understanding the relationship between project portfolio management capability and competitive advantage
Robert A. Hunt, Macquarie Graduate School of Management, Macquarie University, Australia
Keywords: project portfolio management, dynamic capability, new product development, service development, organizational learning
This research employs the dynamic capabilities framework to improve understanding of the relationship between organizational project portfolio management (PPM) capabilities and competitive advantage. A growing stream of literature on PPM includes best practice studies that show correlations between PPM practices and project portfolio outcomes; however, these studies are not theoretically grounded and do not provide explanations about the mechanisms that may lead to the correlations. The research reported in this paper employs a multiple-case study to provide in-depth understanding of organizational PPM capabilities. The research investigates the management of new product development (NPD) project portfolios at six diverse organizations, including three from the rapidly growing and increasingly important service sector.
The findings illustrate that an organizational PPM capability goes beyond the processes and procedures used; organizational structures and human dimensions are important components of the capability. PPM is shown to contribute to competitive advantage through the mechanisms of a dynamic capability by enabling organizations to reconfigure the resource base to respond to changes in the environment. Organizational learning is found to be instrumental for a dynamic PPM capability and insights are provided into the ways that organizations establish and evolve their PPM capabilities. The findings also contribute to the understanding of how PPM is tailored to environments through an analysis of differences between service and manufacturing industries; PPM is largely similar in the service and manufacturing environments studied, but exhibits differences related to the differing levels and types of dynamism in the environments, differing levels of flexibility in resources and the ongoing trend towards a service focus in manufacturing industries.
Project portfolio management (PPM) capabilities aim to improve project success rates by providing a holistic and responsive decision-making environment to maximize the long-term value of investments across the project portfolio (Cooper, Edgett, & Kleinschmidt, 2001; Dawidson, 2004; Levine, 2005). The goals of the PPM capability are to align projects with strategy, maintain a balance of project types, and ensure that the project portfolio fits with resource capability so that the organization can gain the maximum value from project investments (Cooper, Edgett, & Kleinschmidt, 2002; Kendall & Rollins, 2003). In this way effective PPM capabilities are proposed to improve project success rates and enhance an organization's competitive advantage. Projects for the development of new products are of escalating importance in an increasingly competitive, globalized, and deregulated environment characterized by shortening product lifecycles and dynamic markets (Galende, 2006; Kahn, 2007; Lawson & Samson, 2001; Menor, Tatikonda, & Sampson, 2002; Phaal, Farrukh, & Probert, 2006). In this dynamic environment gaining and maintaining organizational competitiveness through new products is a continual quest. As part of this quest, many organizations are investing in establishing and developing their PPM capabilities with the expectation of improving their project portfolio outcomes.
The past decade has seen an escalation in the amount of literature, research, and practitioner activity focused on PPM, reflecting the increasing importance placed on PPM capabilities (Kwak & Anbari, 2009; Levine, 2005). The swell of interest in PPM can be attributed to two main trends, both essentially responses to the challenges presented by a globalized, information-rich, dynamic, and competitive environment. First is the increasing perception that PPM capabilities maximize outcomes from innovation activities as organizations place more emphasis on innovation and organizational renewal (Cooper et al., 2001; Ernst, 2002). Second is the shift to “management by projects” for organizational activities (Gareis, 1989; Turner, 1999), many of which were previously viewed as operational (Walker, Arlt, & Norrie, 2008). Therefore, projects are often the main vehicle for delivering organizational strategy (Artto, Dietrich, & Nurminen, 2004; Poskela, Dietrich, & Artto, 2003; Turner, 1999). This “‘projectization” of organizations has many drivers, including competitive pressures, increased complexity of organizational activities, and the increasing availability and success of project management tools (Cleland, 1999; Webb, 1994). The growing interest in PPM has led to increasing levels of research in this area; however, there are many gaps in the literature.
Gaps in the Literature on PPM
The literature repeatedly asserts that the management of a project portfolio presents a multidimensional challenge that is often addressed through a PPM capability with a formal and structured process. Several best practice PPM research studies indicate that there is a positive correlation between formal and structured PPM processes and improved outcomes, and the literature regularly identifies methods and tools that are associated with better outcomes (Archer & Ghasemzadeh, 1999; Cauchick Miguel, 2008; Cooper et al., 2001; Cormican & O'Sullivan, 2004; Jeffery & Leliveld, 2004; Killen, Hunt, & Kleinschmidt, 2008a; Loch, 2000). However, although these best practice studies indicate correlations between practices and outcomes, they do not provide the depth to determine or explain causality. Therefore, there is a danger that organizations may rush to adopt best practices that are not responsible for improved outcomes in the organizations studied (Reinertsen, 1997). In addition, identifying best practices is counter to the repeated findings in PPM studies that there are no best ways of doing things and that PPM practices need to be tailored to the situation (Loch, 2000; Reinertsen, 1997). Several authors point out that the practices identified as best practices are not uniform across industries, and that there are many examples of exceptions where successful organizations do not employ “best” practices (Kahn, Barczak, & Moss, 2006; Peters, 2006). Despite these concerns, best practice studies remain a popular vehicle for collecting and analyzing data on PPM practices. However, there is a need for studies into PPM that provide a deeper understanding and aim to explain how PPM may contribute to improved portfolio outcomes.
What is PPM?
