1 Introduction
The previous chapters of this book have initiated the discussion on strategy and organizational project management (OPM), outlining the strategic perspectives and foundations underlying organizations and OPM and introducing the resource-based view (RBV) of strategy and competitive advantage. In this chapter, we introduce the concept of dynamic capabilities (DC) and explore how the DC perspective extends the RBV perspective on strategy and competitive advantage; in particular, its relevance to OPM. We outline the scholarly debates on the definitions of DCs, methods to study and measure DCs, and highlight the research that relates DCs to project and portfolio management in the context of OPM.
OPM is defined as “the integration of all project management-related activities throughout the organizational hierarchy or network … It is implemented by managers involved in project activities through organizational and managerial means, and governed by the agency responsible for governing the organization” (Drouin et al., Reference Drouin, Sankaran and Müller2016, pp. 3–4). OPM takes a holistic perspective on an organization’s projects and its project-related network of strategic and collaborative initiatives that are governed and supported at the organizational level. In the OPM context, we highlight the role of project portfolio management (PPM) and its contribution to the development of sustainable competitive advantage by acting as a DC. We show how the OPM perspective helps to explain the mechanisms through which a DC such as PPM can influence the evolution of a wide range of project management (PM) activities and enable response to change. We propose that the resulting competitive advantage can be sustainable provided that the PPM capability is truly a DC and that the OPM approaches enable reconfiguration and change in resourcing and activities. All in all, PPM provides competitive advantage by acting as a DC by dynamically adjusting the organization’s portfolio of projects and reconfiguring resources to respond to changes in the environment (Killen et al., Reference Killen, Hunt and Kleinschmidt2007). As a strategic asset for OPM, PPM acts as a DC by ensuring the strategic alignment of the project portfolio and the efficient use of PM resources, as well by overseeing the changes required to sustain competitive advantage.
Much attention has been paid to competitive positioning as a source of competitive advantage (Porter, Reference Porter2011), where differences in competitive success are explained by differing strategic choices. However, in many circles, the quest for the sources of competitive advantage has returned to a focus on the internal workings of an organization and the development of Penrose’s idea (Reference Penrose and Penrose1959) that the profitability and growth of a firm should be understood in terms of its possession and development of unique resources (Dosi et al., Reference Dosi, Nelson and Winter2000, p. 13; Grant, Reference Grant1991). As more specifically outlined in Chapter 4, which introduces readers to key concepts from strategy, the RBV is a strategic perspective that takes an internal view of organizational capability and explains differences in performance on the differences in organizational resources. The RBV assumes that resources are not uniform across competing organizations and uses this heterogeneity to explain the differing organizational success rates. According to the RBV, resources that are Valuable, Rare, Inimitable, and Nonsubstitutable (VRIN) support the development of sustainable competitive advantage by being difficult for other organizations to copy or acquire (Barney, Reference Barney2013, Reference Barney1999, Reference Barney1991; Barney, Wright, & Ketchen, 2011, Reference Barney, Wright and Ketchen2001; Barney, Della Corte, Sciarelli, & Arikan, Reference Barney, Della Corte, Sciarelli and Arikan2012). Further evolution of the VRIN framework has produced the VRIO (Value, Rarity, Inimitability, and exploited by the Organization) framework, which emphasizes the importance of organizational support (Barney & Hesterly, Reference Barney and Hesterly2006, p. 93; Kaufman, Reference Kaufman2015).
This perspective has provided a fruitful base for OPM research; however, the application of the RBV in practice is limited to relatively stable environments with both internal organizational stability and external environmental stability (Lengnick-Hall & Wolff, Reference Lengnick-Hall and Wolff1999). In contrast, the competitive situation is increasingly dynamic in many industries, with ongoing changes in technologies, business models, and consumer expectations and needs. The need to adapt to change is recognized as essential for survival in many industries. To address such changeable environments, an important addition or extension to the RBV 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., Reference Teece, Pisano and Shuen1997).
The chapter is structured as follows. First, we explain the concept of DCs. Second, we summarize recent research on DCs, and finally, we explore how DCs relate to OPM.
2 Overview of the Concept of Dynamic Capabilities
The seminal article by Teece, Pisano, & Shuen (Reference Teece, Pisano and Shuen1997) marked the beginning of the surge in interest in the DC concept and still forms a backbone to many definitions and interpretations. According to Teece et al. (Reference Teece, Pisano and Shuen1997), the DC approach focuses on ways that organizations integrate, build, and reconfigure their resources to compete in dynamic environments. Their “processes, positions and paths” (PPP) framework (Teece et al., Reference Teece, Pisano and Shuen1997) provides an overview of the mechanisms through which DCs add value. Dynamic capabilities are shown to be specific organizational routines or processes that depend strongly on underlying organizational resources to generate sustainable competitive advantage. The PPP framework also highlights that DCs are path-dependent; the historical and future paths are important to the organizational decisions and learnings.
