Project-based management as an organizational innovation
drivers, changes and benefits of adopting project-based management
Miia Martinsuo, D. Tech.,
Karlos Artto, D. Tech.,
Jaakko Kujala, D. Tech.,
Ali Jaafari PhD
One track of innovation management literature examines innovations that change the ways in which the organization operates. Organizational innovation can be considered an idea or behavior new to the adopting organization (Damanpour & Evan, 1984). Organizational innovation may encompass new products or services, new process technologies, new organizational structures or administrative systems, or new plans or programs pertaining to organizational members (Alänge, Jacobsson, & Jarnehammer, 1998; Damanpour, 1996; Damanpour & Evan, 1984). The idea may be internally generated or borrowed from other organizations (Damanpour & Evan, 1984).
Project-based management can be considered an organizational innovation that may influence both the technical and social system of the organization through new structures, methods, technical systems, and behavioral patterns. Project-based management has at least four special features, as compared to other forms of management.
- Project-based management is directed toward organizing activities to achieve goals of scope, cost, and time (PMI, 2004; Turner, 1999) and, increasingly, toward broader customer and business goals (Shenhar, Dvir, Levy, & Maltz, 2001). In earlier research, management by objectives has been considered as an organizational innovation, as well as goal-oriented programs (Fennell, 1984).
- Project-based management induces a temporary organizational structure as part of or replacing the old organizational structure (Packendorff, 1995; PMI, 2004). Earlier, M-form or matrix organizational structures (Burns & Wholey, 1993; Mahajan, Sharma, & Bettis, 1988; Teece, 1980), and flow manufacturing in multiple plants (Maritan & Brush, 2003) have been examined as organizational innovations.
- Project-based management can include both standardized and organization-specific tools and good practices (Milosevic & Patanakul, 2005; PMI, 2004; White & Fortune, 2002). As a comparison, studies on total quality management (TQM) and ISO 9000 have earlier been considered as organizational innovations (Guler, Guillén & Macpherson, 2002; Westphal, Gulati, & Shortell, 1996; 1997). Also data processing and IT solutions have been studied (Kimberly & Evanisko, 1981).
- Project-based management promotes distributed and project-specific responsibilities in the organization (PMI, 2004; Turner, 1999). Each project has a dedicated project manager and project organization that dissolves as the project ends. New management system has earlier been considered as organizational innovation in somewhat different settings, i.e., administrative process or staff development program in libraries (Damanpour, 1987; Damanpour & Evan, 1984; Damanpour, Szabat, & Evan, 1989).
A specific feature of organizational innovations is that the “product” is not as clear as in other types of innovations, and the incentives for developing them are not immediately apparent (Alänge et al., 1998). Yet, organizational innovations have been considered particularly important and interesting for the survival and success of the firm. For example, Powell (1995) has examined TQM as an organizational innovation and proposed that it contributes to a sustained competitive advantage. Due to the coexistence of the previously mentioned features, project-based management can be considered a highly interesting organizational innovation that may face difficulties when being adopted and developed.
Adopting Organizational Innovations
One inherent feature of organizational innovations is that their imitation, i.e., spread in and across organizations, is difficult if not impossible due to organization-specific implementation conditions, and the local interpretations necessary (e.g., Mahajan et al., 1988; Teece, 1980). However, companies do attempt to imitate organizational innovations because they seek the same benefits as many other firms and because there are no obvious protective barriers such as patenting opportunity for the use of these innovations (Teece, 1980).
Adoption of organizational innovations is a process that includes the generation, development, and implementation of new ideas or behaviors in or across organizations. Earlier research on institutionalization suggests that those companies that adopt an organizational innovation early have more freedom to modify practices to increase organizational efficiency. Later adopters, in turn, have normative pressures to comply with the practices developed by the early adopters (Westphal et al., 1997). This mechanism of institutional isomorphism may force organizations to take into use practices that do not fit with the organization (e.g., DiMaggio & Powell, 1983). As a result, the way in which the organizational innovation is introduced and, thereby, adopted may influence the degree to which it succeeds in bringing about sustainable competitive advantage.