The past decade has seen the firm establishment of PPM as a discipline (Adams-Bigelow, 2006; PMI, 2006). PPM has a strong base in the management of new product development (NPD) projects, and has now evolved to support the management of project-based organizations (Dye & Pennypacker, 1999). Although PPM has become an established term in many environments, the terms ‘project portfolio' and ‘portfolio management' are not uniformly understood and used, and definitions vary (Milosevic & Srivannaboon, 2006; Morris & Jamieson, 2005). The Project Management Institute (PMI) defines a portfolio as “a collection of projects or programs or other work that are grouped together to facilitate effective management of that work to meet strategic business objectives” (PMI, 2006, p. 78). A widely accepted and often cited definition of PPM is: “Portfolio management for new products is a dynamic decision process wherein the list of active … projects is constantly revised. In this process, new projects are evaluated, selected, and prioritized. Existing projects may be accelerated, killed, or deprioritized and resources are allocated and reallocated to the active projects” (Cooper et al., 2001, p. 3). These processes include activities for “identifying, prioritizing, authorizing, managing and controlling projects” (PMI, 2006, p. 5). Artto (2001) recognizes that each organization develops a unique approach and defines PPM as the “art and science of applying a set of knowledge, skills, tools, and techniques to a collection of projects to meet or exceed the needs and expectations of an organization's investment strategy” (p. 9).
There is a strong focus on procedures, methods, and tools in these PPM definitions. However, PPM is increasingly being understood to be more than a process, generating definitions that focus more on the goals of PPM. For example, McDonough and Spital (2003) pointed out that PPM is more than project portfolio selection as it also involves the “day to day management of the portfolio including the policies, practices, procedures, tools and actions that managers take to manage resources, make allocation decisions and ensure that the portfolio is balanced in such a way to ensure successful portfolio-wide new product performance” (p. 40) and Levine (2005) offered the following concise and generic definition of PPM: “Project portfolio management is the management of the project portfolio so as to maximize the contribution of projects to the overall welfare and success of the enterprise” (p. 22). These definitions support a view that an organizational PPM capability comprises a range of elements that combine to contribute to the desired outcomes.
Like the definitions of PPM, most PPM research focuses primarily on the processes, tools, and methods used for PPM (see, for example, Hakkarainen & Talonen, 2008; Iamratanakul & Milosevic, 2007; Killen, Hunt, & Kleinschmidt 2007a; O'Connor, 2004; Pennypacker & Sepate, 2005). There is, however, a growing stream of PPM literature that emphasizes the wider organizational factors that have a role to play (see, for example, Blomquist & Muller, 2006, on management responsibilities; Christiansen & Varnes, 2008, on decision-making at PPM meetings; Elonen & Artto, 2003, and Center for Business Practices, 2005, on management roles and responsibilities; Pellegrinelli et al., 2006, on management skills, Engwall & Jerbrant, 2003, on politics and conflicting motivations). Although these studies have identified and focused on a wide range of organizational factors, there is a lack of research representing the full scope of factors and considerations related to organizational PPM capability. Understanding the elements that build PPM capability in an organization can help shed light on the relationship between PPM and outcomes. To that end, this study first asks the following research question:
RQ 1. What are the elements of an organization's PPM capability?
PPM in Service Industries
The rise of services is one of the major trends affecting organizational innovation and NPD activities. Service innovation has become increasingly important and now makes a larger contribution to developed economies (Pilat, 2000). Services are generally distinguished from manufactured products by simultaneity of consumption and production of the service, and the intangible nature of services (Cooper & Edgett, 1999; Easingwood, 1986; Menor et al., 2002; Oden, 1997). Due to these differences, it is proposed that different management approaches may be suitable for service environments (Auguste, Harmon, & Pandit, 2006; Gann & Salter, 2000; Menor et al., 2002).
To better understand PPM in the dynamic environment facing organizations today, there is a need for PPM studies that include service industries. PPM and NPD research has traditionally focused on manufacturing environments. Easingwood (1986) identified a trend where NPD methods and tools have been first developed for manufacturing environments, and then adopted and adjusted for use in service industries. NPD research has indicated that service-based organizations are at a lower level of maturity with respect to NPD processes, partly due to the more recent uptake of NPD methods (Griffin, 1997). PPM has also been traditionally implemented in manufacturing based NPD environments and more recently adopted in service NPD environments (Killen et al., 2008a) indicating that PPM maturity may also be at a lower level in service industries. However, there is no existing PPM research comparing maturity between service and manufacturing environments.
Although services now dominate economic activity, they remain under-researched from an innovation and technology change perspective (Tether, 2003). The level of NPD activity in service organizations is escalating (Edwards & Croker, 2001; Howells, 2000; OECD, 2000) and development activities are now used equally frequently in service and manufacturing organizations (Christensen & Drejer, 2007). In addition, it is becoming increasingly clear that many organizations manage a portfolio of a mixture of both manufactured and service products (Andersson, 2000; Slack, Chambers, & Johnson, 2004) and that the distinctions between manufacturing and services are becoming blurred (Andersson, 2000; Barras, 1990; Slack et al., 2004; Teboul, 2006).
Despite a small but growing field of research into service NPD, there is a major gap in the literature on service PPM. Existing empirical studies on PPM focus primarily on manufacturing environments. Although some PPM research focuses on service-related areas (see, for example, De Reyck,Grushka-Cockayne, Lockett, Calderini, Moura, & Sloper, 2005; Jeffery & Leliveld, 2004; Martinsuo & Lehtonen, 2007a), none focuses on service product development, and no research includes both manufacturing and service industries in the same PPM study. Therefore, the differences between PPM capabilities in service and manufacturing environments are not known. In addition, due to the blurring of the boundaries between manufacturing and services, there is additional incentive to understand how the PPM capabilities compare. An understanding of PPM capabilities in both environments will best assist the development of effective PPM capabilities for products that span the manufacturing and service spectrum. Therefore a second research question is:
RQ 2. How do PPM capabilities in service and manufacturing NPD environments compare?
