Introduction

Graham Winch (Reference Winch2014) suggests that there are three organizations involved in the management of projects (see Figure 6.1):

1. 1. The investor: The organization that initiates the project. It is a permanent organization. Its aim is to make an investment; that is to invest in making some change which will be operated to deliver benefit to repay the investment. The change is often a physical asset, but may be a new product, a computer system, or a new organization structure.

2. 2. The project: This is a temporary organization through which the investor makes the investment. We (Turner & Müller, Reference Turner and Müller2003) define a project as a temporary organization to which resources are assigned to do work to deliver beneficial change. The investor creates the projects and assigns resources, in the form of money, people, and materials to deliver the change. Associated with the change are three levels of results (see Figure 6.2). The output is the change, the new asset, or other items suggested above. The output will provide the investor, or some third party to whom it sells the investment, with new competencies, which are called the outcome. The operation of the outcome provides a benefit that is expected to repay the investment. With time, the outcomes may lead to the achievement of higher level strategic goals.

3. 3. The contractor: The investor usually does not have the competencies to undertake the project. Its business is in the operation of the project’s output, not in doing the work of the project. They therefore draw on the services of a contractor to provide the people to do the work of the project. In this chapter, we focus on contractors providing services, usually in the form of labor to do the work of the project. We will not be talking about the suppliers of materials or plant and equipment.

All three organizations require governance. However, there are three interfaces between the three organizations (see Figure 6.1). These three interfaces also require governance. Indeed, the very early work on project governance done by Rodney Turner and Anne Keegan (Reference Turner and Keegan1999, Reference Turner and Keegan2001) focused on the interfaces between the contractor and the investor. In the sections that follow we discuss the governance of the project, but we do not discuss the governance of the investor and contractor as companies, which is well discussed in the literature (Clarke, Reference Clarke2004). We focus on the governance of the three interfaces. The interface between the project and each of the investor and contractor is also clearly a temporary organization which lasts as long as the project. The interface between the investor and the contractor may be a temporary organization, created for one project. Or it may be a permanent organization, associated with a portfolio of projects the contractor does for the investor.

Figure 6.1. Three organizations involved in the management of projects.

Adapted from Winch 2013:725, Figure 1.

Figure 6.2. Three levels of results on projects.

Figure 6.3. Three portfolios of which the project is a part.

Figure 6.4. The investment portfolio of the investor organization.

We will also discuss the governance of these three types of organization, but not the interfaces between them.

Definition of Governance

We use a simple definition of governance. The Organization for Economic and Cooperative Development (2015) defines the governance of a company as follows:

There are two essential parts to this definition. The second sentence defines what governance does, and the first the stakeholders in the relationship. The OECD is writing about corporate governance, but we can adapt the definition to refer to the governance of all organizations.

Thus, the functions of governance are to:

• define the objectives of the organization

• define how those objectives will be achieved

• define how performance will be monitored

Key stakeholders are:

• the principal: the person (natural or legal), which initiates the work of the organization and receives the benefit from its operation

• the agent: the person (natural or legal), which manages the organization on behalf of the principal

• the staff: the people who do the work of the organization

• consumers: who buy the outputs or outcomes of the organization, and so pay the money from which the principal receives its benefit

• suppliers

• other customers

• the local community

There are three views of governance (Müller, Shao, & Pemsel Reference Müller, Shao and Pemsel2016):

1. 1. Governance as a control system: for directing and controlling organizations, for balancing economic and social goals, and for balancing individual and communal goals

2. 2. Governance as a process: for directing and controlling the organization and for defining the rights and responsibilities of stakeholders

3. 3. Governance as a set of relationships: between internal and external parties, defining their rights and responsibilities

You will see that these three views overlap. They talk about different stakeholders internal and external to the organization, with different rights and responsibilities. We list many of the stakeholders above. Within the field of corporate governance, there are two schools of thought (Clarke, Reference Clarke2004): the shareholder school, which suggests that the agent’s (board’s) sole responsibility is to serve the principal (the shareholders in the case of a company); and the stakeholder school, which suggests that the agent (board) must take account of all the stakeholders, including the principal (shareholders). There is substantial evidence that on projects the stakeholder school is associated with best performance (Eweje, Turner, & Müller, Reference Eweje, Turner, Müller and Martinsuo2012; Müller & Turner, Reference Müller and Turner2007; Turner & Zolin, Reference Turner and Zolin2012).

There are also two streams of governance research (Müller, Reference Müller2016):

1. 1. The design stream: defines how governance approaches at different levels of the organization should be designed, and how they influence each other

2. 2. The consequences stream: studies the results of different governance structures, and how they influence different stakeholders and their expectations

Finally, we will talk about governance and the governance structure. Governance refers to the governance approaches adopted. The governance structure is the set of rules, practices, and processes adopted to govern the organizations, and the set of rights, roles, and responsibilities of the various stakeholders.

Governance of the Investor-Project Interface

We do not plan to write about the governance of the investor as a company, which is well covered (Clarke, Reference Clarke2004; OECD, 2015). We describe instead the interface between the investor and the projects and programs it undertakes. The United Kingdom’s Association of Project Management (APM) calls this the Governance of Project Management (APM, 2004). The APM guide suggests there are four purposes of governance: to ensure the effectiveness of portfolio management; to ensure the efficiency and effectiveness of project sponsorship; to ensure efficiency and effectiveness of the management of projects and programs; and to ensure proper disclosure and reporting is in place to meet legal requirements and the needs of stakeholders. They also suggest that good governance will result in the linking of projects and programs to corporate strategy, senior management support and engagement with other stakeholders, the development of organizational project management capability, the breakdown of the projects into manageable steps, and a focus on value for money rather than price.

APM identifies eleven principles for the good governance of project management. The first is a general principle. Then there are principles relating to the definition of objectives, the definition of methods, and the definition of control:

1. 1. The board of directors has the overall responsibility for the governance of projects. If you go back to the 1990s, boards of directors often took little interest in projects. What they were most interested in was the management of operations. That was what was generating the income of the business. They didn’t seem to appreciate that the current operations were the sum total of all the previous projects. Projects were assigned to the skunkworks; the project team was housed in a portacabin at the bottom of the carpark, and told to come back when they had something to deliver. The US Sarbanes-Oxley Act in 2002 put an end to that. Boards of directors had to be able to predict future cash flows, and so had to take an interest in the likely out-turn cost and forecast revenues of at least the larger projects for disclosure and reporting purposes. So the first principle is that the board of directors should take overall responsibility for the governance of projects within the organization.

Governance of the Project

The project is a temporary organization, but as an organization it requires governance. Above we stated there are three functions of governance: define the objectives; define the means of obtaining those objectives, and to define the means of monitoring progress. Governance also involves a set of relationships between key stakeholders. We are particularly interested in the relationship between the project manager and project board, the board consisting of the sponsor (representing the principal), the senior user, and the senior supplier. Figure 6.2 suggests that there are three levels of results in projects: the output, the outcome, and the goal. Figure 6.5 shows that the three functions of governance and the three levels of objectives suggest four governance roles: sponsor, senior supplier, project manager, and senior user.

Figure 6.5. Four roles in the governance of projects.

We illustrate what follows with two examples. The Chinese government had the goal of achieving economic development on the north side of the Yangtze River, just north of Shanghai. Shanghai is the most economically developed part of mainland China, but Jiangsu Province, just north of the river, was not so economically developed. What was stopping economic development was the poor traffic flow across the river. People were not building their factories on the north side of the river, because it was difficult to get their products to Shanghai for shipment. In the second example, the board of a company believes it can improve the company’s profits if it improves marketing.

Defining objectives starts with the goal. In the first example, the goal is economic development on the north side of the river; in the second, it is improved company profits. What is the means to achieving the goal? This defines the project’s outcome, the new competencies the investor requires to achieve the goal. In the first case, it is better traffic flow across the Yangtze River; in the second case, it is improved marketing. The outcome now becomes an objective, a desired result. What is the means of achieving the outcome? This is the project’s output, the desired change or new asset. In the first case, it is a bridge across the river; in the second case, it is a customer requirements management system. The output is the means of achieving the outcome, but it now becomes an objective. What is the means of achieving the output? That is the project process.

The client is the ultimate principal for the project, the lead investor. But they appoint the sponsor as their representative. The sponsor is an agent of the client. The sponsor has the initial responsibility of working up the ideas for the project. Indeed, the project may the sponsor’s idea initially, and they persuade the client to take an interest. In the case of the bridge across the Yangtze River, the sponsor may be somebody from the economics department. They will investigate ideas for bridges and perhaps alternatives such as a tunnel or improved ferries. In the case of the customer requirements management system, the sponsor will be a member of the marketing department who will start to investigate what the computer systems are available. However, the sponsor is not a technical expert, and so quite early on will need to engage a senior manager from the technical department to help work up the ideas. Rodney Turner and Anne Keegan (Reference Turner and Keegan2001) called this role the “steward”, but PRINCE2 (OGC, 2009), calls it the “senior supplier,” and we use that terminology here. During the feasibility study, the sponsor will investigate the technical and financial feasibility of the project. They may engage the project manager to advice on the feasibility of building the project output. At the end of the feasibility study, they will choose an option for implementation. The project manager will then be responsible for defining and managing the project process to deliver the output. The project manager is the agent of the principal to manage the delivery of the project.

The sponsor also has an important additional role of sourcing the finance for the project. So the sponsor needs to persuade the investor to provide the money for the feasibility study, front-end design, detail design, and execution of the project (Turner, Reference Turner2014). Some people suggest that the sponsor actually provides the money. The owner or investor provides the money; the sponsor is responsible for persuading them to provide the money and to ensure the continuation of the revenue stream throughout the project. The sponsor is the owner’s or investor’s agent for that purpose, as mentioned above.

During delivery of the project, the process needs to be monitored and controlled. As the project is completed, the achievement of the output needs to be monitored. Does it deliver the desired functionality so that it works as required? Then, the achievement of the outcome and ultimately the goal needs to be monitored and controlled. We have shown that it is the responsibility of the senior user to monitor and control the delivery of the outcome and ultimately the impact. PRINCE2 (OGC, 2009) calls this role the “senior user,” but Managing Successful Programmes (Sowden & The Cabinet Office, Reference Sowden2011) calls it the “business change manager.” The two roles are, however, related. The senior user works for the business change manager. In a program, there will be a senior user for each project, responsible for achieving the benefit from that project, whereas the business change manager will be responsible for achieving the overall benefit of the program. In the case of Yangtze River bridge, the senior user will be responsible for achieving better traffic flows, whereas the business change manager will be responsible for achieving economic development. In the case of the customer requirements management system, the senior user will be responsible for improving marketing, whereas the business change manager will be responsible for improving profits.

Figure 6.5 shows four roles. In the very simplest of projects, such as decorating your home, there will be just one person. In smaller projects there may be just two people, but in most projects there will be four people. PRINCE2 requires there to be four people.

Unfortunately, within the project management community there is not a commonly agreed vocabulary. In Austria, they call the sponsor the project owner (Gareis, Reference Gareis2005). However, we like to use the word owner for the person or organization that ultimately owns and operates the project’s output to achieve the benefit, the investor. The Austrian usage may represent a mistranslation from German. Other people also call the senior user the sponsor. However, we like to clearly differentiate between the pre- and during-project role of championing the project and obtaining the revenue stream, and the postproject role of ensuring the outcome and goal is achieved. (They may be the same person, though PRINCE2 insists the two roles are separate.) PRINCE2 calls the sponsor the project executive. In the 1980s, people used to call the sponsor the project champion. Some people still use the word champion for a narrower role of promoting the project and wining support for it.