Eisenhardt and Martin (Reference Eisenhardt and Martin2000) explored DCs in the other highly influential study that has shaped the debate and definitions on DCs (Peteraf et al., Reference Peteraf, Di Stefano and Verona2013). Eisenhardt and Martin clarified that DCs are “enabling” resources that add value through reconfiguration of the resource base; they are not sufficient to add value by acting alone. DCs are “specific strategic and organizational processes like product development, strategic alliancing and strategic decision-making that create value for firms within dynamic markets by manipulating resources into new value-creating strategies” (Eisenhardt & Martin, Reference Eisenhardt and Martin2000, p. 1106). Eisenhardt and Martin extend the discussion on path dependence and explain that DCs require the prior establishment of supporting capabilities through a sequential order of implementation (Eisenhardt & Martin, Reference Eisenhardt and Martin2000). An important contribution by Helfat et al. (2007) is to identify the role of “purposeful” change in DCs, offering an evolved definition of a DC as “the capacity of an organisation to purposefully create, extend, or modify its resource base” (Helfat et al., 2007, p. 4). Following a review of the literature, Barreto (Reference Barreto2010), identified four elements of DC: the propensity to sense opportunities and threats, the propensity of change to the resource base; the propensity to make timely decisions; and the propensity to make market-oriented decisions. The two latter elements specifically highlight the nature of a DC as a decision-making capability. Barreto’s focus on “propensity” aligns with Wang and Ahmed’s (Reference Wang and Ahmed2007) perspective on the behavioral orientation of an organization. Barreto offers this definition: “A dynamic capability is the firm’s potential to systematically solve problems, formed by its propensity to sense opportunities and threats, to make timely and market-oriented decisions, and to change its resource base” (Barreto, Reference Barreto2010, p. 271).
Some of the debate about DCs relates to concepts about organizational capabilities and routines – and how these “patterned elements” (Winter, Reference Winter2003) or “routinized activities” (Zollo & Winter, Reference Zollo and Winter2002) can form part of an organization’s valuable resource base. DCs involve shaping lower-order capabilities such as operating routines into capabilities that are the result of a dynamic change process (Winter, Reference Winter2003; Cepeda & Vera, Reference Cepeda and Vera2007). From this perspective, DCs can be viewed as a “learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of competitive advantage” (Zollo & Winter, Reference Zollo and Winter2002, p. 340). Similarly, a DC can be viewed as a particular type of organizational capability that focuses on learning processes and provides organizations with the ability to reconfigure resources and routines to adapt to changing environments (Jarzabkowski & Wilson, Reference Jarzabkowski and Wilson2006).
A central concept in DCs is the ability to respond to change in the environment. Some research shows that DCs are more effective in more turbulent environments (Wilden, Gudergan, Nielsen, & Lings, Reference Wilden, Gudergan, Nielsen and Lings2013; Eriksson, Reference Eriksson2014), while a study by Schilke (Reference Schilke2014) found an inverted U-shaped relationship in the ability of a DC to contribute to competitive advantage; the advantage was strongest in medium levels of dynamism whereas high and low levels of change resulted in weak influences on success from the DC. To remain effective in turbulent environments, a DC must itself be dynamic; DCs must include capabilities for renewal and evolution.
2.1 Reviews of DC Literature
The DC framework is still relatively young and definitions and methods for research are not firmly established. The large volume of often fragmented literature, drawing upon differing perspectives and examples, has prompted the publication of a number of literature reviews that aim to consolidate and clarify the research landscape. One recent study (Peteraf et al., Reference Peteraf, Di Stefano and Verona2013) highlighted the divide between two camps – depending upon which of the seminal works on DC are most strongly followed – either the work by Teece et al. (Reference Teece, Pisano and Shuen1997) or Eisenhardt & Martin (Reference Eisenhardt and Martin2000). Their evaluation of the 142 most influential papers on DCs concluded that both of the perspectives introduced in these seminal works are valuable; the paper recommends convergence to build on the strengths of both. Other literature reviews include the review by Barreto (Reference Barreto2010), which concluded with the four propensities as discussed above. Another literature review by Wang and Ahmed (Reference Wang and Ahmed2007) summed up the DC literature from a learning-based behavioral perspective – further findings are discussed under “learning” below (see Section 3.1).