PPM and Competitive Advantage
One of the goals of strategy research is to determine why some organizations are more successful than others, and to understand the mechanisms that help some organizations achieve a competitive advantage. Competitive advantage is the ability of an organization to create more value than its rivals, and therefore achieve superior return on investment (Barney & Hesterly, 2006). Strategic decisions about how to spend or invest resources, such as decisions made as part of the PPM process, are central to organizational strategy (Teece, Pisano, & Shuen, 1997). The PPM process aims to deliver strategic goals and maximum return on project investment through the NPD project portfolio by allocating and monitoring resource allocation, ensuring alignment with strategy, and balancing the portfolio of projects (Cooper et al., 2001; Dye & Pennypacker, 1999). If a PPM capability is effective in meeting these aims, it can be a source of competitive advantage to the organization. However, in order to provide sustainable competitive advantage, long-term advantages must be obtained. Therefore, in a dynamic environment, the PPM capability must adapt and respond to changes in the environment.
Despite the strong links between strategy and PPM capabilities, strategic frameworks have not generally been used for PPM capability research. The existing research is largely atheoretical and draws upon an assumption that identifying and implementing best practice PPM methods will improve organizational outcomes.
The resource based theory (RBT) of strategy and competitive advantage assumes that resources are not uniform across competing organizations and uses this heterogeneity to explain the differing organizational success rates (Smith, Vasudevan, & Tanniru, 1996; Wernerfelt, 1984, 1995). Organizational resources include tangible or intangible assets such as a loyal customer base, experience and knowledge within the organization, and specific organizational processes and capabilities such as project management and PPM capabilities.
The RBT is an influential and fruitful area of strategy research (Hoopes, Madsen, & Walker, 2003; Verona, 1999). However, the RBT also attracts criticism because the path-dependent and evolutionary nature of the perspective is suited to relatively stable environments and requires both internal organizational stability and external environmental stability to be applied in practice (Lengnick-Hall & Wolff, 1999). Therefore, a major addition or extension to the RBT is the identification of “dynamic capabilities” as a class of organizational capabilities that enable organizations to effectively respond to changes in the dynamic environments in which they compete (Teece et al., 1997).
Several characteristics of dynamic capabilities are identified in the literature: they allow organizations to respond to changes in dynamic environments (Teece et al., 1997); they add to competitive advantage as an enabling resource in combination with other organizational resources (Smith et al., 1996; Zollo & Winter, 2002) or by modifying other organizational resources and routines (Winter, 2003; Zollo & Winter, 2002); they can be easy to copy and acquire and often have identified best practices (Eisenhardt & Martin, 2000); they must be tailored to the environment (Easterby-Smith & Prieto, 2007; Winter, 2003); and they require a sequential order for implementation (Eisenhardt & Martin, 2000).
Teece, Pisano, and Shuen's (1997) “processes, positions, and paths” framework provides an overview of the mechanisms in the relationship between resources, dynamic capabilities, learning, and performance. Although dynamic capabilities such as PPM capabilities are essentially organizational routines or processes, they depend strongly on the organization's underlying resource base to generate sustainable competitive advantage. In addition, historical and future paths are important to the organizational decisions and learnings that form the basis for dynamic capabilities.
Teece et al.'s (1997) “processes, positions and paths” framework has been used to analyse existing empirical literature to illustrate mechanisms through which the PPM capability contributes to competitive advantage (Killen, Hunt & Kleinschmidt, 2007b). In this analysis, PPM is shown to act as a dynamic capability through processes that draw upon and contribute to the resource position and are shaped by past decisions and organizational paths as well as future options and decisions (Teece et al., 1997). PPM decisions determine which innovation activities an organization will undertake and affect the longer term development, acquisition, and retirement of organizational resources to support the strategy. In this way, the PPM capability draws on the existing resources and capabilities of an organization while also helping to develop these resources and capabilities (Cepeda & Vera, 2007, Wang & Ahmed, 2007) suggesting that the dynamic capabilities framework may be applicable to PPM research. Therefore, the third research question is:
RQ 3. Can the dynamic capabilities framework be applied to assist in understanding the relationship between PPM capabilities and competitive advantage?
Establishment and Evolution of PPM Capabilities
The literature repeatedly asserts that PPM capabilities do not emerge fully formed and must be established and developed over time (Cauchick Miguel, 2008; O'Connor, 2004) and tailored to the individual environment (Artto, 2001; Loch, 2000; Reinertsen, 1997). While PPM capabilities often have common elements, they cannot be easily transferred or acquired because there is an order of implementation to many aspects of a PPM capability. For example, the organizational structure must facilitate a portfolio-level view of the project portfolio and enable a dynamic portfolio-level decision process (Cooper et al., 2001; McDonough & Spital, 2003), and effective project management processes must be in place to enable integration with PPM processes and facilitate effective data collection for PPM decision-making (Martinsuo & Lehtonen, 2007b; Wideman, 2004).
PPM capabilities are often thought to be developed along maturity paths that are sometimes identified in capability maturity models (CMMs). CMMs have become a popular way for organizations to understand capability evolution and to build capabilities ever since the Software Engineering Institute (SEI) CMM was developed (Paulk, Curtis, & Chrissis, 1991). However, the applicability of maturity models in dynamic environments is questioned as they usually focus on explicit codified practices and do not extend to cover the more intangible and knowledge-based elements of the capability (Jugdev & Thomas, 2002), and therefore do not help organizations manage unique environments and challenges of change (Kujala & Artto, 2000).
Organizational learning processes are central to the evolution of capabilities from establishment to maturity and beyond in the capability lifecycle model (Helfat & Peteraf, 2003). Without an ability to learn, organizational capabilities will remain static and unresponsive to changes in the environment. An organizational learning capability enables the organization to obtain, process, interpret, and respond to information, and to change organizational behaviors to generate opportunities and improve organizational outcomes (Easterby-Smith & Araujo, 1999; Senge, 1990).