To summarize, the four roles are:

Governance of the Contractor-Client and Contractor-Project Interfaces

Governance of the contractor as a company is also covered by the literature (Clarke, Reference Clarke2004; OECD, 2015). Here, we focus on the management of the interfaces between the contractor and the investor, and the contractor and the project. As we said above, for routine supply, there are two types of governance structure, depending on whether the client is an external body or another department within the same organization. These two governance structures are called markets and hierarchies respectively (Williamson, Reference Williamson1983). In the former case, the governance structure is the contract, which is aligned with the transaction. In the latter case, the governance structure is the hierarchy, which is perpendicular to the transaction. Rodney Turner and Anne Keegan (Reference Turner and Keegan2001) showed that in the case of projects, regardless of whether it is internal or external supply, the governance structure is always the project, which is the transaction. In the case of external supply, the governance structure will also include the contract, which will be aligned with the project. In this section, we will talk as if the contractor is an external supplier, but very similar structures are adopted for one department supplying another in the same organization (Turner & Keegan, Reference Turner and Keegan2001).

We identified four roles for the governance of projects: the sponsor, the senior supplier, the project manager, and the senior user or business change manager. Rodney Turner and Anne Keegan (Reference Turner and Keegan2001) identified that the first three of these roles are mirrored in the contractor, which they labeled the broker, steward, and project manager.

In Chapter 23, Rodney Turner and Laurence Lecoeuvre describe project marketing. They identify that contact between the client and contractor starts before there is a project. The broker will make early contact with the client when the client first identifies that they have a business need and are thinking about potential solutions to it. The broker will help the client define the goals and outcome of the project. But as they move into defining the project’s output and the potential project process, the broker will need to involve the steward and, eventually, the project manager.

Rodney Turner and Anne Keegan (Reference Turner and Keegan2001) identified that the governance structure varies slightly depending on the size of the client organization and the size of the project (see Figure 6.6).

Figure 6.6. Four governance structures for projects.

Some contractors will work for a small number of large, dominant clients. This tends to be the case in the heavy process plant industry. Other contractors work for a large number of small clients. This tends to be the case in the building and software industries. In the former case, the contractor dare not upset the client because if they do, they will lose a large proportion of their potential business. But the client also dares not upset the contractor, because in these industries there tends to be just a small number of potential suppliers, and so if the client loses one, they lose contact with a large proportion of the potential competency for doing their projects. In the latter case, there are a large number of potential clients and a large number of potential suppliers, and so relationships tend to be much less respectful. Some contractors do large projects for their clients and some do smaller ones. Rodney Turner and Anne Keegan (Reference Turner and Keegan2001) defined “large” and “small” as relative to the contractor’s total turnover, so contractors doing large projects were necessarily doing a small number, and those doing small projects were necessarily doing many. Contractors doing large projects for large clients were doing large, stand-alone projects. Contractors doing small projects for large clients were doing a program of projects for that client. Contractors doing small projects for small clients were doing a portfolio of projects for different clients. And contractors doing large projects for small clients were also doing a portfolio of projects.

In three of the four cases, the governance relationships were similar. The project manager worked for the steward, who responded to the broker, who was the interface with the client. The one exception was large projects for large clients. The steward would be a project director interfacing directly with the client. The broker would be a sales manager who would create the relationship, but stand aside during project delivery. Deputy project managers would work for the project director. Rodney Turner and Anne Keegan (Reference Turner and Keegan2001) suggested the reason for this difference was a transaction cost issue. The idea is to reduce the number of interfaces. Where there are a large number of competence pools and a large number of clients, there are a large number of potential interfaces. There is a transaction cost associated with each interface. So the brokers deal with the clients to source the business, and the stewards deal with the competence pools to assemble the projects. When a broker identifies a potential contract, he or she works with the relevant steward to assemble the project team. There is a cost associated with employing the brokers and stewards, but the number of interfaces is reduced to the sum of the number of competence pools and clients rather than their product. When there is a smaller number of clients and competence pools, it is cheaper to have a direct relationship between the steward and client and not employ the broker.

Governance of the Investor’s Investment Portfolio

Within any organization doing projects, there are (at least) three primary levels of governance, two of which we have already discussed. There is governance at the level of the company and, as far as that relates to projects, it is the interest that the board of directors takes in the projects, programs and portfolios taking place within the organization. We called this the governance of project management. Then there is the governance of the individual project. The third level is the governance of the investment portfolio, linking the projects and programs taking place within the organization to corporate strategy (see Figures 6.4 and 6.8). Figure 6.7 illustrates that portfolio and program management are key governance structures to roll out corporate strategy to the projects the company is doing.

Figure 6.7. The cascade from corporate strategy to project strategy

When we were describing the governance of project management above, we said that efficiency and effectiveness of the investment portfolio was one of the key aims. Principle 2 stated that there should be a coherent relationship between the investment portfolio and corporate strategy. One of the three functions of governance is to define the objectives, and it is through its investment portfolio that the investor translates its corporate strategy into the objectives, or desired results, for its projects and programs.

Rodney Turner (Reference Turner2014) suggests that there are five elements of portfolio management:

1. 1. maintain an inventory of all the projects and programs taking place within the organization

2. 2. track progress on all the projects and programs

3. 3. select which new projects will be added to the portfolio

4. 4. share resources between the projects in the portfolio

5. 5. undertake a post-completion review of all projects and programs to ensure they achieved their business objectives

Elements 1 and 2; they are self-explanatory. We will discuss element 4 in the next section, because it is more of a problem for a contracting company. Here, we will discuss elements 3 and 5 in the reverse order.

Unfortunately, people are encouraged to be economical with the truth at element 3, if they want their pet projects adopted into the portfolio; they are encouraged to inflate the potential benefit, and understate the cost and potential risk. If postcompletion reviews are not undertaken, there is no check. Several years ago, Rodney Turner worked with a UK bank, visiting them twice, nine months apart. At the first visit, they were not conducting postcompletion reviews, and projects were repeatedly failing to achieve their business objectives; they were costing more than planned and not delivering their desired benefit. When he returned nine months later, there was a new CEO, and he had implemented postcompletion reviews. People were held accountable if their projects did not deliver the business objectives, and woe betide anybody for whom it happened twice. (Once is a mistake, twice a trend, and three times a habit.)

Organizations should maintain a portfolio committee to manage the adoption of new projects into the project portfolio. The committee will meet regularly, typically once in three months. Projects will be incorporated into the portfolio at their third stage-gate. Stage-gate 1 is the concept, where the sponsor first moots the idea that there is something the organization can do to achieve business performance. The economics department of the Chinese government floats the idea that if the traffic flowing across the Yangtze River can be improved, it will encourage people to build their factories on the north side of the river, leading to economic development. The marketing department suggests that if some marketing issues can be resolved it could improve profitability. Stage-gate 2 is completion of the feasibility study where the sponsor and senior supplier show that the preferred option is likely to produce the desired output, outcome, and performance improvement. The economics department and ministry of works show that a bridge can produce the desired increase in traffic flows at a reasonable cost; the marketing department and IT department show that a customer requirements management system can lead to the desired improvements. Stage-gate 3 is completion of the front-end design. Sufficient design is done to perform rigorous investment appraisal, to show that the benefits can be achieved at reasonable cost, with manageable risk. A business plan is produced for the project. A business case is produced for the project, and principle 3 above was that this should be based on relevant and realistic data. The business case should show how the project will deliver corporate objectives.

There will usually be more project proposals than money and resources available, so a selection has to be made. That will be done at the regular meeting of the portfolio committee. Each project needs to be awarded a score on how well its business objectives match corporate strategy. Then, based on the scores, projects will be added to the portfolio until all the available money and resources have been assigned to projects. Several years ago, Rodney Turner worked with Reuters. They would actually look at the next couple of projects on the list, and decide whether they were higher priority than projects already underway. If so, the projects underway could get canceled, and the new projects added to the portfolio. For the remaining projects, it may not be the end of the road. The projects’ promotors may have the opportunity to take the project away and try to improve the business case, getting greater alignment to the corporate strategy. For other projects, it just may not be the right time. A better time may be six or twelve months later. But for many projects, they will now be stopped.

There is one more issue of importance at the level of the investment portfolio. One function of governance is defining the means of achieving the objectives, and part of the means is ensuring that the organization has the competencies it needs to do the projects it wants to do. This is called developing organizational project management capability. This is dealt with in Chapter 11.

Governance of the Contractor’s Portfolio of Projects

Element 4 of portfolio management above is balancing the available resources between the chosen projects. This is of particular importance to contractors, especially contractors doing medium-duration projects of three to nine months, for whom the resource demands can fluctuate heavily. The projects in the portfolio will be managed in a similar way as above, except that the decision to add projects to the portfolio will be taken at a decision-to-tender meeting.

Criteria will include issues such as:

• The job is expected to make a profit.

• Do we want the business?

• Does it offer development opportunities?

• The job matches the firm’s competence and capability.

• The firm has the capacity to do the work.

• The client is pleasant to work for.

• The contractual conditions are fair.

• The risk is acceptable.

Three types of manager are involved in balancing the resource requirements: portfolio managers, project managers, and resource managers. Portfolio managers accept new projects into the portfolio. They ask project managers to plan them and predict the resource demands. Resource managers tell the portfolio manager what the resource availability is. The project managers and portfolio managers create a rough-cut capacity plan where they balance the resource availability versus the resource demands. Each project is given a time and resource window within which it can take place. There are a couple of points for the rough-cut capacity plan:

1. 1. We suggest you maintain separate plans for small, medium and large projects. John Payne and Rodney Turner (Reference Payne and Turner1999) suggest that for a given company, large projects will be ten times the size of medium projects, and medium projects ten times the size of small projects. PRINCE2 (OGC, 2009) suggests each project has a tolerance on its cost of between ±5 percent and ±10 percent. That means the error on large projects is equal to the size of medium projects and ten times the size of small projects. Small projects cannot compete alongside medium-sized projects, and medium-sized projects can’t compete alongside large projects. Therefore, you need to create separate resource pools for small, medium, and large projects, and manage them in separate portfolios (as shown in Figure 6.4).

2. 2. The rough-cut capacity plan should contain just a summary of each project, not the full work breakdown. That is what “rough-cut” means. Rodney Turner (Reference Turner2014) suggests that each project is added to the rough-cut capacity plan as a single activity. We suggest that this is what you do for small and medium-sized projects. For large projects, you may do the same, or add them at the work-package level.

Rodney Turner (Reference Turner2014) first observed portfolios being managed in this way in the ship-repair industry. There it worked very easily. However, there were two features of the projects which made it easy. First, the workload was predictable years into the future, so the dockyards knew what resources they needed. Second, the projects all had the same resource profile. So if you needed to move one project to solve an overload in one resource, you were solving an overload in all resources. Contractors doing medium-sized projects, three to nine months long, do not know what projects they will be doing in six months’ time. Further, clients want their job done now, so you cannot delay the start of a project to solve a resource overload. In addition, the resource profiles of different projects can be quite different, so moving a project to solve an overload in one resource may create a bigger problem for another resource. Against this background, contractors do not want to make people redundant if there is a temporary downturn in the number of projects being undertaken. It is expensive to make people redundant just to re-recruit them in six months’ time. For this reason, contractors tend to use a large contingent of temporary staff. Anne Keegan and Rodney Turner (2003) identified that contractors can have between 20 percent and 40 percent of their staff as temporary workers, and sometimes as high as 80 percent.

