achieve success There will not betime now for the signalling staff to be chosen using all these criteria andthe likely repercussions of this are reduced productivity decreased servicequality and increased turnover

Rewards

Rewards in a project environment need to attract motivate and retain topperformers at the individual and team level Recent research has revealedthat potential employees are seeking employers who offer a range of bene-fits and a higher than average salary wonrsquot make up for not addressingsome of their wants Job security is desired (Rabey 2005) and for youngworkers in particular lsquopoor qualityrsquo employment which lacks a career path

342 Lloyd-Walker et al

or learning opportunities has been found to be de-motivating (Loughlinand Barling 2001)

Total rewards

Rewards are part of the value proposition that the employer offers theemployee and are made up of remuneration including pay and short- andlong-term incentives benefits including worklife programmes and careersencompassing employee development linked to career opportunities(wwwmercerhrcomau)1 (Gross and Friedman 2004) For success totalrewards strategies should be aligned with the business strategy This isespecially so when the rewards plan has been lsquocreated to support anorganisationrsquos unique human capital strategyrsquo (wwwmercerhrcomau)They must also match the employeersquos value proposition so organisationsmust be able to understand the wants and needs of the type of people whocan help them achieve their objectives Project managers need to considerthe combination of knowledge skills abilities and other attributes that willbe required to deliver their project on time and on budget Motivatingthe team to perform becomes the next challenge For project teamsthis may mean considering individual or team or combined individual andteam rewards

Team or individual rewards

Cacioppe (1999) states that team rewards and recognition may be awardedeither on individual behaviour and performance or on whole teamperformance with the rewards being equally divided between the membersof the team If all members of a team are to share equally a reward ndash mostcommonly financial or exchangeable for money ndash the assumption is that allhave equally contributed If individuals only are rewarded the assumptionis that people have contributed in different ways or at a different level Thisis perhaps not always the way things happen in a team In particular withlong projects the level of contribution or involvement may vary duringdifferent stages of the project depending on the contribution each chosenmember has to make to the total project

More recent research by Benson (2006) has revealed as alreadymentioned that well-managed employee development plans can assist inretaining staff Employees do appreciate support from their employer todevelop their knowledge and skills base and employees are reluctantto leave employers who provide such benefits (Benson 2006) Howeverthere is a need for these plans to be linked to succession planning and careerpath planning Those who are supported to gain non-company-specificqualifications expect to be rewarded by advancing their careers If theorganisation sponsoring their studies does not also develop a career plan for

Procurement and the quest for talent 343

those employees who have had their tuition fees refunded the investmentmade may be lost

In a project environment general skills such as those gained byemployees enjoying tuition-reimbursement schemes may be able toadvantage the employer as well as the employee Project managers and teammembers may now be well prepared to perform a range of permanentpositions within the organisation albeit only temporarily between projectsThe advantage for the organisation is that they have a knowledgeable andexperienced employee group to call on to assemble highly talented teams toensure project success in the future For individuals it means that theiremployment is more secure and that they enjoy the challenge of new anddifferent roles the learning that comes from this and the variety ofexperiences that these changes in role inevitably provide

Work design

Employees seek challenging and interesting work (Rodrigues 2001) that islsquorewardingrsquo Performing challenging work and different roles enablesemployees to demonstrate their potential to work in higher-level rolesEmployment security and a clear career path can be seen as providing alsquofuture valuersquo a reason for staying with the organisation This will need tobe linked to opportunities to learn grow and for career advancement In aproject environment project placements providing new and different tasksto perform enabling people to work with experienced successful projectmanagers and being supported to gain new skills and knowledge can forma large part of the individualrsquos total rewards For many employees theseopportunities for new experiences and to gain new skills and knowledge toadvance their career may be seen as more important than higher levels of pay(Gross and Friedman 2004) This is especially so for early career employees

Job security

Attraction and retention are not major issues only because skills shortagesalready exist in some areas and others are predicted in the future Theemployment relationship has changed Job security a component of thetraditional employment relationship was undermined by downsizingefforts in the late 1980s and early 1990s and a range of mergers andacquisitions which have occurred

The effects of this trend towards temporary employment and theaccompanying feeling of job insecurity are being felt today by organisationsResearch has shown that childrenrsquos and younger adultsrsquo understandingsof work and employment are shaped by their parentrsquos employment experi-ences (Loughlin and Barling 2001) Having formed work attitudes andbehaviours that convey a sense of betrayal younger workers are not

344 Lloyd-Walker et al

committing to their employers in the way their parents did Having seentheir parents family and friends made redundant after years of faithfulservice Generations X and Y are planning their careers around the beliefthat they cannot count on their employer providing them with long-termemployment (Baruch 2001)

The level of trust and commitment of employees has fallen As a resultorganisations are looking at ways they can re-establish a level of trust withits accompanying commitment and loyalty to combat the negative impactof the current and future skills shortages This has led to the developmentof lsquohigh commitment work practicesrsquo The psychological contract alsodescribes the employeendashemployer contract and relates to lsquothe unwrittenpromises mutual expectations and obligations that exist betweenemployees and their organisationsrsquo (Winter and Jackson 2006 422) Thepsychological contract has long been seen to include the expectation thateach employee will exert a level of effort commensurate in the employeersquosview with the total rewards ndash financial and non-financial ndash being offered bythe organisation for doing so (Nicholson and Johns 1985)

Project work inevitably involves temporary employment which can leadto lack of job security There may be no guarantee of continued employ-ment on completion of the current project Research has found that limitedterm employees have reduced levels of commitment to managerial goalsand are likely to demonstrate lower levels of effort and cooperation(Boswell 2006) This can be because they feel like lsquooutsidersrsquo There is someevidence that lack of job security is linked to a reluctance to share knowl-edge Here the employee fearing their employment may not continue feelsthat their knowledge is critical to maintaining their value as an employeeIn addition learning that comes from sharing knowledge of mistakes madeand which leads to the development of new ways of operating in the futureis unlikely to occur when employees feel their job is under threat(Davenport et al 1997) Rewards and recognition plans will need to bedesigned so as to encourage willingness amongst all employees to discussfailures and to develop plans to avoid them in the future We discuss laterthe possible combination of individual and equally distributed teamrewards Careful design of both components may assist here Project leadersshould be rewarded for encouraging discussions individuals should berewarded for contributing examples of failures A lsquono blamersquo culture will berequired for this to succeed

Development of this new approach to rewards and recognition planningis particularly important because the incidence of temporary employmenthas increased in particular in Europe (Brewster et al 1997) and otherdeveloped countries such as Australia have also experienced increases incasual employment in recent years (Lowry 2001) Feelings of insecurity arelikely to be accompanied by lower levels of job satisfaction andorganisational commitment (De Cuyper and De Witte 2006) however this

Procurement and the quest for talent 345

did not lead as might have been expected in the past to reduced satisfactionin life in general or feelings of personal performance failure Again thiswould appear to support the research quoted throughout this chapter thatthe next generation of managers and those currently performing strongsupport roles ndash the Generations X and Y employees ndash have a differentoutlook on career and the employment relationship in general

Some basic components of good rewards planning remain Internalequity fairness between employees according to level of responsibility andeffort and external equity linked to the current market rate for the profes-sion or trade cannot be ignored Rewarding individual contribution andalso encouraging team co-operation and performance is required for projectsuccess and the type length and complexity of the project will have to betaken into consideration when developing a rewards plan that will supportachievement of the desired outcome

Sarin and Mahajan (2001) investigated rewards planning processes thatsupport successful new product development projects Here project teamsmay be required to work together for a prolonged period of time to producethe desired outcome in other circumstances the project may be ofconsiderably shorter duration They considered the commonly asked questionShould rewards be equally distributed amongst team members according tothe level of success of the project or should the position or status of theteam member within the organisation or in relation to their role on theproject team be used as the basis upon which rewards are distributed

The requirement here is that rewards be allocated in a manner thatsupports successful completion of the project However as alreadydiscussed it is necessary to bear in mind issues such as equity and justicebeing viewed as a lsquogood employerrsquo and ensuring that key talent is attractedto and retained in the organisation What Sarin and Mahajanrsquos (2001)research revealed was that a range of issues surrounding the project itslength and objectives had to be considered in order to develop a supportiverewards plan Ease of ability to evaluate individual performance was afactor Where ease of evaluation was high position-based rewards could bepositively related to the internal dimensions of team performance and there-fore deliver a fair means of rewarding performance In these circumstancesteam member satisfaction levels in relation to allocation of rewards werehigh In situations where ease of individual evaluation was low distributingrewards equally was found to positively relate to internal dimensions ofteam performance

Sarin and Mahajan (2001) also analysed rewards performance and teammember satisfaction in relation to the length of time taken in productdevelopment that is relevant here A process-based reward structure wasexpected to be positively related to the external dimensions of teamperformance for long product development cycles Process rewards werefound to relate negatively to timespeed to market When the process ofdeveloping the new product and stages within this were rewarded rather

346 Lloyd-Walker et al

than for the whole project or product delivery speed to market wasnegatively impacted It took longer for the team to deliver the productOutcome-based rewards only marginally improved time to market or timetaken to deliver the project but had a positive effect on performance of longor less complex projects

What Sarin and Mahajanrsquos (2001) research reveals is that culture is a factorthat needs to be considered when developing project team rewards A posi-tion-based differential reward structure was found to be more effective andto support greater team member satisfaction when individual performancecould be easily evaluated This approach recognises that different levels ofcontribution and risk responsibility are demanded of different members of aproject team Nahavandi and Aranda (1994) have argued team-basedapproaches to rewards planning must be adapted when they are being usedwithin Western cultural values systems Here we are working with teammembers who come from individualistic cultures individual rewards musttherefore at least play a role within the total rewards plan Manyorganisations have developed highly effective rewards plans which incorpo-rate both individual and group measures against which rewards are allocatedIt is necessary to consider culture desired outcome and expected length of theproject when deciding how much emphasis should be placed on each of thesetwo elements when designing rewards plans

To conclude this section

The change from temporary roles being seen as problematic and leading toproject-based organisations having to settle for poorer quality employees orreduced levels of commitment and performance to a new psychologicalcontract where expectations have shifted may provide considerable advan-tage for those organisations that regularly form and disband project teamsto achieve their goals Generations X and Y employees donrsquot expect con-tinuing employment to the extent that their parents or grandparents didAttracting motivating and retaining key talent may not present the samechallenges in the future as they did in the past as a result of overall changesin the employment relationship and employee expectations However com-placency will not provide competitive advantage Understanding the com-plex relationship between all interacting areas of the employmentrelationship and ensuring that they are well coordinated will play a vitalrole in sustainability for project-based organisations in the future

Rewards and recognition plans must be aligned with the organisationrsquosstrategy project goals and type for a truly successful project outcome

Chapter conclusion

In this chapter we posed the question how do we effectively attract andretain valuable and skilled people to be project team members We

Procurement and the quest for talent 347

discussed the value proposition of key talented staff and how organisationsneed to align their HR policies with attracting retaining and maintaininglinks with past employees who while moving on to projects outside thatorganisation nevertheless may be able to return and be valuable anddesirable contributors on future projects

We also posed the question how do we present our project as beingattractive to our supply chain partner teams We argue that in addressingthe strategic HR issues associated with in-house staff and also applyingthese principles to strategic supply chain partners can help make anorganisation attractive as a partner of prime choice This together with eth-ical and governance as well as learning organisation strategies can reinforcean organisationrsquos attractiveness

The lesson that we argue can and should be learned from the literatureand ideas presented in this chapter is that procurement strategies shouldaddress issues relating to attracting talent This is because a talentedworkforce is a pivotal part of the resource mix that provides a better chancefor project success and business sustainability

Vignette

348 Lloyd-Walker et al

Vignette scenario

PeaceOfMind Inc (POM) is a USAUK jointly-based health careindustry service provider that recently embarked upon an ambitiousexpansion programme The business model envisaged a series of high-technology health diagnostic services in which referred patients wouldreceive the kinds of expensive and not widely available tests requiringcomputerised axial tomography (CAT) scans ultrasound imaging anda range of other diagnostic tools requiring specialised equipment andclinical facilities A lsquocookie-cake cutterrsquo approach to design of thephysical facilities would be developed with state-of-the-art IT systemsto complement the concept of excellence in service delivery workingon the basis of a 247 model Patients would make appointmentschoosing a phone-in or e-booking system medium that would guar-antee and automatically send confirming emails andor text messagesto patients in the event of a greater than 20 minute wait for servicePOM began its business with the development of 10 trial sites inmajor US Canadian and UK cities by commissioning the physicalfacilities to be constructed and adapting existing medical IT systemsThese include not only adding some novel features that linked to anexisting customer relationship management (CRM) system to beadapted to manage not only the patients and doctors who referred

Procurement and the quest for talent 349

them but also to manage a growing network of diagnostic specialistswhose role was to interpret the images produced by the scanningequipment and be in a position to be on-demand as soon as the scanwas taken The CRM system would match patient doctor and diag-nostic specialists to ensure that the preferred language could be usedin reports and communications This required linking a global net-work of these specialists so that an appropriate person was availableto take a lsquojobrsquo at a momentrsquos notice The concept involved using anapproach much like the radio taxi operators that contact taxis anddirect them to customers however it also included access and devel-opment of a community of practice (CoP) so that specialists were ableto feel that they were in a virtual lsquoclinicrsquo space in which they couldwork interact with colleagues and develop and maintain their spe-cialised diagnostic skills through the CoP which also held online con-ferences Further the CoP was to be linked to several universities sothat participants could undertake academic courses and engage inmentoring and coaching and undertake research degrees This pro-gramme of projects therefore comprised several types of project Theyrange from the very physical building project type (building the facil-ities) to the adaptive IT-type project that took well-known existingsoftware tools but configured them in novel ways It also included ele-ments of totally ephemeral projects such as establishing the CoP anddeveloping the specialist networks

The first 10 clinics were to be built concurrently over a 6-monthperiod preceded by a 6-month design finalisation and advanced equip-ment procurement stage Much of the software part of the programmehad been developed by several of POMrsquos start-up participants Thelinking software development component was estimated to take 12months to complete and the CoP project was already enthusiasticallyendorsed by an informal CoP that had at its core two of POMrsquos med-ical specialist directors who were original start-up participants in thecompany

It would be possible for example to use global time zonedifferences for a patient in the US mid-west region to have undertakentheir diagnostic tests at say 8pm and the results to be accessed viaemail by a diagnostic analyst with the necessary specialisedknowledge in Adelaide Australia in early afternoon local timeResults could be expeditiously returned with minimum elapsed timebeing experienced between testing and advising medical specialistsand their patients of results Many of the diagnosis specialists arepeople with young families It could suit them to work intensivelyfrom home for several hours in the late morning and early afternoon

350 Lloyd-Walker et al

and to fit this in with child-rearing activities Another demographic ofexperts are recently retired lsquogrey nomadsrsquo who have retired from full-time work and are travelling in mobile homes with extensive internetconnections so that they could if recruited combine targeted part-time work while travelling A camp site in lsquoWoop Wooprsquo with inter-net access could become part of a virtual clinic where CoP anddiagnostic activities both could be enjoyed The HR business modelenvisaged engaging many specialists who otherwise would not be con-sidered as potential employees or contracted specialised serviceproviders

The plan was expected to pass its proof of concept phase within thesecond year and a large investment agency had committed to fundexpansion from 10 locations to 100 within the next two years andfrom that exponential growth was envisaged

This ambitious plan required a massive recruitment and selectionexercise if it were to fulfil its promise POMrsquos start-up owners hadbranded the company name based on the customer value propositionof getting a rapid and accurate response to diagnose their medicalcondition as well as providing those working for POM a workndashlifebalance that fits their family and social commitment patterns to notonly encourage them to participate in this bold venture but to alsomake their work more interesting and rewarding The CoP wasplanned to address linking far-flung individuals into a virtual clinic aswell as provide them with on-the-job opportunities for professionaland research development Part of POMrsquos mission was to develop astrong relationship with a construction contracting organisation thatwould guarantee a workndashlife balance plan for its on-site and headoffice staff when working on POM clinic projects They had alreadyengaged in discussion with six global construction organisations thathad enthusiastically embraced relationship contracting and POM waspresently drafting the pre-qualification criteria to choose threeorganisations that could work with POM for the first decade indeveloping the clinics in a projected 1000 cities across the globe

Issues to ponder

1 Discuss three issues raised here that appears to radically challengethe way that the procurement process addresses attracting talent

2 POM envisages a relationship contracting approach to constructionof the clinics Discuss three advantages and disadvantages to thisapproach in terms of obtaining a competitive solution to aprocurement quandary of achieving best value

Note1 Mercer Human Resource Consulting Pty Ltd lsquoAligning Total Rewards Strategy

with Business Successrsquo 31 July 2006 accessed from wwwmercerhrcomauAlso published in Human Resources the Human Resources Institute ofNew Zealandrsquos magazine AprilMay 2006

References

Allen T D (2001) lsquoFamily-Supportive Work Environments The Role ofOrganizational Perceptionsrsquo Journal of Vocational Behavior 58(3) 414ndash435

Allen T D Herst D E Bruck C S and Sutton M (2000) lsquoConsequencesAssociated with Work-to-family Conflict A Review and Agenda for FutureResearchrsquo Journal of Occupational Health Psychology 5 278ndash308

Anon (2005) Modular approach helps the industry deal with shrinking workforceThe Australian Sydney 43

Applebaum S H Harel V and Shapiro B (1998) lsquoThe DevelopmentalAssessment Centre The Next Generationrsquo Career Development International3(1) 5ndash12

Arthur M M (2003) lsquoShare Price Reactions to Work-Family Initiatives AnInstitutional Perspectiversquo Academy of Management Journal 46(4) 497ndash505

Associates H (1999) Survey Findings Design and Administration of EducationalReimbursement Programs Lincolnshire IL Hewitt Associates

Australian Bureau of Statistics (2004a) Australian Social Trends CanberraAustralian Government printing Service ABS Catalogue No 4102

Australian Bureau of Statistics (2004b) Labour Force Australia SpreadsheetsCanberra Australian Government printing Service ABS CatalogueNo 6202055001

Procurement and the quest for talent 351

3 There are at least three types of project that comprise thisprogramme Compare and contrast the lsquotalentrsquo market with likelyavailability and demand for each type You are unlikely to befamiliar with more than one of these so you should not be afraidto speculate what you think may be valid Through groupdiscussion compare perceptions of the scope and scale of the HRattracting talent issues raised

4 The POM business plan could be envisaged as revolutionaryDiscuss three key issues that you have gleaned from this chapterand the cited literature that you think will be the most challengingfor POM to deal with and

5 What would rank as the three most important workndashlife balanceissues that POM have attempted to address in their business planHow do you propose that these can be implemented

Backhaus K and Tikoo S (2004) lsquoConceptualizing and Researching EmployerBrandingrsquo Career Development International 9(5) 501ndash517

Baruch Y (2001) lsquoEmployability A Substitute for Loyaltyrsquo Human ResourceDevelopment International 4(4) 543ndash566

Batt R and Valcour P M (2003) lsquoHuman Resources Practices and Predictorsof Work-family Outcomes and Employee Turnoverrsquo Industrial Relations 42189ndash220

Behson S J (2005) lsquoThe Relative Contribution of Formal and InformalOrganizational Work-Family Supportrsquo Journal of Vocational Behavior 66(3)487ndash500

Benson G S (2006) lsquoEmployee Development Commitment and Intention toTurnover A Test of EmployabilityTM Policies in Actionrsquo Human ResourceManagement Journal 16(2) 173ndash192

Bittman M Hoffman S and Thompson D (2004) Menrsquos Uptake of Family-Friendly Employment Provisions Policy Research Paper Canberra AustralianGovernment Department of Family and Community Services 22 24

Boswell W (2006) lsquoAligning Employees with the Organizationrsquos StrategicObjectives Out of ldquoLine of Sightrdquo Out of Mindrsquo International Journal ofHuman Resource Management 17(9) 1489ndash1511

Boyar S L Maertz Jr C P Pearson A W and Keough S (2003) lsquoWork-FamilyConflict A Model Of Linkages Between Work and Family Domain Variables andTurnover Intentionsrsquo Journal of Managerial Issues 15(2) 175

Brewster C Mayne L and Tregaskis O (1997) lsquoFlexible Working in EuropersquoJournal of World Business 32(2) 133ndash151

Brockbank W (1999) lsquoIf HR Were Really Strategically Proactive Present andFuture Directions in HRrsquos Contribution to Competitive Advantagersquo HumanResource Management 38(4) 337ndash352

Burke R J and Mikkelsen A (2006) lsquoBurnout Among Norwegian Police OfficersPotential Antecedents and Consequencesrsquo International Journal of StressManagement 13(1) 64ndash83

Butler A Gasser M and Smart L (2004) lsquoA Social-Cognitive Perspective onUsing Family-Friendly Benefitsrsquo Journal of Vocational Behavior 65(1) 57ndash70

Cacioppe R (1999) lsquoUsing Team-individual Reward and Recognition Strategies toDrive Organizational Successrsquo Leadership and Organization DevelopmentJournal 20 (6) 322ndash331

Casper W J and Buffardi L C (2004) lsquoWork-life Benefits and Job PursuitIntentions The Role of Anticipated Organizational Supportrsquo Journal ofVocational Behavior 65(3) 391ndash410

Chan L L M Shaffer M A and Snape E (2004) lsquoIn Search of SustainedCompetitive Advantage The Impact of Organizational Culture CompetitiveStrategy and Human Resource Management Practices on Firm PerformancersquoInternational Journal of Human Resource Management 15(1) 17ndash35

Cunningham I and Hyman J (1999) lsquoDevolving Human ResourceResponsibilities to the Line Beginning of the End or a New Beginning forPersonnelrsquo Personnel Review 28(12) 9ndash27

Davenport R H De Long D W and Beers M C (1997) Managing theKnowledge of the Organization Working Paper Ernst amp Young LLP Center forBusiness Innovation 24

352 Lloyd-Walker et al

Davis-Blake A Gibson G E J Dickson K E and Mentel B (2001) WorkforceDemographics Among Engineering Professionals a Crisis Ahead A Report of theCenter for Construction Industry Studies The University of Texas at AustinUnder the Guidance of the OwnerContractor Organizational Changes ThrustTeam Austin Texas October 2001 Austin Texas Consruction Indiustry Institute(CII) and The University of Texas at Austin 54

De Cuyper N and De Witte H (2006) lsquoThe Impact of Job Insecurity and ContractType on Attitudes Well-Being and Behavioural Reports A Psychological ContactPerspectiversquo Journal of Occupational and Organizational Psychology 79395ndash409

DeFillippi R J and Arthur M B (1998) lsquoParadox in Project-Based Enterprise TheCase of Film Makingrsquo California Management Review 40(2) 125ndash139

Dessler G Griffiths J and Lloyd-Walker B M (2007) Human ResourceManagement 3rd Edn Frenchs Forest NSW Australia Pearson EducationAustralia

DiVanna J A and Rogers J V (2005) People The New Asset on the BalanceSheet New York Palgrave Macmillan

Dolphin R R (2004) lsquoCorporate Reputation ndash A Value-Creating StrategyrsquoCorporate Governance International Journal of Business in Society 4(3) 77ndash92

Eaton S C (2003) lsquoIf You Can Use Them Flexibility Policies OrganizationalCommitment and Perceived Performancersquo Industrial Relations 42(2) 145ndash167

Ensworth P (2001) The Accidental Project Manager Surviving the Transitionfrom Techie to Manager New York John Wiley amp Sons

Fitz-enz J (1997) lsquoItrsquos Costly to Lose Good employeesrsquo Workforce 76(8) 50ndash51Francis V and Lingard H (2004) A Quantitative Study of Work-life Experiences

in the Public and Private Sectors of the Australian Construction Industry FinalReport Brisbane Construction Industry Institute Australia 142

Francis V Lingard H and Gibson A (2006) A Qualitative Study of Work-lifeExperiences in the Ppublic and Private Sectors of the Australian ConstructionIndustry Final Report Brisbane Construction Industry Institute Australia 142

Frank F D and Taylor C R (2004) lsquoTalent Management Trends that Will Shapethe Futurersquo Human Resource Planning 27(1) 33ndash41

Frone M R (2000) lsquoWork-family Conflict and Employee Psychiatric Disorders TheNational Comorbidity Surveyrsquo Journal of Applied Psychology 85(6) 888ndash895

Gorey K M Rice R W and Brice G C (1992) lsquoThe Prevalence of Elder CareResponsibilities Among the Work Force Populationrsquo Research on Aging 14399ndash418

Grant-Vallone E J and Donaldson S I (2001) lsquoConsequences of Work-familyConflict on Employee Well-being Over Timersquo Work amp Stress 15(3) 214ndash226

Greenhaus J H and Beutell N J (1985) lsquoSources of Conflict Between Work andFamily Rolesrsquo Academy of Management Review 10(1) 76ndash88

Greenhaus J H Parasuraman S and Collins K M (2001) lsquoCareer Involvementand Family Involvement as Moderators of Relationships Between Work-familyConflict and Withdrawal from a Professionrsquo Journal of Occupational HealthPsychology 6 91ndash100

Gross S E and Friedman H M (2004) lsquoCreating an Effective Total RewardStrategy Holistic Approach Better Supports Business Successrsquo BenefitsQuarterly 20(3) 7ndash12

Procurement and the quest for talent 353

Grover S L and Crooker K J (1995) lsquoWho Appreciates Family-ResponsiveHuman Resource Policies The Impact of Family-Friendly Policies on theOrganizational Attachment of Parents and Non-parentsrsquo Personnel Psychology48(2) 271ndash288

Grzywacz J G and Marks N F (2000) lsquoFamily Work Work-family Spillover andProblem Drinking During Midlifersquo Journal of Marriage and the Family 62(2)336ndash348

Halman J I M and Braks B F M (1999) lsquoProject Alliancing in the OffshoreIndustryrsquo International Journal of Project Management 17(2) 71ndash76

Hammer T H Saksvik P Oslash Nytroslash K Torvatn H and Bayazit M (2004)lsquoExpanding the Psychosocial Work Environment Workplace Norms andWork-family Conflict as Correlates of Stress and Healthrsquo Journal ofOccupational Health Psychology 9(1) 83ndash97

Handy C (1997) The Hungry Spirit London Random HouseHartman F Ashrafi R and Jergeas G (1998) lsquoProject Management in the Live

Entertainment Industry What is Differentrsquo International Journal of ProjectManagement 16(5) 269ndash281

Holland J L (1985) Making Vocational Choices A Theory of VocationalPersonalities and Work Environments 2nd Edn Englewood Cliff NJPrentice-Hall

Hull D and Read V (2003) Simply the Best Workplaces in Australia AcirrtWorking Papers Working Paper Sydney University of Sydney acirrtwwwacirrtcom 88 41

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd Phillips Fox Lawyers 33

Jacobs J A and Gerson K (2004) The Time Divide Work Family and GenderInequality (The Family and Public Policy) Boston Harvard University Press

Kahn R L Wolfe D M Quinn R P Snoek J D and Rosenthal R A (1964)Organizational Stress Studies in Role Conflict and Ambiguity New York JohnWiley

Karasek R A and Theorell T (1990) Healthy Work Stress Productivity and theReconstruction of Working Life New York Basic Books

Kaufman B E (1999) lsquoEvolution and Current Status of University HR ProgramsrsquoHuman Resource Management 38(2) 103ndash110

Konrad A M and Mangel R (2000) lsquoThe Impact of Work-life Programs on FirmProductivityrsquo Strategic Management Journal 21(12) 1225ndash1237

Kristof-Brown A Zimmerman R D and Johnson E R (2005) lsquoConsequences ofIndividualrsquos Fit at Work A Meta Analysis of Person-job Person-organizationPerson-group and Person-supervisor Fitrsquo Personnel Psychology 58 281ndash342

Kulik C and Bainbridge H (2006) lsquoHR and the Line The Distribution of HRActivities in Australian Organisationsrsquo Asia Pacific Journal of Human Resources44(2) 240ndash256

Lievens F van Dam K and Anderson K (2002) lsquoRecent Trends and Challengesin Personnel Selectionrsquo Personnel Review 31(5) 580ndash601

Lingard H and Francis V (2004) lsquoThe Work-life Experiences of Office andSite-based Employees in the Australian Construction Industryrsquo ConstructionManagement amp Economics 22(9) 991ndash1002

354 Lloyd-Walker et al

Lingard H and Francis V (2005a) lsquoThe Decline of the ldquoTraditionalrdquo FamilyWork-life Benefits as a Means of Promoting a Diverse Workforce in theConstruction Industry of Australiarsquo Construction Management and Economics23(10) 1045ndash1057

Lingard H and Francis V (2005b) lsquoDoes Work-family Conflict Mediate theRelationship Between Job Schedule Demands and Burnout in Male ConstructionProfessionals and Managersrsquo Construction Management amp Economics 23(7)733ndash745

Lingard H and Lin J (2003) lsquoManaging Motherhood in the AustralianConstruction Industryrsquo Australian Journal of Construction Economics andBuilding 3(1) 15ndash24

Lingard H Brown K Bradley L Bailey C and Townsend K (2007) lsquoImprovingEmployeesrsquo Work-life Balance in the Construction Industry A Project AllianceCase Studyrsquo American Society of Civil Engineers Forthcoming

Lipman I (2002) lsquoThe Sears Lectureship in Business Ethics at Bentley CollegeldquoBusiness Ethics in the 21st Centuryrdquorsquo Business and Society Review 107(3)381ndash389

Loughlin C and Barling J (2001) lsquoYoung Workersrsquo Work Values Attitudes andBehavioursrsquo Journal of Occupational amp Organizational Psychology 74(4)543ndash558

Lowry D (2001) lsquoThe Casual Management of Casual Work Casual WorkersrsquoPerceptions of HRM Practices in the Highly Casualised Firmrsquo Asia PacificJournal of Human Resource Management 39(1) 42ndash62

Maslach C Jackson S E and Leiter M P (1996) Maslach Burnout InventoryManual 3rd Edn Palo Alto CA Consulting Psychologists Press

Maslach C Schaufeli W B and Leiter M P (2001) lsquoJob Burnoutrsquo AnnualReview of Psychology 52(1) 397ndash422