Research indicates that organizations invest in developing their organizational capabilities to enhance their organization's competitive advantage (Amit & Schoemaker, 1993; Ethiraj, Kale, Krishnan, & Singh, 2005). Investments usually take the form of time, money, and managerial effort (Ethiraj et al., 2005), and are designed to create an environment that encourages organizational learning and enhances absorptive capacity by providing mechanisms for capturing that learning. Absorptive capacity enables the organization to identify, assimilate, and apply knowledge, and is developed through experience and access to knowledge (Cohen & Levinthal, 1990; Zahra & George, 2002). Investments in creating organizational structures for the amplification, capture, and codification of knowledge help to embed and institutionalize organizational knowledge and experiences in organizational capabilities (Nonaka, 1994). Learning activities can also be targeted to improve tacit learning mechanisms, for example by creating an environment conducive to the socialization of ideas and development of knowledge (Nonaka, 1994). Although research into PPM capabilities regularly acknowledges and outlines the evolution and development of these capabilities over time, there is a need for studies that investigate whether or how such learning investments or other mechanisms are used to help these capabilities evolve.
An appropriate balance of exploitation and exploration projects is among the many considerations that PPM processes must take into account to determine the most effective combination of projects. Sustained competitive advantage requires long-term advantages by effectively managing the project portfolio in an ever-changing environment (Eisenhardt & Martin, 2000). While short-term or incremental projects that “exploit” existing capabilities can sustain an organization for a limited period of time, it is generally acknowledged that organizations must also conduct longer-term or radical projects that “explore” less established areas to succeed in the longer term (Danneels, 2002; March, 1991). In addition to their effect on capability development and maturity, organizational learning processes have been shown to have unintended effects on decision-making processes and outcomes. PPM decisions that involve choices between short-term or incremental projects that “exploit” existing capabilities and longer-term or radical projects that “explore” less established areas evolve through experience accumulation (March, 1991). According to organizational learning theory, decisions to allocate resources to exploitation projects provide more frequent and rapid positive feedback to decision-makers than decisions to allocate resources to exploration projects. Therefore, the evolution of such decision-making processes may lead to a “success trap” where an increasingly higher percentage of resources are allocated to exploitative or incremental and short-term projects (March, 1991, 1994).
This section has briefly summarized literature on PPM capability development, highlighting the important role of organizational learning in capability evolution. The fourth and final research question aims to better understand:
RQ 4. How are PPM capabilities established and developed?
Summary of Literature Background
In summary, PPM capabilities provide a holistic perspective that is proposed to optimize project portfolio outcomes and enhance competitive advantage. Further research into understanding the relationship between PPM capabilities and portfolio outcomes is justified by the increased contribution of innovation projects to organizational outcomes and the strong level of interest in improving organizational innovation capabilities. Four research questions have been proposed based on gaps in the literature on PPM. The literature indicates that there is a need for an exploratory investigation to identify the full range of elements that comprise a PPM capability. In addition, the lack of PPM research in the increasingly important service industries suggests the need for studies that include service environments. The dynamic capabilities framework is proposed as a suitable perspective that may improve understanding and help explain the mechanisms through which PPM may contribute to competitive advantage. Finally, the research indicates that PPM capabilities must be tailored to suit each individual environment, and that for sustainable competitive advantage in dynamic environments the PPM capability must adapt and evolve in response to changes in the environments.
The research took a wide scope and defined PPM as “the overall organizational ability to manage the innovation project portfolio and maximize its contribution to the success of the organization.” A multiple-case study was used to investigate the PPM processes and the organizational factors that contribute to the PPM capability (Gillham, 2000; Johnson, Langley, Melin, & Whittington, 2007; Yin, 2003).
The research was designed to develop in-depth understanding of PPM capabilities in successful innovators, using purposeful selection in order to gain the most value from a limited number of cases (Yin, 2003). By focusing on PPM capabilities at organizations with successful project portfolios the study aimed to identify potential “best practices” (the practices associated with improved outcomes) and to indicate directions for future research that could be designed to test correlation and causality. The selected organizations were leaders in their industries based on their record of sustained innovation leadership, growth or success over at least a 10-year period. To avoid bias, all of the organizations were selected based on independent research into publicly available information, and without prior knowledge of their PPM capabilities. A balance of service and manufacturing organizations were included to enable comparisons across industries.
The unit of analysis was the PPM capability at each selected organization. The research incorporated diverse sources and multiple types of data to provide an in-depth understanding of the PPM capabilities at the case-study organizations. The multiple sources contributed data from differing perspectives and allowed triangulation to increase the level of confidence in the results (Denzin & Lincoln, 1998). Semi-structured interviews were conducted with between three and five managers at each organization and included a strong exploratory component to develop a deep understanding of the role of PPM capabilities. Because the terms related to PPM are not uniformly understood, an explanation of PPM processes and capabilities was provided to each research participant. The interviews (n = 23, average length = 110 minutes) have been transcribed and coded using the NVivo qualitative data analysis software to assist with thorough and rigorous tagging, summarizing, and analysis of the qualitative data. Within-case and cross-case analyses have been conducted and follow-up email and telephone conversations were used to clarify information and to address emerging themes.
In addition, an analysis of public and private documents provided both a written record and material not captured during interviews (Creswell, 2003). These included annual reports, press releases, published articles, product brochures, information from websites, internal procedure manuals, organization charts, flow charts, and portfolio data and displays.