Project management research has covered development of project-based management through different maturity models, competency models, excellence models, and scorecards (e.g., Andersen & Jenssen, 2003; Cooke-Davies & Arzymanow, 2003; Cormican & O‘Sullivan, 2004; Ibbs & Kwak, 2000; Jugdev & Thomas, 2002; Kwak & Ibbs, 2002; Westerveld, 2003). Many of such studies examine the maturity or competence areas relevant to successful project-based management, differences across firms or industries, and the steps through which companies develop their project-based management. Such studies often assume that project-based management is already in use and that companies differ in their maturity of project-based management. The original introduction or adoption of project-based management has received little attention. Therefore, utilizing innovation diffusion and institutional theory to better understand the early phases and diffusion of project based management in and across firms could contribute to project management research. Both innovation and institutional theory literature encourage examining three topics: rationale for project-based management, and the changes, and benefits stemming from adopting project-based management.
First, companies may differ in the adoption of an innovation in terms of their rationale (motives or drivers). Innovation diffusion literature suggests that firms adopt new organizational innovations to maintain and enhance their performance (Damanpour, 1987), e.g., ensure cost effective production of high quality products and services. Institutional theory provides a complementary rationale: new innovations are adopted to ensure social fitness and legitimacy (Meyer & Rowan, 1991). Organizations that adopt organizational innovations increase their legitimacy and survival prospects regardless of the efficiency of the adopted practices (Meyer & Rowan, 1991). Institutional theory differentiates between the early and late adopters of innovations and have identified somewhat different drivers for these groups. For example, research on the adoption of TQM in the healthcare sector has reported that earlier adopters implemented TQM mainly to increase efficiency and effectiveness of their work processes (Westphal et al. 1997). They modified the innovation for their own needs and integrated new practices into the working processes. Later adopters rather focused on the symbolic benefits of such an innovation. Our first research question is: What are the main drivers for introducing project-based management?
Second, the actual changes caused by the adoption process are relevant in determining whether adoption has taken place or not. Damanpour and Evan (1984; also Damanpour, 1987) pondered whether an innovation has been adopted upon its decision, start of implementation, or only after successful implementation. They concluded that the idea can be considered adopted (well or poorly) only when the idea is actually being used. Abrahamson (1991) has drawn attention to the fact that some innovations are actually rejected, and that organizational processes sometimes prompt the adoption of inefficient innovations, besides the efficient ones. Both Damanpour’s and Abrahamson’s studies suggest that the actual changes accomplished through adopting an organizational innovation are related to the drivers and adoption conditions (also Alänge et al., 1998; Kimberly & Evanisko, 1981). Our second research question is: What kind of changes has the introduction of project-based management caused in practices and processes in the organization, and are these changes associated with the drivers?
Third, the benefits or outcomes of adopting an innovation can be considered relevant. Abrahamson (1991) noted the proinnovation bias in innovation diffusion research: the dominant assumption is that innovation is always brought to completion and would benefit adopters. In reality, good innovations may be rejected and bad ones adopted. Fads and fashions may promote even quite unbeneficial innovations in uncertain environments, and encourage imitation across organizations. Earlier research indicates that some aspects of the innovation diffusion process, e.g., standardization of the innovation, or the use of an external, trustworthy institution of expertise, may impact both the adoption of the innovation, and the associated benefits (Alänge et al., 1998; Fennell, 1984; Westphal et al., 1997). Our third research question is: What are the perceived benefits from introducing project-based management, and how are these benefits associated with the drivers and changes?
The purpose of this research is to examine project-based management as an organizational innovation. More specifically, we study the drivers, changes and benefits of introducing project-based management, and linkages between them.
A questionnaire survey was used to examine the introduction, current state and future prospects in project-based management. The questionnaire was originally developed in Germany (Volkswagen Coaching, 2002) and later adopted by other countries. The Australian version is a modification of the original survey, developed further on the basis of expert interviews and literature review (the background and methodology of the entire research is explained more thoroughly in Hensman, Valenta & Jaafari, 2004). This paper covers only those survey topics that focus on the introduction of project-based management.