Meyer J P and Allen N J (1991) lsquoA Three-Component Conceptualization ofOrganizational Commitmentrsquo Human Resource Management Review 1(1)61ndash89

Moen P and Sweet S (2004) lsquoFrom ldquoWork-Familyrdquo to ldquoFlexible Careersrdquo A LifeCourse Reframingrsquo Community Work amp Family 7 209ndash226

Morgenson F P Reider M H and Campion M A (2005) lsquoSelecting Individualsin Team Settings The Importance of Social Skills Personality Characteristics andTeamwork Knowledgersquo Personnel Psychology 58 583ndash611

Nahavandi A and Aranda E (1994) lsquoRestructuring Teams for the Re-EngineeredOrganizationrsquo Academy of Management Executive 8(4) 58ndash68

Netemeyer R G Boles J S and McMurrian R (1996) lsquoDevelopment andValidation of Work-family Conflict and Family-work Conflict Scalesrsquo Journal ofApplied Psychology 81 400ndash410

Nicholson N and Johns G (1985) lsquoThe Absence Culture and PsychologicalContract Whorsquos in Control of Absencersquo Academy of Management Review10(3) 397ndash407

OrsquoDriscoll M P Poelmans S Kalliath T Allen T D Cooper C L and SanchezJ L (2003) lsquoFamily-responsive Interventions Perceived Organizational andSupervisor Support Work-family Conflict and Psychological StrainrsquoInternational Journal of Stress Management 10 326ndash344

Procurement and the quest for talent 355

OrsquoReilly C A Chatman J and Caldwell D R (1991) lsquoPeople andOrganizational Culture A Profile Comparison Approach to Assessing Person-organisation Fitrsquo Academy of Management Journal 34 487ndash511

Parker S and Wall T (1998) Job and Work Design Organizing Work to PromoteWell-being and Effectiveness Thousand Oaks CA Sage Publications Inc

Perlow L A (1998) lsquoBoundary Control The Social Ordering of Work and FamilyTime in a High-tech Corporationrsquo Administrative Science Quarterly 43(2)328ndash358

Pfeffer J (1998) lsquoThe Real Keys to High Performancersquo Leader to Leader 8 23ndash29Pringle C D and Kroll M J (1997) lsquoWhy Trafalgar was Won Before it was

Fought Lessons from Resource-based Theoryrsquo Academy of ManagementExecutive 11(4) 73ndash89

Rabey G (2005) lsquoThe Power Withinrsquo Industrial and Commercial Training 37(2)106ndash110

Raideacuten A B Dainty A R J and Neale R H (2006) lsquoBalancing Employee NeedsProject Requirements and Organisational Priorities in Team DeploymentrsquoConstruction Management and Economics 24(8) 883ndash895

Ramlall S (2004) lsquoA Review of Employee Motivation Theories and theirImplications for Employee Retention Within Organizationsrsquo The Journal ofAmerican Academy of Business Cambridge 5(12) 52ndash63

Robertson I and Smith M (2001) lsquoPersonnel Selectionrsquo Journal of Occupationaland Organizational Psychology 74 441ndash472

Rodgers J R and Rodgers J L (2000) lsquoThe Effect of Geographic Mobility onMale Labor-Force Participants in the United Statesrsquo Journal of Labor Research211 117ndash132

Rodrigues C A (2001) lsquoFayolrsquos 14 Principles of Management Then and NowA Framework for Managing Todayrsquos Organizations Effectivelyrsquo ManagementDecision 39(10) 880ndash889

Ruona W E A and Gibson S K (2004) lsquoThe Making of Twenty-first-centuryHR An Analysis of the Convergence of HRM HRD and ODrsquo Human ResourceManagement 43(1) 49ndash66

Rushton K (2002) lsquoBusiness Ethics A Sustainable Approachrsquo Business EthicsA European Review 111(2) 137ndash139

Russell G and Bowman L (2000) Work and Family Current Thinking Researchand Practice Report Canberra Department of Family and Community ServicesCommonwealth of Australia ISBN 0 642 43249 X 58

Sarin S and Mahajan V (2001) lsquoThe Effect of Reward Structures on thePerformance of Cross-functional Product Development Teamsrsquo Journal ofMarketing 65(2) 35ndash53

Secret M (2000) lsquoIdentifying the Family Job and Workplace Characteristicsof Employees Who Use Work-family Benefitsrsquo Family Relations 49(2) 217ndash225

Shellenbarger S (1998) lsquoThose Lists Ranking the Best Places to Work for are Risingin Influencersquo Wall Street Journal New York

Thompson C A Beauvais L L and Lyness K S (1999) lsquoWhen Work-FamilyBenefits Are Not Enough The Influence of Work-family Culture on BenefitUtilization Organizational Attachment and Work-family Conflictrsquo Journal ofVocational Behavior 54(3) 392ndash415

356 Lloyd-Walker et al

Ulrich D and Brockbank W (2005) The HR Value Proposition Boston MAHarvard Business School Press

van Marrewijk M (2004) lsquoThe Social Dimension of Organizations RecentExperiences with Great Place to Work Assessment Practicesrsquo Journal of BusinessEthics 55(2) 135ndash146

Van Vianen A E M (2000) lsquoPerson-organization Fit The Match BetweenNewcomersrsquo and Recruitersrsquo Preferences for Organizational Culturesrsquo PersonnelPsychology 53 113ndash149

Veigaa J F Baldridge D C and Eddleston K A (2004) lsquoToward UnderstandingEmployee Reluctance to Participate in Family-friendly Programsrsquo HumanResource Management Review 14(3) 337ndash351

Vu U (2006) Ethics Branding Top Issues of Interest for HR Canadian HRReporter

Waldman J D and Arora S (2004) lsquoMeasuring Retention Rather than TurnoverA Different Complementary HR Calculusrsquo Human Resource Planning 27(3)6ndash9

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T Hampson K and Peters R (2002) lsquoProject Alliancing vs ProjectPartnering A Case Study of the Australian National Museum Projectrsquo SupplyChain Management 7(2) 83ndash91

Walton R E (1985) Toward A Strategy of Eliciting Employee Commitment Basedon Policies of Mutuality In Human Resource Management Trends andChallenges Walton R E and P R Lawrence Eds Boston MA Harvard BusinessSchool Press 35ndash65

Waterman R H J Waterman J A and Collard B A (1994) lsquoToward a Career-Resilient Workforcersquo Harvard Business Review 72(4) 87ndash96

Way S A (2002) lsquoHigh Performance Work Systems and Intermediate Indicators ofFirm Performance Within the US Small Business Sectorrsquo Journal of Management28(6) 765ndash785

Wheatley M (1997) lsquoGoodbye Command and Controlrsquo Leader to Leader 521ndash28

Whitener E M (2001) lsquoDo ldquoHigh Commitmentrdquo Human Resource PracticesAffect Employee Commitment A Cross-level Analysis Using Hierarchical LinearModelingrsquo Journal of Management 27(5) 515ndash535

Winter R and Jackson B (2006) lsquoState of the Psychological Contract Managerand Employee Perspectives Within an Australian Credit Unionrsquo EmployeeRelations 28(5) 421ndash434

Wood S and de Menezes L (1998) lsquoHigh Commitment Management in the UKEvidence from the Workplace Industrial Relations Survey and EmployersrsquoManpower and Skills Practices Surveyrsquo Human Relations 51(4) 485ndash515

Wood S and Wall T D (2002) Human Resource Management and BusinessPerformance In Psychology at Work Warr P Ed London Penguin 351ndash374

Procurement and the quest for talent 357

Chapter 11

Case study ndash developing acentre of excellence (CoE)

Chris Cartwright and Derek HTWalker

Introduction

Chapters 1 through 10 provided a solid and broad PM perspective on projectprocurement practices These aspects are further discussed and focusedupon through case studies presented in the next four chapters that providedetailed discussion reflecting relevant theory and practice ndash focusing upona single organisation and a single aspect In this case the organisation wasEricsson PL and the focus of discussion is on the procurement process(mainly internally) of the skills resources and expertise necessary thatresulted in developing a successful PM centre of excellence (CoE)

This CoE development task which links well to chapters in this bookwas not outsourced to consultants but was organically grown from withinthe organisation (links with Chapter 1) It was a highly lsquoexperimentalrsquoproject type and while a lsquotenderrsquo was not called for iterations of a highlyrigorous business plan were required to gain top management support andadequate resourcing ndash the business case was scrutinised and evaluated indepth (links with Chapter 1) The project also involved careful identificationand management of key stakeholders together with consideration of Ericssonas part of a supply chain delivering value to customers (links with Chapter 3)While the CoE did not explicitly address ethical issues dealt with inChapter 4 it did require that corporate governance measures be designed-into the way that the CoE would operate In terms of strategy it wasemergent with an entrepreneurial flavour and a transformational impact(links with Chapter 5) The CoE was appreciated and evaluated using anotional CMM with some development of BSC and tangiblendashintangiblemapping being explicated in a formal way The CoE extensively developed aportal tool for e-business and so it is of immediate relevance to Chapter 7Similarly the initiative was of itself an organisational learning exercise Thisclosely links to Chapters 8 and 9 because this required an organisationalculture appreciation to enact transformational change A CoE is aimedto develop key staff as well as upskill staff generally and so links closelyto Chapter 10

Developing a centre of excellence 359

This chapter is structured as follows The next section will outline thecontext and background history of the CoErsquos development ndash its raisondrsquoecirctre This is followed by a discussion of the underpinning theory that thecase study illustrates and tests ndash the lsquowhatrsquo issues The following sectionexplains the lsquohowrsquo and lsquowhyrsquo issues The last section provides an evaluationand discussion of implications for PM procurement practice

Context and history

This case study investigates how the local arm of the internationaltelecommunications company1 developed a project management office(PMO) which was rated by Ericssonrsquos global head office in October 2005as lsquobest in classrsquo The rating was accomplished using a measurementinstrument the Corporate Practices Questionnaire (CPQ) from HumanSystems Ltd the same process was conducted across 52 countries within theorganisation The PMO was established in 1999 at a time when the wholeInformation Technology and Telecommunication (ITampT) industry was ina state of turmoil The led to disruptive change and risk events (such asY2K and an explosion in (ITampT) company share prices) that triggeredexpectations for the need for fundamental change to respond to identified newbusiness opportunities Digital electronics technology was also continuing todrive convergence between computers and telecommunication Each sideof the information technology (IT) and computerised multimedia digitalcommunication divide was positioning itself for the future

There was also fundamental change occurring at a political level Freemarket economic policies adopted by the Australian government resulted inthe sale of 49 as the beginning of a long drawn-out privatisation processof Telstra PL (Australiarsquos government-owned telecom) This meant thatthe government could no longer use its ownership position as a lever foreconomic development of local industry and Telstra was no longer forcedto specify local content as a criterion for equipment purchasing decisions

Many countries in the Asia-Pacific region were also using their taxregimes to attract local manufacturing ndash 10-year tax-free windows werebeing negotiated for companies establishing a new factory in for exampleMalaysiarsquos Multi Media Corridor The need to compete with economicmodels used by the computer industry was forcing a major reorganisationon Ericsson It was planned to close more than 30 of its 50 manufacturingfacilities globally The global manufacturing model much of it outsourcedmeant that the Australian factory though recognised as being one ofthe best in the country was to be gradually phased out This closure meanta complete change in the way the local company did business Until then alarge automated factory delivered product directly to Telstra which wassubsequently installed and commissioned by Telstra personnel The changesbeing driven by senior management in Telstra meant that they were also

looking at how they could more effectively meet the needs of their customersand shareholders Telstra needed equipment to be procured with designservices installation commissioning and even in some cases operation Theopportunity became obvious for a telecommunication product provider tobecome a services provider The term lsquototal solutionrsquo became a part ofEricssonrsquos vocabulary and the need became apparent for a provider to managethe end-to-end activity Project management was seen as the mechanism toeffectively manage the end-to-end delivery

The transition from a product-based company to a service-based companywas a major cultural change (which continues six years later) the Australianand New Zealand Ericsson company (ANZA) was leading this globalorganisation down a services-focused path Senior management set targets toachieve a certain percentage of income to be derived from services ndash typicallyANZA achieved double the percentage of the grouprsquos average In 2004 amajor milestone was achieved when ANZA achieved 50 of sales incomefrom services These services included consulting education design instal-lation integration commissioning operation and project management(PM) The global management team nominated three key issues for thefuture as part of the cultural change needed ndash leadership sales competenceand PM competence The local CEO nominated PM as one of three keyenablers in their local strategy

In 1996 a movement started within the organisation to establish a PMOand consequently a number of business cases were regularly put to themanagement team The breakthrough came in 1999 when the Director ofServices agreed to fund a PMO for 12 months to test the feasibility of theconcept The rationale included the following

Because it is what we do ndash by 1999 the factory was closing and morethan 70 of the income came from delivering projects

Primary customer interface ndash once products and services were sold thecustomer saw the project manager as the face of the organisation

It provides our primary opportunity to improve profitability andcustomer satisfaction ndash cost control and good stakeholder managementfundamental parts of project management drive profitability andcustomer satisfaction

Project management facilitates risk management ndash organisational andfinancial risk can be managed in a more systematic way using projectmanagement Deciding how the organisation selects opportunities thatbecome projects was built into the new sales process

Project management facilitates knowledge management ndash projectclosure and the collection and dissemination of lessons learned are keyparts of the project management methodology used

It ensures governance ndash consistently using a project methodology providescertainty and visibility for organisational and financial governance

360 Cartwright and Walker

Project management drives process improvements in order to enhanceorganisational effectiveness and efficiency ndash as the project managementdelivers a project horizontally across the organisation they can see thedisconnects and inefficiencies initially they were tasked with highlightingthese and

It must be leveraged to increase sales opportunities ndash the projectmanagement team is in a unique position within the customerrsquos organ-isation they are seen more positively than the sales team They may seeopportunities that the sales team may not be aware of or they may beable to include a change process to add value to the project

What is a PMO and why have one

Chapter 5 discussed aspects of what a PMO might look like In the early1980s Naisbitt (1982) predicted the transition from an Industrial age to anInformation age would occur through 10 major trends ndash the lsquomegatrendsrsquoas he called them Haldane (1999) focuses on one High TechHigh Touch asit applies today in the discipline of project management making the pointthat a projectised workforce drives PMO growth A particular managementstructure is needed if as is currently the case in many companies projectdelivery outcomes present a risk to a major proportion of an organisationrsquosfinances Most organisations in the 21st century rely on some form ofmatrix structure to manage the functional and project dimensions(Pettigrew and Fenton 2000) With an accelerating shift from manufacturingto services delivery the type of manager that focuses on cost control is beingregarded as lacking an ability to also focus on strategic business developmentissues The formation of a PMO can fill this void and ensure that bothcommercial and strategic project success become major organisationaldrivers The PMO resides at the cutting edge of the organisationalmanagement matrix

The term PMO is used to describe many different types of organisationIn most large single projects there will be a level of administration within theproject to ensure effective delivery this may be called a PMO and as a resultthere is a view that a project office is responsible for mainly administrativetasks KPMG in their PM survey describe a PMO as having a broader man-date including many internal and external projects As an organisationmatures there will be a changing role for the project office from an admin-istrative focus through people development then a business focus followedby a strategic role The definition of KPMG put forward for a PMO in thefuture is lsquoA strategic function responsible for coordinating prioritising plan-ning overseeing and monitoring an organisationrsquos projects to achieve busi-ness strategy and benefitsrsquo (KPMG 2003 3) By 2005 this was certainly therole that the ANZA PMO was required to fulfil Whether one uses the ter-minology project office PMO programme management office enterprise

Developing a centre of excellence 361

PMO or portfolio management office it describes the management functionthat oversights an organisationrsquos projects and is responsible for project man-agement performance Miranda (2003) makes the point that the support aPMO provides may range from acting as a repository for PM informationthrough to being totally accountable for project performance

The Gartner Group (Light and Berg 2000) puts forward three roles forthe maturing PMO

1 The PMO as a repository ndash custodian of the project methodology andnot involved in the decision-making process

2 The PMO as a coach ndash provides guidance on projects performs projectreviews on request may establish and support project planning monitorsand reports on projects but does not order corrective action and

3 The PMO as manager ndash operating as an agent of senior managementmanages the project portfolio manages the master resource plan reviewsproject proposals and is accountable for the portfolio

While a mature PMO may take a management role it must also continue toprovide the roles of knowledge repository and coach ndash while many activitiesmay be added to the role few if any will be deleted Kerzner (2003)describes three slightly different PMO types

1 Functional ndash mainly responsible for managing a resource pool2 Customer groups ndash focused upon projects in common customer groups

to better manage customer relationships and3 Corporate ndash focused on corporate and strategic issues

The merger of Hewlett Packard and Compaq provided an opportunity toselect the best in class PMO from the two organisations Levine (2005)summarises four main focus areas where the PMO is defined as having thebroadest impact

1 Project management expertise ndash raising the level of project managementcompetence and achieving competitive advantage with an industry-leading success rate

2 Best-in-class methodology ndash implementing a standard methodologyusing best practices to ensure repeatable success

3 State-of-the-art enterprise project management system ndash adoptingEricsson Project Management Institute (EPMI) tools to provideemployees with a world-class system that enables knowledge-sharingand visibility of all work on one common database and

4 Portfolio management ndash business strategy aligned and interlockedthrough active reporting tracking and analysis of projects andprogrammes

362 Cartwright and Walker

Bergmann (2002) presented a PMO governance model in 2002 at a conferencein Stockholm as a standard for the Ericsson group Figure 111 illustratesthe organisational structure and how the PMO links the organisation todelivered projects Bergman is an EPMI and one of the founders of theEricsson PM Project Model for PROPS The method developed in 1989 isnow into its fourth revision

The defined model placed the PMO at the centre of the services worldall projects having oversight with PMO links to senior management andthe portfolio Each project is able to draw on suppliers or internalresources to deliver the required outcomes Project governance is ensuredthrough a gating2 process buried in the PROPS methodology The projectsteering function consists of a project sponsor owning each project andfollowing the gating process Only one individual owns accountabilityand ultimate responsibility for the complete project portfolio this maybe the CEO who may delegate the accountability to the manager ofthe PMO

The PMO form that Ericsson has evolved into now is illustrated inFigure 112 it includes the following tasks

New assignment handling ndash acting as the central desk for projectsproviding estimates where requested providing structure and substanceto the bid and initiation process ensuring a governance process is inplace followed for each sales opportunity

PM staffing and competence development ndash as capability ownerfor project management ensuring there are sufficient suitablycompetent project managers available on an as-needs basis This wassupported by both internal and external certification processes

Developing a centre of excellence 363

Figure 111 Ericsson EPMI model

Suppliers

Project

Project portfolio owner

ProjectofficeResource

owners

Project steeringfunction

Customers

Methods tools and support ndash providing access and training in bestof breed methods tools and processes providing help and trainingwhere required

Continuous improvement ndash monitoring processes for quality suitabilityand adherence and providing feedback to management on any oppor-tunities for improvement

Project monitoring and tracking ndash Providing accurate meaningful reportsto management on progress for outcomes schedule cost margin andrisk on projects programmes and the complete portfolio and

Project portfolio handling ndash Supporting senior management to achievetheir strategy by managing organisational resources providing synergiesbetween projects and proactively monitoring portfolio performance

The purpose of having a PMO is to make available existing PM skill setsacross the organisation and to grow PM maturity As the PMO develops itsown maturity in providing greater strategic PM influence and developingPM expertise tools and talent it increases the efficiency of an organisationrsquosPM activities and also increases its effectiveness by providing expert adviceto strategically select and prioritise projects to be undertaken These are inline with a shift from skill-development towards reflection knowledgetransfer and sensemaking that is in line with the concept of a centre ofexcellence (Walker and Christenson 2005) Further the Ericsson case studyexample matches emerging trends in advanced PMOs that have beenreported upon in North America (Rad and Levin 2002) and in some globalorganisations operating in Europe (Andersen et al 2006) to an extent that

364 Cartwright and Walker

Figure 112 More advanced PMO model

SuppliersNew

assignmenthandling

PM staffing andcompetencedevelopment

Projectportfoliohandling

Project portfolio owner

Techniques tools and supportcontinuous improvements

Resow

Projectmonitoring and

tracking

Project

Steeringction

Customers

when compared the Ericsson example is indeed at the cutting edge ofadvanced PMOs If we accept that the model above reasonably representsa CoE concept then it is interesting to trace the journey that led EricssonAustralia to this destination

The journey to best-in-class

There were three major reorganisations of the ANZA PMO during theperiod 1999ndash2005 that looking back followed the Gartner model Theywere to provide the functions of the Project Manager Support Office theOrganisation Project Support Office and the Business Delivery PMO

The establishment of the PMO in 1999 followed a push from across theorganisation to provide some structure behind the growth of PM Therehad been for a couple of years a business case developed to establish aPMO but the senior management still saw this as another level of adminis-tration The organisation was a strong functional organisation that eitherdid not see the need or may have felt threatened by the strengthening ofthe PM function In the second half of the 1990s two major projects hadfailed and this further reinforced the need for action There was a generalbelief within the executive team that the projects failed because of poor PMpractices In 1999 the Director of Services signed off on the business caseand agreed to fund the PMO for 12 months

Project manager support office

Figure 113 illustrates the impact that the PMO exerted upon the organisationTo achieve project success there were two streams that needed to functioneffectively the project stream to provide competent project managers whoperformed well and the organisational stream that needed to select suitableprojects and then provide the required level of governance Every presentation

Developing a centre of excellence 365

Figure 113 PM support office model ndash Stage 1

Projectmanagementcompetence

Projectperformance

Projectsuccess

Project manager supportoffice

Organisationalperformance

Organisationalcompetence

by the manager of the PMO started with this graphic reinforcing of whatneeded to be addressed

The Project Manager Support Office was established to be responsiblefor the following activities

1 Own the project management process ndash EPMI the department responsibleglobally for PM processes had developed their model for projectsPROPS and this was used intermittently across ANZA the PMOinstitutionalised the use through further training and coaching

2 Set benchmarks and standards ndash PROPS nominated particular documentsto be used and processes to be followed Templates were developed andthe discipline was imposed to ensure that project managers followedthis process

3 Benchmarking ndash the organisation needed to understand and track thelevel of competence and process maturity in project management Thedecision was made to join a benchmarking ring conducted by HumanSystems Ltd Dr Terry Cooke-Davies had been running a benchmarkingring in Europe for a number of years and was looking to establishHuman Systems in the Asia-Pacific region Ericsson was a foundingmember of PACRIM 1 a benchmarking ring managed by Dr LynCrawford representing Human Systems from the University ofTechnology in Sydney The main tool that Human Systems use tomeasure maturity is the CPQ a forerunner of the Project ManagementInstitutersquos (PMI) Organisational Project Management Maturity Model(OPM3) The CPQ measures the organisationrsquos approach to projectmanagement processes and then the deployment of that approachANZA PMO approached EPMI to adopt the tool across the Ericssongroup and it was adopted in 2002 The tool was modified to meetEricssonrsquos needs and renamed the Project Environment MaturityAssessment (PEMA) This was the tool used for assessment in 2005The CPQ was conducted at ANZA in 1999 and showed a level of15ndash20 across most PM processes There was also a major discrepancybetween the approach and the deployment scores showing we were notconsistently applying our own processes

4 Centralise and develop project managers ndash a critical decision was takento centralise all project managers within the PMO and manage them asa key resource Previously project managers were distributed throughoutthe organisation and support and development was very uneven Bringingthe project managers together not only allowed Ericsson to developa team spirit and facilitated imposing discipline and providing therequired level of support Continuous skill development was one of thefoundations for improvement The PMO approached the RoyalMelbourne Institute of Technology (RMIT) to provide structured PMtraining modules and a number of the team used the opportunity to

366 Cartwright and Walker

complete formal PM qualifications The organisation was undergoinga change towards a performance-based culture through a processcalled Competence and Performance equals Reward (CaPeR) ThePMO developed a set of behaviourally based competencies for projectmanagers to support the CaPeR process Competency mapping wasused to understand individual and organisational development needsThis information was used to source training to allocate projectmanagers to particular projects and to develop reward strategies Roledescriptions were put in place for Project Managers Senior Projectmanagers and Principal Project Managers

5 Own the profession ndash there was an understanding that the organisationneeded to become more professional in project management across theworld PM was starting to develop as a profession The PMO assumedthe role of Project Central for information on projects for the supplyof project managers and became the PM organisational home

6 Certification of project managers ndash the PMI had established theirProject Manager Professional PMPreg examination-based certificationprogramme and as it was a globally recognised programme thedecision was taken to encourage project managers within the PMO tobecome certified as PMPregs In 1999 the first four PMs became certifiedand by 2005 more than 50 members of the organisation had becomecertified As part of the reward strategy all costs including annualmembership fees were paid by the organisation

7 Must do process ndash the sales departments established their targets forthe following year each September part of this process being to studythe market place and nominate which major opportunities they neededto be successful in to achieve their sale budgets this created the lsquoMustWin listrsquo The PMO then took responsibility to deliver each opportunityonce a contract was signed The PMO coined the term lsquoMust Do listrsquothe terminology linked the PMO with the business and resulted ininvitations for the PMO Manager to attend the sales Must Win meetingshence the PMO had a clearer view of the sales funnel The term MustDo became part of the organisation jargon The CEO would begin hisquarterly leadership meetings with an overhead on financials and thesecond overhead was the traffic lights for the Must Dos A monthlyMust Do meeting was held where the CEO reviewed the Must Doprojects that had red traffic lights It was during some of these meetingsthat many of the functional managers resented some of the stones beinglifted in front of the CEO It was also the first time that the CEO andmany of the management team saw the project managers running whatwere quite major projects

While not an activity one of the ongoing requirements for the PMO atthis time was to continually justify its position within the organisation

Developing a centre of excellence 367

The establishment of a PMO was seen by many middle managers as athreat to their power There were many other agendas and power playsthat make up the day-to-day turmoil of everyday business life and themanager of the PMO needs to be politically aware and savvy to under-stand what the current issues and pitfalls are One of the strategies fromthe PMO was to consistently communicate the same message to the rest ofthe organisation

Organisation project support office

During the first three years of the PMO there was continual questioningfrom the management team lsquoDo we really need a project officersquo Thiswas especially true once the initial version of portfolio management wasestablished and when the PMO staff (in the language of the organisation)lsquostarted lifting some of the stones in the organisationrsquo The PMO high-lighted issues that some managers would have preferred remained hiddenIt now had a set of Balanced Scorecard (BSC) measures that linked directlyto the company BSC The triple constraint of budget time and customersatisfaction were all improving in 2002 the targets were

Projects on Budget 80Projects on time 80Customer satisfaction 80

Figure 114 illustrates the growing impact that the PMO exerted upon theorganisation to push further into project performance and impinge uponorganisational competence

While the responsibilities now assigned to the PMO started to expand nonewere removed the PMO still needed to ensure that it had a team of competentmotivated and available project managers consistently applying established

368 Cartwright and Walker

Figure 114 PM support office model ndash Stage 2

Projectmanagementcompetence

Projectperformance

Projectsuccess

Project manager supportoffice

Organisationalperformance

Organisationalcompetence

global processes The required activities now included the following

Drive adherence to process through reviews and facilitation ndash eachproject was now required to run a customer and internal satisfactionsurvey and a formal wash-up meeting as part of the conclusion phaseThere was also a requirement that a peer review was conducted earlyduring the execution phase to ensure the plan had sufficient rigour andconstraints assumptions and risks were understood The PMO was alsoasked to conduct ad hoc reviews or health-checks when Sponsors feltthere was a need At times the results of these reviews were used toestablish blame and finger-point rather than use them as a fundamentalplank for improvement

On-screen report to management ndash during 2002 the PMO started to takemore responsibility for portfolio management While the Must Do processhad enabled the organisation to restrict problems with out-of-control pro-jects it was only an early version of portfolio management An on-screenreport was developed for the portfolio based on the Must Do traffic lightsand the process was renamed The report was named Key Projects

Key Projects report ndash the on-screen version was available to the wholeglobal organisation with a level of security for sensitive informationA project sponsor was able to drill down for complete financial anddelivery details Figure 115 illustrates a sample of the portal reportinformation provided

Developing a centre of excellence 369

Figure 115 Key projects dashboard

Establish management of projects ndash EPMI referred to lsquoManagement ofProjectsrsquo rather than lsquoPortfolio Managementrsquo to define the managementof the organisationrsquos total load of projects When the PMO took on therole of portfolio manager it gained the responsibility to ensure that thecorrect processes were followed during the sales processes by holdingthe various decisions for a project This ensured that only contracts thatwere deliverable and met the target for margin were signed The secondresponsibility was to ensure the sponsor used the governance built intothe PROPS model toll gates were held and decisions documented

Performance manage PMs ndash initially the PMO provided competentmotivated professional project managers The PMO took on the roleof performance managing the PM team to support the organisation bytaking direct responsibility for project outcomes ndash not just providingsupport to the PMs

Manage forecast load ndash the sales funnel for projects is normally unevenand relatively opaque The PMO in managing forecast load needed tounderstand and plan for future projects by reviewing probabilities andscenarios for PM support needs The organisation needed support notonly in the delivery of projects but also in the selling process wherequick realistic estimates for cost time and risk allowed flexibility inresponding to customer requests In the sales environment speed iscritical the time line tends to be today not next week planning for thistype of response is difficult and it normally tended to be an add-onactivity for a project manager already managing a project

Capability owner for project management ndash the PMO now took on therole of capability owner ndash no longer just being responsible for just PMcompetence The role of capability owner entailed not only proving thecorrect quality of project manager but also the correct quantity Flexibilityin capability level was achieved by using a base of fully employedproject managers supplemented by a small number of contractors

Cross-functional reporting of disconnects ndash the demise of the qualityorganisation during the various restructures had left no accountabilityfor continuous improvement The re-branding of quality as lsquobusinessexcellencersquo provided an opportunity to address the gap The PMs aspart of the horizontal matrix saw where there were disconnects in thedelivery capability and they were asked to highlight as part of theirperformance management activities and progress reporting where theywere This caused some friction within the functional organisation