Project managers are responsible for managing projects within the time and resource window they are given. If things change, and they need more time or resources, they must return to the rough-cut capacity plan to negotiate more resources. As projects progress, the project managers will make demands on resources for the people. There are two ways this can be done. Packages of work can be transferred to the resource managers; then the resource managers will be responsible for assigning people to complete the packages of work by the deadline. Or people are seconded from the department onto the project, and the project manager is responsible for coordinating the work of different resources to complete the packages of work by the deadline. Because of the magnification of errors as elements are broken down into smaller units, the balance in the rough-cut capacity plan may be accurate to, say, ±5 percent, but the demands the project managers are making on the resource managers can still be out of balance to, say, ±50 percent. The resource managers have to balance the demands.

Governance of the Network of Projects

The final organization that a project can be part of is a network of projects. Governance through networks differs from that of markets and hierarchies because, here, projects and relationships are coordinated through social mechanisms, such as trust, reciprocity, and partnership, which increase in intensity with the extent of interaction in the network (Jones, Hesterly, & Bogatti Reference Jones, Hesterly and Borgatti1997; Powell, Reference Powell1990). This differs from arms-length, price-driven and often anonymous governance, as in markets; or authority and control-driven governance, as in hierarchies. The social mechanisms provide for reduction of transaction costs by restricting access to those actors relevant for a project and safeguarding of the exchange of members by establishing sanctions for those who do not obey the culture of the network (Jones et al., Reference Jones, Hesterly and Borgatti1997).

Three forms of network governance are typically found (Provan & Kenis, Reference Provan and Kenis2008):

• Shared network governance, where either all or a significant number of the network members are responsible for managing internal and external relationships and coordinate actions. This is most often found in networks with few members of equal status, with high mutual trust and consensus about the goals of the network.

• Lead organization-governed networks, where one member of the network assumes a leadership role, maybe because of a special skill set or experience, or mandated from outside. This form of governance is most effective in networks of medium size, with high levels of trust in the leading member, as well as moderate levels of consensus about the network goals.

• Network administrative organization, where a separate organization governs the network, including the relationships and activities of its members. This approach reduces the complexities stemming from the internal tension in the two other network governance approaches and is most effective in large networks, where the need for coordination is high, the governance entity is trusted, and a moderate consensus about the network goals prevails.

As in the other governance approaches described above, network governance can be internal or external to an organization. Internal networks may emerge in larger organizations, when they deliver similar projects to the same customer, but in different countries. The individual projects are governed by the respective country organizations of both buyer and supplier organization, but the projects as such are networked because of similarities in resource and/or technical requirements.

In a related study on the governance of PMO networks (where each PMO member can be seen as a representative of the project he or she worked on) Monique Aubry, Ralf Müller, and Johannes Glückler (Reference Aubry, Müller and Glückler2012) identified three different relationships between the network members:

• controlling relationship, where one member executes management authority over another member; for example, if the project manager of one project audits the project manager of another project

• partnership relationship, which is characterized by collegial equality, such as when a member of one project jointly works with colleagues from another project to solve a shared issue

• serving relationship, where the member of one project is contracted for or provides a service to another project.

Each network member can take on a mix of these roles, and thus appear differently to different members of the network at different points in time. The study showed that the partnering role provides for the needed slack to explore new knowledge and contribute to the learning within the network, whereas both the controlling and serving role exploit existing knowledge and contribute little to the network-wide learning.

Through Social Network Analysis, Aubry, Müller, and Glückler (Reference Aubry, Müller and Glückler2012) identified the communication structures among and between project managers in a network of internal projects in a pharmaceutical company. Their study showed that project managers prefer to communicate with those colleagues they had worked with before, who are not necessarily the most knowledgeable resource on a subject. It also showed that project managers tend to communicate in small clusters of preferred communication partners, and that only those project managers who work on many projects and developed an innovation in their way of managing projects took the liberty to communicate with peers in other clusters. Hence, information flows in project networks are limited largely to subnetworks of mutually trusted colleagues with a history of joint work.

These two issues (little knowledge exploration and limited communication) need to be addressed through adequate governance measures, such as fostering of knowledge exploration through provision of “slack times,” and workshops for mutual learning and development of shared mental models about the particular skills and experiences of network members. This provides for more efficiency in information flow and effectiveness in communication with colleagues who are most knowledgeable about a subject, who are not necessarily those known the longest time (Müller, Glückler, Aubry, & Shao, Reference Müller, Glückler, Aubry and Shao2013).

Governance of networks of projects can also be external. For instance, when the European Space Agency is preparing a satellite, there may be a number of experiments on board, so there will be several projects developing each experiment. Or when a city becomes the European city of culture for a year, there may be a number of initiatives to prepare different events. Karlos Artto and Jaakko Kajula (Reference Artto and Kajula2008) identify four types of project business against two dimensions. The first dimension is one project-many projects, and the second dimension is one firm-many firms. One firm-many projects is the project-based organization we considered first above. One firm-one project is the single project we considered second. One project-many firms is a joint venture where many firms contribute to one project. Here we consider many firms-many projects.

Karlos Artto and Jaakko Kujala (Reference Artto and Kajula2008) identify several issues with the management of a network of projects:

1. (a) The participants may have competing objectives; they can be partners on one project, and competitors on another.

2. (b) There can be different operating models between business participants and non-business participants.

3. (c) Participants from the public sector may be more politically motivated.

4. (d) Firms can participate in different projects in different roles, being the lead on one, and supplier on a second.

Karlos Artto and Jaakko Kujala (Reference Artto and Kajula2008) say that the key governance challenges are to maintain efficiency and innovativeness in the network, and to position each firm in the value network. They say it is important to define the appropriate governance mechanisms.

Conclusion

We have seen that a project is an organization within many other organizations:

1. 1. the investor: a permanent organization that identifies the opportunity for making a change to achieve business objectives, and initiates the project to make that change

2. 2. the investor’s portfolio of projects: a rolling, annual, temporary organization through which the investor makes all its business changes

3. 3. the contractor: a permanent organization which provides the investor with competencies it lacks to enable it to undertake its projects

4. 4. the contractor’s portfolio of projects: a permanent organization through which the contractor manages the work it does for all its clients

5. 5. a network of projects: usually a temporary organization of several projects with a common objective.

All of these organizations and the interfaces between them require governance.

Governance can be viewed as a control system, a process or a set of relationships. These three views overlap. According to the OECD’s definition of governance, which we have adopted, there are four functions of governance: to define the objectives of the organization (or interface); to define the means of achieving those objectives; to define the means of monitoring progress; and to manage the relationships between significant stakeholders;

1. 1. In projects, we identified that the four functions imply the four roles suggested by PRINCE2: the sponsor, the senior supplier, the project manager, and the senior user.

2. 2. In the interface between them we described the eleven principles of good governance suggested by the Association for Project Management, and the responsibility boards of directors have to assume for projects, programs, and portfolios being undertaken by their organization.

3. 3. One of the principles is the coherence of the investment portfolio, and we showed how this can be used to create a clear link between corporate objectives and project objectives, so the organization does the right projects to achieve its corporate strategy.

4. 4. To manage the interface with its client, the contractor needs to mirror three of the four governance roles on the project: the account manager or broker mirrors the sponsor; the solutions manager or steward mirrors the senior supplier (or perhaps is the senior supplier); and the contractor’s project manager mirrors the client’s project manager.

5. 5. In governing its project portfolio, the contractor needs to ensure it has adequate resources to do the contracted work for its clients, and to manage that work to achieve the efficient and effective completion of its clients’ work.

6. 6. The project may be part of a larger network of projects, and the relationships between the parties involved in the network needs to be defined for the efficient and effective achievement of the objectives of the project network.

This chapter showed that governance is not limited to individual organizations, but is also required for governing the interface between them.

Introduction

Project portfolio management (PPM) is a central component of organizational project management (OPM), especially through its role in both the formulation and the delivery of organizational strategy. Corporate activities are increasingly carried out in the form of projects, in a trend that has been called “projectification” (Midler, Reference Midler1995). In particular, for the implementation of complex innovations, it is not enough for organizations to focus on the successful management of individual innovation projects; they must also manage a large number of interdependent projects from a portfolio perspective. In today’s dynamic environment, organizing by projects has become the rule rather than the exception, and organizations face challenges in managing these large project landscapes (programs and portfolios).

The management of project portfolios is closely linked to the implementation of strategies. As strategies are ultimately implemented by projects, PPM – as a link between corporate strategy and projects – plays a central role (Meskendahl, Reference Meskendahl2010). In most research and practice this role is considered from a top-down perspective: strategies are considered to be a given yardstick for the prioritization and selection of projects and the allocation of resources. From such perspectives, PPM acts as the recipient of strategic goals and requirements that need only to be operationalized.

However, the strategic management literature has long recognized the importance of emergent strategy; and that the realized strategy (the strategy that is actually implemented) often strays from the intended strategy (Mintzberg, Reference Mintzberg1978). Surprisingly, this is hardly considered in existing research models and standards for PPM (PMI, 2013). While there is some empirical evidence to suggest that hierarchical, formal, top-down approaches are not the actual practice of PPM (Christiansen & Varnes, Reference Christiansen and Varnes2009; Jerbrant & Gustavsson, Reference Jerbrant and Gustavsson2013; Martinsuo, Reference Martinsuo2013), a much broader debate is needed to fully explore the role of PPM in the context of emergent strategies. The goal of this chapter is therefore to explore the role of PPM in the relationship between the formulation and implementation of strategy and consider both the top-down approach as well as the bottom-up strategy emergence. We first discuss emergence in the context of strategy implementation and the role of different phases in the PPM process that affect strategy implementation. After a discussion of the current empirical evidence on emergence in the context of portfolio management, we suggest ways in which PPM can act as a strategy “linchpin”; an essential organizational process to connect and integrate both top-down and bottom-up approaches in strategy implementation.

Strategy Formation and Emergence

Organizational strategy aims to underpin success through the development and maintenance of competitive advantages. In pursuit of such advantages, strategic processes are used to determine objectives and goals and to develop plans for their achievement. The strategy formation process is often represented in two stages in strategic management literature. The first stage, strategy formulation, receives the large majority of the attention and research – this is the stage where organizations weigh up the options and challenges and set goals and objectives aimed to lead the organization to success. The second stage, strategy implementation, refers to the ways the strategy becomes a reality; without effective strategy implementation, the planned strategies will not be realized. Although the importance of strategy implementation is well recognized, it is often treated as an afterthought to strategy formulation (Noble, Reference Noble1999).

The theme of emergence has made a strong impact on the field of strategic management ever since Mintzberg’s seminal work on strategy formation (Mintzberg, Reference Mintzberg1978). More generally, emergence refers to the appearance of new, coherent, and unexpected structures, patterns and characteristics at the macro-level of complex systems that are caused by the interaction of components at the micro-level (Goldstein, Reference Goldstein1999). Emergent phenomena have features that are not observable in the individual parts of the system (Akgün, Keskin, & Byrne, Reference Akgün, Keskin and Byrne2014; Beeson & Davis, Reference Beeson and Davis2000; Goldstein, Reference Goldstein1999). Therefore, they are neither predictable nor deducible. They are based on self-organized behaviors through which simple behavioral rules at the local level can lead to very complex behaviors at the global level (Goldstein, Reference Goldstein1999). Emergence can occur in physical, biological, technical, or social systems.