The survey was carried out across Australian companies representing a variety of industry sectors. Originally, the questionnaire was mailed to 4,800 companies based on Australian Business Review listing of top firms in the country. Of these, 111 companies responded to the survey, with a total response rate of 2.3%. A number of people in the original target population reported lack of project-based management in their organization and, therefore, non-response. The low response rate may also have resulted from the rather heavy questionnaire form, and another survey on the same population being launched at the same time. The sample characteristics indicate a skewedness toward rather experienced project personnel, which may influence the results and need to be considered as a limitation of the study.
A majority of the responses were received from public sector and service organizations, with a minority of responses representing the more traditional project businesses such as capital industry, manufacturing, and IT and telecommunications. Small to medium-sized companies dominate in the sample. A majority of responses come from firms where project management has been officially introduced throughout the firm. The time of introducing project-based management varies strongly. Background information on the companies participating in the survey is presented in Figure 1.
Figure 1: Companies in the survey sample (N=111).
Of the respondents, 80% are male, and 27% are members of a project management association. The respondents represent different age groups, have dominantly an economics or business education, and a majority represent project management or finance tasks. The respondents are very experienced in project work, i.e., over 53% have more than 10 years of experience in projects. More information on the individual respondents is presented in Figure 2.
Figure 2: Individual respondents’ background (N=111).
Questionnaire Items Included in the Analysis
For the purposes of this study, we used 23 questionnaire items to examine the drivers, changes and benefits related to introducing project-based management.
Benefits of Introducing Project-Based Management. The survey asked: What benefits has project-based management brought to your company? Eight items were included: greater entrepreneurship, more client satisfaction, more effective communication, more knowledge management and know-how transfer, improved project control, better multi-project coordination, greater project transparency, and better project performance. A scale of 1 to 5, where 1 being “completely disagree” and 5 being “totally agree,” was used.
Changes Through Introducing Project-Based Management. We examined changes in three areas: degree of process change, depth of project-based management adoption, and local success of project-based management introduction. Degree of process change examined how much the work processes changed as a result of introducing project-based management for your area, for your department, and for you personally. A scale of 1 to 5, with 1 being “hardly at all” and 5 being “a great deal,” was used. Three questions in depth of project-based management adoption examined the presence of project-based management: project-based management culture is widely present at all levels of the hierarchy, project-based management is used sporadically in the company (scale inverted for further analyses), and the project and line organizations work well together in the company. A scale of 1 to 5, with 1 being “completely disagree” and 5 being “totally agree,” was used. Local success of project-based management introduction was measured with two items that asked: How successful was the introduction of project-based management in your area? How successful was the introduction of project-based management in your department? The items used a scale of 1 to 5, with 1 being “unsuccessful” and 5 being “very successful.”
Drivers for Introducing Project-Based Management. The questionnaire asked for the main reasons for introducing project-based management. Seven items were used: increasing project complexity, increasing number of projects, time pressure for projects, image of modernity, client demands, internationalization and globalization, and market or competitive pressure. These items were measured on a scale of 1 to 5, with 1 being “unimportant” and 5 being “very important.”
Control variables. We used four control variables at company level, all introduced in Table 1: industry, number of employees, official introduction of project-based management, and years from introducing project-based management. Additionally, we controlled two individual level variables: membership of an association for project management (dummy variable, 1=member, 0=non-member), and years of involvement with project work (ordinal scale, as in Table 2).
Preliminary Analysis and Descriptive Statistics
To explore and identify the variable structure, we conducted principal components analysis of the items and tried out different models. For the drivers and changes we used orthogonal (varimax) rotation. A two-factor model is suggested for “drivers”: internal complexity and external pressure, and the factors account for 57% of the variance in the model. For “changes,” a three-factor model was used as indicated by the question setting: degree of process change, depth of project-based management adoption, and local success of project-based management introduction, and the factors explain 76% of the variance in the model. For the benefit items, we used oblique (direct oblimin) rotation due to expected item intercorrelations. A two factor model was supported for “benefits” and explains 69% of the variance. We named the benefit variables as: improvement of project culture, and efficiency improvement. Two items have fairly high component loadings outside of the proposed variable structure, as shown in Appendix 1. However, we chose to include them as part of the principal component factor.