From the strategic management perspective, Ambrosini and Bowman (Reference Ambrosini and Bowman2009) offer a review of DCs in a Special Issue of the British Journal of Management on Current Debates and Future Directions. Ambrosini and Bowman suggest that there are different levels of DCs, from incremental capabilities, to renewing capabilities that act on the resource base, and on to regenerative capabilities that act on the existing DCs. Also from a strategic management perspective, Vogel’s (Reference Vogel2013) bibliometric analysis provides an interesting glimpse of the trends in DC research. Over 1,000 papers published between 1994 and 2011 were analyzed. Clusters of themes and their evolution reveal how the field is converging and differentiating as it finds its identity. The DC perspective is shown to draw upon and contribute to both organization theory and strategic management. The volume of relevant literature doubled in the final three years of the eighteen years included in the study (Vogel, Reference Vogel2013).
As the literature on DCs grows, other reviews on DCs reveal an increasing number of specialized perspectives – ambidexterity as a DC (O’Reilly & Tushman, Reference O’Reilly and Tushman2008), radical product innovation as a DC (Slater, Mohr, & Sengupta Reference Slater, Mohr and Sengupta2014, O’Connor, Reference O’Connor2008), entrepreneurship as a DC (Zahra, Sapienza, & Davidsson, Reference Zahra, Sapienza and Davidsson2006), and dynamic managerial capabilities (Helfat & Martin, Reference Helfat and Martin2014).
While the reviews each provide useful perspectives and propose ways to consolidate and make sense of the literature, there remains a wide variety of perspectives on DCs. Although convergence does not seem near, we identify some common themes in DC research that are relevant to OPM in this chapter. First, however, we discuss some of the criticisms and shortcomings of DCs.
2.2 Criticisms and Shortcomings of DCs
The growing body of research and literature on DCs includes an ongoing debate about whether it is a valid theoretical perspective. The DC perspective is sometimes referred to as a “theory”; however, convincing arguments reveal that the DC concept is not developed enough to satisfy the definition of a theory (Arend & Bromiley, Reference Arend and Bromiley2009; Helfat & Peteraf, Reference Helfat and Peteraf2009). Most research accepts this line of argument and DC is usually referred to as a “framework” or a “view,” one that draws on theoretical perspectives, but that is not a theory in itself. The DC concept is evolving; it is still at its infancy and its work is mainly conceptual and has unresolved measurement issues (Arend & Bromiley, Reference Arend and Bromiley2009; Helfat & Peteraf, Reference Helfat and Peteraf2009).
Some authors believe that the premises behind the RBV and DCs are flawed due to tautological definitions. Priem and Butler (Reference Priem and Butler2001) argue that flawed circular reasoning is used: the definition that resources and capabilities must be valuable to contribute to competitive advantage is tautological when combined with the proposition that the creation of competitive advantage helps to define whether contributing resources or capabilities are valuable. Other authors argue that, although the RBV can be defined tautologically, the theory is not tautological in essence. These authors also suggest definitions that are constructed specifically to avoid tautology (Zollo &Winter, Reference Zollo and Winter2002; Barney et al., Reference Barney, Wright and Ketchen2001; Peteraf & Barney, Reference Peteraf and Barney2003; Helfat et al., 2007). Further, to avoid the problems of tautology in DCs, “it must be feasible to identify discrete processes inside the firm that can be unambiguously causally linked to resource creation” (Ambrosini & Bowman Reference Ambrosini and Bowman2009, p. 44). Early criticisms also pointed out the lack of empirical research and the difficulties in empirically testing such concepts (Bacharach, Reference Bacharach1989; Priem & Butler, Reference Priem and Butler2001).
One of the most common shortcomings of DCs is highlighted repeatedly: as a relatively new field, there is a need for further empirical research and for methodology guidance on how that research can best progress (Eisenhardt &Martin, Reference Eisenhardt and Martin2000; Zahra et al., Reference Zahra, Sapienza and Davidsson2006; Martinsuo & Lehtonen, Reference Martinsuo and Lehtonen2007). Research in specific environments is needed, and an understanding of how DCs may operate in different fields will strengthen the field (Helfat et al., 2007). Barreto (Reference Barreto2010) calls for more work on boundaries and contingencies; DCs are thought to enable success in the face of dynamism, but the mechanisms for enabling this success are less clear.
The volume of research has escalated in recent years, generating an increasing amount of empirical findings. However, authors continue to cite the need for further empirical research conducted on defined capabilities or routines in specific environments (Schilke, Reference Schilke2014), and much of the research is still conceptual.
3 Themes in the DC Literature
A number of interrelated themes are identified in the DC literature. We identified four influential perspectives that underpin much of the DC research and have implications for OPM research. These perspectives are not mutually exclusive and are often used in combination. The four perspectives are: learning and knowledge, context dependency, strategy-as-practice, and microfoundations. Although they are often combined, each perspective provides a unique lens for investigating DCs while providing links to previous research and suggestions of research methodologies. This section summarizes the literature on each of these themes across the management literature. Section 4 then takes a more focused look at DC research from an OPM perspective.