There was still a need to ensure that the PMO was seen by all stakeholdersto be adding value to them to justify its position in organisation It wasnot until 2003 that there appeared to be an understanding by all seniormanagers that the PMO was a necessary business expense and after thattime there was no request to revisit the PMO business case

370 Cartwright and Walker

Late in 2002 as part of the ongoing benchmarking activities the ANZAPMO conducted a second maturity measurement using the Human SystemsCPQ The results showed there was a major improvement since the firstmeasurement in 1999 with the approach score averaging over 40 and thedeployment score at 33 Around this time the global organisation decidedto use Human Systems and the CPQ as the basis for an audit process ofPMOs across the global organisation The decision was taken that all PMprocesses should be a global responsibility and that they should be appliedlocally the mantra became Global Approach with Local DeploymentThe global organisation took accountability for the approach score and thelocal companies were given accountability for the deployment score TheCPQ tool was re-engineered to include some measures that the global teamneeded but the CPQ was still intact to ensure integrity of the current dataThe ability to benchmark with external organisations was seen as a majoradvantage The new tool was named the PEMA a tool that measures howa local company sells and delivers the Network Rollout product suite

The business delivery PMO

In early 2004 there was another restructuring of the organisation and theopportunity was taken to add to the responsibilities of the PMO The projectscorecard was now looking much better and the opportunity was taken toraise the bar on the targets

Projects on budget 90 (overall total within budget)Projects on time 100Customer satisfaction 80

The PMO now took on a role that tended towards that illustrated inFigure 116

Developing a centre of excellence 371

Figure 116 PM support office model ndash Stage 3

Projectmanagementcompetence

Projectperformance

Projectsuccess

Business deliveryproject management

office

Organisationalperformance

Organisationalcompetence

The PMO was expected to provide all current services plus thefollowing

Accountable to support the sales team ndash the PM was now seen to be anintegral part of the bid team The PMO needed to provide businesssavvy commercially competent project managers

Accountable for estimates ndash the PM now needs to sign off on theestimate and is accountable to deliver the project to this estimateThe estimate will be used to drive the pricing structure and become thebasis for benefit management

Manage order desk and end-to-end delivery process ndash the PMO is nowtotally accountable to deliver projects previously the sales organisationsaw that as a need to oversight the delivery to safeguard their customerrelationship The new order was for the sales team to focus on sellingand for the services team especially the project managers to focuson delivery

One version of the truth ndash one of the major links between the project andthe hosting organisation is the financial performance of the projectMost organisations use a large ERP system for example SAPR3 tomanage and report finances The information within the system isreported to the market as profit andor loss A project was planned andthe planned cost was also entered in the system From then projectmanagers used the Estimate at Completion (EAC) and the Estimateto Completion (ETC) to manage and report on their project Manyfinancial systems have problems reporting estimates so there may bediffering views of the current budget numbers There may appear tobe many versions of the truth At one regular executive meetingthe PMO manager reported two sets of figures one the figures withinthe financial system and the other the total of the EAC figures fromcurrent projects from the PMO database There was a major discrep-ancy the executive team stated that the numbers within SAP werethe ones reported to the market and that they must be correct Thefinancial team supporting SAP was moved into the PMO to providebetter support to the PMs and align the projectrsquos and organisationrsquosfinancial numbers The mantra became lsquoone version of the truth andSAP is Kingrsquo

Train project sponsors ndash each project has according to the PROPSmethodology an internal senior manager who owns the project in abusiness sense The senior manager the sponsor of the project uses thetollgate governance process to ensure the defined business benefits aredelivered By 2004 there was a belief that the role of the sponsor wasnot adding the value it should Many sponsors were not fulfilling theirrole and providing the required support to project teams The PMO

372 Cartwright and Walker

was asked to provide education in the selection of sponsors and theirroles and responsibilities

Provide business support ndash The PMO was now seen as able to addvalue to the bid process and overall governance There were requests tofacilitate risk management sessions planning sessions audits bidmanagement wash ups and lessons learned sessions

Cross-functional process improvement ndash the PMs were now asked totake an active role in removing disconnects within the organisationThey had targets set for process improvements as part of their CaPeRscorecard which drove their reward structure

Accountable to deliver the agreed marginbenefits ndash the PMObecame totally responsible for delivering the margin agreed forthe project when the contract was signed One of the PMs fromthe PMO was involved in the bid to provide estimates high-levelplans and an understanding of associated risks Margin deliverywas included as part of each individual PMrsquos performance managementprocess

During the period 1999ndash2005 there was anecdotal evidence both locallyand globally that the ANZA PMO was doing innovative things and wasamong the best in the group There was a team providing benchmarkingservices within the corporate headquarters that was assessing companies toestablish what their level of deployment maturity was and then helpingthem with improvement plans This team had asked Human Systems tomeasure the maturity of the global approach and had been scored at amaturity level of 42 The audit team was asked to assess the ANZAPMO maturity and visited the company in September of 2005 to conductthe PEMA3 assessment The assessors conducting the audit made thefollowing points

PEMA is a method for measuring project performance maturity in anorganisation by interviewing individuals in the organisation

The organisation is the target of the assessment not the individuals Answers shall reflect the level of deployment of project management

practices not the intended approach The result of a PEMA is delivered as a report in a feedback meeting The PEMA result and the feedback shall be used as a basis for

improvement work in the organisation

The feedback from the audit team was that ANZA scored 412 fordeployment the highest score across the 51 assessments conducted

Developing a centre of excellence 373

lsquoOur general impression of the level of Organisational maturity atANZA is that the organisation is very mature and contributes well toOperational Excellence We have observed several good initiatives tocoordinate and foster good Sales amp Delivery Management We encouragethe MU management team to continue to support these initiativesrsquo (HansLock lead auditor)

Evaluation ndash lessons learned from the journey

1 It has been said many times but it still holds true that a major changeprogramme MUST be driven from the top In the case of the ANZAPMO there was consistent support from the CEO and the managementteam Whenever support including financial support was asked for itwas given and each manager was seen to lsquowalk the talkrsquo During theperiod 1999ndash2005 there were three CEOs each was totally committedto improving the maturity of the PMO

2 The decision to centralise the team of project managers was criticalto the success of the ANZA PMO The need for discipline profession-alism up-skilling teambuilding and general motivation was mademuch easier through co-location and the physical bringing together ofthe team Costs for each project manager were charged back to eachuser as they sourced PMs which appealed to the users as they nolonger had to pay for a PM if they were not directly employed on aproject Access to immediate PM support was available due to thecommon team

3 The PMO is a constantly emerging function there is never a time to sitback and watch The PMO must meet the current needs of the organisa-tion and these needs change daily Stakeholder management is criticalensuring there is an understanding of each stakeholderrsquos needs and howwell they are being met While there were three major reorganisationsof the PMO during the period addressed there was ongoing balancingand alignment of competence and quantity of the project managementcapability Many times signing one contract causes a ripple effect as aparticular PM is assigned to a new project

4 The PMO must be seen to be adding value and be responsive successesmust be communicated and celebrated In the beginning the PMO wasforcing itself on the organisation whether they wanted it or not as theservices provided were seen to add value Then the organisation startedto approach the PMO and ask for services and at times suggest otherservices that could be offered The PMO also ensured that the servicesthey offered were not available from other sources In the early stagesmany of the units selling products and services did much of the upfrontestimating and planning themselves ndash when they asked for support ithad to be provided quickly and professionally ensuring that the unit

374 Cartwright and Walker

avoids falling back into a self-help mode Reinforcement from themanagement team asking where estimates came from if the PMO hadsigned off on the plan and who conducted the risk analysis ensuredthe profile and their commitment to the PMO The PMO must makeit easier for the selling unit to get support so they can then spendmore time on relationship management which is a critical part ofsuccessful selling

5 In todayrsquos business climate it is critical that an organisation has accessto an accurate set of financial data The USA Sarbanes-Oxley laws4

now provide serious penalties if organisations are not providing accu-rate information to the marketplace The adoption of the correct versionof the truth supports this direction Once managers realise they are atrisk they become much more interested in project governance

6 Bring key stakeholders and the organisation along with you In theproject management profession we have created a new jargon and waysof thinking and working Talking to senior managers about CPI andEAC may result in blank faces it is your responsibility to educate thewhole organisation in project management The PMO needs to be instep and one step ahead at the same time ndash in step with the organisationto ensure it is effectively meeting its current needs and one step aheadso that you are anticipating and forming future needs

7 As with any change project it is the people who have to change Therewas a team of people who passionately believed in what they were doingthere were times when it was rocky and some very good people werelost The PMO was able to keep a core of PMs who grew with the PMOin professionalism process knowledge stature and confidence as theANZA PMO matured into a successful PMO

Chapter summary

The purpose of this chapter is to provide a practical case study example ofa project procurement decision and how it links to theory discussed in otherchapters in this book This chapterrsquos focus centres on project governanceand a decision to undertake a project using in-house resources The rationalefor using in-house resources for the CoE development was an emergentstrategy in improving project governance It made sense to rely upon anddevelop in-house expertise for two reasons ndash thus the lsquomakersquo rather thanlsquobuyrsquo procurement decision was appropriate First this was experimentaland lessons learned needed to be internalised Second the CoE projectwas itself an organisational cultural-change and business transformationproject ndash thus it was a typical emergent strategy project

This chapter provides a useful case study on developing governance toolsand processes with evolution of a PMO into a CoE thus it also contributesto PM theory and practice

Developing a centre of excellence 375

Table 111 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash This used an in-house project delivery team in developing the Value proposition CoE over several years using a lsquomakersquo decision Expected value and make-or-buy was learning and businesscultural transformation to highdecision customer focus and service delivery

Chapter 2 ndash The CoE project was akin to a research and development Project type and change management project highly complex and evolving withprocurement high relational and integrated design and deliverychoice

Chapter 3 ndash No formal stakeholder identification management processesStakeholder were followed However close personal contact and interactionmanagement with senior levels of management was maintained Operational

departments were perceived as being the initial key customers of the CoE that in turn serviced paying customers clients andsupply chain partners

Chapter 4 ndash The whole thrust of the initiative was to improve organisationalGovernance governance of PM services within the framework of well-

established organisational ethical standards and normsChapter 5 ndash An emergent strategy of evolving the CoE through a maturity Business strategy process High focus on project portfolio and programme

management to authorise and manage projects CoE seenas integral with business strategy

Chapter 6 ndash A BSC approach with extensive use of a lsquotraffic lightsrsquoPerformance communication tool as part of the CoE developed toolsmeasurement Mapping specific tangible with intangible outcomes was not

specifically developed however an internal view of capabilitymaturity (based on the PMI OPM3 emerging concept) used tojudge CoE development progress

Chapter 7 ndash The CoE substantially used an in-house developed e-portal as itsE-business platform for managing and monitoring projects

Chapter 8 ndash A key CoE purpose was to promote learning and PM excellenceInnovation and The CoE served as a training ground as well as facilitatedorganisational mentoring and knowledge transfer throughout the businesslearning

Chapter 9 ndash The CoE lsquoprojectrsquo was itself a business process changeCultural management exerciseAs a global organisation it necessitated dimensions cross-cultural teams as well as understanding organisational

culture from the perspectives of various business unitsThe CoE performed an increasing cross-organisational portfoliomanagement role for project prioritisation and authorisation

Chapter 10 ndash The CoE project promoted staff development and buildingSelecting and strategic competencies It enabled strategic HRM for thegrowing talented organisationrsquos migration from a predominantly manufacturingpeople firm orientation towards a services delivery organisation

The CoE promoted strategic growth skills developmentand business excellence

Notes

1 Ericsson Australia PL2 For more of project or product stage gates see Cooper (2005)3 Project Environment Maturity Assessment (PEMA)4 See for detail of this act URL httpwwwsoxlawcomindexhtm

References

Andersen B Hendriksen B and Wenche A (2006) lsquoProject Management OfficeEstablishment Best Practicesrsquo Project Perspectives ndash Annual Publication ofInternational Project Management Association XXVIII(1) 30ndash35

Bergmann I (2002) The EPMI project Office Model Ericsson ProjectManagement Institute Stockholm Ericsson

Cooper R G (2005) Product Leadership Pathways to Profitable InnovationNew York Basic Books

Haldane D (1999) The Future of Project Management Newtown Square PAProject Management Institute Research

Kerzner H (2003) lsquoStrategic Planning for a Project Officersquo Project ManagementJournal 34(2) 13ndash25

KPMG (2003) Programme Management Survey ndash Why Keep Punishing YourBottom Line General Report Singapore KPMG International Asia-Pacific 20

Levine H A (2005) Project Portfolio Management ndash A Practical Guide toSelecting Projects Managing Portfolios and Maximizing Benefits SanFrancisco Jossey-Bass

Light M and Berg T (2000) The Project Office Teams Processes and Tools TheGartner Group R-11-1530 30

Miranda E and NetLibrary Inc (2003) Running the Successful Hi-TechProject Office at httpwwwnetLibrarycomurlapiaspactionsummaryampv1ampbookid87747

Naisbitt J (1982) Megatrends Ten New Directions Transforming Our LivesNew York Warner Books

Pettigrew A and Fenton E M Eds (2000) The Innovating Organization SeriesThe Innovating Organization Thousand Oaks CA Sage

Rad P F and Levin G (2002) The Advanced Project Management OfficeA Comprehensive Look at Function and Implementation Boca Raton FLSt Lucie Press imprint of CRC Press

Walker D H T and Christenson D (2005) lsquoKnowledge Wisdom and NetworksA Project Management Centre of Excellence Examplersquo The LearningOrganization 12(3) 275ndash291

Developing a centre of excellence 377

Chapter 12

Trust commitment and mutualgoals in Australian constructionindustry project alliances

Peter Rex Davis and Derek HTWalker

Chapter introduction

Chapter 2 introduced the concept of project alliances Issues relating totrust and commitment which are relevant to this chapter were also raisedand discussed in Chapter 3 and aspects of organisational culture werepresented in Chapter 9 This chapter provides findings relating to projectalliancing on construction projects in Australia based upon interviewswith 49 senior participants involved with 134 relationship-style projects(average value AU$150 million) that was originally published in PeterDavisrsquo PhD thesis (Davis 2006) The prime focus is centred upon how trustand commitment is enhanced under the project alliance procurementapproach during the project team selection stage

This chapter is structured as follows The next section will outline thecontext and background of project alliances in a little more detail thanelsewhere in this book This is followed by a brief outline of the researchmethodology to provide an understanding to the reader of the rigourand depth of the study Following this a discussion on the findings andan evaluation and discussion on implications for PM procurement practiceis provided

Context and theoretical background

This chapter discusses project alliances however it is relevant to reviewsome procurement choices that lead towards a project alliance

The model (Figure 121) shows a continuum of transactional torelationship-based procurement choices and illustrates some of the morecommon procurement choices with the most transactional choice tenderedlowest price at the extreme edge of being non-relational and highlytransactional Joint ventures at the mid-point in the procurement choicesmodel represent a strategic choice where organisations collaborate for mutualbenefit They may do this for strategic reasons as discussed in Chapter 5 orto enhance their competitive advantage Walker and Johannes (2003a)

Australian construction industry alliances 379

reporting upon a study of nine top tier international construction contractorsin Hong Kong1 highlight risk sharing jointly offering complementaryservices and brand identification as motivation behind JV formation OtherJVs may be motivated by a need to learn from their JV partner to stimulateorganisational learning andor innovation as discussed by Walker andJohannes (2003b) and in Chapter 8 of this book The JV relationship isindicated in Figure 121 as partly transactional because JV partners usuallyexpect to benefit from an exchange of value in their joint project deliveryenterprise Doz and Hamel (1998) argue that many JVs are formed as aprecursor to a strategic merger or acquisition or perhaps as a ploy on thepart of one partner to infiltrate the other JV partnerrsquos customer base with aview to exploiting the relationship at some future time

Figure 121 also shows partnering at a similar point along the transactionaland relational continuum Partnering was defined earlier in Chapter 2 Itis highly relational in its intent with partners signing up to a partneringagreement developing a partnering charter and subscribing to an agreedwell-structured dispute resolution mechanism that allows parties to settlemisunderstandings contentious issues and resolve claims for contract claimsDoing so in a responsive and effective manner helps reduce transactioncosts and retains joint enthusiasm for achieving common goals HoweverWalker and Hampson (2003ac) argue that partnering can lead to onepartner making profit while another partner suffers a loss on a project Thissituation is remedied in a project alliance where the relationship is moreencompassing

Generally speaking an alliance is a group of organisations workingtogether in a cooperative arrangement with an aim to reduce overall costsshare project risk and reward and increase profits (Allen 1995 Das and Teng1998a KPMG 1998) Parties have a focus on relationships (Pascale and

Figure 121 Relationship-based procurement choices

Competitiveprice

allianceContinuing

alliance

Projectalliance

Partneringtendered price

Joint venturetendered price

Tenderedlowest price

Low

HighLow

High

Transactionorientation

Relationshiporientation

Sanders 1997) that build on trust in construction business agreements(Kubal 1994) An alliance can link teams more closely than transactionalprocurement approaches or indeed partnering The entities involved seek toalign objectives and collectively develop an appropriate project scope froman early stage An alliance links organisational performance of participatingfirms within the framework of a legally enforceable agreement (KPMG1998) Parties involved in an alliance agreement seek to align objectives andbecome closely involved in the development of the project scope and riskcontingency budgets They plan projects together from the outset andoperate in a system of interdependence and understanding their partnersrsquobusiness drivers (Kubal 1994 Allen 1995 Haimes 1995 Pascale andSanders 1997 Boyd and Browning 1998) Competitive advantage stemsfrom relationships bonded by integrity and trust Once established thesebonds prove to be very strong and resilient to external forces Theserelationships weave a net that will prevent competitorsrsquo entry

Alliance parties jointly set aside profit margins and agree how gains maybe shared before starting the project These profit margins are then placedlsquoat riskrsquo for all parties in the alliance before the project commencement andare released only at the end of the project The lsquoprofit at riskrsquo approachdemands greater active joint commitment This is because if agreed projectmetrics are not met then all parties suffer a loss Similarly they jointly gainif performance metrics are exceeded using an agreed reward structure(Walker and Hampson 2003c) The key point is that rewards or sanctionsare jointly risked based on project results not individual organisationrsquosperformance so this provides the motivation for each party to do its bestto help others in the alliance in other words they all sink or swim together

Three factors must be present for an alliance to be successful

1 The first is alignment of objectives (Kubal 1994 Allen 1995 Pascale andSanders 1997 Boyd and Browning 1998) To realise this participantsattempt to align objectives through scope development targetingrelationships that build trust (Kubal 1994 Pascale and Sanders 1997)

2 The second is winndashwin attitudes (Kubal 1994 Hampson and Kwok1997 Tomer 1998) Relationship contracting (RC) research is punc-tuated with phrases that include lsquowinndashwin outlookrsquo lsquocommon goalattainmentrsquo and a lsquosearch for synergyrsquo These terms whilst not explicitin contract documents developed for alliance projects do form animplicit underpinning theme (Hollingsworth 1988 Hutchinson andGallagher 2003) This RC language is at odds with transactionalprocurement discourse although benchmark documents that havecaptured a change in transactional contracting strategies advocate theuse of RC strategies (Latham 1994 DETR 1998) These reportswhen compared with more recent texts that discuss relationship-basedprocurement show where enhanced value is provided to projectparticipants in an RC environment (Keniger and Walker 2003)

380 Davis and Walker

3 The final factor for a successful alliance is risk allocation and commercialincentives (Scott 1993 Fellows 1998 KPMG 1998) By cooperatingthe participants aim to reduce overall project costs share project riskand reward and increase mutual profits (Allen 1995 Das and Teng1998b KPMG 1998 Hutchinson and Gallagher 2003 Ross 2003Whiteley 2004) Successful alliances are not based on low-bid tenderingAwkward issues such as price and change to the scope are accountedfor by participants at the earliest opportunity (Kubal 1994 Allen 1995Pascale and Sanders 1997 KPMG 1998 Walker and Hampson 2003c)

These three factors are founded on trust cooperative rather than adversar-ial relations collaboration rather than competition problem solving andinnovation rather than sanctions or contractual penalties (Boyd andBrowning 1998) Most importantly an understanding of relationshipdevelopment is required (KPMG 1998 Thompson and Sanders 1998)

A continuing alliance that remains beyond a single project is the mostrelational of all as illustrated in Figure 121 and would apply where acontractor agrees to work with a client (or a client plus other project teammembers) on an agreed and continued basis This may be advantageouswhen the client seeks consistency in delivery methods and approachesacross projects or where the project cost may be a minor part of theprocurement decision In some industry sectors when building a factory fora pharmaceuticals company or some electronic components suppliers forexample speed of construction or the quality of mechanical and electricalservices components may be of a much higher-order importance Some chainstores or restaurants also choose to form longer cross-project allianceswhere their project lsquosignaturersquo style is consistent or where joint learningleading to quick fit-out times is an essential procurement choice criterion

The above provides a framework to test how a number of project alliancesin Australia build trust and commitment before a project commences Ourresults are presented in the section that follows ndash an insight into the researchmethodology

Research methodology and studied allianceprojectsrsquo context

The findings that are discussed in this chapter relate to a recent PhD study(Davis 2006) This study employed an earlier phase involving an extensivesurvey of marketing and tendering practices employed by constructionindustry players in Australia This part of the study established a theoreticalframework with which to test using qualitative research techniques howa number of alliance projects were executed and performed in terms ofrelationship-based characteristics or dimensions

The purpose for presenting this part of the chapter is to indicate the levelof rigour achieved and to highlight the validity of the data-gathering process

Australian construction industry alliances 381

and analysis techniques used As this is a book chapter and not a thesismost readers will not be interested in the details of the methodologicalaspects ndash readers with this interest may refer to the PhD Thesis2 The scopeof a book chapter is naturally constrained compared to that of a PhD thesisso we decided to focus on two key aspects of an alliance relationship-basedprocurement choice These two aspects at the early stage are allianceformation and its subsequent relationship development

Forty-nine project managers were interviewed using a semi-structuredsurvey instrument (questionnaire) Data gathered from these interviewtranscripts were analysed using QSR N6 software Particular industrypractitioners were chosen because they were specifically representative oftypical consortia associated with alliance projects The sample of peopleinterviewed in the PhD research project had considerable experience fromwhich they were able to speak with authority Care was taken to ensurerespondent stratification being balanced across the industry geographiclocation of projects across Australia and the intervieweesrsquo number of yearsexperience in the industry Intervieweesrsquo roles in industry and the projects thatthey were involved with were typical and representative of contemporaryalliancerelationship projects The industry stakeholders comprised consult-ing engineers and project managers contractors and client representativesPersonnel from key infrastructure and nation building projects wereselected as projects worthy of consideration Projects included North SideStorage Tunnel Sydney Woodman Point (WA21) Perth Wahroonga DamQueensland and the National Museum of Australia (NMA) in Canberra

The questionnaire was designed to extract information about relation-ships that respondents have with their associates in the forming of analliance Only open-ended format questions were used in the interview Thesurvey instrument had five sections The list of sections below identifiesthe main grouping questions pertinent to this chapter

1 Background ndash context

a What were the project and respondent characteristics

2 Establishment of the alliance

a What aspects of the alliance establishment were easy to manageand what aspects were hard to manage

b What was your perception of potential benefits and shortcomingsassociated with the alliance establishment process

3 Relationship building

a How was a winndashwin mentality developed

A four-step process was devised as illustrated in Figure 122 Each ofthe four steps included a number of interrelated stages that enabled the

382 Davis and Walker

researcher to understand the complexity of the relatively unstructured rawdata that had been gleaned from the interviews

Interviews varied in length ndash the shortest was 15 minutes and the longestjust over 1 hour generally they lasted for approximately 40 minutesInterviews were conducted on a one-to-one basis and designed to stimulateconversation and break down any barriers between the interviewer and inter-viewee Interviewees were allowed to talk freely without interruption orintervention to deliver a clear picture of their perspective Interviews weremainly conducted in a respondentrsquos head office and occasionally site officeswere used Many of the interviewees were interstate outside ofthe researcherrsquos home base (Perth West Australia) Interstate interviews wereall carried out over the phone at predetermined times to suit intervieweesAll of the interviews apart from one were digitally recorded using anipod(tm) digital recording instrument Transcripts were made checked andconverted to a verbatim word document for manipulation and importationinto QSR N6 a software program designed to enable reduction of dataarising from qualitative interviews

Discussion of research findings

The following outlines some results from the PhD thesis that are relevantto this chapter

Selection of alliance partners

Typically alliance partner selection takes place on the basis of allianceconsortia providing evidence that potential partners can provide the best setof resources skills and capabilities to deliver best-value for a project Thereare some differences however between a pure alliance model and a Target

Australian construction industry alliances 383

Figure 122 Four-step data analysis

Transcription

Individual analysis

Generalisation

Control

Out-turn Cost (TOC) or Cost Competitive Alliance The latter is said toprovide better cost and time certainty to public sector clients According toCowan and Davis (2005) the key elements of the project delivery phase arethe same in both variants and represent similar risk patterns and projectmanagement structures However it is the tension associated with deliveryof price where a departure lies

In a pure alliance for example the NMA tension occurs between theclient and a single non-client consortium after the preferred consortiumselection has been made and work proceeds to develop a TOC This canlead to time and cost uncertainty This uncertainty may be overcome in theprivate sector through commercial drivers and business hurdles that stopa project from proceeding if determined parameters are exceeded In thepublic sector a business case may dictate that a project is almost certain toproceed ndash for Australian examples of this see Cowan and Davis (2005)This actuality may instil a lack of confidence in the commerciality orcompetitiveness of the TOC

Indeed Whiteley and Henneveld (2006) suggest that a cost competitiveselection process is regularly used to overcome an industry perception thatunless there is market tension the target price will be inflated

In a cost competitive alliance alternative a single client team develops acompetitive TOC with two consortia working in parallel and each proponentsubmits their concept design and associated TOC at the end of the devel-opment period The client team will then select the best value offer takinginto account price and non-price criteria (Cowan and Davis 2005) Thecompetitive nature of the process redirects price tension from the client andfocuses it back onto the non-client participants who are in competition untiltheir project alliance agreement is accepted This may have adverse trustand commitment implications as discussed later

The NMA project provides a good example of a pure project alliance andillustrates alliance selection processes The successful NMA alliance teamwas not judged on an estimated tender cost criterion The assumption of theselection panel who recommended the successful consortium was that asuperb team acting as a focused and coherent group with a vision to providean excellent end product would deliver best-value for the project ndash at costtime and quality that is at least equivalent to global best-practice bench-marks Details of the selection process can be found in Walker andHampson (2003c) and follows the process described by several alliancesfacilitators (Hutchinson and Gallagher 2003 Ross 2003)

Initially an open call for expressions of interest was made on the NMAproject with an industry-briefing forum being conducted to explain theconcept and detail evidence required of consortia to support their submis-sion Written proposals were received and the selection panel short-listedseveral leading proponents based in part on their technology innovationresource capability and their understanding of the alliance concept

384 Davis and Walker

The short-listed candidates were interviewed and took part in an extensivetwo-day workshop with each of the short-listed consortia tested on evidencesubmitted in their proposals In addition they worked together with panelmembers to fully flesh-out exactly how the project could proceed Thisinvolved reference to substantive detail regarding target cost and timebudgets Discussion to refine these aspects together with improved team-behaviour and communication developed joint problem solving and builttrusting and committed relationships

The preferred alliance consortium was selected and this group continuedwith a facilitated workshop (with a facilitator who would continue after theworkshop in a lsquocoaching rolersquo3 to help maintain the relationship betweenalliance parties) to establish and agree on performance metrics riskrewardagreements and further develop the project budget (termed from then on asTOC) The successful alliance consortium was then confirmed and thealliance agreement executed and the budgets were subsequently finalised

An important difference between this approach and other procurementchoices (discussed in Chapter 2 of this book) is that the project budget wasrefined only after the alliance was formed so that this group was commit-ted to an out-turn cost Another fascinating innovation was that profitmargins were agreed to be fixed at the participantsrsquo average profit over thepast six years Alliance participants agreed to a probity process of openbook access to verify the average profit margin over the previous six yearsas well as inspection when requested of their accounts during the projectexecution The margins varied between the alliance members because theydiffered by organisation ndash the alliance comprised design consultants a maincontractor and specialised service contractors and each of these had differ-ent profit margin structures Profit margin was quarantined to be placed lsquoatriskrsquo and agreed to be paid on successful completion of the project (basedupon the metrics agreed upon during the selection phase) A rewardpenaltystructure related to improving the TOC was based upon agreed ratios Thedefining element of this process was that it delivered commitment byinvolved parties and clarified many of the up-front issues often left unclearon other procurement forms For example there was a high level of trustgenerated because risks were clearly devolved to those best to bear themand processes and procedures for working collaboratively were establishedand agreed upon The NMA approach was similar to that for many of theproject alliances studied in the (Davis 2006) PhD study

The selection process could therefore be perceived as a risky businessand according to many of the respondents in the research study it requiredcareful planning investigation and forethought

The risk associated with the selection of consortium partners requiredthat they evaluate trust and monitor its development to the best of theavailable methods at the time They would do this mindful of theirlimited information concerning the individuals associated with proposed

Australian construction industry alliances 385

stakeholder organisations In the majority of situations their preferencewould be to work with individuals and organisations with whom theyhad prior favourable experience Previous experience would reduce risk andenable a more tangible assessment of trust and commitment The estab-lished model of alliance relationship development added a burden to thecontractors and was indicated to be unfamiliar territory to them Thisaspect once again moved them into a risk area and trust and commitmentwere evaluated in a workshop environment with appropriate facilitationor coaching to reduce risk-moves Examples of risk-moves include a largeconcession that requires reciprocation a proposal for a compromise aunilateral action of tension reduction or a candid statement about onersquosmotives and priorities (Dwyer et al 1987) The workshop environmentalbeit a manufactured environment that used management gamesselec-tion themes enabled the participants to assess and fast-track experienceover a reduced time frame and achieve a suitable tangible outcome