We developed variables based on the principal components for further analysis. Scores for each variable were calculated as average of the included items. To estimate the reliability of the variables, Cronbach’s alpha coefficients were calculated. The scores for benefit and change variables are high (0.73 - 0.89), but slightly below the acceptable level of 0.7 for driver variables (0.66 and 0.68). The content and reliability coefficients for the variables are presented in Appendix 1.
Means, standard deviations, and correlation coefficients among the variables are presented in Figure 3. Internal complexity dominates as a driver for introducing project-based management, as compared to external pressure. Of the change variables, local success of project-based management introduction receives slightly higher scores, as compared to degree of process change or depth of project-based management adoption. Of the benefit variables, the score of efficiency improvement is somewhat higher than improvement of project culture.
Figure 3: Descriptive statistics and correlation coefficients (PM = project-based management).
Of the control variables, industry, official introduction of project-based management, timing of project-based management introduction and project management association membership have a few correlations with the other variables. For instance, traditional project industries have a longer history with project-based management than does public sector and services. Traditional project industries also report external pressure more often as a driver for introducing project-based management, and higher depth of project-based management adoption. The driver, change, and benefit variables have a number of significant correlations with each other.
Drivers, Changes, and Benefits of Adopting Project-Based Management
To better understand the links between drivers, changes, and benefits, we conducted linear regression analysis on the variables. The scatterplots revealed linear relationship between independent and dependent variables. We tried different models and decided to use a four-step regression approach for both the dependent variables. First, we entered the control variables (model 1), then we added the drivers (model 2), third we added a degree of process change and depth of project-based management adoption (model 3), and finally we added the local success in introducing project-based management (model 4). Model 1 (i.e., control variables alone) did not prove sufficient for explaining variance in either of the dependent variables.
Improvement of Project Culture
Models 2-4 are suitable for explaining variance in “improvement of project culture”, but especially model 2 has a low explanatory value. In model 2, the control variables and drivers together explain only 18% of variance in improvement of project culture. External pressure appears as a strong and significant contributing variable. The more external pressure is experienced as a driver for introducing project-based management, the more improvement is seen in project culture. Internal complexity as a driver for introducing project-based management, however, does not explain variance in the benefit “improvement of project culture.” Figure 4 reports the regression analysis for improvement of project culture.
Figure 4: Regression analysis, improvement of project culture as dependent variable.
Model 3 explains 34% variance in improvement of project culture and shows that depth of project-based management adoption adds explanatory power and is a significant variable. This means that wide, consistent, and thorough use of project management is reflected in perceived improvements in project culture in terms of entrepreneurship, knowledge transfer, client satisfaction, and communication. Also, depth of project-based management adoption and degree of process change seem to mediate the relationship between external pressure and the dependent variable, but also a direct relationship between external pressure and the dependent variable remains almost significant.
In model 4, altogether 38% of variance in the dependent variable is explained. Local success of project-based management introduction appears as a significant variable, slightly mediating the impact of depth of project-based management adoption and external pressure. If the introduction of project management is perceived as successful locally, also improvements in project culture are perceived high.
Control variables do not appear as significant, besides project management association membership in model 1. This effect is removed in the other models, indicating that the relationship between association membership and improvement of project culture is mediated by drivers and changes.
Only models 3 and 4 are suitable for explaining variance in efficiency improvement, and model 3 has still a fairly low explanatory value. Control variables and drivers alone or together do not explain much variance in efficiency improvement. In model 3, degree of process change and depth of project-based management adoption both appear as significant and fairly strong variables, and the model explains altogether 24% variance in efficiency improvement. That is, higher degrees of process change and wide, consistent, and thorough use of project management are reflected in higher perceived efficiency improvements. Figure 5 shows the regression analysis results for efficiency improvement.
Figure 5: Regression analysis, efficiency improvement as dependent variable.
Model 4 explains 39% variance in efficiency improvement. Again, local success of project-based management introduction is significant. It clearly mediates the relationship between the other change variables and efficiency improvement: the impact of degree of process change on the dependent variable is largely explained through local success of project-based management introduction, and also depth of project-based management adoption has a clearly lower score than in model 3.