3.1 Learning and Knowledge
A strong learning perspective is found in a growing segment of the DC literature (Cepeda & Vera, Reference Cepeda and Vera2007; Easterby-Smith & Prieto, 2007; Zollo & Winter, Reference Zollo and Winter2002). In their review of the DC literature, Wang and Ahmed (Reference Wang and Ahmed2007) identified three aspects of DC research that emphasize learning-based behavioral orientations: adaptive capacity, absorptive capacity, and innovative capacity. As a learning perspective, the concept of adaptive capacity (the ability to identify and capitalize on emerging market opportunities) underpins research on DCs in entrepreneurship and new product development (Zahra et al., Reference Zahra, Sapienza and Davidsson2006; Sicotte, Drouin, & Delerue, Reference Sicotte, Drouin and Delerue2014). In fact, by definition, processes for learning and adaptation underpin DCs (Eisenhardt & Martin, Reference Eisenhardt and Martin2000; Winter Reference Winter2003). Absorptive capacity has been identified as a DC due to its role in enabling organizations to respond to external change through recognizing and integrating new knowledge for competitive gain (Zollo & Winter 2003; Killen et al., Reference Killen, Hunt and Kleinschmidt2008, Lichtenthaler, Reference Lichtenthaler2009; Zahra & George, Reference Zahra and George2002). Learning and feedback loops are an essential aspect (Todorova & Durisin, Reference Todorova and Durisin2007).
Learning perspectives are also found in the literature on DC studies that explore cognition and knowledge management (Easterby, Smith, & Prieto, Reference Easterby‐Smith and Prieto2008; Chiva & Alegre, Reference Chiva and Alegre2005) and in the ways intellectual capital contributes to competitive advantage (Hsu & Wang, Reference Hsu and Wang2012; Wang et al., Reference Wang, Wang and Liang2014). Processes for learning and knowledge management are highlighted in a review of empirical DC research (Eriksson, Reference Eriksson2014). For project-based organizations operating in dynamic environments, these themes are central to the development and ongoing evolution of PM and PPM capabilities and in the development of integration processes that are required for true OPM.
3.2 Strategy-as-Practice
Practice-based research aims to understand complex organizational phenomena by studying actual practices; collecting information on everyday activities in a holistic and contextual manner (Cook & Brown, Reference Cook and Brown1999; Whittington, Reference Whittington2003; Jarzabkowski & Wilson, Reference Jarzabkowski and Wilson2006; Johnson, Reference Johnson2007). When DCs are at play, practice-based research methods are particularly useful as prescriptive research methods are not able to best capture the unfolding of events in response to change. The strategy-as-practice perspective views strategy as a managerial activity (Johnson, Reference Johnson2007) and provides valuable insights in strategy studies that involve DCs (Regnér, Reference Regnér2008). By studying the activities and micro-strategizing activities that are distributed throughout an organization, the strategy-as-practice lens enables consideration of “how” of strategies are implemented, whereas much strategy research and theory stops at the “what and why” of strategy (Jarzabkowski, 2003; Johnson, Reference Johnson2007).
There is a strong alignment between strategy and DCs; many DCs involve strategic processes, and the interest in understanding emergent strategy (and not just the planned, deliberate strategy processes) strengthens the role of DCs (Ambrosini & Bowman, Reference Ambrosini and Bowman2009; Jarzabkowski, Reference Jarzabkowski2004; Jarzabkowski, Balogun, & Seidl, Reference Jarzabkowski, Balogun and Seidl2007; Jarzabkowski & Spee; Reference Jarzabkowski and Spee2009). Other studies acknowledge the role of strategy, DCs and practice-based studies (Winter, Reference Winter2003; Teece et al., Reference Teece, Pisano and Shuen1997; Eisenhardt & Martin, Reference Eisenhardt and Martin2000). A study of micro-strategizing activities shows patterns of activities that support the evolution of DCs (Salvato, Reference Salvato2003).
OPM offers a strategic perspective on organizations by integrating all PM-related activities from strategic to operational. The strength of a strategy-as-practice research approach has been illustrated in PM and PPM studies. For example, the DC perspective was employed in a practice-based study that proposes a dual model of strategic change in PM (Biesenthal, Reference Biesenthal2013). See Section 4 for further examples and discussion on the applicability of strategy-as-practice research methods for exploring OPM, PPM and DCs.
3.3 Microfoundations
Research into the “microfoundations” of organizational capabilities explores the specific actions and processes that make up an organizational capability. Microfoundations are sometimes studied at the individual cognition level (Gavetti, Reference Gavetti2005), drawing on the level of specific human interactions rather than at the organizational level (Argote & Ingram, Reference Argote and Ingram2000). From a DC perspective, microfoundations are proposed to be based in organizational structures and procedures and involve the particular skills and rules that underpin organizational capability (Teece, Reference Teece2007).