In the PhD research (Davis 2006) the primary themes of the selectionprocess were described as trust commitment and mutual goals Trustenabled contractors to differentiate themselves or be selected in a differentway from the more traditional and familiar price-alone selection Earlydevelopment of trust engendered harmony within the stakeholder groupThis harmony was found to continue into the implementation phase of theproject Commitment to others in the alliance workshops through resourcesallocation for example generated attitudes that reduced risk for all partiesby moving risk to those parties that could best manage that risk Risk wasintelligently allocated rather than merely being shifted or passed on toothers with less power to resist accepting that risk It enabled a client tohave a better understanding of the process and complexity of the projectthey were generating in more detail than would ordinarily happen Mutualgoals were described as a common understanding or focused alignment ofexpectations in a communicative way The clients used the term lsquoProgressiveengagementrsquo to describe goal development that took place in the earlystages of an alliance project

The data supported the conclusion that alliancing facilitated much broaderappreciation of risk complexity and capabilities of parties to manage risk Italso facilitated better planning and joint problem solving This front-endcapacity and marshalling of skills where and when they can best be deployedset the project team on a potentially higher performance trajectory path asdiscussed in Chapter 1 Project phases and performance figure

Workshops for relationship building and development

The relationships characteristics that the respondents were striving towardwere likened to personal relationships As indicated in the above sectionrespondents would endeavour to identify suitable partners whom they

386 Davis and Walker

could work with and trust Individuals were important and their respectiveorganisations tended to be placed in the background as a secondarycriterion Organisational identity was a selection criterion but individualsfrom favoured organisations were scrutinised in more depth as it was theirknowledge that was in demand This links with the trust models presentedin Chapter 3 particularly trust in phases Caution was counselled withrespect to personnel selection and advice was provided that selection ofindividuals should be based on best-for-project as opposed to selectingpeople for their personal affability or friendship Although study intervie-wees indicated that these traits are often an outcome of the relationshipworkshops and ensuing projects a commitment to alliance principles andrequired skills in specific areas were said to be major selection factorsCommitment and capability were described as the lsquobig onesrsquo when referringto selection criteria Skills displayed by an individual would need tocomplement existing expertise that was a priori in the existing client ornon-client group making the selection

In terms of relationship development participants would have to show theirselectors that they were credible ndash in other words were the statements theymade or actions that they took in the relationship development workshopsbelievable Effective experience and competence were strong indicators ofcredibility Often these were based on their experience with each other onpast projects whether relationship or transactional type projects Seeminglythe respondents were prepared to put faith in the word of those whom theywere dealing with in the relationship development workshops on the basisthat promises made would be delivered Clients would look for opennessand a willingness to share Rational checks for example calling for CVs andcommercial checks were used by some respondents to supplement the lesssubjective measures of credibility A preparedness to provide open bookswas described as showing credibility Some of the respondents were clearlyfar less formal with rational checks than others This aspect reinforces thevalidity of the trust models presented in Chapter 3 particularly the lsquotrustand distrustrsquo model

The relationship development workshops provided a context for therelationships to develop Its structure provided a framework on whichthe relationship would be built The actual process of the relationshipdevelopment would provide in itself value to the project Often howeverthe value created in the process would not be captured in a tangible waythrough for example reflecting and reporting upon benefits derived Thisfailure caused several respondents mainly clients to miss the potentialvalue of these workshops and presume that the relationship developmentafforded little net gain to the overall project Some argue that this positivelydifferentiates a pure alliance over a cost-competitive alliance

Several underlying attributes of the relationship building workshops wereidentified They included from a contractorrsquos perspective trust development

Australian construction industry alliances 387

of bonds and tests of the relationship Because the non-client team wereassessed as a collective entity in any alliance selection exercise it was impor-tant that they were able to show a bond between them that would translateinto a team that was prepared to integrate with the client participants Testingthese bonds with technical issues was part of the relationship developmentworkshops From the respondentrsquos perspective an integrated team was thegoal of the relationship development workshop a team working together asif part of the same organisation solving problems and having preparednessto confront hard issues Collaboration provided focus and alignment tothe team that was to influence the project outcome Trust and commitmentwas said to be a test of collaboration with an example being givenconcerning collaborative decision making The sentiment was expressedthat only when trust and commitment were manifest would positive decisionmaking be possible

Coaches were indicated to have an enormous impact on the relationshipdevelopment process and used to deliver a fair workshop outcome that wasbalanced and objective Both client and contractor respondents made use ofcoaches andor facilitators

The role of trust

Trust was an important concept raised by respondents Trust enabledcontractors to differentiate themselves or be selected in a different way fromthe more traditional and familiar price-alone selection Early developmentof trust engendered harmony amongst the participants More than a thirdof contractors-recorded comments related to trust building Respondentslinked trust with respect in relationship development Relationship devel-opment was designed to deconstruct formality using a mixture of activitiesthat put participants through a combination of scenarios to assess theirreactions for example whether they displayed empathetic behaviours in aparticular circumstance or not

Contextualising this several respondents commented that it was easy forthem to respond from the heart in the alliance development environmentsuggesting that mutual understanding was a key to their relationshipRespondents entered the alliance development with open minds andproceeded with the assumption that they could trust others and hoped forreciprocation

Research results indicated that trust was being assessed in parallel withcommitment Commitment to others in alliance development (throughresources allocation for example) generated attitudes that reduced risk forall parties It enabled a client to have a more detailed understanding of theprocess of the project they were generating than would ordinarily happenThe non-client team (the contractor and supply chain consortium) wereassessed as a collective entity so it was important that they were able to

388 Davis and Walker

demonstrate bonding that would translate into their team being preparedto integrate with other project team participants (ie design and clientrepresentative teams) Testing bonds with technical scenarios was applied aspart of the relationship development workshops

From the respondentrsquos perspective an integrated team was the goal of therelationship development workshop a team working together as if part ofthe same organisation solving problems and being prepared to confronthard-to-solve issues Earlier in the workshop when teasing out underlyingissues clients were noted to assess their personal feelings of trust towardscontractor personnel All respondents indicated that they perceived increasinglevels of trust throughout the alliance development duration When askedif they had any special way of measuring or determining evidence of trustseveral clients indicated that they often use performance measurementsystems The performance measurement systems successfully measured suchthings as communication

Effective communication was said to be indicative of relationships andrelationship building and was accordingly proposed as an appropriatedeterminant closely aligned with trust development Interestingly some ofthe client groups had formalised documentation that provided policy andguidance setting out procedures for measuring attributes of trust andtrust-building behaviours Increasing levels of trust and commitment hada dual purpose It tested the ability of participants to work in a cooperativeand collaborative environment In addition it built relationships theserelationships established rapport between participants before the start ofthe implementation phase of the project ndash in effect by the time the actualcontract was awarded there would be an effective relationship In thiscontext an important link was made between experience and trust

Respondents perceived that they should endeavour to generate experi-ence of participants as quickly as possible This was important as respon-dents were conscious that only through experience were they able togenerate the requisite levels of trust for the continuance of the allianceproject Trust and commitment were said to be a test of collaborationan example given concerned collaborative decision making The sentimentwas expressed that only when trust and commitment were evident wouldpositive decision making aligned to mutual goals be possible

Organisational development

Organisational development of the alliance was a high priority requiringsenior (executive-level) staff to be present at the relationship developmentworkshops Organisational commitments made in meetings could thereforebe relied upon statements by senior staff made or actions that they took inthe relationship development workshops were understood as credible Itwas emphasised that failing to honour these commitments would be badly

Australian construction industry alliances 389

received affecting an organisationrsquos future work It appeared that thissanction would be sufficient penalty from the respondentrsquos perspective

Proven effective experience and competence were strong indicators oforganisational credibility Often these indicators were based on experienceon past projects whether alliance or more traditional construction projectsSeemingly the respondents were prepared to put faith in the word of thosethat they were dealing with in the relationship development workshopson the basis that promises made would be delivered Consensus from therespondents found that reaching agreement prior to establishing a contrac-tual relationship was a definitive test of commitment This emphasised thedefining attributes that differentiate a pure alliance over a target outturncost alliance Examples of commitments were given and several innovativepoints were raised by the respondents One respondent noted a list ofcommercial outcomes that established an organisational commitment tolife skills including training and community relations These outcomeswere afforded to individuals outside the usual recognised boundaries ofalliance personnel

Organisational development clearly focused the minds of the collectiveparticipants All activities that took place were targeted towards strategiesand processes that would benefit their project Mutual goals were describedas a common understanding or focused alignment of expectations in acommunicative way The clients used the term lsquoProgressive engagementrsquo todescribe the goal development that took place in the early stages of analliance project Collaboration provided focus and alignment to the teamthat was to influence the project outcome

Participants argued that trust and openness encouraged participant focuson problem solving and developing innovation that would generate newknowledge in the alliance project organisation More than two-thirds ofcontractors commented on the nature of the alliance management team(AMT) that was formed as an outcome of the relationship developmentAnalysis of interview data indicated that the alliance team would create alife of its own capable of transcending personal and company behavioursThe AMT became integrated with organisational fit from within the newlyestablished hybrid team The team defined their organisational boundaryrather than accept boundaries of individual organisations joining the alliance

Respondents were however concerned about organisational interactionMajor concerns centred on the population of intra-organisational andinter-organisational relationships together with policies on placing suitablepersonnel into the alliance (people-resource allocation issues) It wasclear from responses that intra-organisational alliance relations impactedupon inter-organisational relations and relationships This was describedas a consequence of the relationship building and selection exercises thatwere carried out in the alliance developments Thinking of innovative ideasin an open fashion was one of the ways that the contractor participantsenunciated this sentiment

390 Davis and Walker

Participants often become an integrated team by the end of the alliancedevelopment period This integration became so strong that severalrespondents suggested that it would appear to outsiders that they all camefrom the same organisation sharing assumptions values and team artefactssuch as a project vision and agreed plans and procedures

The process of developing relationships draws together many facets frominitial strategy through commitment to durability and finally enduringrelationship quality These three phases are not mutually exclusive and eachrepresents a collection of iterative macro processes The boundaries referredto in the phases of relationship development are indistinct and dependenton supply chain activities they may change with individual relationshipsfor example Araujo et al (1999) propose four interfaces from standardisedthrough specified and translational to interactive These serve to balance thecosts and benefits of establishing and maintaining relationship interfacesBoundary penetration the degree each organisation partner penetrates theother organisations in a joint action is regular and serves to reducepartitioning of participants (Heide and John 1990) Each phase interactswith subsequent phases through seamless boundaries that are punctuatedwith incremental investments

The three-stage alliance relationship development model illustrated inFigure 123 draws on key papers and 49 interviews focusing onrelationship development (RD) and is based on the relevant literature

Australian construction industry alliances 391

Figure 123 A three-stage alliance relationship model

Assessment

Assessment ofmultiple partners tolessen risk

Judgements aredifficult to make dueto limitedinformation

Relationshipdevelopment

exercisesIncreased

trust

Increased trust

No commitmentcommitment isdifficult to assess Commitment

Risk movesAdaptationsrequired

Enduring

InformalityTrustworthiness

1 Process2 Attributes3 Outcomes4 Interrelationships

Common goalattainmentCommitment

Agreement of groundrulesknowledge transfer

Boundary penetrationNew knowledgeGamebreakinginnovation

Indistinctorganisational andsocial boundaries

(Ford et al 1985 Dwyer et al 1987 Wilson 1995 Pascale and Sanders1997 Ford et al 1998 Donaldson and OrsquoTool 2001 Walker andHampson 2003b) In the first stage objective judgement would be difficultdue to the intangible nature of the construction service and the client wouldbe looking for indicators that would reduce risk associated with decisionmaking (Day and Barksdale 1992 Patterson 1995) Many strategies wereidentified by the respondents essentially a client would be asking the questionlsquoCan you do this for mersquo The question would be seeking informationconcerning resources and technology together with managerial expertise(Ford 1982 Wilson 1995 Ford et al 1998) The thrust of questioning inthe first instance should be directed towards a firm Analysis of individualswould follow in subsequent stages In the first stage there would be limitedcommitment and if commitment was evident it would be difficult to recogniseand evidence

Trust should be initially developed with the use of relationship developmentexercises as the relationship evolves and intersects with the second phaseThis has been shown to fast-track commitment (Davis 2006) The commit-ment in itself would lead towards trust and enhance trust maintenancealbeit relatively limited at this stage in the model At the conclusion of thefirst stage which will permeate the second stage boundary rather thanhappen at any pre-determined time there would be an option for eitherparty to end the relationship This action follows both the literature and therespondentsrsquo comments It is noteworthy to recognise that a predispositiontowards upstream relationship variables of trust has been identified asstronger than downstream and this fact should be accounted for in theworkshops (Davis 2006) At this stage the parties often exhibit guardedinformation transfer and limited trust Trust testing may take the form ofan offer to reconfigure capital items of plant or IT equipment to meetthe needs of a client It is suggested that workshops should take place in thesecond stage of the relationship development model in line with currentpractice in alliance procurement and as described by the respondents(Hutchinson and Gallagher 2003 Ross 2003)

In the second stage illustrated in Figure 123 questions that the parties tothe workshop would be endeavouring to answer would include lsquoWhat areour common goalsrsquo and lsquoHow can we do this project togetherrsquo they wouldalso be looking to establish ground rules The ground rules would not onlybe required for the workshop meetings but also for the project to be carriedout Parties would be thinking about risk Open discussion should revolvearound adaptations required to deliver best-for-project innovation Thesepreceding points lead to deeper trust between the parties and embedcommitments based on propositions about future actions Trust would begrowing through this stage with commitments being increased The processof the relationship development workshop its underlying attributes themeasured goal and commitment outcomes together with organisational

392 Davis and Walker

interrelationship issues are fundamental to success These are addressed inthe alliance relationship development model

Trust and its links to commitment were identified as important attributesof a relationship marketing approach to relationship development this asso-ciation was not missed by the respondents They should not be overlookedin the development of an alliance relationship Effective communication andinformation sharing were shown to increase trust and trust developmentGoal setting and outlining deliverables were indicators of commitmentaligning these commitments with commercial objectives were also providedas examples where trust development in this stage would enhance therelationship The reciprocal nature of trust was explored and practitionersin a construction relationship development programme should be cognisantthat often the reciprocal nature of trust is displayed through knowledgetransfer in what has been described as communities of practice (COPs)Nahapiet and Ghoshal (1998) Wenger (1999) and Wenger and Snyder(2000) describe COPs as groups of people linked together through theirinterests in an environment in which sharing and exchanging knowledge isa primary goal

The third stage of relationship development was referred to in therelationship marketing literature as enduring and variable As indicated inthe literature the relationship would be becoming close to fruition Indistinctorganisational and social boundaries would become less evident as boundarypenetration of actors creates an informal hybrid team that is to be in placefor the duration of the project (Wilson 1995) Cohen and Levinthal (1990)use the term absorptive capacity to describe the acceptance of new knowledgewhich includes a propensity towards openness and tolerance of mistakes Inthis context having a history of gamebreaking ideas suggest absorptivecapacity is important to this stage of the alliance relationship developmentmodel People who have an ability to note an opportunity of an idea trans-ferred from one discipline to another are useful to the relationship at hisstage For example in one of the projects discussed by the respondentsseveral were able to cite an example of technology transfer of a significantnature that was indeed gamebreaking This competency together with otherscited by Maskell (1998) including reliability and trustworthiness cannot bebought and are not readily available to competition in the market placeThey augment the competitiveness of an organisation through their continualreuse in the enduring relationship In the last stage enduring strong tiesthat encompass technical social and knowledge areas are forged Regularevaluations still remain in place to ensure the quality of the relationship

Implications for alliance procurement practice

We argued in this chapter that the relationship development process iscrucial to a successful relationship contractalliance Evidence presented

Australian construction industry alliances 393

from the research (Davis 2006) suggests that there is a recognisable structureto relationship development that is underpinned with specific themes whichshould be considered when managing the relationship development process(see Figure 123) Trust and commitment have been explicitly addressed inthis chapter and are recognised as important implicit elements We stressthat relationship-based procurement is dependent upon and is reinforced byjoint learning from joint problem-solving activities established in therelationship development workshops

Respondents in the study when asked about relationship benefits associatedwith alliance projects were positive They expressed belief that the selectionprocess that included relationship development workshops added significantlyto the benefits that they all accrued from the project Benefits were notlimited to process benefits but flowed into product or relationship benefitsThe alliance development provided a context for the relationships to developit provided a framework or scaffolding from which the relationship wouldbe built upon The actual process of the relationship development in itselfwould provide value to the project Often however value created in theprocess would not be captured in a tangible way through reportingfor example This failure caused several respondents ndash mainly clients ndash tounderrate the value and presume that the relationship development affordedlittle gain to the overall project Maskell (1998) refers to this action as thecodification of tacit knowledge in as much as it may remain tacit whilst itis available only to an individual It is only when information is shared withothers who grasp its significance as they did in the workshops that itbecomes codified The allocation and management of risk in alliance devel-opment follows the work of relationship development by Dwyer et al (1987)Ford (1982) and Wilson (1995) Finally the benefits ascribed to relationshipmarketing from the literature were wholly supported Han and Wilson(1993) and Wilson and Mummalaneni (1986) for example cite exampleswhere relationships between long-term buyerndashsuppliers save inspectioncosts and consequently provide benefits in quality and reduced lead-intimes The primary benefits that all the respondents in the study spokeabout were trust commitment and the development of mutual goals thatwere engendered at an early opportunity and reinforced throughout theproject development stage

From the respondentsrsquo perspectives it appears that the entire process ofrelationship development hinged around commitment trust satisfactionand mutual outcomes From the respondentsrsquo collective perceptions it wasall important and entirely reciprocal regardless of upstream or downstreamengagement Connections that evolved in the team drove the process andenhanced the outcome of the project and as indicated above addedsubstantially to the value that was derived from the project The implica-tions for the above on project procurement using project alliances are thatjoint learning and problem solving is a vital vehicle for developing the trustand commitment required for project alliancing to work The issue of a

394 Davis and Walker

TOC-based selection or a selection on perceived skills aptitudes behavioursand abilities to work collaboratively is a complex one While many clientswith stakeholders who expect some sort of test based upon tender-typeprice may feel pressured to attempt an alliance selection process with pro-ject TOC as a criterion we caution that the study evidence suggests that thismay compromise the achievable levels of trust and commitment unwantedconsequences may result from this

Australian construction industry alliances 395

Table 121 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash This study reviewed relationship-based procurement optionsValue proposition that considered lsquovaluersquo in a wider contextrsquoWhile projectsand make-or-buy were outsourced a best-value proposition drove thedecision procurement choice

Chapter 2 ndash Projects fell into typical tangible construction project typesProject type and though intangible value was expected as a project outcomeprocurementchoice

Chapter 3 ndash The project alliance concept is highly focused upon supplyStakeholder chain advantages gained from greater synergy and bettermanagement clientndashcontractor interactions that reduce transaction costs

Chapter 4 ndash Project alliances have highly developed probity and governanceGovernance structures

Chapter 5 ndash Project alliances are one-off and emergent however these oftenBusiness strategy lead to a more structured arrangement so insights into the

strategy schools can help us understand why some projectalliances remain as project-specific while others develop intoprogramme arrangementsThe dynamic capabilities andcompetitive advantage strategic management aspects arehighly relevant to content in this chapter

Chapter 6 ndash None of the non-traditional aspects of this chapter werePerformance specifically addressed however KPIs and metrics are anmeasurement important part of project alliance probity

Chapter 7 ndash No direct reference to this chapter though in the NMA caseE-business study the availability of a web portal that connected alliance

partners was an important selection issue Communicationand problem solving is an important factor so groupwareprovides vital facilitating tools

Chapter 8 ndash One of the main drivers for alliances is the expectation that itInnovation and can facilitate organisational learning and innovationorganisationallearning

Chapter 9 ndash Trust and commitment that meld organisational identity from aCultural series of individual organisations into one alliance requiresdimensions cultural alignment this is highly relevant to this chapter

Chapter 10 ndash Achieving alliance objectives requires selection and retentionSelecting and of high-value talent with skills and behaviours that requiregrowing talented careful selection and retention strategiesThis is of people concern to alliance partners

396 Davis and Walker

Chapter summary

The purpose of this chapter was to present leading-edge research findingsof an emerging form of project procurement in the construction industry-project alliancing This chapter drew extensively upon relationship marketingliterature and fills a gap elsewhere in the book where it was not appropriateto include ideas from that body of knowledge Further in this chapter wewere able to not only present advanced conceptual models but also throughreporting on the Davis (2006) PhD study present practical first-handexperience of how this form works in practice Implications for practicewere also offered

This chapter argues that developing trust and commitment can effectivelydeliver superior project outcomes but that some of the outcomes are intan-gible (team relationships knowledge transfer improved decision makingpossible waste reductions)

Table 121 indicates how this chapter fits into the first 10 chaptersThis chapter provides a summary of many useful alliance case studies

and so it represents a considerable contribution to the project procurementliterature

Notes

1 See Johannes (2004) for more details follow the link for Johannes thesis onhttpdhtwtcermiteduaudwressuphtm accessed 17 January 2007

2 See httpdhtwtcermiteduaudwressuphtm follow the link to P Davis PhD thesis3 For details about a facilitatorrsquos role in alliance projects and coaching levels

provided contact Andrew Hutchinson through wwwalchimiecomau welcomeand Jim Ross at wwwpci-auscom or Evans and Peck at wwwevanspeckcomau

References

Allen A L (1995) Oil and Gas Greenfield Project Alliances Theory and PracticeReport Presented as Part of the Requirements of the Award for the Degree ofMaster of Project Management Perth Curtin University of Technology

Araujo L Dubois A and Gadde L-E (1999) lsquoManaging Interfaces withSuppliersrsquo Industrial Marketing Management 28(5) 497ndash506

Boyd L and Browning P (1998) lsquoFacilitating Partnering in Local GovernmentrsquoLocal Government Management LGM 32(3) 10ndash13

Cohen W M and Levinthal D (1990) lsquoAbsorptive Capacity A New Perspectiveon Learning and Innovationrsquo Administrative Science Quarterly 35(1) 128ndash152

Cowan B and Davis J (2005) Development of the lsquoCompetitive TOCrsquo Alliance ndashA Client Initiative at httpwwwalliancenetworkcomaupdfsPaper20on20Competitive20Alliances20Ver204pdf 08122006

Das T K and Teng B-S (1998a) lsquoBetween Trust and Control DevelopingConfidence in Partner Cooperation in Alliancesrsquo Academy of ManagementReview 23(3) 491ndash512

Das T K and Teng B-S (1998b) lsquoResource and Risk Management in the StrategicAlliance Making Processrsquo Journal of Management 24(1) 21ndash41

Davis P R (2006) The Application of Relationship Marketing to ConstructionPhD School of Economics Finance and Marketing Melbourne RMIT University

Day E and Barksdale H C (1992) lsquoHow Firms Select Professional ServicesrsquoIndustrial Marketing Management 21(2) 85ndash91

DETR (1998) Rethinking Construction Report London Department of theEnvironment Transport and the Regions

Donaldson B and OrsquoTool T (2001) Strategic Marketing Relationships FromStrategy to Implementation Sussex John Wiley and Sons Ltd

Doz Y L and Hamel G (1998) Alliance Advantage ndash The Art of Creating ValueThrough Partnering Boston Harvard Business School Press

Dwyer F R Schurr P H and Oh S (1987) lsquoDeveloping Buyer-SellerRelationshipsrsquo Journal of Marketing 51(2) 11ndash27

Fellows R F (1998) Construction Projects The Culture of Joint VenturingProceedings of the CIB World Building Congress 1998 Gavle Sweden 7ndash12 June1998 Fahlstedt K 3 1505ndash1512

Ford D (1982) The Development of Buyer Seller Relationships in IndustrialMarkets International Marketing and Purchasing of Industrial Goods AnInteraction Approach Hankansson H Uppsala John Wiles amp Sons

Ford D Gadde L-E and IMP Project Group (1998) Managing BusinessRelationships Chichester New York Wiley

Ford D Hakansson H and Johanson J (1985) lsquoHow Do Companies InteractrsquoIndustrial Marketing and Purchasing 1(1) 26ndash40

Haimes G A (1995) Partnering and Alliancing in Engineering Construction ReportPresented as Part of the Requirements of the Award for the Degree of Master ofProject Management Perth Curtin University of Technology Perth W A

Hampson K and Kwok T (1997) lsquoStrategic Alliances in Building ConstructionA Tender Evaluation Tool for the Public Sectorrsquo Journal of ConstructionProcurement 3(1) 28ndash41

Han S-L and Wilson D D S (1993) lsquoBuyer-Supplier Relationships TodayrsquoInternational Marketing Management 22 331ndash338

Heide J B and John G (1990) lsquoAlliances in Industrial Purchasing TheDeterminants of Joint Action in Buyer-Seller Relationshipsrsquo Journal of MarketingResearch 27(1) 24ndash36

Hollingsworth D S (1988) lsquoBuilding Successful Global Partnershipsrsquo The Journalof Business Strategy 9(3) 12ndash15

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd Phillips Fox Lawyers 33

Keniger M and Walker D H T (2003) Developing a Quality Culture ndash ProjectAlliancing Versus Business as Usual In Procurement Strategies A RelationshipBased Approach Walker D H T and K D Hampson Eds Oxford BlackwellPublishing Chapter 8 204ndash235

KPMG (1998) Project alliances in the Construction Industry Literature ReviewSydney NSW Department of Public Works amp Services 7855-PWS98ndash0809-R-Alliance

Kubal M (1994) Engineered Quality in Construction Partnering and TQMNew York McGraw-Hill

Australian construction industry alliances 397

Latham M (1994) Constructing the Team Final Report of theGovernmentIndustry Review of Procurement and Contractual Arrangements inthe UK Construction Industry London HMSO

Maskell P (1998) Globalisation and Industrial Competitiveness The Process andConsequences of Ubiquitification In Making Connections TechnologicalLearning and Regional Economic Change Malecki E J and P Oinas EdsBrookfield Ashgate Aldershot Hants 35ndash59

Nahapiet J and Ghoshal S (1998) lsquoSocial Capital Intellectual Capital and theOrganizational Advantagersquo Academy of Management Review 23(2) 242ndash266

Pascale S and Sanders S (1997) Supplier Selection and Partnering Alignment APrerequisite for Project Management Success for the Year 2000 The 28th AnnualProject Management Institute 1997 Seminars and Symposium ProjectManagement Institute Project Management Institute 19ndash26

Patterson P G (1995) lsquoChoice Criteria in Final Selection of a ManagementConsultancy Servicersquo Journal of Professional Services Marketing 11(2) 177ndash187

Ross J (2003) Introduction to Project Alliancing Alliance ContractingConference Sydney 30 April 2003 Project Control International Pty Ltd

Scott B (1993) Partnering and Alliance Contracts ndash A Company Viewpoint PerthAustralia Curtin University

Thompson P J and Sanders S R (1998) lsquoPartnering Continuumrsquo Journal ofManagement in Engineering ndash American Society of Civil EngineersEngineeringManagement Division 14(5) 73ndash78

Tomer J F (1998) lsquoBeyond Transaction Markets Toward Relationship Marketingin the Human Firm A Socio-Economic Modelrsquo The Journal of Socio-Economics27 (2) 207ndash228

Walker D H T and Hampson K D (2003a) Developing Cross-TeamRelationships In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Eds Oxford Blackwell PublishingChapter 7 169ndash203

Walker D H T and Hampson K D (2003b) Procurement Strategies ARelationship Based Approach Oxford Blackwell Publishing

Walker D H T and Hampson K D (2003c) Project Alliance MemberOrganisation Selection In Procurement Strategies A Relationship BasedApproach Walker D H T and K D Hampson Eds OxfordL BlackwellPublishing Chapter 4 74ndash102

Walker D H T and Johannes D S (2003a) lsquoConstruction Industry Joint VentureBehaviour in Hong Kong ndash Designed for Collaborative Resultsrsquo InternationalJournal of Project Management Elsevier Science UK 21(1) 39ndash50

Walker D H T and Johannes D S (2003b) lsquoPreparing for OrganisationalLearning by HK Infrastructure Project Joint Ventures Organisationsrsquo TheLearning Organization MCB University Press UK 10(2) 106ndash117

Wenger E C (1999) lsquoCommunities of Practice The Key to Knowledge StrategyrsquoThe Journal of the Institute for Knowledge Management 1(Fall) 48ndash63

Wenger E C and Snyder W M (2000) lsquoCommunities of Practice TheOrganizational Frontierrsquo Harvard Business Review 78(1) 139ndash145

Whiteley D (2004) Project Alliancing an Investigation into the Benefits andAttributes of the Project Alliance Contracting Strategy Masters Faculty of theBuilt Environment Perth Australia Curtin University

398 Davis and Walker

Whiteley D and Henneveld M (2006) A Practical Guide to AchievingOutstanding Performance from Alliance Contracting LexisNexis CommercialLitigation amp Construction Law WA Hyatt Regency Perth WA 20 September2006 Development L P LexisNexis Professional Development 1ndash22

Wilson D (1995) lsquoThe Integrated Model of Buyer-Seller Relationshipsrsquo Journal ofthe Academy of Marketing Science 23(4) 335ndash345

Wilson D and Mummalaneni V (1986) lsquoBonding and Commitment in Buyer-Seller Relationships A Preliminary Conceptualisationrsquo Industrial Marketing andPurchasing 1(3) 45ndash58

Australian construction industry alliances 399

Chapter 13

Innovation management inproject alliances

Steve Rowlinson and Derek HTWalker

Chapter introduction

Chapter 2 introduced the concept of project alliances Issues relating totrust and commitment which are relevant to this chapter were also raisedand discussed in Chapter 3 and aspects of organisational culture werepresented in Chapter 9 Chapter 12 presented PhD findings from a range ofproject alliances and focused on alliance formation at the front-end stage ofa project This chapter provides findings relating to how innovation wasenacted by an innovative organisation in a specific project alliancing casestudy in Australia This links with Chapter 8 and models discussed in thatchapter on how organisations can become innovative This chapterrsquos focusis centred on how alliancing can foster support and enhance innovation Aspart of this focus the work environment is identified as critical and so thislinks with Chapter 10 in which the quest for talent is clearly acknowledged