The results of this study have identified external pressure and internal complexity as drivers for introducing project-based management (research question 1). The choice of introducing project-based management is dominantly motivated by increased degrees of internal complexity. Although the respondents seem to have rationalized the introduction of project-based management with the intent to control complexity, this is not related to the changes achieved by project-based management, or its benefits. As internal complexity and external pressure correlate, it is possible that internal complexity is connected to changes and benefits, but with a time lag. Largely in line with earlier literature, our sample may represent (dominantly) early adopters who have proactively sought to adopt project-based management to solve their efficiency and effectiveness concerns. The sample characteristics may, therefore, explain the missing connection from internal complexity to changes and benefits. Furthermore, for instance Damanpour (1987) reported that organizational complexity can explain variance in technical innovations, but not so much administrative (organizational) innovations.
In turn, external pressure as a driver had a lower average score but was in linear relation with some change and benefit variables. External pressure in these results may represent access to knowledge or collaboration in a wider network (Alänge et al., 1997; Fennell & Alexander, 1987; Westphal et al., 1997), strategic business and customer benefit expectations (Shenhar et al., 2001), and possibly also isomorphic pressures from institutions in the same area or industry (Abrahamson 1991; DiMaggio & Powell, 1983;, Meyer & Rowan, 1991) that can be connected with the adoption of the organizational innovation. Innovation diffusion literature has posited that such an “efficient choice” perspective prompts companies to adopt innovations that close their identified performance gaps (Abrahamson, 1991). Our results did not find direct evidence on the differences between early adopters and laggards suggested by innovation diffusion and institutional theory; however, this may indicate more complex, path-dependent relationships between the timing of project-based management introduction, drivers, and other variables.
We examined the degree of process change, depth of project-based management adoption, and local success of project-based management introduction as changes caused by adopting project-based management (research question 2). Our results emphasize that achieving benefits from project-based management requires both a wide, consistent, and thorough use of project management throughout the firm, and local success in introducing project-based management. This is in line with an earlier proposition that a great number of units should support the use of the organizational innovation, and that a localized search process is needed for the organizational innovation to succeed (Alänge et al., 1998). The results show that depth of project-based management adoption and local success of project-based management introduction correlate with external pressure, and mediate the relationship between external pressure and the benefit variables.
Degree of process change has only an intermediary role toward achieving the benefits of project-based management through local success. While the degree of process change may reflect the degree of adoption of project-based management, our results highlight the importance of a subjective estimate of those changes, to be perceived as beneficial. Additionally, the results may suggest that other kinds of changes should be studied besides process change (e.g., attitude and behavioral changes may be equally important for the adoption of project based management). Addition of such variables could have improved the explanatory power of our regression models. The relationship between internal complexity, external pressure and degree of process change was not revealed with our analysis (i.e., the relationship could be nonlinear or more complex).
The study revealed benefits from introducing project-based management in the form of improvement in project culture, and efficiency improvement (research question 3). Even if the items are strongly intercorrelated, their relation with drivers and changes of introducing project-based management are somewhat different. A significant degree of variance in improvement of project culture is explained by external pressure, depth of project-based management adoption, and local success of project-based management introduction as depicted in Figure 6. Part of the impact of external pressure and depth of project-based management adoption are mediated. These findings emphasize the necessity to locally adjust and modify (local success) the thorough, company-wide solution (depth of project-based management adoption) to reap the practical benefits of project-based management.
Figure 6: Factors contributing to improvement of project culture as a benefit from introducing project-based management.
A significant degree of variance in efficiency improvement is explained through depth of project-based management adoption, and local success of introducing project-based management as shown in Figure 7. While the drivers do not appear to have a significant role, degree of process change has an indirect link to efficiency improvement through local success of introducing project-based management. This finding indicates that process change as such is not self-evidently beneficial but, rather, must be approved and adjusted at the local setting. These findings suggest that the linkages from the studied drivers to efficiency improvement are mediated by some other variables, or that efficiency improvements are originally driven by some other forces than those covered in our study. Strategic choices, top management support, pressures from outside institutions, project management standardization, or the practices used while introducing project-based management are examples of possible relevant factors.
Figure 7. Factors contributing to efficiency improvement as a benefit from introducing project-based management.