The literature offers two main structures on studying DCs from a microfoundational perspective. Felin et al., Reference Felin, Foss, Heimeriks and Madsen2012 identifies microfoundations of routines (including DCs) at three levels: individual microfoundations, processes and social interactions, and structural microfoundations. These combine and interact to build the routines and capabilities that underpin organizational competitive advantage. In fact, as Barney and Felin (Reference Barney and Felin2013) highlight, it is the aggregation of these multiple microfoundations that build capabilities, and this aggregation as a useful, identifiable organizational routine or capability is what creates value. Teece (Reference Teece2007) proposes a different structure for studying microfoundations from a DC perspective. He draws upon his Sensing, Seizing, and Transforming framework for DCs (Teece, Reference Teece2007) and identifies specific microfoundations associated with each. For example, microfoundations associated with “sensing” include aspects such as processes for accessing information on external science and technological developments or processes to assess changing market trends. Research that investigates the specific actions and microfoundations of a DC, and how these combine and interact, can extend our understanding of DCs and how they create competitive advantage.
Examples of microfoundation research can be found in studies on individual cognition and its effect on DC development. For example, Helfat and Peteraf (Reference Helfat and Peteraf2015) explore managerial cognitive capabilities and DCs, and “dynamic managerial capabilities” have been identified as a specific microfoundation of DCs (Helfat & Martin, Reference Helfat, Martin, Shalley, Hitt and Zhou2015; Adner & Helfat, Reference Adner and Helfat2003). Transactive memory capabilities are another microfoundation associated with DCs in the literature (Argote, Reference Argote2012). “Transactive memory” is a knowledge capability and explains how team members are able to share knowledge and work together to exploit their complementary knowledge. Other examples of microfoundational DC research are included in Section 4 where we explore the research on OPM and DCs.
3.4 Context Dependency
As highlighted in the section on criticisms and shortcomings of the DC perspective, as a relatively new perspective, there is a need for more empirical research and methodological guidance to advance the field. However, researchers acknowledge the importance of context for DC studies (Collis, Reference Collis1994; Winter, Reference Winter2003), and suggest that “Rather than looking for formulas for generalized effectiveness, researchers should recognize that the value of DCs is context dependent” (Barreto, Reference Barreto2010, p. 277). There are repeated calls for research on specific organizational processes to generate empirical data for the continued development of RBV and DC theories (Eisenhardt & Martin, Reference Eisenhardt and Martin2000; Helfat et al., 2007), as such studies place DCs in context and are able to produce findings related to the specific practices in that context.
Context is indeed increasingly evident in much of the DC research. Some studies particularly focus on context as a differentiator while others provide examples within a context; both provide findings to contribute to the ongoing development of DC research. A study of the contingencies that affect DCs found that “organic” organizational structures (as opposed to mechanistic rule-based structures) facilitate the impact of DCs on organizational performance (Wilden et al., Reference Wilden, Gudergan, Nielsen and Lings2013). The performance effects of DCs were also found to be contingent on the competitive intensity faced by firms in Wilden et al.’s study. This finding is also reflected in a recent study where Schilke (Reference Schilke2014) found that both alliance capabilities and new product development capabilities act as DCs. However, in these contexts, the study revealed a U-shaped relationship where the contribution of these capabilities to competitive advantage is strongest under intermediate levels of dynamism but that the contribution is weaker in stable environments or in highly dynamic environments.
DCs have been studied in many different contexts. Clusters of studies within a particular context enable a deeper understanding and may offer some generalizations within that context. For example, multiple studies identify alliance capabilities as DCs due to the role of alliancing in the acquisition and tailoring of resources to meet changing conditions; and the strong role of routines and processes in developing alliance capabilities (Eisenhardt & Martin, Reference Eisenhardt and Martin2000; Kale & Singh, Reference Kale and Singh2007; Anand, Oriani, & Vassolo, Reference Anand, Oriani and Vassolo2010).
Entrepreneurship and innovation are contexts that feature strongly in DCs literature. Entrepreneurial management is said to be responsible for sensing opportunities in a dynamic environment and acting to configure resources to address the opportunities – thus acting as a DC (Teece, Reference Teece2007; Zahra et al., Reference Zahra, Sapienza and Davidsson2006; Newbert, Reference Newbert2005). Innovation through the development of new products and services similarly requires DCs. Product and service development is unpredictable and dynamic, and requires an ever-changing mix of resources (Eisenhardt & Martin, Reference Eisenhardt and Martin2000; Danneels, Reference Danneels2002; Helfat et al., 2007, Tatikonda & Rosenthal, Reference Tatikonda and Rosenthal2000; Zollo & Winter, Reference Zollo and Winter2002), and DCs are integral to the development of innovation capabilities and the development of competitive advantage through new product development (Ellonen, Jantunen, & Kuivalainen, Reference Ellonen, Jantunen and Kuivalainen2011).