The specific focus of this chapter is the investigation of how innovationwas enacted within a specific alliance project in Queensland Australia ndash theWivenhoe alliance In order to properly understand the nature of innovationa model for innovation management in organisations is presented Thechapter then goes on to explain the nature of the Wivenhoe alliance andhow innovation was promoted within it The case is then reviewed and thelessons learned and the model used at Wivenhoe compared with theory

Context and theoretical background

Innovation is not limited to the production of new products Van de Ven(1986 590) defines innovation as lsquothe development and implementation ofnew ideas by people who over time engage in transactions with others withinan institutional orderrsquo His definition focuses on four basic factors (newideas people transactions and institutional context) He notes that four basicproblems confront most general managers in encouraging innovation toflourish and become part of the organisationrsquos culture These are (1) a humanproblem of managing attention (2) a process problem in managing new

Innovation and project alliances 401

ideas into good currency (3) a structural problem of managing partndashwholerelationships and (4) a strategic problem of institutional leadership

Innovation and knowledge sharing

Theory about the innovation process links in well with ideas on lsquostickyknowledgersquo as proposed by Szulanski (1996) and how innovation is diffusedThis is discussed further in the context of learning organisations in Chapter 8of this book The models presented by Peansupap (2004) in his PhD thesisand published elsewhere (Peansupap and Walker 2005abc 2006ab)provide deep insights and models of how ICT was diffused within highlycomputer-literate construction organisations This helps inform us aboutfactors affecting the challenges that organisations face when managinginnovation Further the model presented by Maqsood (2006 Maqsoodet al 2007) in Chapter 8 of this book illustrates the critical role played bypeople (individuals groups and an organisations) working in harmony toalign innovation potential with its realisation using their knowledge andskills This was shown as using lsquopushrsquo and lsquopullrsquo forces to drive innovativeorganisations towards becoming learning organisations Procurementchoices can influence the strength and direction of the innovation trajectory

Innovation can be applied to organisation structures and to individualwork practices It can also be applied to business strategy and to businessand operational relationships Figure 131 illustrates such a view ofinnovation that combines elements of factors affecting ICT diffusion fromPeansupap (2004) and (Maqsood 2006) with ideas presented by Prather(2000 18) and also Bucic and Gudergan (2002 13) This also links tothe environmental factor of the organisationrsquos response to gaining a knowl-edge advantage (Walker 2005) as explained more fully in Chapter 6 ofthis book

Many models exist for implementing innovation within an organisationThe model adapted from Prather (2000 18) presents a simple but useful viewof innovation within an organisation and the management of that innovationAt the core of the model is the innovative organisation ndash the goal and direc-tion the organisation intends to move in Prather identified three areas whichcontribute to the creation and maintenance of this innovative culture Theareas of education application and environment overlap to provide three keyelements of innovation management the innovation climate shared problem-solving processes individual thinking tools and practices The modelsdiscussed in Chapter 8 of this book based on Peansupap (2004) and Maqsood(2006) provide a useful way of extending Pratherrsquos model by indicating theknowledge and innovation push-and-pull forces that must be understood andharnessed to create a learning organisation Using this simple model theapproach adopted on the Wivenhoe alliance to influence innovation throughits procurement approach will be analysed within this case study

Education is an important element of the innovation process Innovationsoriginate with individuals not with groups nor organisations Thus educationand training techniques such as brainstorming and lateral thinking are partof the process of developing the individual and individuals in groups inorder to stimulate promote and nurture innovation within the organisationEducation is pulled by existing skills experience absorptive capacity (Cohenand Levinthal 1990) professional development and ability and desire toexchange ideas

Application refers to the way in which the organisation is structured inorder to handle new ideas and to see them through to implementationGroups apply knowledge and are pulled towards innovation by supportingforces such as technical support mentoring discussion forums and timeand ability to reflect and take part in collaborative action where ideas aresocialised reframed and developed This also requires a set of proceduresand protocols which allow ideas to be evaluated developed and thenimplemented Indeed this process continues through to the measurement ofthe impact of the innovation and its subsequent export to other organisationsand other parts of its own organisation For an example of a structuredapproach to this the reader might refer to the Grass Roots Innovation Team(GRIT) at 3M and follow through how the process is developed in thatrenowned innovative organisation1

402 Rowlinson and Walker

Figure 131 Developing an innovative organisation

Individual pull forcesskill experienceabsorptive capacityprofessional developmentsharing ideas

IntrinsicmotivationExtrinsic

motivationCriticalthinking

IndividualthinkingTools amppractices The

innovativeorganisation

Structure-centralisationStructure-formality

Culture-riskCulture-collectivismAbsorptive capacity

Open-minded learning workplacesupportive management mentoringresource support and implementationof a knowledge advantage (see Chapter 6)

Organisationrsquosclimate forinnovation

Communicativejob autonomy

diversity

Technical support monitoringdiscussion amp reflection

collaborative action

Sharedproblem-solving

processes

Pushforces

Organisational pull forces

Group pull forces

Environment

Educ

ation Application

Finally the environment within which the project and the innovationstake place is a key element in determining the successful implementation ofan innovation strategy The culture of organisations is formed by leadershipattitudes to success and failure the facilitation of communication and sharingof information across the organisation and the role of the bureaucracywithin the organisation This includes an open-minded workplace leader-ship that champions questioning and supports reflection and adaptationand mentoring Chapter 6 discusses some tools that can be built into a pro-ject procurement governance system to encourage the effective pursuit of anorganisationrsquos knowledge advantage (Walker et al 2004 Walker 2005Walker et al 2005) Thus all three areas of education application andenvironment combine to provide the infrastructure in which innovation cantake place

The interesting element of this case study is that in many ways theapproach to procurement was an innovative approach and also the projectteam had innovation as a major goal within the project itself Hence thiscan be seen as an example of meta-innovation Thus in this case study wewill examine both the innovative approach to procurement and the way inwhich innovation within the project was managed

There are a number of elements and attitudes (which could be consideredimportant dimensions of the organisational climate for promoting innovation)that create an organisational climate that supports groups and individualsto freely share ideas and collaborate to deliver innovation Together theseelements shape the organisational climate which nurtures innovation Henceone would expect an innovative organisation to adopt a set of values whichreflected those dimensions listed above However creating a set of values isa somewhat intangible issue (see Chapter 9 of this book)

In order to ensure that these values are achieved and maintained there isa need for tangible support which enables these values These supports canbe described as awards as taboos and repetitive reinforcement (Prather2000 21) With the inculcation of values and the provision of thesesupports there is the propensity for actors within the organisation to trustone another and so collaborative and cooperative relationships areestablished a key goal of alliance teams This is particularly importantin an organisation such as the Wivenhoe alliance where many of theproject team members are from different organisations Thus in thisinstance awards were given to team members for actively supporting thealliancersquos values Taboos are seen as actions which have a negative impacton innovation and which are managed by subtly or overtly ensuring thatthese actions do not interfere with the innovation process The repetitivereinforcement in this instance took place through the use of a projectfacilitator an innovation manager an alliance coach and various othermeans discussed later

Innovation and project alliances 403

Alliancing

The concept of alliancing is introduced in Chapter 2 and Chapter 12 alsoprovides detailed discussion on the selection of alliance partners Allianceprojects are initiated in an attempt to overcome the adversarial relationshipswhich are common within the construction industry The concept is basedupon open book accounting and project participants having an attitude ofbest-for-project in the decision-making process All alliance participantshave an involvement in determining the project scope and risk and rewardallocation As a consequence this approach leads to simplified approaches todispute resolution by dealing with issues as they arise rather than involvingthe project team in the common paper chase of requests for informationand claims for variations and changes

There is often confusion on the differences between partnering andalliancing in the construction industry The most meaningful distinctionbetween partnering and alliancing is described by Walker and Hampson(2003a 53) as lsquo with partnering aims and goals are agreed upon anddispute resolution and escalation plans are established but partners stillretain independence and may individually suffer or gain from the relation-ship With alliancing the alliance parties form a cohesive entity that jointlyshares risks and rewards to an agreed formula rsquo

Under such a definition it can be seen that key project team memberscome together to form a pseudo company for the duration of the projectThis enables the benefits of working as one company to achieve a commongoal to be realised There are particular circumstances when alliances mayfunction as an ideal model for procurement

Concept design has been undertaken but detailed design is yet to becompleted thus leaving the projects in a state of lsquoliving designrsquo which isconducive to a flexible approach and so enabling value management

Total projectrsquos cost has been estimated but the budget has yet to be set ndashproject alliance objectives go beyond an emphasis on price to includethe ability to innovate and to manage relationships both within andbetween alliance participants including stakeholders

The alliance partners brought together are chosen such that theycomplement one anotherrsquos strengths and weaknesses

There is a high level of stakeholder and community awareness of theproject and its benefits and issues

The time frame is recognised as being a constraint

The key principle of the alliancing approach is that the personnel assignedto the project are the best people from each company in terms of the needsof the alliance (see Chapter 10 for more details on the quest for talent)Team members are expected to be leaders in their field and hence requirelittle monitoring or guidance ndash they also tend to welcome taking the initiative

404 Rowlinson and Walker

However in order for the alliance to function as a team certain prerequisitesand other transaction costs have to be implemented

The key focus for the alliance is to form a strong alliance culture withinthe team Unresolved internal conflicts will doom a project to failureso great importance is placed on team building to assist with the devel-opment of the alliance culture The generation of trust and friendshipwithin the team is a key determinant of this

Team building should not only commence at the very outset of thealliance but also continue until completion of the project and thedisbanding of the alliance Team-building activities that build trust andcommitment can include games and Outward Bound-type activitiesand such things as emotional intelligence programmes

Knowledge sharing is an important aspect of the alliance team Open andfree communication within a trusting environment is a key component ofcollaborative design In essence there must be no secrets as hiddenagendas within the team

Importantly the alliance deed which member companies sign at theoutset of the alliance contains a no-litigation clause The aim of this isto ensure amicable speedy resolution of disputes within the team ratherthan an escalation to the courts

The alliance participants collaboratively agree the target cost for the projectand then set about developing the design and also at the outset establisharrangements for sharing risk and reward arising from the projectTypically as was reported in the case of the National Museum of Australiaproject profit is placed at risk to ensure that cost targets are achievedHowever as an incentive cost savings are shared between the allianceparticipants under some form of lsquogain-sharingrsquo formula which is designedto encourage innovation maximise collaboration and focus production onefficiency (Hutchinson and Gallagher 2003 Walker and Hampson 2003b)

There have been a number of examples of alliances in Australia over recentyears (Davis 2006) such as The Ampolex Wandoo alliance (construction ofan oil platform and field development in Western Australia) WMC EastSpur alliance (a gas field development off Western Australia) BrisbaneWater Enviro alliance (upgrade of three water treatment plants in Brisbane)Sydneyrsquos Northside Storage tunnel project and the National Museum ofAustralia In general such projects have been reported to have exceptionallyhigh levels of collaboration cooperation and communication leadinggenerally to technical and managerial problems being resolved effectivelyand efficiently in the best interests of the project This process is facilitatedby participants putting project interest above individual company interestHowever alliances have been criticised in some instances for precludinglocal contractors from the bidding process For example the Report by the

Innovation and project alliances 405

House of Representatives Standing Committee on Industry Science andTechnology lsquoA sea of indifference ndash Australian industry participation inthe North West Shelf projectrsquo states lsquoThrough (alliancing) partners in aproject have a special interest in supplying key components and servicesrsquoand lsquoconstruction of platform modules was undertaken without com-petitive tenders being called Australian industry was denied any chance ofundertaking this workrsquo (Standing Committee on Industry 1998 63)

Underpinning theory

Alliancing is categorised by scholars into two main types strategic alliancingand project alliancing The most commonly adopted definition of strategicalliances is based upon two related ideas First the act of establishing inter-organisational relations that engages in collaborative behaviour Secondthese acts have a specific purpose which has a long-term strategic consequencein responding to opportunities and challenges that face an organisation ndashwhether that is for an organisation currently competing globally orpositioning itself to take asvantage of future opportunities (Doz andHamel 1998) The inter-organisational relationships can be grouped intothree broad classifications of services cross-company consortium (service)opportunistic and stakeholder alliances (Howarth et al 1995)

A strategic alliance is also seen as an inter-organisational arrangementwhich usually exists between two or more companies which extends beyonda specific project and whose parties would expect ongoing mutually benefi-cial business (Doz and Hamel 1998) According to Bronder and Pritzl(1992 412) a strategic alliance exists when the value chain between at leasttwo organisations with compatible goal structures are combined for thepurpose of sustaining and achieving significant competitive advantages Astrategic alliance can provide access to resources such as capital informa-tion technology management expertise markets customers distributionchannels land and labour Such resources may not be available to an organ-isation acting alone Greater access to resources allows an organisation toreduce its level of uncertainty in a demanding and turbulent environmentStrategic alliances also enable organisations to speed up the market-entryprocess and increase their responsiveness to consumer markets as indicatedin Table 131 ndash adapted from Howarth et al (1995)

Yet no successful strategic alliances can be developed without trustTrust in a strategic alliance also includes the concept of reciprocity whichimplies a long-term focus the acceptance that obligations are mutual androom for adjustment if one partner is suddenly placed in a compromisingposition (Howarth et al 1995) As occurs with partnering and relationalcontracting trust between strategic alliance partners is important because itcreates an opportunity and willingness for further alignment reduces theneed for partners to continually monitor one anotherrsquos behaviour reduces

406 Rowlinson and Walker

the need for formal controls and reduces the tensions created by short-terminequities It allows partners to focus on long-term business development aswell as reducing cost and time The characteristics of successful strategicalliances as well as successful business relationships proposed by Hampsonand Kwok (1997) ndash trust commitment interdependence cooperationcommunication and joint problem solving ndash reflect a similar theme

A successful alliance also requires creativity It has been shown in the pastthat alliances that have failed are typically the second alliance that a groupof companies undertake together The problem arises when the individualteam members who were on the first alliance insist on using the samepractices by repeating them since they worked on the previous alliancedespite the fact that they might not be appropriate for the second The newteam members do not understand why the practices are adopted and do notfeel any sense of ownership Since both strategic and project alliancesare tailor-made mechanisms such alliancing would fail due to the lack ofcreativity by the team members from the first project team and the newteam members do not feel committed to work

The main difference between project alliances and strategic alliances isproject alliances have a defined end which is most commonly the practicalcompletion date of a project The parties are brought together for a specificproject or outcome and a project alliancing agreement is also legallyenforceable Hutchinson and Gallagher (2003) describe a project alliance as

Innovation and project alliances 407

Table 131 Alliance-type characteristics

Alliance type Characteristics

Service alliances Requires the lowest level of interdependence betweenpartners with the smallest amount of changes and thelowest level of joint commitment

Provide economies of scale Provide the ability for the partners to undertake large-scale

projects with a limited purpose Difficulties arise due to the diversity of the interests and

goals of the partners Result in a loss of commitment from members

Opportunistic alliances Provide access to the resources of the partnerfor example joint organisationsventure Motivated by the existence and recognition of a market

opportunity Partners might exploit one anotherrsquos resources and then

move on to pursue the opportunity aloneStakeholder alliances The closest link between member organisations of allfor example suppliers Seek to build strong long-term relationshipscustomers employees Assist in achieving the organisational goals by major

stakeholders

a project delivery strategy where several participants join together to sharerisks and outcomes on a project and where sponsor and commercialparticipantsrsquo objectives (clientrsquos objectives) are aligned to

maximise performance proactively manage risk reduce cost and achieve outstanding results in sponsor key project objectives

They define project alliance as lsquo an integrated high performance teamselected on a best person for the job basis sharing all project risks withincentives to achieve game-breaking performance in pre-aligned project objec-tives within a framework of no fault no blame and no dispute characterisedby uncompromising commitments to trust collaboration innovation andmutual support all in order to achieve outstanding resultsrsquo (Hutchinsonand Gallagher 2003 8)

Love and Gunasekaran (1999) stated that alliances can be eithercollaborative or cooperative (Hamel et al 1989 Bronder and Pritzl 1992Huysman et al 1994) based on core competences Kwok (1998) describesproject alliances as a cooperative arrangement between two or moreorganisations that forms part of their overall strategy and contributes toachieving their major goals and objectives for a particular project Hamelet al (1989) suggest that organisations that enter into collaborative alliances(short term) are aware that their partners are capable of disarming themParties to these alliances have clear objectives and understand that theirpartnerrsquos objectives will affect their success Yet collaboration does notalways provide an opportunity to internalise a partnerrsquos skills Love andGunasekaran (1999) suggest that a lsquopsychological barrierrsquo may exist betweenalliance partners caused by the fear that their partner(s) may out-learn ordeskill them Wood and Gray (1991) state that organisations typically entercollaborative relations to reduce environmental complexity and to gainmore control over environmental factors Such collaboration may causenew dependencies to be created which may increase environmentalcomplexity and turbulence They argue that increases in complexity mayincrease transaction costs the need to manage bilateral and multilateralrelations and the need to develop new skills

Cooperative alliances (long term) encourage alliance partners to committheir resources to the relationship to gain mutual learning (Love andGunasekaran 1999) There is a lower level of competition and as a resultpartners may feel more committed to work together and exchange theirknowledge and resources Ketelhoumlhn (1993) suggests that cooperativestrategic alliances can create a competitive advantage Organisations thatrely on cooperation have been found to obtain lower costs for as longas they maintain trust internally and externally ndash among employees andmembers of their network

408 Rowlinson and Walker

There are many studies see for instance Lingard and Francis (2004 20052007) and Chapter 10 of this book which indicate that workndashlife conflicthas a damaging effect on job satisfaction organisational commitmentproductivity employee turnover and absenteeism For the individual this isassociated with burnout mental health issues and dysfunction within thefamily setting Indeed the construction industry is well known for its longand inflexible work hours particularly for those based on-site or workingon projects Despite the considerable resistance within the industry to theadoption of new ways of scheduling work the Wivenhoe alliance attemptedto create a high-performing team by innovating in terms of workndashlifebalance and reducing work hours The additional effect of this changein balance was aimed at encouraging the retention of staff and enhancingrecruitment in the future

Case study details

The following will provide background additional information for thereader to better understand its context and relevance to this book

The Wivenhoe alliance

South East Queensland Water (SEQ Water) owns and operates WivenhoeSomerset and North Pine Dams in Queensland Australia and is the sponsororganisation in an alliance with

Leighton contractors ndash the contractor Coffey Geosciences ndash specialist consultants geotechnical and

hydrogeology MWH ndash specialist consultants water Department of Commerce (New South Wales) ndash providers of finance

The alliance was formed with the intention of upgrading the existingWivenhoe Dam to ensure that it could cope with extreme rainfall and lsquoanyconceivable floodrsquo in the future The $70m Australian project involvedconstruction of a 165 m wide additional spillway a five-span traffic bridgepost-tensioning of the existing spillway and associated works 80 km fromBrisbane The upgrade was completed six months ahead of schedule andten percent below budget The alliance commenced by undertaking a numberof studies dealing with design options hydrology construction environmentgeotechnics and stakeholders (including the local communities) prior todeveloping the design and setting a target cost for the project

In terms of benefits arising from the alliance formation MHW claim thatthe approach leads to innovative solutions2 its web page states that lsquoTheWivenhoe Alliance has demonstrated how collaborative projects promote

Innovation and project alliances 409

innovation Significant savings were achieved through an innovative way ofdisposing of earthworks soil Rather than transporting the soil to an agreeddisposal area the Alliance designed and constructed some low hills in closeproximity to the dam and construction site The hills were landscaped andplanted to create environmental refuge areas and to match the surroundinglandforms The result was aligned with the clientrsquos environmental objectivesfor the project as well as achieving beneficial cost savingsrsquo

The key issue to come out of the alliance as far as this case study is con-cerned is the facilitation and management of innovation within the allianceInnovation took place in a number of fields such as project learning valuemanagement sustainability design innovation construction innovationprocess and product innovation working conditions and workndashlife balanceEach of these areas of innovation will be reviewed below but in order toput this into context the underpinning theory behind alliances is brieflyexpounded below

Project learning system

The contractor in the alliance had for a long time intended to set up anorganisation-wide project learning system The idea behind the system isthat workers estimators and directors on subsequent projects can makereference to a database of knowledge which will make their current decisionmaking more efficient and effective based on past experiences within theorganisation The aim is to ensure that the same mistakes are not repeatedand that good ideas are kept and repeated in practice The nature andculture developed within the alliance was such that individuals and theteam were willing to take risks with new ideas and new technologyConsequently all bought into the idea of the project learning system andparticipants felt obliged to make their contributions to the system Henceideas behind things that went well or didnrsquot go well were harnessed andstored in a database set up to capture this knowledge As far as theseparticipating organisations were concerned this was their first experience ofsuch a project learning system

Value management

In a similar manner participation in the value management process wasfacilitated by the culture of the alliance All participants bought into theidea of lsquobest for projectrsquo and so were willing to reveal in a timely mannerissues which affected the adequacy or efficiency of the projectrsquos componentsand which might in a different procurement system have lain hidden untiltheir consequences became apparent Participants willingly and openlydiscussed problems which they felt were beyond their own individual

410 Rowlinson and Walker

capacity to solve and the alliance team addressed these issues in a fashionwhich indicated a joint responsibility being taken by all for the outcomeThus although the value-management process cannot be considered to bean innovation the way in which the value-management process was under-taken was considered revolutionary by the participants Specifically theopen and free communication engendered and the attitude of lsquono-blamersquo ledto an atmosphere which facilitated the successful value management of theproject In addition innovations and ideas which contributed to this valuemanagement process were treasured and were actually recorded in aninnovation register as illustrated in Figure 132

Sustainability

The Wivenhoe Alliance worked with Queensland University of Technology(QUT) in Australia to complete a Sustainability Assessment of the projectadopting a triple-bottom-line approach that is Economic EnvironmentalSocial sustainability and also including Health and Safety as a key indica-tor Again the alliance approach led to an open discussion of sustainabilityissues which transcended the individual partnersrsquo specific interests in thatsustainability was seen to be a project cost and benefit and not a benefit toone participant at a cost to the other

Innovation and project alliances 411

Figure 132 Example of the innovation register

Design innovation

Design innovation was driven and focused by the lsquoBest for Projectrsquophilosophy The design team was challenged to innovate and value manageevery aspect of the project and the construction team encouraged tochallenge any aspect of design that could be modified for the benefit of theproject financially or otherwise The factors of safety which the designteam conventionally used were challenged by the rest of the alliance andthe design team were then forced to come down from their pedestal andbecome a complete team member Again the alliance culture and the driveto innovate which this engendered was a major factor in allowing the teamto achieve these goals

An example of a design innovation is illustrated in Box 131 below

412 Rowlinson and Walker

Wivenhoe Dam is being upgraded to be able to withstand the ProbableMaximum Flood (PMF) which is essentially a 1 in 100000 year eventIf we did have such an event whilst all the radial gates on the existingspillway are open the water would still hit the gates as it passed throughthe existing spillway This would cause the gates to bounce up anddown and there is a risk that due to the gates being held open by cablesthe cables could break if the gates bounced too high or too much

The initial solution was to install a locking pin on the gate suchthat when it is opened to the fully-opened position it will be lockedopen hence the gate will not bounce and potentially fail It wasunanimous that there must be a better solution but no one knewwhat it was It was agreed that a Value Management workshopshould be convened to help identify a solution two days wereallocated to this task

On the first day the issues were highlighted and the end result wasdiscussed It was at this point that everyone commenced brainstormingWe then came together and shared out ideas The end result was thatan innovative solution was achieved By looking outside the box andbeing forced to look at the problem from a direct angle a bettersolution was achieved

The solution was to install a wide plate upstream of the Radial gatethe plate would act as a penstock and force the water down to a levelsuch that when it passed the gates it was at least 1 metre below thebottom of the gate This removed the need for the locking pin becausethere would be no bouncing of the gate The extra benefit is thatadditional works that were previously required are now not neededdue to the Baffle Structure being installed

Box 131 Innovation example

Innovation and project alliances 413

During the subsequent design of the Baffle Structure constructionmodifications were added to allow the structure to become itsown permanent scaffolding and access platform It also has legacyvalue to the owner as it will provide a safe access platform for themaintenance workers of the dam The solution is a non-mechanicalone that is very little maintenance will be required The BaffleStructure solution saved the project in excess of $750000 This waspossible only due to forward planning by having enough time tovalue manage the issue design a new solution and then install it

Construction innovation

Construction innovation was seen to be not a standalone issue There wasan implicit recognition that the design process had a major effect onconstruction innovation and construction effectiveness Hence it was seento be a whole team task to develop innovations in construction In order tofacilitate this effective planning is vitally important The team needs timeto think through the construction consequences of design decisions andsearch for better alternatives Such an approach can be effective only if theplanning and design and construction innovation process take place earlyin the project Hence it was recognised that effective planning at the outsetwas an important facilitation device for the innovations in constructionwhich did take place

Collaboration example

An example of the collaborative approach to innovation and the willingnessto take risks was a design innovation that occurred on a crash barrierupgrade on the existing dam wall The design was challenged by theconstruction team and in conjunction with the design team a new andevolutional type of design was developed The design was implemented andconstruction commenced The design underwent a design review (thisoccurs on a monthly basis) and the design was found to be too risk-adversefor the reviewers and the design was altered The financial result wassubstantial extra cost due to the re-work involved On a normal projectthis would have been classed as a variation and extra costs would have beenincurred but due to the make-up of the alliance and culture of the teammembers there was no negative feeling or resentment and the costs wereabsorbed into the project The mindset was lsquoalthough the designers cost usmoney this time they have saved us time money and effort in the past andwill save more in the futurersquo Thus even through failure the alliance culturewas reinforced

Processproduct innovation

Innovations are not limited to design and construction but can occur in anyarea of the project Process and product innovations occur every day andare usually innovations that occur in secondary roles as opposed to directroles An example of this was an improvement to the design drawingregister process which made the location of the most up-to-date drawing somuch easier The benefit from such an innovation is intangible ndash one cannotassess the costs saved from avoiding working from the wrong drawings butsuch savings had undoubtedly accrued Such an innovation would not havelikely occurred on a traditional project as there is not the same lsquobest forprojectrsquo attitude

Change in working practices

A compressed work week was introduced part way through the constructionphase of the dam The site was initially operating on a 6-day 58-hour weekcomprising five 10-hour days plus an 8-hour day on Saturday In March2005 there was a move to a 5-day week with an 115 hour-day This changein working practices was studied by Lingard et al (2007) (see Chapter 10for more details) and they reported that employeesrsquo well-being and satis-faction with workndashlife balance were generally high and that perceptions ofworkndashlife conflict were favourably low Indeed knock-on effects for worksuch as productivity gains and loyalty to the organisation as well as non-work activities such as more scope for family and domestic duties were seento be part of the improvements brought about by the change in workingpractices There was also evidence that the changes led to improvedemployee retention Thus if one considers changing working practices asan innovation one can then assume that this innovation within the alliancehas allowed for the improvement in employee satisfaction and will perhapshave a subsequent effect on work effectiveness and innovation Howeverthe direct link has yet to be proven

Indeed the fact that this was an alliance project was seen by many inter-viewees to have facilitated the implementation of the shortened workingweek and led to a change in attitudes An individual response as reportedby Lingard et al (2007) bears testimony to this lsquoI think this job is anexception not the rule I think alliancing is conducive to being able to dothis because we can make more money by being smarter and changing thedesigns and being efficient whereas the ldquoold schoolrdquo way of making moneyin construction is going faster and harder and longer ndash squeezing as muchas you can out of resources over a finite period of timersquo

In addition Lingard et al go on to conclude that lsquothe compressed workweek was very successful in improving employeesrsquo workndashlife balanceFurther the projectrsquos time and cost performance suggest that the change to

414 Rowlinson and Walker

a five-day week did not hinder the attainment of objectives in other keyresult areas (KRAs) of the project Alliance employees were very satisfiedwith the compressed work week and reported a number of benefits includingincreased physical and psychological well-being greater motivation improvedproductivity increased job commitment and increased involvement inhomefamily activities These results suggest that strategies designed toimprove employeesrsquo workndashlife balance may be key components of highperformance work systems in the Australian construction industry Furtherthe collaborative nature of project alliances in particular the sharing ofrisks and rewards and the focus on ldquobest for projectrdquo decision-makingappear to provide a supportive work environment in which innovativeworkndashlife balance initiatives can be implementedrsquo

Capture and measurement of innovation

In order to ensure that innovation is actually taking place it is necessary tocapture and measure the innovations and the innovation process is Such anapproach was adopted on the web by the use of innovation tracking toolswhich included

Innovation register (see Figure 132)

ndash During the Wivenhoe alliance innovations were monitored andrecorded using a specifically designed innovation register whichcaptured the innovations as they occurred and tracked theirprogress through to completion under the general headings ofideas actions and savings However it was recognised that not allsavings could be measured in dollar terms and yet the idea couldstill be innovative The concept of benefit and best for project areimportant in this respect and need to be recognised in order tomaintain the lsquoalliance culturersquo

Value-management register

ndash In a similar manner a value-management register was compiledwhich monitored both the value-management meetings and eventsand the value-management outcomes This provides both a usefulsource of ideas for future projects and provides a mechanism forenabling a cost analysis of the value-management process if required

Project learning system

ndash The project learning system provides a database of all the good andbad ideas that have occurred on projects and the net effect of theseideas In this instance the project learning system was a prototypeand was deemed to be a success Indeed such a success that thecontractor has established it on a state-wide basis for all projects

Innovation and project alliances 415

Completion report

ndash As a mechanism for formally recording the process and progress ofthe alliance a completion report was compiled with the intention ofcapturing all those events and issues which occurred throughoutthe course of the project Within this report there is a discussionof the techniques used the innovations which developed andthose which actually did not come to fruition under tools utilisedon the project