Organizations today face strategic challenges as environments are increasingly characterized by high levels of change; strategic evolution, often led by emergent elements, is required to effectively respond to this change. Emphasizing emergence in organizations in the context of strategy formation, Mintzberg and Waters (Reference Mintzberg and Waters1985) address the discrepancy between strategic plans and intentions on the one hand (strategy formulation) and what organizations actually do on the other hand (strategy implementation). These two aspects of implemented strategy are referred to as the deliberate strategy (implemented as intended), and emergent strategy (realized despite planning or even in the absence of plans). In addition, some of the intended strategy may not be implemented – referred to as unrealized strategy. Figure 7.1. illustrates these relationships. While strategy formulation is a purely mental, planning activity, implementation reflects the process of realization. Emergence, by definition, only occurs in the context of implementation, since it is an unexpected outcome.

Figure 7.1. The relationship between intended and realized strategy.

Based on Mintzberg & Waters, Reference Mintzberg and Waters1985.

Although strategic plans are often made with an assumption that the strategy will be fully and deliberately implemented, this is very unlikely to occur in reality. A perfectly deliberate strategy implementation requires that strategic intentions are fully developed and communicated, all organizational actors are fully committed to implementing the strategy, and there is no interference from external forces. In today’s increasingly turbulent environment, external change is especially likely to affect the implementation of strategic plans. Similarly, a purely emergent strategy is also highly unlikely to occur, as that would indicate that intention had no role to play at all. Instead, it is the combination of the two (deliberate and emergent strategy) that is observed in practice. Mintzberg and Waters (Reference Mintzberg and Waters1985, p. 271) state it this way: strategy formation “walks on two feet, one deliberate, the other emergent.” This suggests that management needs an ability to provide direction while simultaneously responding to change and emergence. Other researchers use different terms for similar concepts – for example, a commanding/directing mode of top-down strategy implementation combined with a generative/responding mode of bottom-up strategy implementation is proposed to lead to better outcomes than either mode on its own (Hart, Reference Hart1992).

To explore the concept of emergence, we now turn our attention to strategy implementation in a project environment. In organizations, strategies are typically implemented by projects; as the project portfolio represents the sum of all projects, it therefore also represents the currently implemented strategy (Morgan, Levitt, & Malek, Reference Morgan, Levitt and Malek2007). Strategic implementation through portfolio mechanisms is characterized by high complexity and multiple inter-element interactions – conditions that suggest an environment ripe for the occurrence of emergence. Individual projects and actors represent the main elements or components of this system at the micro-level (Goldstein (Reference Goldstein1999), and their interaction may result in emergence on a higher portfolio and strategy level. It should be noted that not every such interaction leads to emergence; the interactions must also have coherent structures. These structures, however, are only visible from a higher level; a portfolio perspective can reveal how such micro-level elements form higher-level structures from the bottom-up. Therefore, the concerted management of these elements is best done from the portfolio level through PPM mechanisms (see Figure 7.2.).

Figure 7.2. A project portfolio perspective of planned and emergent strategic elements.

PPM is therefore often viewed as a bridge between strategy formulation and its implementation (Meskendahl, Reference Meskendahl2010). The challenge of PPM lies not only in the implementation of deliberate strategy but also in the adequate handling, and indeed enabling, of emergence. While planned strategies are cascaded down through the hierarchy for implementation, emergent strategy is realized by the bottom-up interplay of different portfolio elements (people and projects).

The project prioritization and selection phase of PPM receives strong attention for its impact on strategy (Archer & Ghasemzadeh, Reference Archer, Ghasemzadeh, Morris and Pinto2004; Blichfeldt & Eskerod, Reference Blichfeldt and Eskerod2008; Dietrich & Lehtonen, Reference Dietrich and Lehtonen2005; Englund & Graham, Reference Englund and Graham1999; Müller, Martinsuo, & Blomquist, Reference Müller, Martinsuo and Blomquist2008). The cascade model of strategy implementation is often portrayed as the mechanism through which projects are selected to fit with strategy through a traditional top-down approach (see Figure 7.3.). This perspective focuses on the realization of deliberate strategies, ignoring the potential existence and impact from emergent strategies.

Figure 7.3. Cascade model.

Extended from Morris & Jamieson, Reference Morris and Jamieson2005.

The top-down cascade model is reflected in much of the extant OPM research. Empirical studies confirm a positive relationship between strategically aligned project selection and portfolio success (Müller et al., Reference Müller, Martinsuo and Blomquist2008). Other studies have shown that a formalized portfolio management process, which is based on strategic planning, is also associated with success, as it provides transparency, facilitates coordination, and enables strategy to guide project selection (Schultz, Salomo, de Brentani, & Kleinschmidt, Reference Schultz, Salomo, de Brentani and Kleinschmidt2013; Teller, Unger, Kock, & Gemünden, Reference Teller, Unger, Kock and Gemünden2012). Finally, successful portfolios are also characterized by clear objectives for projects and formalized decision processes (Martinsuo & Lehtonen, Reference Martinsuo and Lehtonen2007).

The dominant view on PPM as represented by these and other studies is driven from the top down and ignores that strategy can also be emergent (Mintzberg, Reference Mintzberg1978). In the next section we discuss the PPM process and how it works with strategy formulation and implementation in both a top-down and a bottom-up manner.

Project Portfolio Management Process

A project portfolio describes a set of projects that are executed by a particular organization and compete for its limited resources in terms of budget, personnel, and time (Archer & Ghasemzadeh, Reference Archer, Ghasemzadeh, Morris and Pinto2004). It can be said that the project portfolio represents the organization’s strategy (Benko & McFarlan, Reference Benko and McFarlan2003; Morgan et al., Reference Morgan, Levitt and Malek2007) as it is a collection of the projects and programs that embody strategy realization. The project portfolio processes also guide the future implementation of strategy through projects (Cooper, Edgett, & Kleinschmidt, Reference Cooper, Edgett and Kleinschmidt1999). Therefore, the dedicated management of a project portfolio is responsible for the prioritization of projects and the respective allocation of scarce resources in order to realize the most favorable selection of projects for an organization (Blichfeldt & Eskerod, Reference Blichfeldt and Eskerod2008). In addition, PPM refers to the continuous and overarching coordination and steering of the project portfolio. In that regard, the management of a project portfolio can provide benefits (e.g., exploitation of synergies between projects and management of portfolio risks) that would not occur in the case of independently managed projects (Teller & Kock, Reference Teller and Kock2013).

Scholars often adapt a process model for describing portfolio-related management activities (e.g., Blichfeldt & Eskerod, Reference Blichfeldt and Eskerod2008; Thiry & Deguire, Reference Thiry and Deguire2007). Such process models typically highlight the role of project prioritization and selection and the ongoing coordination of the portfolio of projects. In this chapter, we follow the model by Jonas (Reference Jonas2010) that comprises four phases (see also Beringer, Jonas, & Kock, Reference Beringer, Jonas and Kock2013; Jonas, Kock, & Gemünden, Reference Jonas, Kock and Gemünden2013; Meskendahl, Reference Meskendahl2010): (1) Project portfolio structuring; (2) Resource allocation; (3) Project portfolio steering; and (4) Project portfolio exploitation. This varies from other models by including a fourth phase, which comprises the post-project activities and emphasizes the exploitation of project results (Jonas, Reference Jonas2010). One weakness of phase-based process models is that they tend to suggest a static view of the life cycle of projects; however, project portfolios are highly dynamic entities (Floricel & Ibanescu, Reference Floricel and Ibanescu2008; Petit, Reference Petit2012). New project opportunities and proposals are constantly popping up while the scope and urgency of ongoing projects may change at any time. Changing strategic objectives and the impact of a volatile environment can alter the priority and purpose of projects while other projects may become obsolete. As a consequence, aspects of PPM referring to the inflow of projects, to the continuous management of the stock of projects, and to the outflow of projects, need to be performed simultaneously and constantly. In the following sections, we highlight the main activities, challenges, and contributions of the four phases of PPM on strategy implementation.

Portfolio structuring comprises activities that precede the execution of projects. The main challenge of this phase is to define a portfolio of project investments that in its entirety optimally reflects the strategic objectives while also considering the constraints of the funding organization.

This requires:

• management of the inflow of project ideas and proposals (Heising, Reference Heising2012; Kock, Heising, & Gemünden, Reference Kock, Heising and Gemünden2015; Kock, Heising, & Gemünden, Reference Kock, Heising and Gemünden2016)

• prioritization and balancing between multiple potentially contradicting goals, aiming for strategic alignment, maximal revenues, and a balanced portfolio of risks (Cooper, Edgett, & Kleinschmidt, Reference Cooper, Edgett and Kleinschmidt2001; Meskendahl, Reference Meskendahl2010)

• management of dependencies on the internal and external environment and between projects (Archer & Ghasemzadeh, Reference Archer and Ghasemzadeh1999; Killen, Reference Killen2013; Killen & Kjaer, Reference Killen and Kjaer2012; Platje, Seidel, & Wadman, Reference Platje, Seidel and Wadman1994)

• integration of input from relevant stakeholders such as the project customers (Voss, Reference Voss2012; Voss & Kock, Reference Voss and Kock2013)

As a result, a portfolio of preferred project investments is selected from a wide range of project ideas that have gone through a comprehensive evaluation and prioritization. In sum, this selected portfolio represents an interpretation of a top-level strategy that is used to derive project initiatives and to challenge and evaluate upcoming project ideas. Thus, from a strategic management perspective the selected portfolio represents the nexus between strategy formulation and implementation. On the one hand, it drives strategy formulation by interpreting the strategy, concretizing it to project evaluation criteria or by defining strategic bucket. On the other, the actual selection of projects represents the first step of the implementation of the intended strategy. However, it is not all top-down, and in this phase we also observe the influence of bottom-up elements (e.g., due to operational problems that require solutions or new project ideas that are not in line with the overall strategic direction).

Resource allocation refers to the distribution of the organization’s resources across the projects in a way that reflects the organization’s priorities. The main challenge of this phase stems from the tension between the line organization that provides the resources and the project organization that requires the resources (Arvidsson, Reference Arvidsson2009). The optimal utilization of resources requires the transparency of their availability and competences, a clear strategic focus, and a commitment to organizational goals that prevent opportunistic behavior (Elonen & Artto, Reference Elonen and Artto2003; Engwall & Jerbrant, Reference Engwall and Jerbrant2003). Another challenge is indicated by issues at the individual level. Project members often lack the long-term perspectives and career systems that a single project environment cannot provide while their allocation to multiple projects often leads to an overload of project work (Huemann, Reference Huemann2010; Zika-Viktorsson, Sundström, & Engwall, Reference Zika-Viktorsson, Sundström and Engwall2006). Organizations that successfully address these challenges provide the basis for the efficient implementation of the portfolio of project ideas.

The impact of the resource allocation phase on the strategy formation process is twofold. First, it provides the basis for the efficient implementation of the entire portfolio of project ideas according to the organization’s priorities and thereby concretizes the intended strategy that is inherent to the project ideas in funded and staffed projects. It paves the way and defines the frame for strategy implementation. Second, in the resource allocation phase, the commitment of the (resource-owning) middle management (typically in the line organization) to the strategy is revealed. In some cases, the lack of resource commitments to support strategic decisions have been seen as a major source of emergent strategies (Burgelman, Reference Burgelman1994).