However, not all product development capabilities are viewed as DCs and some authors and studies look to higher-level capabilities such as project and product portfolio management as DCs. This is because, in many cases, product development capabilities are largely operational capabilities and a DC is seen as a higher-order capability that directs the development and evolution of the operational capability (Winter, Reference Winter2003). Following this view, operational capabilities support ongoing developments using existing processes targeted at the same types of customers (Helfat & Winter, Reference Helfat and Winter2011) whereas DCs are directed toward strategic change and aligning the organization with a changing environment (Zahra et al., Reference Zahra, Sapienza and Davidsson2006).
Following this argument, from an OPM perspective, innovation and strategic change are best enabled through project portfolio capabilities rather than at the project level. As will be discussed more fully in Section 4, PPM acts as a higher-order DC to reconfigure resources at a portfolio level to ensure that the project balance and profiles meet changing conditions. By adjusting the mix of projects and the type of projects, PPM can act as a DC even when the individual product and service development projects are largely operational. PPM can also provide the higher-level perspective required to support ambidexterity capabilities. The capability for ambidexterity is said to be a DC (O’Reilly & Tushman, Reference O’Reilly and Tushman2008) due to its ability to allow organizations to effectively innovate in fairly stable environments by exploiting current capabilities, while also addressing dynamic environments with explorative innovation creating new capabilities.
Context dependency for DCs means that the effectiveness and operation of a DC will be affected by aspects of the organization and environment and that, in different contexts, DCs may possess particular qualities and include identifiable routines. Empirical research is starting to provide more understanding of DCs through context-related studies. OPM-related studies are outlined in Section 4.
4 OPM, PPM, and Dynamic Capabilities
So far, we have anchored our discussions on trying to understand the DC concept. We highlight that DCs is a view or perspective, and not a theory, and introduced some of the main frameworks used to explain or study DCs. We have also identified themes within the literature on DCs and highlighted the importance of empirical studies in helping to clarify this concept. In order to explore how DCs can be a strategic asset for OPM, we first need to more deeply explore the concept of organizational capabilities and strategic assets.
Richardson (Reference Richardson1972) was among the first to emphasize that organizations can gain a competitive advantage by developing “appropriate capabilities.” In organizations, there is a distinction between the execution of daily business by employees and the decisions of executives about the deployment and development of capabilities (Dosi et al., 2002). Managers face strategic choices in the ways they deploy their limited resources to gain competitive advantage and to make that advantage sustainable. Managers need routines and frameworks to support strategic decision making in the face of dynamic change (Rumelt, Reference Rumelt, Hamel and Heene1994).
In the PM field, Davies and Hobday (Reference Davis and Hobday2005, p. 62) describe project capabilities as “the appropriate knowledge, experience and skills necessary to perform pre-bid, bid, project and post-project activities.” PM capability has been shown to be a valuable resource that can underpin competitive advantage in project-based firms (Jugdev, Reference Jugdev2004). While PM capabilities, which are often considered to be tactical capabilities, can provide benefits in responding to changes in the environment, it is at the strategic level that decisions are made that best enable organizational responsiveness.
In sum, assets are embedded in how a firm works, that is, in its unique skills and knowledge base (Foss, Reference Foss1997; Rumelt, Reference Rumelt, Hamel and Heene1994). Strategic assets are the set of firm-specific resources and capabilities developed by management as the basis for creating and protecting the firm’s competitive advantage (Amit & Schoemaker, Reference Amit and Schoemaker1993). DCs are valuable strategic assets for the effective redeployment of internal and external competencies. The emphasis is on the shifting character of the environment and the key role of strategic decisions by managers in the reconfiguration of firm resources (Teece, 1997).
4.1 Defining OPM
Projects, PM, and PPM capabilities are seen as venues for mastering business, implementing changes, innovating, and developing competitive advantage (Drouin & Besner, Reference Drouin and Besner2012). In essence, PM perspectives go well beyond the management of single projects by establishing the relationships between individual projects and the wider organization through the management of multiple projects (Drouin & Besner, Reference Drouin and Besner2012). Aubry, Hobbs, and Thuillier (Reference Aubry, Hobbs and Thuillier2007) used the term Organizational Project Management (OPM) to describe such an approach, where project-based organizations integrate multiproject management activities to deal with strategic alignment, portfolio and program management, and governance. These authors defined OPM as “a new sphere of management where dynamic structures in the firm are articulated as a means to implement corporate objectives through projects in order to maximize value” (Aubry et al., Reference Aubry, Hobbs and Thuillier2007, p. 332). Building upon Aubry et al.’s definition of OPM, we add an increased focus on the importance of “integration” in the definition adopted for OPM in this book where we define OPM as the integration of all project management-related activities throughout the organizational hierarchy or network (see also Drouin et al., Reference Drouin, Sankaran and Müller2016). Drawing on this overarching definition, we also see OPM as the act or process of combining PM activities throughout the organization. OPM takes a holistic perspective on the various projects and PM-related activities that an organization embarks on as a network of strategic and collaborative initiatives governed and supported at the organizational level. OPM can also be viewed as a locus for the integration of PM-related activities in the development of competitive advantage. Finally, we highlight that OPM is best performed by top managers who believe that it is an organizational process to integrate project-related activities in a coherent manner.