Making sense of the case study

So how can one rationalise what has taken place in the Wivenhoe alliancein terms of innovation and innovation management One way of looking atthe process which took place is to plot on a grid innovation process in onedirection and innovation culture in the other direction and then locate theWivenhoe alliance and other organisations on this grid A typical firm suchas a supermarket which has no culture of innovation and no processes tostimulate innovation might rank poorly on this model and be found in thebottom left quadrant In contrast 3M Company which has a culture thatinspires innovation and which has a set series of processes to ensure inno-vation takes place might be located at the top right-hand quadrant of thismodel When looking at the Wivenhoe alliance the case study has shownthat it does have a culture which promotes and nurtures innovation It alsohas processes to generate ideas get them through the evaluation phase andhaving them implemented However the alliance process is very much anad hoc one compared with that of 3M There appears to be no strategic orunderlying innovation management plan for the alliance Perhaps this is thenature of the alliance concept rather than merely the Wivenhoe allianceitself the nature of the alliance is that it has defined beginning and enddates and so there is no scope for or drive towards strategic long-termviews Hence given these shortcomings one would place the Wivenhoealliance in a less strategic position than the 3M Company

Case study discussion

The case study indicates that the opportunity for innovation in alliance pro-jects is very high compared with conventional hard dollar contractsHowever the very nature of the alliance is that it is of a finite duration andso the ability to structure innovation effectively is somewhat limited Thusthe alliance approach to procurement has inbuilt within its culture the nec-essary characteristics to promote innovation but in all instances this inno-vation process needs to be managed The case study indicates how thisinnovation process can be encouraged and indeed monitored and measured

416 Rowlinson and Walker

Of great interest is the changing working practices implemented in thisalliance The fact that both performance and workndashlife balance issuesappeared to improve when the working week was reduced is quite impres-sive Indeed for most of the respondents to indicate that such an approachwas not possible within the hard-dollar contract is very enlightening Itwould seem that the alliance approach has benefits in terms of both the pro-ject performance and individual achievements and working practices ThusAlliancing might well hold the key to the cultural change required withinthe industry to improve performance universally

There are many factors relating specifically to alliances that can berelated back to Pratherrsquos (2000) model of innovation management as acombination of education application and environment and its adaptationby us as illustrated in Figure 131 combining ideas from Bucic andGudergan (2002) These factors describe the reasons why innovation isgenerally speaking more successful in alliances than in traditional firmsand projects All of these factors can be seen in the Wivenhoe alliance

Chapter summary

The purpose of this chapter was to provide a case study example of analliance project that had successfully demonstrated innovation throughalliance practices We also sought to discuss the theoretical basis for theobserved innovative practices and outcomes and to link these to other chap-ters in this book so that readers can extend or revise what they have graspedfrom our work

The chapter started with some context relating to the case study as wellas background concepts and theory We introduced an extension to theinnovation diffusion and knowledge transfer models in Chapter 8 by show-ing how education application and environment are linked to drive aninnovative project alliance organisation that can generate use and transferknowledge at the individual group and organisational level We then pro-vided some alliance theory and discussed where the case study fitted in withwhat theory suggests should happen in practice The evidence presentedsuggests that a well-functioning alliance can spark innovation and illustratedhow the alliance delivered useful innovations where more traditional projectprocurement approaches may stifle such innovation Our Table 132provided a summary of lessons from the case study linked to the modelpresented in Figure 131

In line with our format for the case study chapters we present Table 133that indicates how this chapter fits into the first 10 chapters

This chapter provides a summary of many useful alliance case studiesand so it represents a considerable contribution to the project procurementliterature

Innovation and project alliances 417

Table 132 Summary notes of factors influencing innovation

Factors leading to Notesalliance innovation

Education ndash individual- In the area of education or individual-level factors there islevel factors clearly a greater intrinsic motivation of staffThe lsquobest for

Intrinsic motivation projectrsquo mentality means that team members will be Extrinsic motivation thinking of ways to challenge the status quo and improveCritical thinking the projectrsquos performanceThere is also a greater extrinsicLeading to the creative motivation in alliances By actively seeking more efficient andprocess cost-effective methods the alliance increases its potential for

financial rewardAn increased appreciation of critical thinkingand reflecting on past actions and existing knowledge in thepresent context means that team members will constantly be coming up with new ideas to solve current problems

Application ndash group- In the group-level factors or application area there is a greaterlevel factors level of communicative interaction on the Wivenhoe alliance

Communicative job autonomy than is seen in most projectsThe informal and personalisedDiversity leading to the communication style encourages lateral thinking acceptancelearning process of criticism and willingness to consult othersThe level of job

autonomy of staff members encourages decentralisation andgives freedom to the individual and empowerment Finallythe diversity of team members means that people from arange of backgrounds and experiences are brought togetherfor the duration of the project

Environment ndash alliance- At the alliance level or the environment-level factors describedlevel factors by Prather (2000) there are many factors that encourage

Structure centralisation innovationThe centralised structure while it can beStructure formality restrictive in a normal firm can actually encourage innovationCulture of risk taking in alliancesThe fact that all of the decision makers areCulture of collectivism present on site means that the approval process for newAbsorptive capacity ideas can happen quickly and easilyA formal structure can The knowledge stocks prohibit innovation in traditional firms but the Wivenhoe

alliance overcomes this by working in cross-functional teamsThe fact that alliances have a risk-orientated culture contributes greatly to innovationThey accept mistakes andallow the freedom to fail more readily than traditional firmsAlliances are typically used for more lsquohigh riskrsquo projects andthose where the scope isnrsquot well defined Since alliance members know they will get paid for the work they doand that only the profit margin is at risk they are generallyless risk-averse than projects undertaken with hard-dollarcontractsThe final two alliance-level factors that lead toinnovation described by Bucic and Gudergan (2002) are aculture of collectivism and absorptive capacityThe collectivistculture can be seen at the Wivenhoe alliance in everyonersquoslsquobest for projectrsquo mentality Everyone is willing to cooperateto make the project successful and they put the goals of theproject ahead of their own personal goalsThe absorptivecapacity of an alliance refers to its ability to recognise valuable information and make use of itThis can clearly beseen at the Wivenhoe alliance both through their innovationregister and Project Learning SystemThey have clearprocedures for the recording and sharing of good ideasAll of the individual-group- and alliance-level factors cometogether and through well-defined procedures contributeto alliance innovation

Innovation and project alliances 419

Table 133 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash This study reviewed how value was delivered from innovationValue proposition and how the alliance structure supported thisand make-or-buydecision

Chapter 2 ndash The project fell into typical tangible construction project typesProject type and though intangible value was expected as a project outcomeprocurement through learning and improved processes for futurechoice infrastructure work by the client

Chapter 3 ndash The project alliance was highly focused upon internal teamStakeholder stakeholders and providing examples of innovation for themanagement client organisation to replicate and adapt in future

Chapter 4 ndash Project alliances have highly-developed probity and governanceGovernance structuresThis alliance was particularly focused on triple-

bottom-line outcomesChapter 5 ndash This project alliancersquos characteristics can be made sense of Business strategy by reviewing the dynamic capabilities and competitive

advantage strategic management aspects relevant to content inthis chapter

Chapter 6 ndash This chapter links in well with the knowledge advantagePerformance discussed as part of the CMM sectionmeasurement

Chapter 7 ndash Examples of an ICT innovation register (Figure 132) and severalE-business information management registers are provided

Chapter 8 ndash One of the main drivers for alliances is the expectation that itInnovation and can facilitate organisational learning and innovationThis isorganisational of particular relevance to this chapterlearning

Chapter 9 ndash Trust and commitment that melds organisational identity from aCultural series of individual organisations into one alliance requiresdimensions cultural alignmentThis is highly relevant to this chapter

Chapter 10 ndash Achieving alliance objectives requires selection and retention ofSelecting and high-value talent with skills and behaviours that require carefulgrowing talented selection and retention strategiesThis is of high concern topeople alliance partners

Notes

1 A useful web link to 3M to find out more about a range of 3M discoveries andinnovations can be found at URL httpsolutions3mcomwpsportal3Men_USourcompanyinformationhistorycentury-innovation accessed 1 September 2007

2 See wwwmwhglobalcomaualliance-delivery accessed 17 January 2007

References

Bronder C and Pritzl R (1992) lsquoDeveloping Strategic Alliances A Conceptual Frame-work for Successful Co-operationrsquo European Management Journal 10(4) 412ndash421

Bucic T and Gudergan S (2002) The Innovation Process in Alliances The ThirdEuropean Conference on Organizational Knowledge Learning and CapabilitiesAthens Greece 5ndash6 April Mylonopoulos H T N Athens Laboratory ofBusiness Administration 1ndash39

Cohen W M and Levinthal D (1990) lsquoAbsorptive Capacity A New Perspectiveon Learning and Innovationrsquo Administrative Science Quarterly 35(1) 128ndash152

Davis P R (2006) The Application of Relationship Marketing to ConstructionPhD School of Economics Finance and Marketing Melbourne RMITUniversity

Doz Y L and Hamel G (1998) Alliance Advantage ndash The Art of Creating ValueThrough Partnering Boston Harvard Business School Press

Hamel G Doz Y L and Prahlad C K (1989) lsquoCollaborate With YourCompetitors ndash And Winrsquo Harvard Business Review 67(1) 133ndash139

Hampson K and Kwok T (1997) lsquoStrategic Alliances in Building ConstructionA Tender Evaluation Tool for the Public Sectorrsquo Journal of ConstructionProcurement 3(1) 28ndash41

Howarth C S Gillin M and Bailey J (1995) Strategic Alliances Resource-Sharing Strategies for Smart Companies Melbourne Pitman Publishing

Hutchinson A and Gallagher J (2003) Project Alliances An OverviewMelbourne Alchimie Pty Ltd and Phillips Fox Lawyers 33

Huysman M H Fischer S J and Heng M S (1994) lsquoAn OrganizationalLearning Perspective on Information Systems Planningrsquo The Journal of StrategicInformation Systems 3(3) 165ndash177

Ketelhoumlhn W (1993) lsquoWhat Do We Mean by Cooperative Advantagersquo EuropeanManagement Journal 11(1) 30ndash37

Kwok T (1998) Strategic Alliances in Construction A Study of ContractingRelationships and Competitive Advantage in Public Sector Building WorksPhD Faculty of the Built Environment Brisbane Queensland University ofTechnology

Lingard H and Francis V (2004) lsquoTheWork-life Experiences of Office andSite-based Employees in the Australian Construction Industryrsquo ConstructionManagement amp Economics 22(9) 991ndash1002

Lingard H and Francis V (2005) lsquoThe Decline of the ldquoTraditionalrdquo Family Work-life Benefits As a Means of Promoting a Diverse Workforce in the ConstructionIndustry of Australiarsquo Construction Management and Economics 23(10)1045ndash1057

Lingard H and Francis V (2007) lsquo ldquoNegative Interferencerdquo between AustralianConstruction Professionalsrsquo Work and Family Roles Evidence of anAsymmetrical Relationshiprsquo Engineering Constrcution and ArchitecturalManagement 14(1) 79ndash93

Lingard H Brown K Bradley L Bailey C and Townsend K (2007) lsquoImprovingEmployeesrsquo Work-life Balance in the Construction Industry A Project AllianceCase Studyrsquo American Society of Civil Engineers Forthcoming

Love P E D and Gunasekaran A (1999) lsquoLearning Alliances A Customer-supplier Focus for Continuous Improvement in Manufacturingrsquo Industrial ampCommercial Training 31(3) 88ndash96

Maqsood T (2006) The Role of Knowledge Management in SupportingInnovation and Learning in Construction PhD School of Business InformationTechnology Melbourne RMIT University

420 Rowlinson and Walker

Maqsood T Walker D H T and Finegan A D (2007) lsquoFacilitating KnowledgePull to Deliver Innovation through Knowledge Management A Case StudyrsquoEngineering Construction and Architectural Management 14(1) 94ndash109

Peansupap V (2004) An Exploratory Approach to the Diffusion of ICT Innovationa Project Environment PhD School of Property Construction and ProjectManagement Melbourne RMIT University

Peansupap V and Walker D H T (2005a) lsquoExploratory Factors Influencing ICTDiffusion and Adoption Within Australian Construction Organisations A MicroAnalysisrsquo Journal of Construction Innovation 5(3) 135ndash157

Peansupap V and Walker D H T (2005b) lsquoFactors Affecting ICT Diffusion ACase Study of Three Large Australian Construction Contractorsrsquo EngineeringConstruction and Architectural Management 12(1) 21ndash37

Peansupap V and Walker D H T (2005c) lsquoFactors Enabling Information andCommunication Technology Diffusion and Actual Implementation inConstruction Organisationsrsquo Electronic Journal of Information Technologyin Construction 10 193ndash218

Peansupap V and Walker D H T (2006a) lsquoInformation CommunicationTechnology (ICT) Implementation Constraints A Construction IndustryPerspectiversquo Engineering Construction and Architectural Management 13(4)364ndash379

Peansupap V and Walker D H T (2006b) lsquoInnovation Diffusion at theImplementation Stage of a Construction Project A Case Study of InformationCommunication Technologyrsquo Construction Management and Economics 24(3)321ndash332

Prather C W (2000) lsquoKeeping Innovation Alive After the Consultants LeaversquoResearch Technology Management 43(5) 17

Standing Committee on Industry S A R (1998) A sea of indifference ndash Australianindustry participation in the North West Shelf project Report CanberraAustralia Parliament of Australia House of Representatives ISBN 0 644 507888

Szulanski G (1996) lsquoExploring Internal Stickiness Impediments to the Transfer ofBest Practice within the Firmrsquo Strategic Management Journal 17(Winter SpecialIssue) 27ndash43

Van de Ven A H (1986) lsquoCentral Problems in the Management of InnovationrsquoManagement Science 32(5) 590ndash607

Walker D H T (2005) Having a Knowledge Competitive Advantage (K-Adv) ASocial Capital Perspective Information and Knowledge Management in a GlobalEconomy CIB W102 Lisbon 19ndash20 May Franciso L Ribeiro Peter D E LoveColin H Davidson Charles O Egbu and B Dimitrijevic DECivil 1 13ndash31

Walker D H T and Hampson K D (2003a) Enterprise Networks Partneringand Alliancing In Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Eds Oxford Blackwell PublishingChapter 3 30ndash73

Walker D H T and Hampson K D (2003b) Project Alliance MemberOrganisation Selection Procurement Strategies A Relationship Based ApproachWalker D H T and K D Hampson Eds Oxford Blackwell PublishingChapter 4 74ndash102

Walker D H T Maqsood T and Finegan A (2005) The Culture of TheKnowledge Advantage (K-Adv) ndash An Holistic Strategic Approach to theManagement of Knowledge In Knowledge Management in the Construction

Innovation and project alliances 421

Industry A Socio-Technical Perspective Kazi A S Ed Hershey PA Idea GroupPublishing 223ndash248

Walker D H T Wilson A J and Srikanathan G (2004) The KnowledgeAdvantage (K-Adv) For Unleashing Creativity amp Innovation in the ConstructionIndustry Brisbane CRC in Construction Innovation httpwwwconstruction-innovationinfoimagespdfs2001ndash004-A_Industry_Bookletpdf

Wood D J and Gray B (1991) lsquoToward a Comprehensive Theory ofCollaborationrsquo Journal of Applied Behavioral Science 27(2) 139ndash162

422 Rowlinson and Walker

Chapter 14

Business transformationthrough an innovativealliance

Alejandro C Arroyo and Derek HTWalker

Chapter introduction

In Chapter 3 stakeholders and the place of supply chain partners in projectprocurement delivery was discussed Chapter 5 linked strategy with creatingvalue in projects through procurement choices the translation of projectvision into managing portfolios of projects and strategically choosingprojects as well as aligning available resource combinations through strategicprocurement decision making Chapter 9 stressed the value of procurementchoices relating to forms of collaboration as triggering innovation Thesechapters underpin this case study chapter and provide a basis for extendingconcepts raised

A key aim of this book is to introduce the reader to a wider range ofconcepts of project value delivery through procurement decision makingthat has been generally available in a number of the business disciplesThe construction industry has had a growing focus on construction projectprocurement that other PM specialisations may learn valuable lessons from

The aim of this chapter is to provide an innovative example ndash where theproject involved transformation of the supply chain for a group of organi-sations in a realignment that allowed these companies to form a sustainablealliance centred on the construction delivery and operation of a fleet of riverbarges The way that these barges were procured and delivered representeda radical departure from lsquobusiness as usualrsquo to enable participating firms todeliver a sustainable competitive advantage in their normal operational busi-ness activities While the lsquoprojectrsquo may seem superficially straightforward itsstrategic nature allowing the parties involved to transform the way they didbusiness and find a means of synergistically sharing knowledge resulted inthis being a highly transformational project It is as much an example of achange management project and business transformation as one involvingbuilding a fleet of barges There is a dearth of readily available case studiesthat help us understand emerging PM practices from a Latin Americancontext and so this chapter also provides a useful source to help rectifythat deficit

This chapter is structured as follows The next section will outline thegeneral context and background of the project This is followed by a discussionof the underpinning theory that the case study illustrates and presents ndash thelsquowhatrsquo issues The following section then provides case study detailsexplaining the lsquohowrsquo and lsquowhyrsquo issues The last section provides an evaluationand discussion of implications for PM procurement practice

General context

An interest in PM techniques being used to enact a business transformationinformed this chapter One of the authors was intimately involved in aninnovative logistics project in South America involving a complex businesstransformation This occurred by moving from a standard business supplychain management (SCM) product delivery approach towards a PM approachthat integrated organisations previously characterised by a hands-offrelationship The experience introduced interesting and valuable insightsAll principal business participants described in this chapter are linkedthrough experience of working together in another innovative majortransformation ndash the lsquoAtlantic Corridor Projectrsquo

The Atlantic Corridor Project stems from an innovative way in which toaddress problems associated with the logistics of managing projects andcross-border business in a recently emerged trading block in South AmericaSouth America is embarking on an integrated economic and politicalenterprise ndash the Southern Market (Mercosur)1 Also a way to overcomeexisting logistical and trading problems within the region was to linkbusiness interests across the Mercosur in the development of a communityof practice (COP)2 project in which participants were able to virtually meetand take part in lsquointegrating forumsrsquo initially established through an onlinecommunity in various key points in Brazil and Argentina linking industrialhubs with consumer centres along the continent The aim of this project(the Atlantic Corridor Project) was to achieve through an improvedtransportation logistics infrastructure higher productivity and thus makeparticipants accomplish greater economies of scale (Arroyo and Walker2004) Several participants of the project (including the two team leadersunder study in this chapter) were members of that COP and have developeda measure of trust and sound business relationships as a consequenceThis relationship and COP notwithstanding the barriers to commerce aresignificant and real Further local and national media frequently concen-trate on national sentiments and so awarding contracts and conductingbusiness is subject to media pressure and interest that can negatively impactupon preferred business partnership formation in projects such as thatdescribed here

Globalisation pressures and increasing demand for resources by thestrongly emerging Chinese economy has been as fierce in Latin America as

424 Arroyo and Walker

elsewhere in the world The result of this emerging and sustained demandfor raw materials resources and guaranteed stream of supply by Chinesecompanies has not only driven up resource prices but also locked out manylocal recipients of these resources This prompts a re-evaluation of the waythat companies depending on local resources (in a region such as SouthAmerica) approach their business dealings in existing supply chain networksThe rules of the game in South America for steel manufacturers have changedwith the emergence of China as a major purchaser ndash for example hugedemands for iron ore and prevailing high priceslow availability for fuel usedin transporting bulk commodities by barge The geographical context of thiscase study adds to its complexity involving more than 2400 km of river nav-igation along one of the worldrsquos largest fluvial systems the ParanaacutendashParaguaywaterways linking Argentina Brazil Uruguay Paraguay and Bolivia Theproject case study focuses on the construction and operation of fully dedi-cated barge convoys to carry iron ore supplies ex Brazil to Argentina Moredetails of this fascinating project follow in a later section

Underpinning theory

This chapter draws upon SCM leadership business strategy and theory ofthe nature of organisations to reflect and make sense (Schoumln 1983 Weick2001) of the experience described in the case study Data were gatheredfrom documented experiences gained from personal interaction during thefirst project phases referring to project documentation generated during theproject and reflections on critical project-external incidents

SCM business relationships

SCM evolved from logistics management frameworks in the early 1980s(Lambert and Cooper 2000) Its acceptance also benefited from the conceptof value chains and the management of value-adding activities as being theway forward to achieve sustainable competitive advantage (Porter 1985Normann and Ramirez 1993 Womack and Jones 2000 Champion2001) Many standard manufacturing organisations have moved fromad hoc supply arrangements towards a more strategic lean SCM approach(Cox 1999) Advantages are well documented from a number of industrysectors including oil and gas computer component manufacturers chemicalindustry automotive and aerospace (Bessant et al 2003) SCM advantagesinclude better supply reliability improved quality culture alignmentbetween supply and producers and improved valuable knowledge transferleading to waste reductions improved competitive advantage to the partic-ipating chain of organisations and production simplification (Cox 1999Michaels 1999 Croom et al 2000 Dubois and Gadde 2000 Bessantet al 2003 Childerhouse et al 2003) Also a trend has emerged towards

Business transformation through alliance 425

project managers taking a supply chain management approach particularlyin the construction industry (Akintoye et al 2000)

This has been evident from project managers concentrating on workingmore closely and openly with fewer competing suppliers so that mutualunderstanding can reduce transaction cost inefficiencies caused by excessivenumbers of members of a supply chain wasting time developing quotes andtender proposals under extreme time pressures (Akintoye et al 2000)Reducing the number of competitors invited to quote for a contract (to afew well-qualified and credible suppliers) improves mutual understandingbetween parties and not only reduces risk and uncertainly relating to poorinformation and knowledge flows about the products to be delivered butalso results in improved relationship management leading to innovativemutual winndashwin problem solutions (Bessant et al 2003)

Thus SCM has either influenced how projects are being managed orthere has been a confluence of strategic thinking that has led projectmanagers to embrace SCM principles not only on projects but acrossprojects to programmes and portfolios of projects Tan (2001 41) linksSCM through corporate vision directly to strategic planning and fromthere to the development of processes designed to support tactical plansto execute an SCM strategy that delivers customer satisfaction which inturn generates sustainable business results This emerging theme has beenexplored and investigated in terms of how sophisticated organisations linktheir strategic management of projects programmes of linked and relatedprojects and whole portfolios of programmes (Morris and Jamieson2004) Thus the link between formerly isolated manufacturing activities(that relate to delivering an product or service) and a project (that deliversa specific outcome) has become increasingly evident as a value-creatingproposition delivered in a project management context using a variety oftools and approaches (such as SCM strategic positioning and generalproject management methodologies)

What has driven this evolution How can we better understand how thiscan be applied in practice In answering the first question two generalforces can be discerned as drivers First there are internal forces such asadoption of the evolving management theory and its practical applicationby senior managers PM advances have provided fertile ground for projectmanagers to experiment using theories (whether explicitly learned ordiscovered as part of osmosis from colleagues educational institutionsor general media sources) that they can test and refine ndash this is a form ofknowledge or innovation lsquopushrsquo Second there are strong knowledgeinnovation lsquopullrsquo forces at work The need for sustainable business devel-opment provides an acute force for organisational and individual membersrsquosurvival This force is manifested by the current acute competition on awider regional and global scale Customer (and supply chain stakeholder)expectations have also been sharpened with increasing demands for greater

426 Arroyo and Walker

value to be delivered Naturally force field analysis could unearth a lengthyfactor breakdown structure however two principal forces (pull and push) canbe generally used as a framework for understanding the evolution of thistrend Thus using this simplified framework on an interesting case study it ispossible to better understand how this business transformation is taking place

Strategic management influences andorganisational responses

Disruptive regionalisation and globalisation forces have challenged theway that many organisations can viably maintain a sustainable businessThese forces are organisation-external and must be responded to Chapter5 discussed the prescriptive strategic schoolsrsquo focus on strategy throughdesign planning and positioning that partially explain how strategy evolvesin a conscious way where it is sculpted from the situation Descriptivestrategy schools centre on motivation and what is going on in the mind ofstrategists be that entrepreneurial desire a cognitive psychology approachto explain decision-making processes a focus on learning with strategy asbeing an emerging experimental process a power process of negotiationand political decision making a cultural process by recognising collectivedecision making based on a variety of perceptions and assumptions of whatneeds responding to or an environmental process where strategy respondsto ndash rather than shapes ndash the environment in which strategic decisionmaking needs to be made The configuration school sees strategy as aprocess of transformation dynamically responding to periods ranging fromrelative stability to high levels of turbulence

In this case study the parties moved from a competitive stance where eachparty sought their part in any given projectrsquos supply chain through intensecompetition to one where they built a clustercoalitionalliance They didthis by forming a joint venture of selected supply chain members who theyfelt they could cooperate with This required significant change in businessprocesses and leadership style Through this action the group decided torespond to the turbulent external environment by leveraging social capitalgenerated through engagement on the Atlantic Corridor Project Their aimwas to transform the way they did business through their memberrsquosemergent learning and mutual adjustment They also leveraged their powerwherever possible to their advantage as a cluster to lock in materials supplyfor the steel manufacturing project partner and to provide synergistic busi-ness opportunities to other partners in the newly formed supply chain forthe project It was in some respects planned for but as we explain thestrategy also emerged and was highly wrapped up in the regionrsquos culture

The nature of the firm can be viewed from a number of perspectivesThe resource-based view (RBV) sees organisations as a set of competenciesand resources providing competitive advantage that can be deployed to

Business transformation through alliance 427

successfully undertake business activities (Conner and Prahalad 1996)Competencies have been argued as being a vital resource (Prahalad andHamel 1990) including knowledge (Conner and Prahalad 1996) Furtherorganisations now need to respond to turbulence and market uncertaintyby developing a set of dynamic capabilities that allow them to be flexiblelean responsive to disruptive change and become learning organisations sothat they can interact more effectively with both upstream and downstreamsupply chain members (Spender 1996 Teece et al 1997 Eisenhardt andBrown 1999 Eisenhardt and Martin 2000)

Courtney et al (1997) argue that in turbulent and rapidly changingcircumstances traditional strategic planning horizons are dangerously con-stricting and confining They categorise four levels of uncertainty withcorresponding strategic responses Level 1 with a clear enough future that canbe planned for using the traditional strategic toolkit as described by the posi-tioning school of thought (Mintzberg et al 1998 chapter 4) Level 2 withalternative futures lends itself to concentrating on a few discrete outcomes thatdefine the future using analytical tools game theory and so on Level 3 com-prises a range of possible outcomes but no natural scenarios where scenarioplanning can be used Level 4 is in the realm of true ambiguity with no basisto forecast the future so the main tools used for planning would be emergentby drawing analogies recognising patterns and using non-linear dynamicmodels Transformational organisational change will respond to the perceiveduncertainties and dynamic capabilities being developed by firms

Fenton and Pettigrew (2000) provide a comprehensive summary of workbased on the large-scale international INNFORM research programme(Pettigrew and Fenton 2000 37 Pettigrew et al 2003) They cite findingsfrom their study of European organisations that during 1992ndash1996 therewas a 65 increase in alliance formation and 65 increase in outsourcingThese turbulent changes have been driven by globalised competition andregionalised trading blocks Thus a distinct pattern of business supply chainpartner re-alignment and cooperative arrangements is becoming evident thatresponds to the emerging reality of global business In this context nationalboundaries seem to be increasingly irrelevant Globalisation particularlylsquofreersquo trade has forced organisations to be competitive not just within theirlocal context but to be able to withstand explicit and potential pressure fromcompetitors completely outside national boundaries Regionalisation miti-gates to some extent against globalised competition through countriesforming trading blocks where preferential treatment may be afforded toorganisations in member states ndash for examples in the European Union andthe Mercosur in Latin America However even within these trading blocksstiff competition arises out of the inevitable rationalisation and reconfigurationof infrastructure that can then force a disruptive influence on firmspreviously comfortably protected by national monopolies or local advantagespreferences

428 Arroyo and Walker

One recommended response to deal with these kind of external threatsand challenges is to form alliances or more closely working with clustersof organisations to be more competitive by working together rather thanseparately competing ndash as has been traditional in Japan (Anchordoguy1990) Clusters have naturally occurred within convenient geographicalproximity exemplified by the electronics industry in Silicon Valley theCalifornian wine industry and the fashion industry in Italy (Porter 1998)Clustering has been effective because it allows firms to act is if they hadgreater scale resources and capabilities whether that is through formal orinformal relationships with others in their cluster (Porter 1998 80)However this does require firmsrsquo leaders and managers to acquire anddevelop excellent relationship management skills because their new skillsrelate to effective persuasion and lobbying for collective action rather thanuse of command and control power The formation of clusters alliancesor forms of joint ventures is congruent with recent moves towards betterintegrated SCM (Croom et al 2000 Lambert and Cooper 2000) as high-lighted earlier Chapter 3 discussed how stakeholder management requiresan acute appreciation of the nature of trust and distrust and how thoseconcepts and the concept of commitment link to managing relationships

The emergence of SCM and clustering of organisations to respond toglobal and regional trading challenges has forced a change in emphasisin what can be considered as the main competencies of project managersand organisational leaders It is because these new structures requireadditional skills and competencies to previously reported leadership andPM characteristics (Kotter 2001) that include impact and influence-basedcompetences such as understanding power and influence processes (Bourneand Walker 2004) as well self-control and flexibility characteristics (Daintyet al 2003 2004 Dainty et al 2005) Principally amongst these is atransformational leadership style that matches the transformationalbusiness task that these firms face

Transactional leaders motivate subordinates to perform as expectedThey do this by helping them recognise task responsibilities identify goalsacquire confidence about desired performance levels and understand thattheir needs and the desired rewards are linked to goal achievement (Bassand Avolio 1994 53) There is an explicit or implicit understanding thatthe leader independently or with the follower specifies expectations with aperformance measurement system in place to reward desired behavioursand outputs The goals are defined and specified as are the means Avolio(1996 5) argues that transformational leadership requires lsquothe four Irsquos ndashIdealised influence Inspirational motivation Intellectual stimulation andIndividual considerationrsquo Transformational leaders motivate individuals toperform beyond expectations by inspiring them to focus on broadermissions transcending their own immediate self-interest concentrate onintrinsic higher-level goals (achievement and self-actualisation) and not