Portfolio steering comprises all activities that are related to ongoing projects. Through continuous coordination and control activities, PPM provides mechanisms for response to changing organizational priorities, project plan deviations, and/or risks and opportunities (Korhonen, Laine, & Martinsuo, Reference Korhonen, Laine and Martinsuo2014; Müller et al., Reference Müller, Martinsuo and Blomquist2008; Teller & Kock, Reference Teller and Kock2013). In doing so, this phase addresses challenges that stem from a dynamic external and internal environment and enables an organization to adapt to changing conditions. Scholars also emphasize the importance of the exploitation of synergies among projects regarding the availability of information, or the mutual utilization of tangible or intangible assets (Canonico & Söderlung, Reference Canonico and Söderlung2010; Platje et al., Reference Platje, Seidel and Wadman1994).

The strategic relevance of this phase is, again, twofold. First, portfolio steering can provide strategic control functions to ensure alignment with strategy and to manage uncertainty (Korhonen et al., Reference Korhonen, Laine and Martinsuo2014). Second, a portfolio perspective of current projects can create and reveal strategic opportunities that emerge within the strategy implementation (Kopmann, Kock, Killen, & Gemünden, Reference Kopmann, Kock, Killen and Gemünden2017).

Portfolio exploitation activities refer to the project closure and the post-project phase. The scarce literature on PPM regarding this phase particularly highlights the relevance of organizational learning through “lessons learned” and the evaluation of project results (Kopmann, Kock, Killen, & Gemünden, Reference Kopmann, Kock, Killen and Gemünden2015; Prencipe & Tell, Reference Prencipe and Tell2001; von Zedtwitz, Reference von Zedtwitz2002). This phase is also highly relevant, from a single-project perspective, on benefits realization (Winter & Szczepanek, Reference Winter and Szczepanek2009). Scholars distinguish three stages in the process of value realization: output, outcome, and benefit (Turner & Zolin, Reference Turner and Zolin2012; Winter & Szczepanek, Reference Winter and Szczepanek2009; Zwikael & Smyrk, Reference Zwikael and Smyrk2012). Accordingly, the immediate results of a project (i.e., artifacts produced by the project) are defined as output. Projects are typically concluded when these outputs are delivered. However, the utilization and exploitation of these outputs is required to realize an outcome. Finally, benefits are described as the “flow of value that is triggered by the realization of a target outcome” (Zwikael & Smyrk, Reference Zwikael and Smyrk2012, p. 11). Following this rationale, the actual realization of a strategy takes place in the exploitation phase, after the delivery of outputs.

Thus, the main challenge in this phase is to bring together the puzzle pieces that are represented by the single project (selected in the portfolio structuring phase), from the perspectives of both deliberate and emergent strategies to fully understand and manage portfolio exploitation.

Deliberate strategies are based on the one intended strategy concept, formulated in the beginning of the strategy formation process. As shown in Figure 7.2, the strategy cascades down into many micro-level elements. In the portfolio exploitation phase, these elements need to be brought together so that, from a “big picture,” portfolio-level perspective, the strategy implementation can best be recognized (and validated). However, emergent strategies also stem from multiple micro-level elements and realized strategy can only be fully recognized from an ex-post perspective, when patterns across these elements can be observed. The interplay between the top-down and bottom-up strategy processes contributes to a feedback loop where the formulated intended strategy evolves in response to emergence (Mintzberg & Waters, Reference Mintzberg and Waters1985). It is at the portfolio perspective, and through PPM processes, that patterns of emergence come to light, and influence the ongoing (re)formulation of intended strategy.

Each of the four phases that have been discussed represents an essential and necessary part of PPM. Even though the phases overlap in practice, with activities often performed simultaneously, they are logically consecutive from a strategy perspective following the classical concept of deliberate strategy. This perspective also leads to a limited view of PPM as largely focused on the selection of the right projects.

This notion is also reflected in the widely acknowledged definition of project portfolio success, in which success is equated with the expected value of a portfolio of project investment options. As a consequence, scholars in PPM tend to focus on activities that are related to the operationalization and implementation of intended strategies, while its actual contribution to the bottom-up/emergent strategy formation is widely neglected. Thus, when revisiting the role of PPM in the strategy formation process, the understanding of portfolio success also needs to be challenged.

The strategic aspect of project portfolio success is traditionally seen in the implementation of the firm’s strategy through portfolio structuring, resource allocation, and steering processes (Morris & Jamieson, Reference Morris and Jamieson2005). This view focuses on ensuring that project selection and resource allocation are aligned with the firm’s strategic objectives and priorities in a top-down manner. Beyond that, successful PPM reconfigures the project portfolio through project reprioritization and termination to enforce strategic fit (Unger, Kock, Gemünden, & Jonas, Reference Unger, Kock, Gemünden and Jonas2012).

However, although strategic fit is one of the most prevalent success criteria for PPM, it only represents one side and ignores PPM’s wider influence on strategy. In the end, it is the realized strategy that determines organizational success regardless of the degree to which it stems from intended top-down strategy or from emergent elements. To better understand the importance of emergence and the ways that PPM enables recognition of bottom-up emergence, we review the concept of emergence and emergent strategies from a PPM perspective in the following section.

Evidence of Emergence in Project Portfolios

Although the planning-based perspective dominates the literature on PPM, some qualitative studies give first indications of the importance of emergent phenomena:

• Burgelman (Reference Burgelman1983) identified autonomous strategic behavior as a source for strategic projects that are out of the organization’s current strategic scope when initiated. Further, he proposes that strategy may follow autonomous strategic behavior when the middle managers make sense out of these initiatives and manipulate the strategic context accordingly. More explicitly, Mirabeau and Maguire (Reference Mirabeau and Maguire2014) explored several autonomous strategic projects that have led to emergent strategies and identified three aspects that foster the transition from autonomous strategic projects to emergent strategies: (1) Mobilizing wider support for impetus; (2) manipulating strategic context for consonance; and (3) altering structural context for embeddedness.

• Loch (Reference Loch2000) and Blichfeldt and Eskerod (Reference Blichfeldt and Eskerod2008) found that formal PPM is often only applied to specific projects, while many projects are executed outside formal decision-making processes. These unrecognized projects consume important resources and have a large impact on other projects. This suggests that emergent projects can present unresolved challenges to established management systems.

• The investigations of Petit and Hobbs (Reference Petit and Hobbs2010) and Petit (Reference Petit2012) show that project portfolios are – due to high project interdependence – greatly affected by variations in project objectives, customer requirements, and target customers during the course of individual projects. Similarly, managers are often unaware that risks of individual projects may aggregate at the portfolio level or that risks of individual projects may represent opportunities for other projects (Olsson, Reference Olsson2008; Teller, Reference Teller2013). Many changes and unexpected events lead to unavoidable unpredictability, which is generally not well catered for in current portfolio management approaches.

• In a case study of a pharmaceutical company, Aaltonen (Reference Aaltonen2010) identified evolutionary processes of variation, selection, and retention in project portfolios. These evolutionary processes can lead to path dependencies in portfolio decisions, resulting in co-selection where project selection according to certain criteria also results in unwanted aspects at the same time. Such evolutionary and unplanned developments (i.e., emergent strategy) are therefore shown to have strong implications for the entire portfolio.

• Bootlegging describes secretly organized innovation projects that ignore management directives. Hence, they are not under the control of portfolio management and do not follow the top-down defined selection process. Augsdorfer (Reference Augsdorfer2005) defines bootlegging as an activity that usually emerges bottom-up and might be beneficial for the firm. Augsdorfer’s empirical study revealed that bootlegging takes place in R&D departments across multiple industries and primarily involves incremental innovations, which are eventually aligned with the corporate strategy and support the organization’s goals. Hence, he argues that bootlegging is not only valuable commercially, but also in terms of strategic success.

• Midler’s study of the development of the Renault Logan (Reference Midler2013) reveals the high relevance of emergent strategies for firm success in a multiproject environment. The case describes how an extremely successful strategy can develop evolutionarily through complex learning relationships among a series of interdependent projects. This strategy formation called “Lineage Management” describes a dialectic interplay between strategy formulation and implementation through a sequence of projects (Midler & Silberzahn, Reference Midler and Silberzahn2008).

Other case studies also remind us that idealized project portfolio processes may not be in accordance with actual practice. Christiansen and Varnes (Reference Christiansen and Varnes2009) observe that portfolio decisions are not necessarily made according to established rules and criteria, but instead rely strongly on negotiating, bargaining and intuition. Similarly, Jerbrant and Gustavsson (Reference Jerbrant and Gustavsson2013) demonstrate that the behavior of managers in PPM is often characterized by improvisation and does not necessarily reflect rational decision making. Kester, Griffin, Hultink, and Lauche (Reference Kester, Griffin, Hultink and Lauche2011) identify that strong power-based and opinion-based decision-making processes are used in portfolio management, instead of the expected (and usually stipulated) evidence-based decision-making processes. Mosavi (Reference Mosavi2014) shows that portfolio management steering committees not only include a decision-making function as part of the established PPM approaches, but that they also include a communication and negotiation function that is not often formally recognized. A case study in the public sector (Young, Young, Jordan, & O’Connor, Reference Young, Young, Jordan and O’Connor2012) shows that despite adoption of “best practice” PPM approaches, the majority of projects contributed little to achieving strategic objectives, casting doubt on the suitability of current PPM approaches.

Discussion and Suggestions for Managing Emergence through PPM

We have shown how PPM is influenced by, and influences, both deliberate and emergent strategies. We have analyzed this relationship from a process perspective and have summarized empirical findings. Drawing upon our analysis of the findings, we now turn to the future to discuss how organizations might deal with emergent strategy implementation.

We offer three suggestions on how PPM can be adapted to recognize, allow, and foster emergence. We propose that managers: (1) recognize the value of emergence and consider adopting mechanisms for “planned emergence” via strategic control; (2) manage the grassroots of strategy and foster bottom-up initiatives to allow for emergent elements; and (3) consider the wider role of PPM in two-way strategy processes and the need to adapt PPM success measures accordingly. We then explore each of these suggestions on how organizations can best build on and manage emergence through PPM.

Conclusions and Future Research

In this chapter, we have shown that emergence is unavoidable in strategy implementation and thus should be considered in OPM. The question is not whether we need to manage emergence, but rather how to do it: fight it or embrace it. Modern organizations have established less hierarchical structures, more participative decision processes, and a culture of open discussions across all management levels. Why have they done so if not for the sake of bottom-up initiatives? The success of these organizations indicates that they were right to do so. However, the main challenge is to find the right balance between a strict and potentially more efficient top-down approach for strategy implementation and a more open and emergent approach where constant change could undermine the decision process. One avenue for future research could be to address this challenge and provide further guidance on the right balance through in-depth studies in a variety of environments. Such research could investigate whether and how PPM and portfolio-level mechanisms foster emergence, and whether particular contexts influence the effect.

By proposing PPM as the linchpin between top-down and bottom-up strategy processes, we demonstrate that this challenge can be addressed by a dedicated organizational function. Further, we have highlighted measures that complement the traditional approaches to managing project portfolios that focus on the implementation of intended strategies. Finally, we have called for a rethinking of project portfolio success measures – advocating that current approaches are extended to incorporate both the deliberate and emergent elements of successful strategies.