The cases were conducted using overlapping data collection and analysis phases, allowing incorporation of emerging themes during the process (Eisenhardt, 1989). As the final cases exhibited a diminishing marginal contribution to the analysis, the number of cases was limited to six (Gummesson, 1991). Due to confidentiality requirements, specific details from the six organizations studied are not provided here. The cases represent a diverse range of industries covering both service and manufacturing environments, as summarized in Table 1. The six organizations each have a minimum turnover of USD800 million, with several of the organizations achieving multiple billions of dollars in revenue.
|Industry type||Industry sector|
|Manufacturing||Heavy industrial machinery|
Limitations of the Method
A longitudinal study would have been well suited to investigating the establishment and evolution of PPM capabilities, but was not employed due to time limitations. Although the cases were conducted in a relatively short period of time, the ability to collect temporal data was enhanced by the length of experience of the interviewees (average employment at the case organization of 16 years) and through questioning about past events and future plans. Interviewer bias can also be a limitation to case study research (Easterby-Smith, 2002). The potential for such bias was acknowledged and reduced through a tested research instrument designed to draw out the interviewees' experiences through gentle probes without directing or leading the responses (Creswell, 2003).
This section summarizes the case study findings with respect to the research questions1.
Research Question 1
RQ 1 asked, “What are the elements of an organization's PPM capability?” The themes identified during the cross-case analysis reveal that an organization's capability for PPM encompasses much more than the processes and methods used. The findings from the case studies are summarized next in three sections outlining the emergent “structure”- and “people”-related dimensions followed by the “process”-related dimensions that are usually the focus in PPM capability research.
Structure dimensions of the PPM capability. Organizational structure was highlighted as an important component of PPM capability. Each of the case study organizations uses a team-based structure for PPM, with the responsible areas recently elevated or restructured as a part of an intensified focus on NPD. The portfolio review board (PRB) is the main PPM decision-making body in each of the cases—although some organizations use different names for this team. The relationship between organizational structure and the PPM processes flows both ways. The PPM capabilities studied have prompted changes to organizational structure (e.g., in two organizations changes were required to the organizational structure to support changes in the PPM processes) and have been influenced by changes to organizational structures (e.g., in half of the organizations the elevation or creation of NPD structures were the catalyst for the development and implementation of tailored PPM processes and methods).
People-related dimensions of the PPM capability. People-related themes were also strongly represented in the findings. Particularly significant is the role of organizational culture in creating an environment that provides support for the PPM capability. Top management support has a strong influence on the capability, in part due to influence on the culture. The managers emphasized the importance of top management making their support visible and setting an example by adopting PPM practices. Organizational efforts to improve culture and involvement in PPM included incentives and opportunities for the individuals involved. The importance of teams to a PPM capability and the need to get the right people on PPM teams were also repeated themes throughout the research. In addition, people were highlighted as an important organizational resource that must be nurtured, developed and allocated effectively through the PPM capability for best innovation outcomes. The managers also stressed the importance of a human-centered and management-friendly approach to PPM. They believe that increased support for the decision-making process can be provided by software, but they do not want a software system that replaces the human interaction and lessens the role of managerial judgment. The valuable face-to-face dialogue generated in PPM meetings was highlighted as a major factor in the success of a PPM capability at three of the case organizations.
Process dimensions of the PPM capability. The PPM processes at each of the case organizations were undergoing regular adjustments and changes. The processes and methods used for PPM are similar across the case study organizations; however, the findings show that each process has been designed over time and tailored to suit the environment, as suggested in the literature. Each of the case organizations had defined different processes to cater for different types of projects, each making adjustments to the project management processes in the previous year. The PPM capability in each organization had a central role in developing and selecting between a number of different product development processes that are tailored to suit different project types. Similar types of stage-gate product development processes integrated with PRB decision processes were used in all of the case organizations. The weakest area of PPM processes in the case organizations was in project review and feedback; only one organization felt that its processes were adequate in these areas. While all of the organizations had been raising the level of formality of their PPM capability, they were also mindful of the tensions between firmness and flexibility and managers at each organization commented about the need to find the correct balance.
Based on the findings, Figure 1 proposes a model to represent the full PPM capability that includes the three dimensions (people, processes, and structure) integrated with a range of gated product development processes tailored to the environment and the project type. This model is proposed to help guide further research into PPM processes by highlighting the main elements that can be studied and how they interact.
Research Question 2
RQ 2 asked, “What is the relationship between PPM capabilities in service and manufacturing NPD environments?” Within each of the themes that emerged during the cross-case analysis, the data were analyzed by comparing the findings from the three service organizations with the three manufacturing organizations to identify possible differences aligned with the industry type.
Overall, the findings of the case studies indicate that PPM capabilities are largely similar across manufacturing and service environments. Although each PPM capability is unique and there are differences among the individual cases, these differences are not aligned with the industry type for most of the findings. Some themes show no differences between the service and manufacturing organizations. For example, managers across each of the organizations emphasized the importance of their PPM capabilities and echoed strong beliefs that improving their PPM capability would enhance organizational outcomes.
While highlighting that PPM capabilities enjoy many commonalties across industries, the research also revealed several PPM capability differences between service and manufacturing industries. Table 2 outlines the emergent themes that exhibited areas of industry-related differences. Underlying the industry-based differences in PPM capabilities outlined in Table 2 are two main areas of environmental difference: the differing levels and type of technological dynamism in the environments, and the blurring of the boundaries between service and manufactured products. These environmental differences are reflected in PPM capability differences such as the reasons new products and PPM are felt to be important, the levels and types of top management support for PPM, and in the PPM capability's influence on the level of resource flexibility. The identification of areas of difference sharpens the understanding of PPM capabilities. The PPM capability differences being anchored in differences in the levels and types of dynamism in the environment illustrates the PPM capability's role in responding to environmental dynamism. In particular, the findings highlight differences in the ways that PPM capabilities are used to develop and manage resources. The relationship between the PPM capabilities and the resource base is explored further in RQ 3 from a dynamic capabilities perspective.