Business transformation through alliance 429

lower-level goals (safety and security) and be confident in their abilities toachieve the missions given by the leader (Bass and Avolio 1994) We canproject this behaviour beyond individuals to SCM behaviour that respectseach memberrsquos value proposition A mix of transformational leadership bythe lead agent in the supply chain can provide inspiration and vision andtransactional behaviour and the detail can be observed by governancearrangement behaviour (discussed in Chapter 4) and trustndashdistrust issues(discussed in Chapter 3) SCM and stakeholder management can be explainedin terms of leadership behaviours of the lsquoleadrsquo partners in the supply chainand the maturity of followership of others in the supply chain

This section reinforced theoretical discussion elsewhere in this book andprovides us with a useful view to analyse the case study reported upon inthis chapter It helps explain how an extremely turbulent business environmenttriggered change and how the experiences and relationships of principalparties to the alliance shaped their strategic SCM response

Case study details

The project comprised a highly customised design that was developedto suit a series of complex logistic constraints of a steel-manufacturingcompany belonging to a large transnational industrial conglomerateProject participants were located in Argentina and Paraguay Geographyinfluenced the project logistical design as it is an extremely complex processto transport steelmaking raw materials by river barge over 2400 km acrossnational borders along one of the worldrsquos largest river systems River bargetransport remains the most financially viable mode of transporting suchmaterials An important facet is that case study participants shared a pasthistory of business interaction and collaborated through the AtlanticCorridor Project e-collaboration3 network (Arroyo and Walker 2004) Thiscollaboration cemented trust and the necessary relationship commitmentand goodwill that provided the underpinning for attempting to transformthe way the collaborating firms participated in a valuesupply chain Thisinnovative approach represents an interesting example of a project (thatcould be seen as part of a programme or portfolio of projects) that helpsexplain how a business transformation was delivered through a series ofprojects in a portfolio of change initiatives

Physical outcome project general description

The specific project focused upon in this study comprised the constructionand operation of fully dedicated barge convoys to carry iron ore suppliesfrom Brazil to Argentina commencing in 2003 and phased over six yearsThe first phase comprised development and acceptance of an innovativelogistics design solution and its realisation through the construction of new

430 Arroyo and Walker

barges and leasing of existing barges The project had in-built replicationpossibilities to roll out a series of similar projects The following proposalas illustrated in Table 141 was accepted to describe the broad scope of thesix-year project (with the prospect of a larger follow-on project)

The first barge unit required 90 days to be built with a maximum of30 days for every subsequent built barge A group of 12 leased barges wassourced surveyed approved and chartered from one of the smaller bargeoperators Figure 141 illustrates a typical barge convoy A reliable riveroperator was introduced into the project team and persuaded to operate theconvoys under strict efficiency standards throughout the six-year contractduration Three potential shipyards were approached in Argentina BrazilParaguay and invited to bid for the barge-building contract using steelsheets for the barges to be supplied by the steel-manufacturing companyfrom one of its plants in Brazil

Business transformation through alliance 431

Table 141 Project proposal scope

1 One fully dedicated barge convoy 7 12 days sailing up-river 11 days12 months a year sailing down-river 2 days loading

unloading 1ndash2 days open2 Building 12 barges of 2500 tons each 8 Gross operational time 25ndash27 days

30000 tons capacity 1 trip every month3 One suitable tugboat of lsquopusherrsquo type 9 Total annual volume 250000 tons

basis 4500 horse power or ndash 10 basis 6 years contract4 Port Loading at Ladario Corumba 10 24 hours loading24 hours unloading

SobramilBrazil5 Speed 5 to 6 knots up-river and 11 Barge dimensions basis 65 m

8 to 9 knots down-river length by 15 m width6 Port Discharge at San Nicolaacutes 12 Building of new barges basis

Argentina US$490000 each

Figure 141 Typical barge convoy on the River Plate

This project presented logistical challenges within an increasinglycomplex business environment that demanded high levels of leadership andstrategy by participant executives (project team leaders) A high level ofenvironmental contextual uncertainity was presented by the global natureof the steel companyrsquos supply sources the impact upon global buyers andsellers of Chinarsquos raw materials demand and the business practices ofshipowners and port terminals During the 1990s the river transportationindustry was sharply re-engineered with introduced capital concentration tosubstantially replace ad hoc casual service provision and lack of effectivecompetition Also the river operatorsrsquo behaviour made leasing agreementswith a smaller number of dominant river operators highly problematicTactics used by one operator over its rivals included instigating prolongedlegal challenges over dubious unpaid debts and seizing chartered bargesThis illustrates the tough and antagonistic business negotiating style thatexemplified the river operatorsrsquo business culture

Change management general description

Table 142 illustrates the project participant context The steel-producingfirm in the consortium had to quickly adapt to a changing business contextto meet urgent steel production supply needs whilst meeting steel exportdemands Achieving this project was of utmost importance to meet growingexports by supplying the steel companyrsquos recently opened production line asa way to capitalise on an increasing international price for steel productsThe steel firmrsquos vision was to transform itself through an innovative processbased on improving business performance and continued efficiency as a wayto compete in the global market while completely changing the way decisionmaking was made

Manu S was under intense pressure exerted by accelerating global marketforces that were driving up costs of raw resources from Brazil used forsteel manufacturing products in its Argentinean plant and thus radicallychanging demand patterns Chinarsquos rise as a major economy over recentyears demanding greater iron ore and related resource supplies placedtremendous pressures on Manu S

Iron ore and magnesium reserves (that are key raw materials utilised inthe steel industry) in the Matto Grosso do Sul area of Brazil is estimated at150m tonnes Argentina lacks these strategic minerals and is thereforeincreasingly dependent on Brazil as a supply source for globally exportedsteel manufacturing products Steel that is produced not only suppliesArgentinarsquos domestic market but also generates foreign currencyTraditionally a single Argentine multinational group dominated thiscommercial activity with supply sources globally spread to avoid anysupply concentration that might negatively impact on the production

432 Arroyo and Walker

cycle or on their supply chain Supply sources were utilised as needed bybalancing the opportunity cost of stockpiling materials versus shipping it ona just-in-time basis from a limited set of sources About one-quarter of thesupply needs was thus allocated in a highly transitionally minded mannerto historical supply origins of raw materials providers as indicated inTable 143

Business transformation through alliance 433

Table 142 Project participant context

Critical playersSteel manufacturing company (Manu S) is based in Buenos Aires with 4000 employeesand showing an annual turnover exceeding US$1 bn belonging to an industrial con-glomerate with annual sales of US$32 bn and 16000 employees worldwideTheArgentine steel manufacturing company at present operates with global efficiencydepends upon global cooperation works on global basis is customer-focused and hasintegrated its worldwide products and associated services supply chain

Logistic consulting company (Logi L) is a Buenos Aires-based firm specialising in theformulation and implementation of complex logistic designs with offices all overLatin America to service its clientrsquos logistic projects in areas of difficult physical accessThey are highly specialised in providing logistics advice in the oil gas power infrastructureand mining industry sectors Customers are large transnational corporations undertakingprojects throughout the Latin American regionThis company possesses a great volumeof tacit knowledge that is very difficult to imitate in an ever-increasing market position

Barge operator company (Barge B) is based in Asuncioacuten in Paraguay this is one of thevarious river transportation firms that went through a re-engineering process duringthe 1990s by disposing of most of their floating assets and shore facilities It maintaineda very efficient small operation based on its deep knowledge solid planning and soundstrategy and was probably the only remaining operator skilful enough to undertakethis project and to deal with large powerful and demanding transnational firms

Instrumental playersBarge Brsquos shipping agent based in Buenos Aires and a barge owner himself during the1990s and ex-partner of the Paraguayan barging company acted as a cultural bridgeand managerial interpreter between the Argentine steel transnational and theParaguayan barge operator

Shipyards competing shipyards in Argentina Paraguay and Brazil actively influencedthrough lobbying both critical and instrumental playersTheir technical skills socialcontacts and community impact were some of the variables cleverly utilised by theshipbuilders and the client

Competition if competitors perceived that capital concentration provides too muchdominance over the waterways market in this part of South America then therewas a potential threat that competitors would tend to retaliate to impede theaccomplishment of the project however this threat was not significant due to theirshort-sighted strategy of relying excessively on their market dominance

Banks these were purely instrumental in approving or rejecting the project from afinancial standpoint

Media were instrumental in lobbying for the location where barge building was goingto take place

The situation represented by the case study is one of a highly volatile andturbulent environment The impact of Chinarsquos entry into the globalprocurement scene of acquiring steel production resources could have pro-vided a tipping point (Gladwell 2000 Kim and Mauborgne 2003) tippingthe balance between a past regime of one environment to anotherEstablished relationship power balances and emerging ways of workingglobally have been changing to the extent that past ways of operating arechallenged in todayrsquos global competition context Corporate players see thissituation as a business reality and need to adapt and align their actions tothis reality for survival

434 Arroyo and Walker

Table 143 Project steel products supply source characteristics

Matto Grosso do Sul ndash Brazil rated as of very good product quality though of poorlogistic performance with barge convoys sailing 2400 km along the ParanaacutendashParaguaywaterways Reaching the final destination on time and on budget involved a numberof difficult operational and commercial constraints Critical stocks had to be increasedwhile this supply sourcersquos relative share tended to diminish to accommodate othercustomers

Newcastle and Fremantle ndash Australia relatively lower quality iron ore was regularlysupplied on ocean-going vessels in shipments of up to 40000 tons ships of 60000tons deadweightThese vessels had high capacity but were underutilised due to RiverPlate draft limitations (meaning higher ocean freight rateston) though this was usefulin offsetting supply shortfalls arising out of waterway logistic bottlenecksA fullshipment from Australia delivered 40000ndash45000 tons with 30 days transit timewhereas a full convoy on the waterways often represented a tonnage ranging from18000ndash30000 tons and a transit time of 15ndash60 days It became clear that thevariability of volumes to be carried and sailing times on the waterways wasdisadvantageous even without considering port congestions at the Brazilian terminalsRiver draft variability was subject to a dynamic seasonality and further regulatoryframework constraints

Mobile USG ndash Alabama United States although the product was of high qualityand the transit time andor certainty of physical delivery was much better than thosepreviously mentioned draft limitations on the River Plate limited the size of vesselsand so logistics economies of scale were not achievedThis supply source resulted inbeing similar to that of Australia However Mobile was an efficient supply source ableto quickly offset any shortfall of other sources owing to its relative geographicalproximity and ample ship tonnage supplyThese variables were reinforced by existingeasy access to the commercial or negotiating channels to reach both shippingcompanies and qualified shipbrokers However this supply source also started todiminish with an increasing degree of preference to serve customerrsquos orders comingfrom ChinaThis choice resulted in relatively larger volumes being available andhigher prices being demanded for the product than was the case for being deliveredvia the River Plate

SepetibaTubarao Carajas ndash North Eastern Brazil quality was not the best thoughproduct delivery response by the producer and transit times resulted in being close tooptimal However continuous labour strikes unannounced port lock-outs and the RiverPlate draft limit ndash affecting all ocean sources alike ndash effectively restricted this relativeshare of the supply source to no more than one-fourth and often less than that

We will first argue that Logi L had a transformational impact uponManu S but we also argue that the project-external environment plays asignificant part in determining Manu Srsquos behaviour and how this behaviourrepresented a significant change in the way its leadership group behavedand that it realigned its strategic direction

The outcome was that Manu S accepted Logi Lrsquos proposal that requireda radical change in Manu Srsquos behaviours towards procuring its resources forits business operation It had to move from a highly transactional approachthat played raw material suppliers barge operators and port operators inthe logistical supply system against each other to get the cheapest price forservice towards a more sustainable negotiated settlement of long-termcontracts backed up by real commitments for performance Given the riversystemrsquos logistical supplierrsquos historical short-termism poor safety recordand general unreliable performance the transformation evidenced byManu S can be regarded as remarkable and worthy of scrutiny throughthis case study analysis The project was successfully delivered and provideda model for an extension to this approach This has changed businesspractice and procurement decisions for Manu S for this aspect of itsbusiness activity

Discussion of the case study context

One of the first issues to be explored in making sense of this case studyis trying to understand Manu Srsquos strategic quandary During and beforethe early 1990s Manu S enjoyed a commanding position in sourcing rawmaterials with a number of service and materials suppliers that could beplayed against each other

Further many river operators involved in transporting materials hadbeen fragmented with their behaviours being highly opportunistic withformal supply agreement contracts being broken when it suited them riskinglegal redress or financial penalties that were deemed less damaging forexample taking opportunities to undertake short-term transport work athigher rates than committed to by Manu S This behaviour locally translatedin English as being lsquoinformalrsquo ranged from breaking contractual commit-ments asserting losses from sinking or grounded barges and thus makinginsurance claims and other practices that would be considered unethicalprobably illegal and certainly not representative of behaviour that can forgealliances or sound relationships This represented a pressure for Manu S topursue a highly transactional approach to business relationships with itssupply chain for the procurement of raw materials along that supply chain

In addition lsquobest valuersquo represented cheapest price to Manu SMaintaining lsquosafersquo stock levels could be optimised by taking advantage ofa balanced supply that offered options where one potential supply sourcefailure could be compensated by another readily available source While the

Business transformation through alliance 435

costs of a short-term poor choice could be inconvenient it could neverthelessbe mitigated against the organisationrsquos purchasing power Yukl (1998)describes various bases of power including legitimate power in which thelegitimacy of being the major client can force subservient behavioursTable 143 indicates that Manu S had a number of options Until the emer-gence of China as an economic power affecting demand for raw materialsto make steel there was an equilibrium position where despite earlierhighlighted difficulties Manu S had the upper hand in any negotiationsover any supply and logistics procurement system providers This situationchanged as the demandndashsupply equation tipped in the late 1990s to early2000 period Thus a shock was administered to a hitherto relatively stablesituation even though experience indicated that the supply of river trans-portation services could be characterised as an unprofessional and chaoticscramble determined by the actions of many small-time wildcat operatorsseeking short-term gains This ad hoc situation was gradually choked off bythe consolidation of many of the wildcat barge operators and river portoperators into a more dominant smaller number of operators who shapedtheir business potential

Two driving forces can be identified First the force of Chinarsquos globalemergence tipped the balance of existing demand patterns to transform thenature and scale of resource supply and delivery demands The cost of bothsteel raw materials and oil used as fuel for transportation and energy rosesubstantially Second there was a consolidation and rationalisation in riverlogistics distribution system suppliers This left Manu S vulnerable in bothareas of raw procurement and a reliable distribution system Both factorshad a detrimental impact upon the coercive and legitimate power positionthat Manu S could maintain

The emergence of the Mercosur and the experience that Manu S sharedwith Logi L in being engaged in other cooperative ventures opened uppossibilities for Manu S moving from a highly transactional business strategyto a relationship-based one The important competitive advantage shiftedfrom a cost-based advantage built upon price-dominant power to a sharednetwork of contributors model where more sophisticated trade-offs occurthat at one level are transactional (the lsquowhatrsquos in it for mersquo syndrome) Thisled to a more relational and long-term strategy where the dominant directiveis potential and realisable synergies in the near or long term with a trustthat the potential will be not only realised but that it will be realised to amore fruitful extent than is likely in the purely transactional approachManu S has a track record of being very sophisticated in recognising oppor-tunities and so it is not surprising that it would be open to transformationalinfluences provided that benefits are apparent and perceived as realManu S showed a propensity to manage both transactional and transfor-mational behaviour The experience that Manu S developed by working onthe project through the interaction with Logi L and Barge B opened up

436 Arroyo and Walker

possibilities for an innovative approach to solving a supply chain problemin which Manu Srsquos board approved changes that triggered transformationalchange to its project leadership team role

Making sense of the case study

Stakeholder management behaviour of the supply chain was indicated bythe mix of transactional and transformational leadership style Transactionalleaders motivate subordinates to perform as expected by helping themrecognise task responsibilities identify goals acquire confidence aboutdesired performance levels and understand that their needs and therewards desired are linked to goal achievement (Bass and Avolio 1994 53)There is an explicit or implicit understanding that the leader specifiesindependently or with the follower a set of expectations and there is aperformance measurement system in place to reward desired behavioursand outputs The goals are defined and specified as are the means

In this case study Logi L had transformational leadership behaviour inits role of proposing and facilitating innovative approaches to logistics andengaging Players S and B to support and experiment with this idea

In many respects management can be seen as transactional that is gettingthings done through shifting balances of power towards an acceptablesolution as a set of compromises amongst conflicting values Leaders tend tobe transformational in that they develop fresh approaches to long-standingproblems They project their ideas onto images that excite people to givethese ideas substance (Zaleznik 1977) Manu S clearly took an organisation-ally transformational approach to its PM approach on this project with itsboard supporting its continuance and growth towards a second and potentialthird contract in this form

The fluctuations in oil prices rises in raw material prices due to Chinarsquosdemand and changes in the river transport operatorsrsquo structure provideduncertainty but these could be classified as presenting a Level 2 or Level 3uncertainty (Courtney et al 1997) The required strategic responses to thislie between Level 2 a lsquoclear enough futurersquo where a single forecast preciseenough for determining strategy could be employed and Level 3 lsquoalternatefuturesrsquo where a few discrete outcomes that define the future could beemployed Uncertainty can prove a trigger that forces organisations tochange their decision making and strategic approaches forcing adaptationto changed circumstances in order to survive (Meyer et al 1990)

Transformation such as that experienced by case study participants overthe past decade can be seen as typical of evolving environments whereperiods of relative equilibrium are punctuated by radical discontinuouschanges Gersick (1991) draws upon change theory occurring in individualsgroups organisations scientific fields biological species and a grand theoryapproach to argue that change occurs in this way when the deeper structures

Business transformation through alliance 437

that maintain equilibrium are challenged and forced to adapt to newconditions and that these can be stabilised until that equilibrium issufficiently challenged to require a revolutionary change This links to theclassical model put forward by Lewin (1947) in which study of the forcesacting upon a system can lead to an action plan in which a three-step modelof unfreezing moving forward towards a new stable state and then re-freezingtakes place The change management approach advocated by Lewin can beseen as a transformational process If we look at this case study from anindustry level we can use the model developed by Meyer et al (1990) to seeadaptation taking place as an evolution process where industry playerstrack small changes and adapt accordingly until the adjustments madecause internal tensions that create abrupt or revolutionary change becausethe previous system can no longer support the large numbers of smallchanges At the firm level managers and leaders instigate incremental changesoften using a transactional leadership style to cope with evolutionary changeuntil the situation reaches a revolutionary change point where as proposedby Greiner (1998) metamorphosis is required This requires organisationaltransformation as well as transformational leadership The strategy of beinglsquokingrsquo and directly procuring and organising raw material purchasingas well as completely outsourcing transportation logistics was becomingincreasingly difficult and uncertain in its outcomes

Further the situation was moving from a more loosely coupled systemtowards a more tightly coupled one because the slack and contingency rawmaterials storage capacity strategies that protected Manu S against poorlogistics performers was no longer adequate and also the opportunity costwas commercially unviable Manu S was being squeezed through globalisa-tion to move towards being more competitive and was also pursuing a dualstrategy of cost reduction and innovation in its SCM This indicates a focuson strategic competitive advantage (Porter 1990) The case study projectwith its relational based characteristics (of an integrated material deliverysystem of a dedicated barge convoy strictly compliant with safety and better-business practices as opposed to the previous informal ad hoc approach)indicated a transformational shift by Manu S influenced by Logi Lrsquos offeredproposal Manu S can be viewed as behaving in a transformational mode inresponse to being partially influenced by the transformational style ofmanagement by Logi L However Manu S still exhibited strong transac-tional behaviours with this being influenced by its organisational cultureManu S senior managers tend to mainly come from an engineering back-ground where analytical skills attention to detail and highly cost consciousvalues prevail and where the observed culture was also very homogeneousin terms of this engineering background as the career path

Much of the external pressures placed upon Manu S by the externalenvironment led Manu S towards a managerial and transactional stanceTwo examples of this are offered the impact exerted by a rising Chinese

438 Arroyo and Walker

dominance on the demand and supply balance for business interactionsthat Manu S has with its supply chain and the opportunities andchallenges triggered by a changing landscape of consolidation of previouswild-cat barge and port operators along the river system that were usedto transport vital resources The problems being addressed and solvedrelated to optimisation of returns for Manu S Also how to cope with achaotic and turbulent business environment where the relative stabilityof lsquorulesrsquo or modus operandi was subject to power shift changes away fromManu S as lsquokingrsquo to one where it was pitted against Chinese trading intereststhat began to dominate the change in preferred business partner

Prior to the changed environment becoming a clear and present dangerto Manu S a relatively stable environment dominated this situation whereManu S had sufficient market power and range of suppliers to be able tooptimise its raw material stockpiles between what was needed for immediateproduction and what was needed as a buffer stock Finished steel pricesfor manufacturing prior to the emergence of China as a mass marketincreased from 2001 to 2004 by some 70 (see oil and gas journalwwwogjonlinecom) Manu S responded to this changed environment byinvesting in a new plant to cope with growing demand However thistriggered greater pressure to ensure raw material supplies and be able totransport that supply as well as transport finished goods to customerswithin the Mercosur Thus the balance of power shifted for Manu S from asituation of dominance to being a contributing part of a broad supply chainfor its products that included the important transportation link in thatchain This established a need for Manu S to improve its relationship andvalue chain management with participants in its supply chain

The response that Manu S adopted was to join in this project as an activeparticipant and to follow through with plans to repeat the experiencefor further similar projects ndash adopting organisational transformationThe business transformation triggered by the participation of Manu Swas managed as a project Risk management planning coordination costmanagement and all the usual aspects of project management methodologiesand body of knowledge (PMI 2004) were applied

Manu S saw no need to be intimately involved with the business ofriver logistics prior to the transformation considering that river logisticswas outside its core competencies However Manu S senior executivesshifted their stance in agreeing with the view that outsourcing lsquooftenmeans becoming hostage to providers who may feel tempted to graduallyraise prices and reduce servicesrsquo (Auguste et al 2002 54) They recog-nised that by participating in this project they could gain better valuefrom the relationship in terms of reducing the uncertainties that theyfaced or at least to better cope with the market and physical uncertain-ties They were able to better shape in conjunction with Logi L andBarge B a more attractive future including the business generated from

Business transformation through alliance 439

supplying the steel to construct the barges to be used while helping tostabilise the uncertainty they faced Thus they were able to transform asevere business threat into an opportunity They also positionedthemselves through this project to be in a better position to learn fromthe experience and to fine-tune the next iteration

440 Arroyo and Walker

Table 144 Summary of aspects relating to this book

Chapter ndash perspective Comments and discussion

Chapter 1 ndash The value proposition of the supply chain members wasValue proposition extremely important to supply chain members By choosingand make-or-buy an alliancejoint venture procurement form Manu S continueddecision its outsourcing strategy but brought the players closer to its

organisational coreChapter 2 ndash The barge fleet aspect of the project was akin to an engineeringProject type and project but it also involved a major change management procurement project with highly complex and evolving high relational andchoice integrated design and delivery aspects and also making

large-scale cultural adaptationsChapter 3 ndash A high level of supply chain team stakeholder managementStakeholder effort was evident through undertaking the transformationmanagement from lowest cost to a relational basisThe project focused

upon SCMChapter 4 ndash The trust and distrust issues needed to be considered andGovernance designed into the arrangement with an appropriate governance

frameworkChapter 5 ndash The case study was centred on a strategic decision to changeBusiness strategy the way that this kind of project would be procured for

Manu S It went from a hand-off supply of steel raw materialssupply to an integrated SCM using an emergent approachtriggered by business turbulence

Chapter 6 ndash There were performance measures built into the procurementPerformance system but space limitations inhibited us from discussingmeasurement these in depth

Chapter 7 ndash There were no e-business issues raised here though primeE-business players first collaborated through an e-informing interactive

portal developed as a means of triggering collaboration (the Atlantic Corridor Project)

Chapter 8 ndash The chosen procurement approach promoted knowledgeInnovation and sharing and organisational learning across the supplyorganisational chain for the approach to worklearning

Chapter 9 ndash The change management aspects had many links to this chapterCultural both from a cross-national and organisational culturedimensions perspective

Chapter 10 ndash This case study did not address any of the issues raised in thisSelecting and chaptergrowing talentedpeople

Conclusions

The case study demonstrates the context and indicates the drivers thattriggered a transformation in the organisation and management style ofManu S This player moved from a totally transactional approach to one offorming a partnership and while it is true that many transactional elementsremain (such as requirements that indicate a concurrent healthy trust anddistrust mitigated by governance by contracts and more tightly bindingagreements with the project partners) the change in business practice couldbe classified as transformational The leadership style indicates mixedtransactional and transformational elements Strategic decision makingin the case study is consistent with a configuration strategic approach(Mintzberg et al 1998) This led to behaviours that supportedimproved SCM and stakeholder management that were designed into theprocurement choice

The trigger for the transformation appears to be mainly contextual Thechanged environment demanded more than adaptation for survival with arequired metamorphosis in business practice Logi Lrsquos offering to design alogistics solution with the key Barge Brsquos involvement facilitated this Logi Lcould be seen as having a particular transformational leadership influenceupon Manu S Both Logi L and Barge B had important deep tacit knowledgeto contribute to help Manu S make the necessary logistics business modeltransformation

The purpose of this chapter is to provide a practical case study exampleof a project procurement decision and how it links to theory discussedin other chapters in this book This chapterrsquos focus centres on strategicdecision making SCM and to some extent stakeholder management

Analysis of this case study helps us to make sense out of a messy anddifficult situation that faced Manu S using a range of management theoryand literature Table 144 provides a summary of lessons from the casestudy linked to the chapters presented in the book

Notes

1 The Mercosur was established like the European Union to better integrate thecommercial political and cultural life of its block of members These membercountries include Argentina Bolivia Brazil Chile Paraguay and Uruguay withPeru Venezuela Mexico and South Africa as potential future members Emergingtrading blocks have to overcome a bewildering array of local laws and regulations(national as opposed to cross-country legislation as well as harmonising cross-country legal requirements) that impede their integration goal While many ofthese laws and codes are explicit their interpretation and application is subject toa great deal of tacit knowledge A further Mercosur aim is to rationalise andimprove integration of its infrastructure and logistical transport systems

2 See Chapter 8 for further details of COPs and their role in knowledge sharing andproblem solving

Business transformation through alliance 441

3 Participants from remote and central regions across the Mercosur agreed to meetonline twice monthly in a virtual meeting place with the aim of finding ways tosolve logistical problems within a 24-hour period

References

Akintoye A McIntosh G and Fitzgerald E (2000) lsquoA Survey of Supply ChainCcollaboration and Management in the UK Construction Industryrsquo EuropeanJournal of Purchasing amp Supply Management 6(3ndash4) 159ndash168

Anchordoguy M (1990) lsquoA Brief History of Japanrsquos Keiretsursquo Harvard BusinessReview 68(4) 58ndash60

Arroyo A C and Walker D H T (2004) A Latin American Strategic Communityof Practice Experience 18th ANZAM Conference Dunedin New Zealand 8ndash11December ANZAM 11 pages on CD-Disk proceedings

Auguste B G Hao Y Singer M and Wiegand M (2002) lsquoThe Other Side ofOutsourcingrsquo The McKinsey Quarterly (1) 52ndash64

Avolio B (1996) Whatrsquos All the Karping About Down Under In Leadership researchand Practice Parry K W Ed South Melbourne Pitman Publishing 3ndash15

Bass B M and Avolio B J (1994) Improving Organisational EffectivenessThrough Transformational Leadership London Sage

Bessant J Kaplinski R and Lamming R (2003) lsquoPutting Supply Chain LearningInto Practicersquo International Journal of Operations amp Production Management23(2) 167ndash184

Bourne L and Walker D H T (2004) lsquoAdvancing Project Management in LearningOrganizationsrsquo The Learning Organization MCB University Press 11(3) 226ndash243

Champion D (2001) lsquoMastering the Value Chainrsquo Harvard Business Review79(6) 108ndash115

Childerhouse P Hermiz R Mason-Jones R Popp A and Towill D R (2003)lsquoInformation Flow in Automotive Supply Chains ndash Identifying and Learning toOvercome Barriers to Changersquo Industrial Management amp Data Systems 103(7)491ndash502

Conner K R and Prahalad C K (1996) lsquoA Resource-based Theory of the FirmKnowledge Versus Opportunismrsquo Organization Science A Journal of theInstitute of Management Sciences 7(5) 477ndash501

Courtney H Kirkland J and Viguerie P (1997) lsquoStrategy Under UncertaintyrsquoHarvard Business Review 75(6) 67ndash81

Cox A (1999) lsquoPower Value and Supply Chain Managementrsquo Supply ChainManagement 4(4) 167ndash175

Croom S Romano P and Giannakis M (2000) lsquoSupply Chain Management AnAnalytical Framework for Critical Literature Reviewrsquo European Journal ofPurchasing amp Supply Management 6(1) 67ndash83

Dainty A R J Cheng M-I and Moore D R (2003) lsquoRedefining PerformanceMeasures for Construction Project Managers An Empirical EvaluationrsquoConstruction Management amp Economics 21(2) 209ndash218

Dainty A R J Cheng M-I and Moore D R (2004) lsquoA Competency-BasedPerformance Model for Construction Project Managersrsquo ConstructionManagement amp Economics 22(8) 877ndash888

442 Arroyo and Walker

Dainty A R J Cheng M-I and Moore D R (2005) lsquoA Comparison of theBehavioral Competencies of Client-Focused and Production-Focused ProjectManagers in the Construction Sectorrsquo Project Management Journal 36(2) 39ndash49

Dubois A and Gadde L-E (2000) lsquoSupply Strategy and Network Effects ndashPurchasing Behaviour in the Construction Industryrsquo European Journal ofPurchasing amp Supply Management 6(3ndash4) 207ndash215

Eisenhardt K M and Brown S L (1999) lsquoPatching Restitching BusinessPortfolios in Dynamic Marketsrsquo Harvard Business Review 77(3) 73ndash82

Eisenhardt K M and Martin J A (2000) lsquoDynamic Capabilities What AreTheyrsquo Strategic Management Journal 21(1011) 1105ndash1121

Fenton E M and Pettigrew A (2000) Theoretical Perspectives on New Forms ofOrganizing In The Innovating Organization Pettigrew A and A M Fenton EdsThousand Oaks CA Sage 1ndash46