The importance of emergence is beginning to be recognized in OPM research. While the relevance of emergent strategies is widely acknowledged, there is a need for further research to provide clear managerial recommendations. By highlighting PPM’s central role in managing emergence, we promote a discussion that will pave the way for further research as well as practitioner-relevant insights. Improving the ways that PPM can better support, and perhaps even guide, emergence is especially important due to the role of emergence in organizational responsiveness to meet changing conditions.

1 Introduction

Programs, within public and private organizations, are commonly viewed as a critical means for instituting organizational change, developing new products, processes, and services, and allowing firms to maintain a technological or innovative edge in the marketplace. Programs may be used to support broad societal initiatives, including critical electronic and physical infrastructure development, energy exploration and conservation, sustainability activities, and logistics and transportation, as well as narrower (but no less relevant) efforts within a host of project-oriented industries, including pharmaceuticals, aerospace and automotive, oil and gas, and so forth. In fact, the use of programs is typically viewed as a critical element in organizational success. Organizations that are especially adept at program management often can leverage these abilities to enjoy real, sustained competitive advantage over their rivals.

The critical nature of effective program management is illustrated by the budgets being devoted to supporting these initiatives. Hexter and Mischke (Reference Hexter and Mischke2013) report that a worldwide demand for more than $57 trillion to be spent on infrastructure from 2013 to the 2030s. Further, 41 percent of the world’s capital investments is in projects (Morris, Reference Morris2013). Massive programs continue to capture the public’s attention. The coordinated efforts to map the Human Genome, travel to Mars, search for Zika virus treatments, and even develop Lockheed Martin’s Joint Strike Fighter (at a current budgeted cost of $400 billion, with replacement parts and future development, some critics suggest it will become the first trillion dollar defense program) are all examples of the types of high-visibility programs that capture the public’s attention, pointing directly to our almost limitless capacity to find new ways to change our world and alter the manner in which we live our lives.

At the same time, while it is being acknowledged just how important project, program, and portfolio management are to organizational success, independent measures suggest that the wider set of international organizations themselves engaged in project-based work are often behind the expertise curve when it comes to managing their projects. The Project Management Institute’s “Pulse of the Profession” (PMI, 2016) reports that less than 17 percent of the organizations surveyed had high project management maturity levels. Only 12 percent reported high maturity in portfolio management, as well. The net effect, as the PMI report suggests, is that it puts significant project investment dollars at risk with each new project or program undertaken. Its research suggests that due to outright project failures (budget dollars lost), combined with “completed” projects that fail to reach their original goals, for every billion dollars invested in projects, $122 million is at risk. Similarly, the Chaos Report (Reference Chaos2014) notes that the success rates for IT projects remain depressingly low (around 16 percent), with fully 84 percent of the projects sampled reporting either severe challenges (overbudget or behind schedule and suboptimal functionality) or outright failure. Tellingly, the broader industry has maintained those failures rates for nearly twenty years. These data naturally beg the question that will be addressed in this chapter: what is the nature of program management, why is it so critical to project management success, and what are some of the important challenges and best-practice guidelines that researchers and practitioners alike can glean from the current state of the field in order to better manage their projects?

2 Program: Definition and Conceptual Clarity

2.1 What Is a Program?

In the context of project, program, and project portfolio management, the International Project Management Association (IPMA) defines a program as “a set of related projects and required organizational changes to reach a strategic goal and to achieve the defined business benefits” (IPMA, 2006). Similarly, the Project Management Institute (PMI) refers to a program as a group of related projects, subprograms, and program activities that must be managed in a coordinated way in order to achieve benefits that may not be obtained if they are managed individually (PMI, 2013). Similar to projects, programs are a means of achieving goals and objectives of an organization. The accomplishment of the stated business objectives or goals is the overriding objective of a program. While the benefits from the program often comes at the end of the program development cycle, multiple discrete projects within a program can incrementally deliver benefits prior to the end of the program. For example, the large infrastructure program that developed Hong Kong’s international airport involved reclamation of land on Chek Lap Kok island, a rail spur for passenger travel, bridges, and a small-scale city adjacent to the island, to house the airport’s employees and families. Each of the subelements of this massive program contained one or more projects that had its own benefit to the population at large.

Within an organizational setting, programs can themselves be parts of a larger project portfolio (see Figure 8.1). In essence, a project portfolio is a collection of projects and programs that are grouped together to facilitate their effective management in order to meet strategic business objectives. Within a broad strategic portfolio, projects or programs may not necessarily have interdependency or direct relationships.

Figure 8.1. A possible management setting in an organization.

Adapted from: Patanakul, P. & Milosevic, D. Z. (2009). The effectiveness in managing a group pf multiple projects: Factors of influence and measurement criteria. Journal of High Technology Management Research, 27(3), 216–233.

Similar to a project, a program has a life cycle. A typical program goes through an initiation effort, a development effort, and an end. After a program begins, marked by either funding approval or when the program manager is assigned, projects within the program can begin at any time (PMI, 2013). The development effort of the program starts when these projects go through their execution phase. The projects themselves typically end prior to the formal ending of the larger program, which may involve more sign-offs or political closure gates. The product of these projects is integrated into the final product being developed by the program. Often, a significant amount of program work occurs during the integration effort when multiple deliverables from multiple projects are tied together into a final integrated product (PMI, 2013). Integration testing must then be done to ensure that different program components work together as a unified system to deliver program benefit. For example, in large avionics programs, such as development of airborne stealth technology, multiple electronic systems are developed by a broad array of subcontractors and one of the critical duties of the primary contractor is to ensure the farmed-out projects work together when fully integrated. Consider the US Navy’s abortive, multibillion dollar Expeditionary Fighting Vehicle program, finally shut down in 2011. Oversight committees cited its inability to integrate and fully support the myriad new systems developed to accomplish its role.

PMI suggests that a program typically go through three phases in its life cycle. They are: program definition, program benefits delivery, and program closure (PMI, 2008). Program definition emphasizes the analysis and understanding of the strategic benefits of the program, the development of a plan for program initiation, the identification of the program objectives and their alignment with the organization’s goals, and the development of a high-level business case demonstrating an understanding of the needs, business benefits, feasibility, and justification of the program. The program definition phase also includes the development of a way to structure and manage the program to deliver the desired outcomes. The program plan is developed and key program deliverables are defined in this phase. Program benefits delivery focuses on the management of the development of the discrete program benefits from subprograms, projects, or program activities to achieve overall program benefits. Program closure emphasizes the consolidation of program benefits to transition to sustained benefits and the execution of a controlled closedown of the program.

3 Program Management

4 Managing Programs in Practices

Programs require significant efforts of planning, coordination, and collaboration through established processes, strong team efforts, and the involvement of multiple stakeholders. Even with significant resource commitment and undertaking, many programs, both in public and private sectors, fail. Managing programs in the public sector is reviewed in this section. Problems and issues in managing public and government programs have long been indicated in the literature; including, the complexity of the programs, political environment, multiple stakeholders, benefit management, product life cycle, and processes (Patanakul et al., Reference Patanakul, Kwak, Zwikael and Liu2016).

5 Conclusion

Programs and program management are a complex challenge but an important role for the project-based organization. The ontology of the goals of a program relative to the more sharply defined goals of projects, one of “becoming” versus “being,” in Pellegrinelli’s (Reference Pellegrinelli2011) words, place a stronger focus on the simultaneous linkages and divergences between project and program management. The observation that programs are simply a collection of related projects may be denotatively correct but it poses far larger questions in the practical implications of these words. Programs thrive in ambiguity and uncertainty; they are most at home in circumstances where needs exist but methods are still in flux. Programs give managers and organizations the broadest potential remit to realize benefits, find creative solutions, and operate as an emerging (and far more interesting) phenomenon and method for organizing work, resources, and collective action. As we noted at the outset, programs, in both public and private settings, truly offer the public the principle means by which we change our world (Pinto, 2007).

6 Summary

This chapter discusses program management in relation to project management and project portfolio management. The clear understanding of such relationships should lead to an opportunity to integrate project, program, and portfolio management standards and certification. The chapter also summarizes some major elements of program management such as program manager, program management office, program governance, and benefit management. Further, the chapter discusses program management in practice by highlighting issues and recommendations from research on government programs. They are managing complexity, navigating through political landscapes; program management is stakeholder management, managing benefits, the role of technology and design for solutions, and process and governance.

1 Introduction

The excerpt presented above translates in a vivid way the challenges facing decision-makers in how to organize activities in a changing context, while being asked to reach high level-performance objectives. Not only does this represent a challenge for keeping operations ongoing, but facing the management of multiple projects makes this situation even more problematic. At the heart of these challenges is organizational design using strategic thinking. The PMO is only one part of this global thinking.

Organizational design is defined as “the structures of accountabilities and responsibilities used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures” (Greenwood & Miller, Reference Greenwood and Miller2010, p. 78).

What we are interested in is the particular problematic that relates to the management of multiple projects in large organizations. Contrary to the situation prevailing in management and organization theory, scholars in project management have been interested in this problematic through a diversity of perspectives, while not associating their work with the organizational design stream. The following research relates directly to the organizational design, including, among others: project-based organization (Bakker, Reference Bakker2010), project portfolio (Kopmann, Kock, Killen, & Gemunden, Reference Kopmann, Kock, Killen and Gemunden2015; Unger, Kock, Gemünden, & Jonas, Reference Unger, Kock, Gemünden and Jonas2012), megaprojects (Miller & Hobbs, Reference Miller and Hobbs2005), governance (Müller & Lecoeuvre, Reference Müller and Lecoeuvre2015), project management offices (Artto, Kulvik, Poskela, & Turkulainen, Reference Artto, Kulvik, Poskela and Turkulainen2011; Aubry, Hobbs, & Thuillier, Reference Aubry, Hobbs and Thuillier2007). However, very little has been proposed to build a coherent, integrative theory of the different facets of organizational design from the field of project management, with the exception of scholars within the organizational project management area (Aubry, Sicotte, Drouin, Vidot-Delerue, & Besner, Reference Aubry, Sicotte, Drouin, Vidot-Delerue and Besner2012). Moreover, very little has been done to bring answers to managers facing the challenges of organizing projects as a whole.

Changing the focus of research from individual components (i.e., portfolio, governance, PMO) to organizational design has an important implication for project management theory. What is suggested is to turn to the organizational design to draw an initial theoretical framework and then, from empirical evidence, confirm the relevance of such a framework and contributions to project management professionals. When we refer to organizational design, we refer to the seminal work of Galbraith (Reference Galbraith1977, Reference Galbraith1995), Mintzberg (Reference Mintzberg1979), Miller and Friesen (Reference Miller and Friesen1984), and, more recently, of Pettigrew (Pettigrew & Fenton, Reference Pettigrew and Fenton2000; Pettigrew et al., Reference Pettigrew, Whittington, Melin, Sanchez-Runde, Van den Bosch, Ruigrok and Numagami2003). While these foundations are still relevant for organizational design, a fresh look at this field has to be undertaken. Project management scholars are in the best position to do so as mentioned by Greenwood and Miller (Reference Greenwood and Miller2010): “… we restate the importance of organization design highlighting the relatively recent emergence of highly complex organizational forms and the intimidating challenges confronting the would-be researcher” (p. 78).

We will examine a research program that took place in three university hospitals where major investments have been authorized for the redeployment of their services. The entry point in this research program – PMOs dedicated to organizational transformation (the human side) – allows for observing how decisions on organizational design occur in this context and how they are implemented. Results presented here are interesting: each hospital implements a unique organizational design (including a PMO) to deliver a similar project. Moreover, outcomes from the three projects are comparable. These results emphasize the interest in a better understanding of the organizational design to account for organizational project management.