4.2 PPM and DC Research
Organizations implement their strategy through projects using PPM approaches and, thus, PPM is an integral part of OPM. PPM acts at the strategic level to enable organizations to take a higher view of the entire project portfolio, and to support decisions that ensure alignment with strategy, delivery of value, and exploitation of synergies that enable the organization to prepare for the future (Meskendahl, Reference Meskendahl2010). Response to change through regular portfolio reviews and adjustments are coordinated through PPM, and the structures and routines for PPM are developed to suit the context and are reviewed and adjusted to ensure that the PPM capability continues to provide competitive advantage through DC (Killen & Hunt, Reference Killen and Hunt2010; Killen et al., Reference Killen, Hunt and Kleinschmidt2008).
According to Killen et al. (Reference Killen, Jugdev, Drouin, Petit, Drouin, Müller and Sankaran2013, p. 350), “Established PM and PPM capabilities that have been developed over time and customized to an organization’s environment are repeatedly associated with better outcomes, see for example (Alvarez & Busenitz, Reference Alvarez and Busenitz2001; Cooper, Edgett, & Kleinschmidt, Reference Cooper, Edgett and Kleinschmidt2001; Jugdev, Mathur, & Fung, Reference Jugdev, Mathur and Fung2007; Killen et al., Reference Killen, Hunt and Kleinschmidt2008), prompting project management (PM) and project portfolio management (PPM) to be viewed as strategic organizational capabilities.” Gardiner (Reference Gardiner2014) supports the emphasis on strategy, learning, and knowledge management in PPM research and suggests that PPM acts as a DC to create benefits.
The application of the DC framework to PPM research has let PPM research to advance beyond atheoretical correlation-based analysis to provide an understanding of the mechanisms through which PPM delivers competitive advantage. The DC framework provides a framework that helps to analyze the existing literature as well as to conduct future research on PPM capabilities (Killen et al., Reference Killen, Hunt and Kleinschmidt2007; Killen et al., Reference Killen, Jugdev, Drouin and Petit2012; Killen et al., Reference Killen, Jugdev, Drouin, Petit, Drouin, Müller and Sankaran2013).
This relationship between PPM and DCs is a strategic asset for OPM, especially through its key role in implementing changes in organizational strategy and in informing strategy development and evolution.
PPM provides competitive advantage by acting as a DC by dynamically adjusting the organization’s portfolio of projects and reconfiguring resources to respond to changes in the environment (Killen et al., Reference Killen, Hunt and Kleinschmidt2007). DCs must evolve in order to stay relevant in dynamic environments, and several studies highlight how learning and change play a central role in the adjustment of the PPM capability. An in-depth study of six successful innovators found that organizational learning has a large role to play in the establishment and continual evolution of PPM capabilities through tacit and explicit learning mechanisms (Zollo & Winter, Reference Zollo and Winter2002; Killen et al., Reference Killen, Hunt and Kleinschmidt2008, Reference Killen and Hunt2010). Similarly, drawing upon the DCs framework, three learning mechanisms for PM capability building were identified in a large-scale railway development project: relating or networking to develop the resources such as “social capital”; reflecting to learn from experiences and exploration to improve capabilities; and routinizing to exploit knowledge and experiences from one project to the next (Söderlund, Vaagaasar, & Andersen, Reference Söderlund, Vaagaasar and Andersen2008). In another study, a process for project capability building was shown to be triggered by a “vanguard” or “first of its kind” project, with the process building a new organizational resource for PM by capturing learning to be applied in subsequent projects through coevolution of project-led and business-led learning (Brady & Davies, Reference Brady and Davies2004).