|Findings on PPM capability themes that show differences between the manufacturing and service organizations that participated in the case studies|
|Technological dynamism and NPD timeframes—In the case study organizations, services are easily copied and lifecycles are shorter than in manufacturing environments. Technological change is slower and product development takes longer in the manufacturing organizations.|
|Service / Manufactured product boundaries—There is blurring of the boundary between manufactured products and service products that is affecting both types of case study organizations. The effect is stronger in the manufacturing organizations as they are shifting more significantly toward the service end of the spectrum. The manufacturers believe that their ability to differentiate their products and to generate profits will be increasingly based on the service aspects of the product. This shift presents a challenge for PPM capabilities that have been designed to focus on the manufactured product development projects. As services become increasingly important in manufacturing environments, the PPM capabilities may need to be adjusted to ensure adequate consideration of service aspects for product development decisions. However, only one of the three manufacturing organizations has begun addressing the increasing service focus through changes to their PPM capability.|
|Importance of new products—Managers at all of the case study organizations believe that new products are important to their long term success. New products were viewed as more important for short-term success in the service industries than in the manufacturing industries. This view is based on the rapid change and shorter product life cycles in the service industries.|
|Reasons PPM is important—Managers at all of the case study organizations place strong importance on their PPM capability and many of the reasons are common (e.g., alignment with strategy, success of the portfolio, pipeline and resource planning) however manufacturing organizations value PPM more for its ability to help with long term planning, whereas service organizations feel PPM is particularly important for helping them respond to the dynamic environment.|
|Top management support—Top management support is strong in both types of case study organizations. Top management plays a more prominent role in driving the processes in the service-based organizations that participated in the study.|
|Resource flexibility and dynamism—PPM capabilities at both types of case study organizations are used to configure, build and allocate resources for the NPD portfolio; however, resources and skills for service development are more flexible and dynamic than in manufacturing environments, although manufacturers are now beginning to explore more flexible resourcing models.|
Research Question 3
RQ 3 asked, “Can the dynamic capabilities framework be applied to assist in understanding the relationship between PPM capabilities and competitive advantage?”
Teece, Pisano, and Shuen's (1997) “Processes, Positions, Paths” framework has been used to illustrate the mechanisms used in a dynamic capability to create competitive advantage. Table 3 summarizes the case study findings with respect to the main characteristics that are used to identify an organizational capability as a dynamic capability. The table classifies each characteristic according to the “Processes, Position, Paths” model, or as a general environmental characteristic. Table 3 also lists primary sources of literature that identify each characteristic; however, all these characteristics are regularly identified in the literature on dynamic capabilities.
|Characteristic of dynamic capability||Sample reference(s)||PPM capability case study findings illustrating the characteristic|
|Environmental Characteristic |
Operates in dynamic environments
|(Teece et al., 1997)||Each organization experiences customer and technological dynamism, blurring between service and manufacturing product boundaries.|
|Process characteristics |
Contains identified “best practices” and are relatively easy to copy and acquire
|(Eisenhardt & Martin, 2000)||PPM capabilities have similar practices that are aligned with the “best practice” literature.|
|Must be tailored to suit the environment||(Eisenhardt & Martin, 2000)||PPM capabilities are individually developed to suit each environment and play a strong role in tailoring product development processes to the environment.|
|Position characteristics |
Does not act alone, requires other resources to deliver competitive advantage
|(Smith et al., 1996; Zollo & Winter, 2002)||PPM capabilities are strongly integrated with and depend upon product development capabilities and the underlying resource base (skills, knowledge, equipment, funding) to deliver competitive advantage.|
|Modifies operational routines||(Winter, 2003; Zollo & Winter, 2002)||PPM capabilities are responsible for initiating, monitoring and controlling product development processes or routines, and direct the modification of these routines.|
|Integrates, builds and reconfigures organizational resources||(Teece et al., 1997)||PPM capabilities effectively allocate resources and help ensure resource sufficiency for projects in the case organizations. They also have a strong role in resource development and in extending the resource base through external partnering.|
|Path characteristics |
Requires a sequential order of implementation
|(Eisenhardt & Martin, 2000)||Findings show that the case organizations follow maturity paths and reveal specific antecedent capabilities such as a project management capability.|
|Historical choices and future paths direct capability evolution||(Teece et al., 1997)||Once established, the PPM capabilities in the cases studied exhibited a trend toward incrementalism resulting in a “success trap.” This situation has prompted adjustment and evolution of the capability.|
|Must be dynamic and evolve to cater for changes in the environment||(Winter, 2003)||PPM capabilities undergo regular changes, organizations invest in activities that help their PPM capabilities evolve to cater for environmental changes.|
Environment. The dynamism of the organizational environment revealed by the case study investigations supports the applicability of the dynamic capabilities framework. The case findings show that the organizations are experiencing continual changes in their environments from technological change and evolution to increasing levels of change in the markets. In addition, by nature, a product development environment is an environment of change, as each project is unique and unproven and the resource situation fluctuates with the demands from competing projects and the dynamic environment (Danneels, 2002; Tatikonda & Rosenthal, 2000). There is a heightened degree of change in the case organizations due to the blurring of the boundaries between the service aspects and the manufactured aspects of the products. The case findings clearly illustrate the nature of the dynamism in the case study environments and the challenges this presents for the case organizations and their PPM capability.
Processes. The case findings also clearly show that PPM capabilities have identified “best practices” and can be easy to copy and acquire. This is particularly evident through the experiences of the case organizations that have used similar methods to learn about, implement, and evolve their PPM capabilities. In addition, the resulting PPM capabilities have common elements. These findings also reinforce findings from the literature that identify the best practices used in PPM capabilities (see, for example, Cooper, Edgett, & Kleinschmidt, 2004; Kahn et al., 2006). Although best practices and common elements are found at the case organizations, the findings reinforce findings from the literature (Griffin, 1997; Loch, 2000) and show that each PPM capability also regularly makes adjustments to tailor the capability to the environment.