Earlier studies suggest and report some individual and organizational background variables relevant to the adoption of organizational innovations For example, organizational complexity and size have been considered among significant background variables (e.g., Damanpour, 1996; Kimberly & Evanisko, 1981). Our results did not directly confirm such findings. This may be explained through how our background question was set: small, medium, and almost large firms were included in a single response category (below 500 persons) and may have blocked out the most influential differences, and we did not use other complexity variables. Also, our analysis setup did not fully uncover the relationship between control variables and changes, which could be examined more in future studies.
Ideas for Further Research
To confirm the findings, more elaborate models should be developed on project-based management as an organizational innovation. Besides confirmatory analyses on our findings, additional research questions have been identified. For instance, what is the relationship between improvement in project culture, and efficiency improvement? What is the temporal linkage between internal complexity and external pressure? What kind of factors drives the degree of process change and its impact on local success in project-based management adoption? What behavioral and attitude changes should be considered as intermediary impacts of adopting project-based management?
Institutional theory and innovation diffusion research encourage studying the role of standardization and project management association membership with regard to the adoption of innovations. Project management research has to some extent already covered standardization of project management, but its link with project management maturity and evolution could be studied further. Top management support has already been mentioned as potential area for research. Our survey did not cover top management actions and practices directly but only in the form of a control variable “official introduction of project-based management.” Earlier studies emphasize the role of top management support that could be examined also in the connection with introducing project-based management.
More research is also suggested to examine the diffusion of project-based management within and across industries. Institutional theory and innovation diffusion literature provide a good basis and suggestions regarding relevant hypotheses and contingency factors.
The generalizability of the results of this study is weakened by some limitations regarding the sampling, survey design, and analysis set-up. We have reported the sampling procedure, low response rate, and possible skewedness in the sample as compared to the whole population. Despite these limitations, we succeeded in having very diverse firms in different industries as part of the sample. The sample size of more than 100 is already appropriate for statistical testing. Even if the data cannot fully cover the current state of project-based management in Australian firms, the findings with these data do tell many important things about introducing project-based management in these firms. Regarding the survey design, the use of subjective estimates of the introduction of project-based management may have its drawbacks. Knowing that the sample was dominated by very experienced project people, the results could have looked different, had we had access to multiple opinions or objective measures in the same firms. To improve the applicability of the findings, we have reported the sample characteristics as thoroughly as possible.
The validity of the survey and developed variables could have been improved by further testing and refinement. With the questions and scales used, the reliability of some variables was slightly below the acceptable level of 0.7, the validity of the entire factor structure could not be confirmed, and many interesting areas of innovation adoption remained uncovered. In this sense, we must consider this study as exploratory: we probed with a set of questions and variables, succeeded in charting important aspects of project-based management as an organizational innovation, and opened up arenas for further research.
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Appendix 1: Variables, items included in them, principal component analysis results, and reliability coefficients (Cronbach’s alpha).
|Drivers, reasons for introducing PM||α||Component 1||Component 2|
|Increasing project complexity||0.82|
|Increasing number of projects||0.80|
|Time pressure for projects||0.66||0.40|
|Market /competitive pressure||0.79|
|Image of modernity||0.71|
|Internationalization / globalization||0.53|
|Loadings below 0.3 omitted|
|Changes||α||Component 1||Component 2||Component 3|
|Degree of process change||0.83|
|Degree of process change in your department||0.87|
|Degree of process change in your area||0.84|
|Degree of process change for you personally||0.81|
|Depth of PM adoption||0.73|
|PM culture is widely present at all levels of the hierarchy||0.87|
|PM is used consistently (=not sporadically) in the company||0.82|
|Project and line organizations work well together in the company||0.67|
|Local success of PM introduction||0.89|
|How successful was PM introduction in your department?||0.90|
|How successful was PM introduction in your area?||0.88|
|Loadings below 0.3 omitted|
|Benefits of introducing PM||α||Component 1||Component 2|
|Improvement of project culture||0.80|
|More knowledge management, knowhow||0.73|
|More client satisfaction||0.69|
|More effective communication||0.67|
|Better multi-project coordination||-0,88|
|Improved project control||-0,81|
|Greater project transparency||-0,80|
|Better project performance||0.47||-0,55|
|Loadings below 0.3 omitted|
©2006 Project Management Institute