The advance in the research approaches used in PM and PPM studies is ongoing; research in these fields is becoming more likely to be underpinned by theoretical perspectives, models and framework, and to employ increasingly sophisticated approaches (Killen et al., Reference Killen, Jugdev, Drouin and Petit2012; Turner, Reference Turner2010). Since PPM was identified as a DC (Killen & Hunt, Reference Killen, Hunt and Kleinschmidt2007), the DC perspective has been used to investigate PPM in a number of studies. As a conceptual framework, DC was found to be well suited to the study of PPM processes in uncertain environments (Petit & Hobbs, Reference Petit and Hobbs2010). Sicotte et al. (Reference Sicotte, Drouin and Delerue2014) identified innovation portfolio management as a new DC following the evolution of team- and project-based organizational forms. In a study of alliance capability and new product development from a product portfolio perspective, the DC framework revealed the nonlinear relationship between environmental turbulence and the creation of competitive advantage (Schilke, Reference Schilke2014). Biedenbach and Müller (Reference Biedenbach and Müller2012) investigated the adaptive, absorptive, and innovative capability aspects of a DC, following Wang and Ahmed’s (Reference Wang and Ahmed2007) learning-based orientation, and found a positive correlation between adaptive and absorptive capabilities and project portfolio performance. The DC perspective (through the associated three learning capabilities) enabled the identification of specific organizational processes and relationships with project and portfolio performance. A study in a project environment used the DC perspective to help illuminate the relationship that resource allocation has to development decisions and contingencies. Such decisions are central to PPM, although the study did not focus on PPM (Stadler, Helfat, & Verona, Reference Stadler, Helfat and Verona2013).
The themes identified in Section 3.1 on DC research have relevance to the ongoing advance of OPM research on PPM and DC. Learning and knowledge themes are reflected in many studies on DC relevant to OPM. For example, Killen and Hunt (Reference Killen, Hunt and Kleinschmidt2008) highlighted the role of investments in tacit and explicit learning mechanisms in the development of DCs in the form of PPM capabilities. Following a number of studies employing strategy-as-practice perspectives (Müller et al., Reference Müller, Andersen, Kvalnes, Shao, Sankaran, Rodney Turner and Gudergan2013; Killen & Hunt, Reference Killen and Hunt2010), further use of research methods aligning with the strategy-as-practice perspective are emphasized as a promising way to advance research on OPM and DCs (Killen, Clegg, Biesenthal, & Sankaran et al., Reference Killen, Clegg, Biesenthal and Sankaran2015). Microfoundational research is also making significant impact on studies related to OPM. Teece (Reference Teece2007) outlines how specific microfoundational actions provide competitive advantage through DCs by enabling reconfiguration of resources, modifying investments, and transforming organization in response to change. Kindström, Kowalkowski, & Sandberg (Reference Kindström, Kowalkowski and Sandberg2013) studied the microfoundations of DCs for service innovation in a product portfolio environment and identified specific microfoundations enabling service innovation in manufacturing environments. Combining a learning perspective with microfoundational research, Schneckenberg (2015) explores innovative capabilities and shows how the interactions between microfoundations in learning and sharing provide DCs in a technology portfolio PM environment. Finally, the importance of context for PPM research is highlighted by Martinsuo (Reference Martinsuo2013), and much of the research is placed within a particular context (for example, Petit explored PPM in dynamic contexts [Petit, Reference Petit2012]) or investigates the context-dependent nature of PPM practices (for example, Eggers [Reference Eggers2012] found that contextual factors such as previous experience affected the development of value in the portfolio. The development of PPM as a DC was shown to be an important, path dependent, managerial capability in that study).
These studies show how PPM can act as a DC in different ways and reveal the many research perspectives that contribute to the growing research stream in this area. The research shows how PPM can act as a DC and be a strategic organizational asset – thus, PPM is a key aspect of OPM that helps to build and sustain competitive advantage in organizations.
5 Conclusion
We have shown how DCs are developed in organizations, how they can create and sustain competitive advantage by enabling organizations to reconfigure resources in response to change. The strategic role of DCs is also highlighted, and the application of strategy-based research approaches supports the ongoing advance of research on DCs. As a strategic asset for OPM, PPM acts as a DC by ensuring the strategic alignment of the project portfolio and the efficient use of PM resources as well by overseeing the changes required to sustain competitive advantage. In this regard, when acting as a DC, PPM is a strategic asset for OPM; PPM integrates and aligns projects with organizational strategies in a changing environment, it oversees changes in the organization, and it produces benefits from projects through direct influence on project activities such as funding, prioritizing projects and by responding to change, and adjusting the resource base through activities such as bringing in new resources, training and improving resources, and outsourcing PM work. When PM-related activities are integrated throughout the organizational hierarchy or network, it is the PPM aspect of the OPM capability that has the strongest strategic significance, and it is through PPM that the organization can best strategically respond to change and sustain competitive advantage. Therefore, to answer the question about the relationship between OPM, PPM, and DCs, we propose that dynamic OPM is enabled through PPM – and, therefore, when acting as a DC, PPM is a strategic asset for OPM.