Positions. The case findings show that the underlying resource position of the case study organizations provides the basis for the PPM capabilities to contribute to competitive advantage. The processes used highlight the role that PPM plays in allocating resources and illustrate that without an underlying resource base the PPM capability would not be able to add value. The product development capability can be seen as an organizational resource that is modified by the PPM capability. The PPM capability has a strong influence on the modification of the product development capability, as well as control over its deployment through resource allocation and ongoing monitoring. The PPM capability also plays a strong role in building and extending the resource base through alliancing, partnering, or outsourcing. A two-way relationship between the PPM capability and the resource base is identified in the case study findings where the resource base influences and is influenced by the PPM capability.
Paths. The findings of the case study research illustrate several ways that the PPM capability is influenced by past and future choices. The proposition that a PPM capability develops along paths over time and that past actions affect future and current developments is strongly supported. The findings outline development paths and the order of implementation for component capabilities of an organizational PPM capability. For example, the antecedent requirement for a project management capability to be established before an organization can implement a PPM capability is repeated throughout the case study findings. Another example of a path-dependent evolution of PPM capabilities is the fact that all of the case organizations have experienced the “success trap” and that their capabilities are evolving further to address the situation. Finally, dynamic capabilities must be dynamic themselves in order to remain dynamic capabilities. The case study findings reveal that the case organizations' PPM capabilities are undergoing continual evolution in response to changes in the environment. This evolution is enhanced by the ongoing investment in learning activities at the case organizations, as discussed in more detail in response to RQ 4.
This research has shown how the dynamic capabilities perspective can assist in understanding the relationship between PPM and competitive advantage. The application of the “processes, positions, and paths” framework highlights the mechanisms used in a PPM capability to work with the resource base and build upon past experiences, as well as to look toward future choices to contribute to organizational competitive advantage. Figure 2 illustrates relationships between the PPM processes, the resource position, past and future paths, and the development of competitive advantage in a dynamic environment. The model also presents PPM as a dynamic capability that encompasses the three elements of processes, structures, and people as identified earlier and presented in Figure 1.
Research Question 4
RQ 4 asked, “How are PPM capabilities established and developed?”
One of the most notable aspects of the PPM capabilities at the six case organizations was the level of change. The findings provide information on how PPM capabilities develop, how they are established and evolve over time, and the types of investments organizations make to develop their PPM capabilities. In addition, the identification of PPM as a dynamic capability enables this study to draw on the growing literature on the development of dynamic capabilities to improve the understanding of PPM capability development. This literature and the case study findings highlight the role of organizational learning processes in the establishment and evolution of dynamic capabilities like PPM. Table 4 summarizes the main findings from the in-depth case studies on the development of PPM capabilities and links these findings to theories and findings from previous research.
The findings on the development of PPM capabilities overlap with the findings that identify PPM as a dynamic capability, particularly in the identification of areas of path dependency. Organizational learning is shown to have a large role in the establishment and continual evolution of PPM capabilities in response to the dynamic competitive environment. As outlined in the previous section addressing RQ 3, PPM capabilities have been identified as a dynamic capability. As summarized in Table 4, the case study findings support the proposition that dynamic capabilities co-evolve through a combination of tacit and explicit learning mechanisms, and that investments in organizational learning activities are regularly used to enhance these learning mechanisms (Zollo & Winter, 2002).
|Theory or finding from literature||Source(s)||Findings from PPM case studies|
|Organizational learning is a “second-order” dynamic capability due to its role in shaping “first-order” dynamic capabilities.||(Cepeda & Vera, 2007; Winter, 2003)||Organizational learning processes are shown to evolve the PPM capabilities through both purposeful investments in learning activities and through the unintended consequence of accumulated experiences.|
|Dynamic capabilities co-evolve through tacit experience accumulation, explicit knowledge articulation and explicit knowledge codification. Learning investments can amplify these learning mechanisms.||(Nonaka, 1994; Zollo & Winter, 2002)||Organizations regularly invest in activities that enhance all three learning mechanisms to develop their PPM capabilities. Their PPM capabilities are shown to co-evolve through the combination of three types of learning mechanisms. The findings indicate that investments in tacit experience accumulation and explicit knowledge codification are particularly important for the establishment or for making major changes to a PPM capability.|
|PPM capabilities evolve along maturity paths with required antecedent capabilities||(Crawford, 2007; Kleinschmidt, 2006)||Case study findings show the evolution paths and the prior implementation of antecedent capabilities.|
|Organizational learning processes can lead to a “success trap” where accumulated decision making experiences favor exploitation over exploration.||(March, 1991)||The “success trap” is evident in the case study findings. It seems to be a symptom of unintended PPM capability evolution and has prompted purposeful PPM capability evolution in each case.|
The case study findings also demonstrate how organizational learning can be seen as a higher order dynamic capability due to its role in the establishment and evolution of PPM. This relationship is illustrated in Figure 3, where PPM is identified as a first-order dynamic capability through its role in shaping the operational project management or product development capability. Organizational learning is therefore identified as a second-order dynamic capability for its role in the ongoing development of the PPM capability. Purposeful organizational learning investments direct the establishment and evolution of capabilities by enhancing three learning mechanisms: tacit experience accumulation, explicit knowledge articulation, and explicit knowledge codification (Killen, Hunt, & Kleinschmidt, 2008b). In addition, the cases show how experience accumulation can unintentionally lead to a “success trap” once a PPM capability is established, creating structures that provide a locus for experience accumulation. Each organization found that after formalizing their PPM capability they experienced a situation where exploitation decisions became favored over exploration decisions, resulting in an imbalance in the project portfolio. This path-dependent situation was then shown to prompt further evolution of the PPM capability to address the imbalance. Therefore, while each of the case organizations' PPM capabilities are, in part, to blame for creating an imbalance in the portfolio, they also provide the organizations with the capability to recognize and address the “success trap” phenomenon.