Gersick C J G (1991) lsquoRevolutionary Change Theories A Multilevel Explorationof the Punctuated Equilibrium Paradigmrsquo Academy of Management Review16(1) 10ndash36

Gladwell M (2000) The Tipping Point London AbacusGreiner L E (1998) lsquoEvolution and Revolution as Organizations Growrsquo Harvard

Business Review 76(3) 55ndash68Kim W C and Mauborgne R (2003) lsquoTipping Point Leadershiprsquo Harvard

Business Review 81(4) 60ndash70Kotter J P (2001) lsquoWhat Leaders Really Dorsquo Harvard Business Review 79(11)

85ndash96Lambert D M and Cooper M C (2000) lsquoIssues in Supply Chain Managementrsquo

Industrial Marketing Management 29(1) 65ndash83Lewin K (1947) lsquoFrontiers in Group Dynamicsrsquo Human Relations 1(1) 5ndash41Meyer A D Brooks G R and Goes J B (1990) lsquoEnvironmental Jolts and

Industry Revolutions Organizational Responses to Discontinuous ChangersquoStrategic Management Journal 11(5) 93ndash110

Michaels L M J (1999) lsquoThe Making of a Lean Aerospace Supply Chainrsquo SupplyChain Management 4(3) 135ndash145

Mintzberg H Ahlstrand B W and Lampel J (1998) Strategy Safari TheComplete Guide Through the Wilds of Strategic Management London FinancialTimesPrentice Hall

Morris P W G and Jamieson A (2004) Translating Corporate Strategy intoProject Strategy Newtown Square PA PMI

Normann R and Ramirez R (1993) lsquoFrom Value Chain to Value ConstellationDesigning Interactive Strategyrsquo Harvard Business Review 71(4) 65ndash77

Pettigrew A and Fenton E M Eds (2000) The Innovating Organization SeriesThe Innovating Organization Thousand Oaks CA Sage

Pettigrew A Whittington R Melin L Saacutenchez-Runde C van den Bosch F A JRuigrok W and Numagami T (2003) Innovative Forms of OrganizingThousand Oaks CA Sage

PMI (2004) A Guide to the Project Management Body of Knowledge SylvaNC Project Management Institute

Porter M E (1985) Competitive Advantage Creating and Sustaining SuperiorPerformance New York The Free Press

Business transformation through alliance 443

Porter M E (1990) The Competitive Advantage of Nations New York Free PressPorter M E (1998) lsquoClusters and the New Economics of Competitionrsquo Harvard

Business Review 76(6) 77ndash90Prahalad C K and Hamel G (1990) lsquoThe Core Competence of the Corporationrsquo

Harvard Business Review 68 (3) 79ndash91Schoumln D A (1983) The Reflective Practitioner ndash How Professionals Think in

Action Aldershot BasiAshgate ARENASpender J-C (1996) lsquoMaking Knowledge the Basis of a Dynamic Theory of the

Firmrsquo Strategic Management Journal 17(Winter Issue) 45ndash62Tan K C (2001) lsquoA Framework of Supply Chain Management Literaturersquo

European Journal of Purchasing amp Supply Management 7(1) 39ndash48Teece D Pisano G and Shuen A (1997) lsquoDynamic Capabilities and Strategic

Managementrsquo Strategic Management Journal 18(7) 509ndash533Weick K E (2001) Making Sense of the Organization Oxford Blackwell

PublishersWomack J P and Jones D T (2000) From Lean Production to Lean Enterprise

In Harvard Business Review on Managing the Value Chain Review H BEd Boston MA Harvard Business School Press 221ndash250

Yukl G (1998) Leadership in Organisations Sydney Prentice-HallZaleznik A (1977) lsquoManagers and Leaders Are They Differentrsquo Harvard Business

Review 55(3) 126ndash135

444 Arroyo and Walker

Index

3BL see triple bottom line (3BL)3M 154 4164 Is concept of organisation learning

154 2654-quadrant model 36ndash74-stage framework 58ndash95 level maturity model 167ndash99-cell matrix 259

accountability 130 132acquisition of resources 43ndash4activity dimension 10ndash11administration 60ndash1 129advisory board role in governance

130ndash1affective commitment 81agency 47aggregation 92ndash3Akkermans HA and colleagues

219ndash20alliance management team

(AMT) 390alliance projects 298alliance relationship development

model 391ndash3alliances 250ndash6 collaborative 408

continuing 381 cooperative 408definitions 379ndash80 factors forsuccess 380ndash1 strategic 406ndash7

alliancing 54 298ndash301 322ndash3 340alliance relationship developmentmodel 391ndash3 organisationaldevelopment 389ndash93 research studysee research study alliancingselection of alliance partners 383ndash6staff selection 387 theoretical basis406ndash9 trust 388ndash9 390 392ndash3Wivenhoe alliance project 404ndash6

workshops for relationship buildingand development 386ndash8

Allinson RE 104analysers 249 259analysis of needs 56application in innovation 402application software development 37appointments procurement process 56approaches to procurement BOT

arrangements 50ndash2 combinedproject management and constructionmanagement (PMCM) 47ndash8Construction Management (CM)46ndash7 design and construct (DC)47ndash50 Novation 49ndash50 projectmanagement (PM) 47 total package50 traditional 45ndash6 Turnkey 50

appropriate practice 76arms-length pricing 23 24arms-length transactions 24assembly breakdown structure

(ABS) 35assessment centres 333ndash4assets intangible 191Atlantic Corridor Project 424

427 430Australia 16 17 22 296Auto Exchange 218AUTOVIA 218

Baccarini D 179ndash80balanced PPM scoring model 164ndash6balanced scorecard (BSC) 164ndash6

183ndash90Bangkok Second Stage Expressway

51ndash2bargaining power 248Barnatt Christopher 214ndash15

Bartheacutelemy J 20behaviour ethical 106 127benchmarking 202Bentham Jeremy 110Bessant J and colleagues 76ndash7best value choices for 58ndash9BHP Billiton 211ndash12Blomquist T 161board of directors role in governance

130ndash1Bontis N and colleagues 153ndash4bonus payments 338bottom-up approach 33boundaries 260Bourne L stakeholder management

research 77ndash90Bovis Lend Lease 120 233Brisbane Water Environmental Alliance

Supply project 298ndash301brokers 131Build Own Operate and Transfer

(BOOT) projects 43 see alsoapproaches to procurement

Building Information Modelling (BIM)225ndash32

burnout 317ndash19business case 9 10business delivery project management

office 371ndash4business to customer (B2C) 216business to government (B2G) 216buyers bargaining power 248buy-in by top management 302

capability maturity models (CMM)199ndash204

carbon credits 121ndash2Cartwright Chris 168ndash9case management 143case study developing a centre of

excellence 358ndash76 business deliveryproject management office 371ndash4context and history 359ndash61definition and purpose of projectmanagement office 361ndash5evaluation of project managementoffice 374ndash5 organisation projectsupport office 368ndash71 projectmanager support office 365ndash8rationale for project managementoffice 360ndash1 relationship of casestudy to key topics 376

case study supply chain management424ndash41 business relationships425ndash7 change management 432ndash5context 424ndash5 435ndash40 discussion437ndash40 logistics company 435ndash7project description 430ndash2 projectparticipant context 433 relationshipof case study to key topics 440 steelmanufacturer 435ndash40 steel productssupply source characteristics 434strategic management influences andorganisational responses 427ndash30

case study Wivenhoe alliance project400ndash19 alliancing 404ndash6background to the project 409ndash10capture and measurement ofinnovation 415ndash16 change inworking practices 414ndash15collaboration 413 constructioninnovation 413 context andtheoretical background 400ndash9design innovation 412ndash13discussion 416ndash17 innovation andknowledge sharing 401ndash3processproduct innovation 414project learning system 410relationship of case study to keytopics 418ndash19 sustainability 411theoretical basis of alliancing 406ndash9value management 410ndash11

case study the Wivenhoe Dam projectemployee interviews 324ndash5employee questionnaire 323ndash4work-life balance 321ndash6

challenges 39 300ndash1champions 131ndash2change management 223characteristics relational and cultural

42ndash3checks and balances 130childcare services 320China 291 434 436choices 3 6 8 42 58 247CIO Magazine 10citizens to government (C2G) 216claims industry 46Clean Air Act (USA) 122clean technologies 121Cleland DI 74clients triggering innovation 256clustering 429coalition personal political power 82

446 Index

Cochrane RA 36ndash7 147coercive power 81cognitive moral development 106ndash8collaboration 45 251 293ndash4 413collaborative alliances 408collectivism 285commitment 43 80 156 288ndash91 295commitment theory 80communication 389communication plan 87ndash8communities of practice (COPs) 74

167 169 267ndash8 424community benefit 93ndash4compatibility 225ndash32competencies 8competition 251 321competitiveness 92competitiveness view 116competitive strategy 150 248ndash52competitive tendering 294competitors 248completion report 416complexity 38compliance commitment 80Computer Assisted Design (CAD)

225ndash6 230ndash1concept definition phase 41conflict 287ndash8conflict hourglass model 287conflicts of interest 105Confucian dynamism 285connection power 82constant currency 23constraints 44construction industry alliancing 54

approaches to procurement 45ndash54culture 321 design and deliverydimension 43 partnering 54procurement systems 4 relationalcontracting 54 trust 293ndash4

construction innovation 413Construction Management (CM) 46ndash7consumer to business (C2B) 216consumer to consumers (C2C) 216contingency plans 15contingency theory 158continuance commitment 80contract administration 60ndash1contracting relational 54contracts 16 53ndash4contract strategies 44ndash5 52Cooper RG 42 167

cooperation 251 296cooperative alliances 408coordination 45coordinator 77COPs see communities of practicecorporate governance 126ndash33corporate social responsibility 119ndash20corporate tax 21ndash2Cost Competitive Alliance 384cost efficiency view 116costs 6 7 20 51Crawford L and colleagues 34 41creativity 36 407credibility 390Cresseyrsquos Fraud Triangle model 223lsquocritical fewrsquo 186ndash7Crossan MM and colleagues

154 265cultural barriers 296cultural characteristics 42ndash3culture Australia 296 as central to

project procurement 277 commonvalues 283ndash4 definitions 278ndash80289 290 dimensions 284ndash8evolution 279 national 280 282ndash3no-blame 299 and organisationalchange 289ndash90 of organisations280ndash3 parent organisations 290significance 278ndash83

customer delight 2customer relationship management

(CRM) 62ndash3CYPRASS Project Outcome Profiletrade

template 196ndash9

DC see design and construct (DC)Danish Transport Council 119data mining 224decision making 13ndash14 57decisions 1 7ndash9 114ndash15decision support 237ndash8decommissioning phase 5 6 42defenders 249 259delight customer 2deliverables hard and soft 39delivery phase 5 6Deloitte consulting 10deontology 111descriptive strategic schools

150ndash60 427design and construct (DC) 47ndash50design and delivery dimension 43

Index 447

design innovation Wivenhoe allianceproject 412ndash13

design phase 5desktop purchasing systems (DPS) 217detailed method statement 35de Wit A 180diffusion of innovation (DOI) 261distribution dimension 10ndash11distrust 79dominant players 248downstream stakeholders 73 76

90ndash5drivers e-procurement 216ndash21Dvir D 37ndash8

e-business 3 213ndash16 four-stagematurity model 214

e-business trajectory 212e-commerce 215ndash16education as part of innovation

process 402e-enabled (reverse) auctions 218ndash19efficiency 116egotism 109ndash10e-informing 221elder care 320electronic data interchange (EDI)

216ndash17 219Elkington J 115ndash22emergence 35 153 155 182empathic design 256employee development 338ndash9employee referrals 334ndash5employee value proposition

(EVP) 330ndash1employer of choice 329ndash30 331ndash3employers 330 331ndash3employment temporary 344ndash5empowerment 290e-MRO (maintenance repair and

operating) 221energy grid 70engagement-temporal dimension 11engineering projects 36ndash7enterprise information portals (EIP) 233enterprise networks 250ndash6enterprise resource planning 214

219ndash20Enterprise Resource Programme

(ERP) 61enterprises definition 142ndash5entertainment projects 35ndash6environmental bottom line 115 120ndash2

environmental context 39ndash40e-procurement benefits and

disadvantages 217 drivers andinhibitors 216ndash21 implementationphases 222ndash3 models 217ndash21trends and themes 235ndash8

Equator Principles FinancialInstitutions 116

Equator Principles website 115ndash16Ericsson Melbourne project

management office (PMO) businessdelivery project management office371ndash4 context and history 359ndash61definition and purpose of projectmanagement office 361ndash5development 168ndash9 evaluation374ndash5 organisation project supportoffice 368ndash71 project managersupport office 365ndash8 rationale forproject management office 360ndash1relationship of case study to keytopics 376

e-sourcing 217ndash18establishment costs 51ethical behaviour 106 127ethical issues 104ndash6 223ndash4ethical reasoning 108ndash13ethical theories as decision making

filter 113ndash15ethics definition 103ndash4 determined by

outcome 109 determined by processand principle 111 due process andprincipled approach 112 rightsapproach 111 theoretical bases102ndash15 virtue approach 112ndash13

ethics bank 108Exchange of Product Model Data

(STEP ISO-10303) 226execution phase 42expectations 55ndash8expectations management 2expert power 82exploitation 78external stakeholders 73

family support networks 74feasibility studies 56femininity 285finance department role in large-scale

enterprise 20ndash1financial bottom line 116ndash18firms 142ndash6flexibility 299

448 Index

Flyvbjerg B and colleagues 117 119Framework Agreements 94ndash5Francis V 318ndash19 320fraud 105 223French WA 78

games power politics 156ndash7geographic dimension 10ndash11Gibson CB 286ndash7global economy 18globalisation 424ndash5 427 428global leadership organisational

behaviour and effectiveness (GLOBE)study 285ndash6

global method statement 35global organisations triple bottom line

(3BL) 115global warming 122goals defining 186ndash7goals and methods matrix 36ndash7governance corporate 126 of

outsourcing 10 projects 126 scope128ndash30 structures 7 37

government board 56governments outsourcing 16government to government

(G2G) 216Granrose J 78Grisham Tom 287ndash8gross domestic product (GDP) OECD

21ndash2group decision making 57group interest 110

hassle 8Hendy P 21hidden costs 20lsquohigh performancersquo work systems 322Hofstede G 284ndash5Honda 155human resource management 339ndash42human resources and competition 321

IBM 23ICT see information and

communication technology (ICT)IDC 218imperfect market conditions 19implementation 58ndash60individualism 285Industry Foundation Classes

(IFCs) 226ndash7influence mapping 83

influences on procurement choices39ndash40

informational power 82information and communication

technology (ICT) diffusion 261ndash4innovation 154 interfaces 60interoperability 212 management21 and organisational learning 258role of portals in procurement 232ndash5

information modelling 225ndash32information portals 234information technology (IT) see

information and communicationtechnology (ICT)

inhibitors e-procurement 216ndash21initiation phase 4 5 56innovation application as part of

process 402 capture andmeasurement 415ndash16 construction413 definition 400ndash1 design412ndash13 education as part of process402 knowledge management andorganisational learning 264ndash9 andknowledge sharing 401ndash3 andlearning 256ndash64 models forimplementation 401ndash3 andorganisational environment 403 asoutput measure 299 processproduct 414

innovation diffusion research 261innovation register 415innovation trajectory 257insourcing 58institutional theory 158integration 45 265ndash6integrity 79intellectual capital 191intellectual property 15ndash16 227interactions 44ndash5interests 73internal rate of return 163International Alliance of

Interoperability (IAI) 227interoperability 212 225ndash32interpretive view of projects 33intuition 265ndash6invisible stakeholders 73iron triangle 2 60

job attractiveness 312job security 344ndash7Johnston Robert 2joint ventures (JVs) 252ndash3 379

Index 449

K-Adv model 199ndash204Kaplan Robert 184ndash5knowledge 8 access to 257ndash8 external

258ndash9 self-transcending 264stickiness 266ndash7 tacit 264ndash5typology 264

knowledge management (KM) 60264ndash9

knowledge networks formation 74Kohlberg Lawrence 106ndash8

law 112leadership understanding people 277learning 256ndash64learning communities 74Leblanc Richard 131legal entity dimension 10ndash11legal issues 223ndash4legislation prescriptive and

performance-based 122ndash3levels of uncertainty 428leveraging overhead costs 21liaison 20life cycles 15 16Lingard H 318ndash19 320 414ndash15locations 18ndash20Logical Framework Method (LFM)

179ndash80London Stock Exchange Taurus

project 181 183

Machiavelli Niccoloacute 82ndash3majority interest 110make-or-buy decision 1 7ndash9management contracting 46ndash7 of

expectations 2 informationtechnology (IT) 21 of people339ndash42 by projects 143relationship 53 of relationships 13reporting 9 stakeholderrelationships 71 structuresprocesses and boundaries 254ndash5trust 293

market conditions transfer pricing19ndash20

masculinity 285Maslow Abraham 80maternity leave 320matrix of needs 59maturity levels 202Meacheam DW 259ndash60measures of performance 2measuring value of outsourcing 10

mega projects 117Melbourne City Council House 2 120Melbourne Cricket Ground Great

Southern Stand 50Mercosur 424 436meta-data 224metaphors 57method statements 35micromanagement 36Mill John Stuart 110Milton Friedman 103Mintzberg H and colleagues 148ndash60mismatches 302mission statements 142 183mobilisation-demobilisation

dimension 11models of classification 41monitoring 9 60moral opportunism 113motivation 39 181motivation theory 80Muumlller R 4 161multinational companies 17ndash18multinational corporations 18ndash19mutuality 78

nanotechnology 121national culture 280 282ndash3National Museum of Australia 119

120 384ndash5near-shore locations 18ndash20needs 5 180needs analysis 56new entrantsrsquo challenge 247ndash8Nonaka I 264non-routine deliverables 23normative commitment 80ndash1Norrie JL 164ndash5Norton David 184ndash5Novation 49ndash50 235ndash6novelty 38Novelty Complexity Technology and

Pace (NCTP) framework 38

occupational health and safety (OHS)52 91ndash2 123ndash6

OECD gross domestic product 21ndash2OECD Transfer Pricing Guidelines 17off-shore locations 18ndash20Oliver Christine 158on-shore locations 18ndash20ontological assumptions 145opinion shaping 75

450 Index

OPM3 167ndash9organisational change projects 37organisational culture 280ndash3organisational development 389ndash93organisational environment and

innovation 403organisational forms 53 254organisational innovativeness

(OI) 261organisational learning 61 258 264ndash9organisational relationships 390ndash1organisational structure 290ndash1organisation breakdown structure

(OBS) 35organisation project support office

368ndash71organisations 123ndash4 142ndash5 249

259ndash60Outcome Profiletrade template 191ndash9

cross-reference matrix 195CYPRASS Project 196ndash9 headings192ndash4 three-step method 194ndash6

outcomes 191ndash9outsourcing agreements life cycles 15

Australia 16 business case for 10buy decision 7 contracts 16dimensions 10ndash11 by governmentdepartments 16 hidden costs 6management costs 26 measuringvalue 10 nature of 9ndash16 and out-tasking 10ndash16 oversight of 10process 236ndash7 reasons for 10requirements for success 25ndash6 riskmanagement 15 risks 14 skillmovement 15 skills and competencies8 stages of decision-making 13ndash14strategic objectives 14 for talentedstaff 312ndash13 taxation 16ndash17transfer payments 16 and transferpricing 16ndash24 types of 9

out-tasking 12ndash13overhead costs leveraging 21Owens Jeffrey 19ownership 73

pace 38ndash9Palaneeswaran E and colleagues 58ndash9participation in value generation 1partnering 54 250ndash6 294 323 379Peansupap V 260 261ndash4peer to peer (P2P) 215ndash16perceptions of value 5perfect market conditions 19ndash20

Performance Assessment System (PASS) 59

performance measures 2 130Perlow LA 319personal and political power 82personality tests 333ndash4personal power 82personal relationships 296PERT 148phases of projects 4ndash5 41plans 15 35PMBOK see Project Management

Body of Knowledge (PMBOK)Pollack J 34pollution control and prevention

120ndash1portals 233ndash5Porter ME 150Porterrsquos 5-force model 247ndash8portfolio definition 145portfolio optimisation 163portfolio project management (PPM)

163ndash4portfolio theory 161ndash3positional power 81 83position power 82positivism 33 34power types of 81ndash3power distance 284ndash5power politics 156ndash7Prather CW 401ndash2prescriptive strategic schools

147ndash50pricing information 235PRINCE 2 57 148prioritisation of needs 5privatisation 1 24ndash6probability-impact analysis 74ndash5processproduct innovation 414processes in project management 4process integration seamless 236ndash7process re-engineering 222process theory (PT) 261procurement and business strategy

160ndash9 life cycles 16 reduction oftraditional activities 237 role ofITICT portals 232ndash5 andsustainability 101ndash2 traditionalapproaches 45ndash6

procurement choices 6 42 247influences on 39ndash40 relationshipbased 379

procurement phase 6 42

Index 451

procurement process appointing staff 56

product breakdown structure (PBS) 34product stewardship 121profit split process 23program definition 144ndash5project classification 41project definition phase 41ndash2project delivery fulfilment 127project development projects 37Project Executive Board 56project governance 126project initiation documentation

(PID) 57project learning system 415project management (PM) 3ndash6 47Project Management Body of

Knowledge (PMBOK) 3ndash4 41Project Management Institute 143project management office (PMO) 163

167ndash9 361ndash5 case study 358ndash76project management skills 70project management success 178ndash9project managers view of stakeholders

83ndash4project manager support office 365ndash8project payback 163projects defining scope 33 definition

143 dimensions 34 factors inprocurement 57ndash8 influences onprocurement choices 40 nature of3ndash6 phases 4ndash5 selection 163ndash7tangible and intangible 40 Type 1147ndash8

project sponsors at board level 132ndash3project workforce planning 327ndash8proposals writing 54ndash61prospectors 249 259publicprivate partnership (PPP) 51ndash2public sector balanced view of

strategy 166

Quinn JB 153

radio frequency identification enabledinventory management system(RFID) 236

reactors 249 259ndash60reality checks 42reciprocity 78recognition planning 345referent power 82regionalisation 427

relational based project delivery 252ndash6relational characteristics 42relational contracting 54 294ndash302relational risk 43relationship based procurement

choices 379relationship development 386ndash8

391ndash5relationship management 13 53 71

see also collaboration ethics trustrelationships 72 78 296 390ndash1relocation 17ndash18reporting systems 9reputation 330research study alliancing 378ndash96

alliance relationship developmentmodel 391ndash3 context andtheoretical background 378ndash81implications for alliance procurementpractice 393ndash5 interviewquestionnaire 382ndash3 methodologyand context 381ndash3 organisationaldevelopment 389ndash93 relationship tokey topics 395 research findings383ndash93 selection of alliance partners383ndash6 trust 388ndash9 390 392ndash3workshops for relationship buildingand development 386ndash8

resource based view (RBV) 7 246427ndash8

resources 43ndash4 129return on investment 163reward-based power 82rewards 343ndash7rich pictures 57rights 73risk 8risk assessment 74ndash5risk management 15 72risks 12ndash13 14 35 43rivalry 248role conflict 315ndash16role culture 295 296roles specification 296ndash7

safety health and environment (SHE)provisions 120 122ndash6

Scandinavia 190ndash1Schumpeter JA 150ndash2Secret M 319ndash20security issues 223ndash4self-interest 109ndash10self-transcending knowledge 264

452 Index

sensemaking 203service evaluating standards 2service level agreements monitoring 9services transaction based 7Shenhar A and colleagues 37ndash8 181skills 15 70 338skills gap 341ndash2small and medium enterprises

(SMEs) 19social bottom line 115 118ndash20social capital 189 267social network mapping 83social science stakeholder theory 71ndash2Soft Systems Methodology 57soft systems methodology (SSM) 33ndash4Southern Market 424staff attracting talent 312ndash13 329

development 338ndash9 group andsupervisor fit 335ndash6 importance incompetition 326 job andorganisation fit 335 job security344ndash7 levels of trust andcommitment 345 performanceevaluation 346 planned recruitment326ndash7 recognition planning 345recruitment and selection 333ndash47relocation 337ndash8 retention 336ndash9rewards 336 342ndash3 selection foralliance working 387 selectionprinciples 333ndash5 turnover 317workforce planning 327ndash8

stage gates 42 167stake nature of 73stakeholder circleTM tool 83ndash90

communication plan 88ndash9 concept84ndash5 engaging stakeholders 87ndash8identification of stakeholders 86maintaining stakeholder community89 methodology 85ndash6 monitoringthe effectiveness of communication88ndash9 prioritisation of stakeholders86 stakeholder review meetings 88value of methodology 89ndash90visualisation of stakeholders 87

stakeholder interest intensity index 75stakeholders 2 benefits of social

bottom line 119 definition 73energy 70 identifying influence74ndash6 input 4ndash5 managing 72 74needs 3 power 86 projectmanagersrsquo view 83ndash4 proximity 86relationship management 71relationships with managers 72

relationship with projectmanagement team 77ndash90 types of73ndash4 urgency 86ndash7 varying levelsof influence 83

stakeholder theories 71ndash7Standish Group 181 183stewards 131stickiness of knowledge 266ndash7strategic alliances 406ndash7strategic characteristics typology 249strategic management 146strategic needs analysis 56strategic objectives of outsourcing 14strategy cognitive strategy school

152ndash3 competitive 150configuration school 159ndash60cultural school 157 design school147ndash8 entrepreneurial school150ndash2 environmental school 157ndash9learning school 153ndash7 planningschool 148ndash9 politics school 156positioning school 149ndash50 powerschool 156 and procurement160ndash9 in public sector 166 schoolsof thought 146ndash60

strategy view of value 116ndash17strengths weaknesses opportunities

and threats (SWOT) analysis 148structure organisational 290ndash1sub-contracting transaction costs 8subcontractors in relational

contracting 302substitute products threat of 248success dimensions 181 emergent

dimensions 182 as meeting needs180 of project and team 299ndash300project management distinct fromproject 178ndash9

Sun-Tzu 82ndash3suppliers bargaining power 248supply chain impact of enterprise

resource planning 219ndash20supply chain learning (SCL) 77supply chain management 424ndash41

business relationships 425ndash7 publicsector 90ndash1 strategic managementinfluences and organisation responses427ndash30

supply chain members as stakeholders76ndash7

supply chain sustainability (SCS) 91 92

sustainability 101 411

Index 453

Sveiby KE 190ndash1SWOT analysis see strengths

weaknesses opportunities and threats(SWOT) analysis

Sydney Opera House 140ndash1systems 33 44systems view of projects 33Szulanski G 267

tacit knowledge 264ndash5Taipei Mass Rapid Transit (MRT)

program 224talent 3Target Out-turn Cost (TOC) 384ndash5

394ndash5Tatnall Arthur 233taxation 16ndash17 21ndash2taxonomy organisational forms 53tax rates differential 24team spirit 45teamwork 286ndash7 296 298ndash9 335technology 3 38Telstra 25 26 359ndash60temporary employment 344ndash5tendering 45 294termination clauses 15The European Interoperability

Framework (EIF) 227ndash8threat of substitute products 248time-to-market 59total rewards 343trajectories of value generation 5trajectory of innovation 257transactional leaders 429transaction based costs 7transaction based services 7transaction cost economics (TCE) 7

116 127transaction costs 4 8transfer payments and outsourcing 16transfer pricing 1 16ndash24transformational change 160transformational leaders 429ndash30transformational view of organisations

142ndash5transnational organisations 17transparency 127 130 131triple bottom line (3BL) 102

115ndash22 127trust 42ndash3 392ndash3 406 alliancing

388ndash9 390 characteristics 81cultural implications on value291ndash5 definitions 291ndash3

dimensions 292ndash3 and distrust 156levels of 292 in management 293in out-tasking 12 supporting factors78ndash80

Turner JR 4 36ndash7 147Turnkey approach to procurement 50Typology of Personality 330

Uncertainty Complexity Pace (UCP)model 38 39

uncertainty avoidance 285 296upstream stakeholders 73 76USA Clean Air Act 122utilitarianism 109 110

value adoption of BIM 229ndash30cultural implications of commitment288ndash91 cultural implications of trust291ndash5 engineering 5 generation 1intangible 128 maximising 6nature of 2ndash3 strategy view 116ndash17tangible and intangible 5 190ndash1

value curve trajectory 211value management 410ndash11value management register 415value proposition of staff 312ndash13values 283ndash4 288ndash9 403value vectors 59Van de Ven AH 400ndash1vignettes Borat Industries 303ndash4

CanWheat 134ndash6 ChangeByDesignplc 96ndash7 Emuland 239ndash42OmniTrip 26ndash8 62ndash3 PeaceOfMindInc 348ndash51 Stakeholder FirstDevelopments 269ndash71 TheSource185ndash90 205ndash6 XYZ Corporation169ndash71

vision 55ndash8 128ndash9 181 183

Warburton RFE 21web-based enterprise resource planning

219ndash20web resources 28ndash9websites in employer branding 332weighting matrix 59ndash60wisdom dimensions 156Wivenhoe alliance project alliancing

404ndash6 background to the project409ndash10 capture and measurement ofinnovation 415ndash16 case study400ndash19 case study discussion416ndash17 change in working practices414ndash15 collaboration 413

454 Index

construction innovation 413 designinnovation 412ndash13 innovation andknowledge sharing 401ndash3processproduct innovation 414project learning system 410sustainability 411 theoretical basisof alliancing 406ndash9 valuemanagement 410ndash11

Wivenhoe Dam project case study321ndash6

Wolfe RA 261word pictures 201ndash2work design 344work arrangements alternative 320

work breakdown structure (WBS) 34ndash5work-family conflict 316ndash17workforce 314ndash15 337ndash8workforce profiles 327working practices changing 414ndash15work-life balance case study 321ndash6

changing workforce 313ndash14conflicting roles 315ndash16 initiatives319ndash21

work-life benefits 319ndash21work-life cultures dimensions 319work systems high performance 322

Zellman-Bruhn EM 286ndash7

Index 455