The chapter is organized as follows. A literature review covers organizational design in the management and organization literature followed by the literature in the project management field. A research question is then presented followed by a theoretical framework elaborated from a combination of three perspectives. The methodology presents the mixed-methods approach to provide a rich account of the three case studies. Findings from intracase and intercase analyses are then presented. These findings are then discussed and concluding remarks provided.

2 What Do We Know About Organizational Design?

Origins of modern organizations can be situated at the end of the nineteenth century along with profound structural changes in society and organizations – mainly from family to public ownership (Chandler, Reference Chandler1962). Since then, organizations have evolved, and scholars have developed theories to account for their structure and their social interfaces. The objective of this section is to present a synthetic view of the state of the knowledge on organizational design, first, from the theory of organization perspective and, second, more specifically, from the project management perspective.

3 Theoretical Background: Toward a Process Theory Approach

In this study, we offer a theoretical approach particularly well adapted to the case of organizational design for the management of projects; namely, process theory (Hernes, Reference Hernes2014). In process thinking, “process is constitutive of the world” (Hernes, Reference Hernes2014, p. 44, emphasis in original text). Adopting process thinking requires turning to a different philosophy (Nayak & Chia, Reference Nayak, Chia, Tsoukas and Chia2011) and set of assumptions than in management and organization theory (Hernes, Reference Hernes2014). In this study, we did not adopt the full perspective of process thinking; rather, it inspires our approach. We focus here on three perspectives within a process approach: contingencies, historicities, and social interactions (see Figure 9.1).

Figure 9.1. Theoretical background within a process approach.

Contingencies. We agree with Greenwood and Miller (Reference Greenwood and Miller2010) on the relevance of contingency theory for capturing the context. Contingency theory explains how certain organizational forms or dimensions are more likely to be associated with superior performance than others, and it takes strongly into account the context of the organization (Donaldson, Reference Donaldson2001; Engwall, Reference Engwall2003). In this study, contingencies are not limited to variables and defined framework (Hernes, Reference Hernes2014), but they also take into account the context relevant to the organizational design. This context should cover all facets of organizational life such as power, conflicts, and tensions (Smith & Lewis, Reference Smith and Lewis2011) that lead to dynamic transformation of organizations. These social interactions of organizational life are outside mainstream contingency theory.

Historicities. In process thinking, there is an ongoing view of temporality. Is goes over a longitudinal perspective of “viewing things like a linear duration of time and plotting the relationships between events and actors over that duration (Hernes, Reference Hernes2014, p. 44). Historicities entangle the actual history and the possible future of organizations. The historicities approach takes as a premise that changes constantly happen in impermanent organizations (Weick, Reference Weick2009). A particular phenomenon is best explained by taking into account the history of the global context (Zeitlin, Reference Zeitlin, Jones and Zeitlin2008). In this regard, the history of iconic projects is very relevant to understanding the evolution and the context of decision-making (i.e., Hughes, Reference Hughes1998; Lenfle, Reference Lenfle2011). Historicities put the notions of time and temporality at the core of organizational design, which is so important in the context of the project defined as a temporary organization (Bakker, Reference Bakker2010).

Social interactions. There is a need to include social aspects in the study of organizational design as the power system is embedded in structures (Clegg et al., Reference Clegg, Courpasson and Phillips2006; Flyvbjerg, Reference Flyvbjerg2001). In this vein, we turn toward a sociology of organizations (Floricel, Bonneau, Aubry, & Sergi, Reference Floricel, Bonneau, Aubry and Sergi2014). Several theoretical social approaches have the potential to help us understand organizational design, such as actor-network theory or postbureaucracy (Clegg & Pitsis, Reference Clegg, Pitsis, Flyvbjerg, Landman and Schram2012). However, we have chosen to adopt sense-making (Weick, Reference Weick1995) as the basis of the social view of organizational design. The sense-making approach puts emphasis on how people go through a collective organizing process of enactment, selection, and retention in a context of ecological change (Weick, Sutcliffe, & Obstfeld, Reference Weick, Sutcliffe and Obstfeld2005). Interestingly, this theoretical approach fits well with the thinking of new forms of organizing where networks, knowledge, and the power system are taken into consideration (Fenton & Pettigrew, Reference Fenton, Pettigrew, Pettigrew and Fenton2000).

Hernes (Reference Hernes2014) suggested a process perspective on organizational structure: “[structure] belongs to process, much as process belongs to structure” (p. 67). The main point is that structure is a one-off representation of social interactions. He defined organizing as the articulation of organizational meaning structures, where, “The meaning structure is the closest we come to the noun-like character of organizations, as their elements may include concepts, physical objects, or human or social actors” (Hernes, Reference Hernes2014, p. 115).

These three perspectives form the basis of our process theory approach to organizational design. The three facets retain the plurality of perspectives to capture the complexity found in such organizational phenomena.

4 Methodology

The overall research design is based on three in-depth case studies in the health care sector, all university hospitals where major transformation projects were going on at the time of the research. They have all implemented a PMO as a coordinating entity for the overall transformation project. It is an opportunistic choice of cases (Patton, Reference Patton2002) but has a high level of relevance regarding the organizational issue of how to organize for projects in pluralistic contexts (Denis et al., Reference Denis, Dompierre, Langley and Rouleau2011). Multiple case studies offer the possibility of comparison (Yin, Reference Yin2013) between the different contexts which is at the core of this research. The cases are anonymized for reasons of privacy and confidentiality.

Data were collected from different sources and was mainly qualitative, with a total of sixty-four interviews with a variety of respondents. Questionnaires were completed by 54 of the respondents. Data analysis was performed progressively. First, qualitative and quantitative data were analyzed individually. Then intracase analyses were undertaken for each of the three university hospitals, for both qualitative and quantitative data (Miles & Huberman, Reference Miles and Huberman1994). Common formats adopted in individual case analyses facilitated intercase analysis. Several iterations were necessary to make sense of the richness (and volume) of data from different sources.

5 Description of the cases

The three case studies – A, B, and C – presented here all had a long history before arriving at this point of seeing the project finally realized. Decisions on investments in one or the other of these three hospitals have kept changing in relation to events in the political environment and the political party in government, as is often the case in public project management (Flyvbjerg, Reference Flyvbjerg2001). Table 9.1. presents an overall description of the three cases at the time of the interviews. As can be observed, the size of the organization as well as the budget for the project is larger in A and B than in C. It is worth mentioning that each case was at a different phase in the realization of this major project, and this has to be considered in relation to the age of the PMO.

Each university hospitals had put in place a PMO and a steering committee at a very early stage of its project (See Figures 9.2 to 9.4 at the time of interview).

Figure 9.2. Case A: Organizational design.

Figure 9.3. Case B: Organizational design.

Figure 9.4. Case C: Organizational design.

In all three cases, changes took place in the size and functions of the PMO and the steering committee. These changes must be considered in relation to events in the political sphere (e.g., elections), construction evolution (e.g., signing of contracts), and hospital management (e.g., change in the management team).

We also wanted to take into account the project portfolio and the degree of innovation in the three case studies (See Table 9.2.). The number of projects in case B is higher than the other two as they had split their projects into smaller parts. The innovative nature of projects is a dimension often used in project typology to make a decision about organizing (Shenhar & Dvir, Reference Shenhar and Dvir1996). Innovation is described here based on three parameters as part of a social innovation system (Aubry et al., Reference Aubry, Hobbs and Thuillier2007): the type of innovation built upon Schumpeter classification (Drejer, 2004); the level of risk or uncertainty; and the differentiation between incremental and radical innovation. The nature of the global transformation project is about the same in the three hospitals. However, there are nuances between them as shown in Table 9.2.

In cases A and B, the transformation project includes the construction of new sites for multiple clinical missions, while for case C, there is no moving as such. The construction for C is more like an extension to the existing buildings. The nature of the transformation project may have an impact on the types of projects. For instance, in the case of C, most of the projects are concerned with processes and do represent proportionately less risk and more incremental innovation than in the two other cases.

6 Findings

In this section, are presented three main findings from the analysis of these three cases: the diversity of organizational designs; reflectivity in the dynamic process of organizational design; and similarity of outcomes.

7 Discussion

This chapter aims at exploring how organizations handle challenges for the delivery of multiple projects. We had the opportunity to study similar transformation projects in three university hospitals from the same region and in about the same time frame. This unique research situation offers the possibility to observe three different dynamic mixtures of social, political, and technological context, and organization cultures resulting in three specific organizational designs. Our aim is to understand better how organizational design as a theoretical concept explains, at least partially, decisions regarding the management of multiple projects, and how this can contribute to the development of theory in the field of project management.

8 Conclusion

The introductory excerpt denoted the need for decision-makers to make sense of their organization in a pluralistic context. It illustrated how organizing for projects could not be realized around a single PMO but needs to consider the overall organization. This chapter brings some insights to answer the question: “How can a decision-maker organize for the management of multiple projects?” From a theoretical perspective, the findings can be synthesized into four major points:

1. 1. First, we have brought the notion of organizational design into the field of project management to provide a name to what is really done when working on structuring an organization to deliver projects. To do this, we have put efforts to bridge the research from the fields of management and organization theory to the project management field on organizational design.

2. 2. Second, the initial theoretical framework proposed in this chapter is a first attempt to theorize organizational design as a crucial component in the management of projects. The framework is built on three complementary theoretical perspectives: contingencies, historicities, and social interactions.

3. 3. It is also an attempt to integrate multiple terms (forms, structure, project-based, project-oriented, matrix-type, and so forth) under a coherent theory of organizing for projects. Fragmentation of the field was noted at the project level (Bakker, Reference Bakker2010; Söderlund, Reference Söderlund2011). The same situation exists at the organization level. Our theoretical framework offers an alternative to the economic view of transaction cost theory (Winch, Reference Winch2014) and other contingency approaches.

4. 4. Regarding methodology, this chapter offers an example of the mixed-methods approach for the study of complex phenomena. More analyses have yet to be done, but the combination of qualitative and quantitative approaches was relevant to provide insight into the problem at hand.

From a practical perspective, the main contributions for the project management profession concern decision-makers who are engaged in organizational design. The key message for them is slow organizational design. What is meant here is that there is no unique, ideal model to copy. So, there is a need to make sense of the particular context of the organization, its unique history, and identity, and to engage in a collective effort to enact what is found outside and inside the organization. This takes time. And finally, it requires the decision-makers to take an active role in the organizational design.

This research has limitations and offers opportunities for future research. The main limitation of this research relates to the exploration of the organizational design within a process theory approach. Process theory is mainly associated with interpretative methodology with a strong focus on discourse. In this research, we have adopted a rich mixed-methods approach based mainly on interviews and questionnaires. While it offers rich description, it falls short in engaging in a real interpretative approach. A discursive approach will certainly provide a complementary account of the process of organizational design. Process theory opens up several avenues for future theoretical and professional developments.