The case study findings also provide detail about the establishment and evolution of PPM capabilities over time, revealing maturity paths and required antecedents. However, a lack of formal feedback mechanisms in the case organizations and the existence of informal capability evolution suggest that the findings do not capture the full set of feedback mechanisms that contribute to the development of PPM capabilities. Further research is indicated to better understand the full range of formal and informal feedback mechanisms at play in the evolution of PPM capabilities.
This research has employed an in-depth multiple case study to explore the relationship between an organization's PPM capability and its ability to establish sustainable competitive advantage through improved new product outcomes. The main findings are summarized in Table 5 in relation to the research questions.
In summary, the findings illustrate that an organizational PPM capability goes beyond the processes and procedures used; organizational structures and human dimensions are important components of the capability. PPM is shown to contribute to competitive advantage through the mechanisms of dynamic capability by enabling organizations to reconfigure the resource base to respond to changes in the environment. Organizational learning is found to be instrumental in PPM capability development and insights are provided into the ways that organizations establish and evolve their PPM capabilities. The findings also contribute to the understanding of how PPM is tailored to environments through an analysis of differences between service and manufacturing industries. PPM is largely similar in the service and manufacturing environments studied, but exhibits differences related to the differing levels and types of dynamism the environments, differing levels of flexibility in resources, and the ongoing trend toward a service focus in manufacturing industries. The fact that these PPM capability differences are anchored in differences in the levels and types of dynamism in the environment highlights the PPM capability's role in responding to environmental dynamism, and therefore reinforces its status as a dynamic capability.
|Research Question||Main findings from qualitative phase of research|
|1. What are the elements of an organization's PPM capability?||The themes identified during the cross-case analysis reveal that an organization's capability for PPM encompasses much more than the processes and methods used. The emergent themes are categorized as “structure” dimensions and “people” dimensions.|
|2. What is the relationship between PPM in service and manufacturing NPD environments?||Service- and manufacturing-based organizations have largely similar PPM capabilities. Differences in the types of organizational dynamism, the level of flexibility in resources, and the way that the boundaries between service and manufactured products are blurring underpin areas of difference in the PPM capabilities.|
|4. Can the dynamic capabilities framework be applied to assist in understanding the relationship between PPM capabilities and competitive advantage?||The use of the dynamic capabilities framework is highly supported and findings clearly indicate that PPM acts as a dynamic capability in the case organizations. PPM capabilities deploy, develop and extend the resource base and are influenced by past experiences as well as future choices as they evolve to contribute to organizational competitive advantage.|
|5. How are PPM capabilities established and developed?||Organizational learning processes are highlighted as a second-order dynamic capability. Organizations regularly invest in purposeful learning activities to develop their PPM capabilities. The findings highlight the importance of incorporating learning elements in the PPM capability to ensure it evolves to remain relevant in the dynamic environment.|
Implications and Future Research
A model representing the bounds of a PPM capability is presented in Figure 1. This model includes a wider range of capabilities and considerations than is traditionally included in PPM literature and may be useful for managers in developing organizational PPM capabilities. By proposing the main elements of a PPM capability and how they interact, this model is also expected to help guide future research.
An important finding from the research is the identification of PPM as a dynamic capability. This finding contributes to the a growing body of literature investigating dynamic capabilities, their establishment and evolution through organizational learning, and their relationship to sustainable competitive advantage. The findings on PPM capability evolution are also strengthened by the use of the dynamic capabilities framework and form another valuable contribution from the research.
Drawing upon the identification of PPM as a dynamic capability, two models have been presented that will assist managers better understand PPM capabilities and will help guide further research in this area. The model in Figure 2 depicts PPM as a dynamic capability, illustrating the relationship between the processes, the resource position, past and future paths, and the development of competitive advantage in a dynamic environment. A related model in Figure 3 uses the dynamic capabilities perspective to illustrate the relationship between organizational learning capabilities, PPM capabilities, and project management or product development capabilities. These models each contribute to the understanding of PPM capabilities and their relationship with competitive advantage through projects; however each model will require testing and validation.
Finally, while this study targeted organizations with service product development portfolios to compare their PPM capabilities with organizations with manufactured product portfolios, the findings show that product portfolios at the case organizations contain both service and manufactured aspects. This blurring of the boundaries between service and manufacturing products is consistently reported and is expected to increase. The changing product landscape has a particularly strong effect on the manufacturing organizations. The findings indicate that these organizations will be in the service business in the future, and that quality manufactured products will still be necessary but not sufficient for success. Therefore, these organizations will need to develop new ways of working, including making adjustments to their PPM capability so that the service aspects of manufactured products are considered. This is of critical importance since these manufacturers believe that their ability to differentiate their products and to generate profits will be increasingly based on the service aspects of the product. The evidence indicates that adjustments to the PPM capability are lagging behind the changes to the environment, with only one of the three manufacturing organizations addressing the changes through changes to their PPM capability.
The findings are based on a limited number of cases purposefully selected to illustrate the PPM capabilities in organizations with successful new product portfolio outcomes in a wide range of industries. However, due to the small sample size, the findings may not be representative and causality or correlation cannot be established between the observed PPM capabilities and the case organizations' successful outcomes. Future research is suggested to further investigate the relationship between the wide range of organizational factors that comprise a PPM capability and improved portfolio outcomes. Larger scale studies could be used to establish correlations or causality, and longitudinal studies are recommended to observe the ongoing evolution and change to PPM capabilities in organizations in response to dynamic environmental conditions.
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1 For examples of specific quotes and other qualitative data findings see Killen, C. P. (2008). Project Portfolio Management for Product Innovation in Service and Manufacturing Industries. PhD Thesis, December 2008, Macquarie Graduate School of Management. URL: http://hdl.handle.net/1959.14/44777
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