Introduction

Until recently, the scholarship of project management has been dominated by a traditional approach reflective of foundational views about how to conduct successful projects (Morris, Reference Morris, Morris, Pinto and Söderlund2011). This traditional approach assumes a reductionist, positivist stance (Jackson, Reference Jackson2003; O’Leary, Reference O’Leary, Williams and Samset2012), which follows neoclassical economics and the rationalist model of decision-making (Goode, Reference Goode1997; Simon, Reference Simon1979), in which analysis and action are cleanly separated in a logical sequence (Koskela & Howell, Reference Koskela and Howell2002; Ryle, Reference Ryle1984). Many of the contributions to the emergent project governance literature (Ahola, Ruuska, Artto, & Kujala, Reference Ahola, Ruuska, Artto and Kujala2014) refer back to rational economic theories that theorize the firm as a nexus of contracts (Foss, Reference Foss1993). Such approaches conceive of governance as a choice of form, which then drives incentives, decision rights, and accountability. In this traditional view, risk management is conceived of as a rational, linear process of identification, analysis, evaluation, and treatment (ISO, 2009) within a defined organizational context.

However, the burden of calculative rationality (Levinthal & March, Reference Levinthal and March1993) bestowed by the traditional approaches appears to be unbearable in practice (Guo, Chang-Richards, Wilkinson, & Li, Reference Guo, Chang-Richards, Wilkinson and Li2014; O’Leary, Reference O’Leary, Williams and Samset2012; Ward & Chapman, Reference Ward and Chapman2008; Winch & Maytorena, Reference Winch, Maytorena, Morris, Pinto and Söderlund2011). In this chapter, we argue that a “Third Wave” approach (Morris, Pinto, & Söderlund, Reference Morris, Pinto, Söderlund, Morris, Pinto and Söderlund2011) to project governance and risk management is required in order to address issues of process (rather than form) and uncertainty (rather than risk).

We begin with a review of how project risk management is shaped by governance. We then examine contemporary theories of risk and uncertainty and discuss their implications for governance. The chapter concludes with implications for practice.

Project Governance for Risk Management: The “First-Order Economizing” Logic

Two longstanding issues in the management of organizations have been to ensure that managers act in a manner satisfactory to those they are accountable to (Berle & Means, Reference Berle and Means1991), within efficiency constraints (Knight, Reference Knight1921; Smith, Reference Smith1776). A contemporary expression of these issues is as follows: an organization is defined as “a multiagent system with identifiable boundaries and system-level goals toward which the constituent agent’s efforts are expected to make a contribution” (Puranam, Alexy, & Reitzig, Reference Puranam, Alexy and Reitzig2014, p. 166). Corporate governance is concerned with providing agents with rules and safeguards to guide how the organization is managed: “the governance system defines the structures used by the organization, allocates rights and responsibilities within those structures and requires assurance that management is operating effectively and properly within the defined structures” (Too & Weaver, Reference Too and Weaver2014, p. 1385). Recent reviews of the project governance literature (e.g., Ahola, et al., Reference Ahola, Ruuska, Artto and Kujala2014; Biesenthal & Wilden, Reference Biesenthal and Wilden2014; Müller, Reference Müller, Morris, Pinto and Söderlund2011) note that two theories have been identified as dominant influences: agency theory (AT) and transaction cost economics (TCE).

Toward a Second-Order Complexity Approach to Project Risk Management

Knightian risks comprise only a fraction of the uncertainty factors that project managers need to consider. It has become customary to classify these factors as follows (Ramasesh & Browning, Reference Ramasesh and Browning2014; Winch & Maytorena, Reference Winch, Maytorena, Morris, Pinto and Söderlund2011):

1. – Known unknowns: possible threats and opportunities can be identified, but their impact is unclear and no reliable data is available regarding the probability of their incidence.

2. – Unknown unknowns: threats and opportunities have not been identified and the cognitive state is therefore ignorance.

3. – Unknown knowns: threats and opportunities have been identified by others, but that information is not disclosed to the decision-maker for one reason or another.

As a consequence of these “unknowns,” project managers face emergent issues, ambiguous cause-effect relationships, and nonlinear effects. That is to say, they face complexity (Érdi, Reference Érdi2007, p. 7; Padalkar & Gopinath, Reference Padalkar and Gopinath2016; Pich, et al., Reference Pich, Loch and Meyer2002).

Over the past two decades, the theme of complexity has received an increasing amount of attention among project management scholars (Baccarini, Reference Baccarini1996; Cicmil, Williams, Thomas, & Hodgson, Reference Cicmil, Williams, Thomas and Hodgson2006; Cooke-Davies, Cicmil, Crawford, & Richardson, Reference Cooke-Davies, Cicmil, Crawford and Richardson2008; Jaafari, Reference Jaafari2003; Pich, et al., Reference Pich, Loch and Meyer2002) and practitioners (PMI, 2014; ICCPM, 2011). It is possible to categorize most scholarly contributions about complexity and project management into one of two categories:

1. (1) Complexity is either conceived as a property of the world experienced by practitioners, which can then be categorized, measured, and possibly managed (Baccarini, Reference Baccarini1996; Geraldi, Maylor, & Williams, Reference Geraldi, Maylor and Williams2011; Jaafari, Reference Jaafari2003),

2. (2) It is conceived as a way of thinking about the world (Checkland, Reference Checkland2000; Chia, Reference Chia2011; Cooke-Davies, et al., Reference Cooke-Davies, Cicmil, Crawford and Richardson2008).

Second-Order Complexity Project Risk Management

The three approaches discussed above provide templates to manage risk in a novel way, consistent with second-order complex thinking. The logic of effectuation invites project managers and sponsors to focus on what they can control and to determine the level of risk they are comfortable with (affordable loss principle). The logic of design thinking provides a process of learning and discovery for the objectives, specifications, and success criteria for the project, in collaboration with stakeholders: it enables dissolving uncertainty-as-ignorance in a synthetic manner, as expressed by Ackoff (Reference Ackoff2001, p. 344): “problem dissolution consists of redesign of the system that has the problem or its environment in such a way as to eliminate the problem, precluding the possibility of its reappearance. Design is to synthetic thinking what scientific research is to analytic thinking.” Finally, the template of HROs provides an approach that emphasizes curing errors as they happen, through continuous learning and improvement.

The arguments discussed here are mapped out in Figure 10.1 below, where we contrast first-order and second-order challenges (risk v. uncertainty) and first-order and second-order response strategies (management v. reduction). The matrix in Figure 10.1 illustrates how the second-order approach enriches and broadens that of the first-order.

Figure 10.1. First-order v. second-order risk approaches.

The approaches of effectuation, design thinking, and HROs entail a shift in thinking about risk management from foresight, anticipation, and prevention to discovery, learning, and resilient problem solving. They suggest different governance choices, which we turn to in the next section.

Second-Order Complexity Project Risk Governance: Toward Governability

Governability in Practice

This logic is exemplified by recent cases of large complex projects including the delivery of Terminal Five at Heathrow Airport by BAA, and the 2012 London Olympics. Brady and Davies (Reference Brady and Davies2014) describe how the sponsors of both projects sought to avoid the failures of the past and embarked on learning journeys to shift the mindsets that directed how they would go about managing projects, in a way that is consistent with second-order thinking:

The T5 Agreement was designed to encourage collaboration and the creation of innovative solutions to problems that would inevitably arise on such a complex and uncertain project and avoid the practice of seeking additional payments and/or entering into legal disputes over changes in scope, which were found in the more adversarial relationships that typified construction practice in the United Kingdom.

(Brady & Davies, Reference Brady and Davies2014, p. 27)

The contractual arrangements that BAA designed fully acknowledged the limitations of foresight and the inevitability of errors consistent with the HRO model, and sought to promote problem-solving collaborative relationships in ways that were consistent with design thinking principles.

The latest report on the Norwegian State Project Model and the progressive implementation of its quality assurance scheme (Samset & Volden, Reference Samset and Volden2013) further supports the arguments presented here. Since 2000, the Norwegian government has implemented a quality assurance scheme for all major public investment projects, which require approval at two decision gates: QA1 (conceptual approval by the Cabinet) and QA2 (approval of detailed plans by Parliament) – see Figure 10.2 below:

Figure 10.2. The Norwegian State Project Model – Stage Gate Approval process.

(Copyright Samset & Volden (Reference Samset and Volden2013: p. 20) – used with permission)

The innovation of the Norwegian State Project Model is to complement a traditional stage-gate decision model with a process of quality assurance involving external expert auditors. During this process, auditors probe the assumptions of plans with a level of attention to process and detail comparable to the HRO model: “there is also an emphasis on exchange of information, sharing of expertise and development of expertise among civil servants involved in the scheme. An important incentive mechanism is that the government may refuse to consider the proposed project if it is not analyzed and documented well enough” (Samset & Volden, Reference Samset and Volden2013, p. 18).

Samset and Volden (Reference Samset and Volden2013, p. 31) note that implementing the scheme led to significant improvements: “total net saving for the projects taken as a whole was more than 3 billion NOK, or about 7% of the total investment.”

The authors conclude: “The QA scheme in its current configuration appears to be suitable for the purpose for which it was designed. However, governance regimes should not be static. They need to be flexible so that they can be altered if they do not work as intended or if changes in operating conditions and characteristics of the projects should necessitate change” (Samset & Volden, Reference Samset and Volden2013, p. 48).

Consistent with the contributions reviewed above, Miller and Hobbs (Reference Miller, Hobbs, Williams, Samset and Sunnevåg2009) highlight the shortcomings of “rational choice” logic compared with the benefits of “evolutionary project shaping” logic: “the perspective of rational planning fosters the idea that changes are not only bad, but are signs of bad management” (Miller & Hobbs, Reference Miller, Hobbs, Williams, Samset and Sunnevåg2009, p. 383). On the other hand, in the evolutionary project shaping logic: “sponsors start with initial concepts that have the possibility of becoming viable. They then embark on shaping efforts and debates to refine, reconfigure, and eventually decide on a concept that will yield value while countering risks. The seeds of success or failure are thus planted early and nurtured as choices are made” (Miller & Hobbs, Reference Miller, Hobbs, Williams, Samset and Sunnevåg2009, p. 384). Again, this is consistent with the principles of effectuation and HROs as efforts to reduce uncertainty through learning and discovery are highlighted.

In conclusion, Miller and Hobbs (Reference Miller, Hobbs, Williams, Samset and Sunnevåg2009, pp. 387–388) provide seven examples of governability devices that can be used to steer a project through risk, uncertainty, and ambiguity:

1. 1. Ownership arrangements and incentives that induce partners to respond in ways to protect their investments …

2. 2. The building of coalitions and the inclusion of parties that have an interest in taking actions to ensure the success of the project …

3. 3. The presence of slack, callable or deep-pocket financial resources to face needs as they arise …

4. 4. Access to a rich array of possible strategic responses to emergent threats and opportunities …

5. 5. Broad functional specifications that make it possible for owners or contractors to propose innovative solutions …

6. 6. Contracts with governments, clients, or investors that specify actions to be taken in the case of difficulties …

7. 7. Flexible project design and modularity that make it possible to reduce the scope and size of projects, should difficulties arise.

Conclusion: From The Governance of Risks in Projects to How Uncertainty Management and Reduction Shape Project Governability

This chapter has argued that the first-order economizing logic assumes a foresight capability and a calculative rationality that fails to reflect the challenges that leaders of projects and project-based organizations face in practice. The chapter suggests that concepts from entrepreneurship (effectuation and design thinking) and high reliability organizations, can help overcome the epistemological fault line (Donaldson, Reference Donaldson2012) of traditional models of governance and risk management in projects. Doing so requires a transition along two axes: in terms of the challenges faced by managers, we need to move away from a narrow conceptualization that only considers known and calculable risks to all unknowns; and from a strategic standpoint; we need to open up our range from the narrow view that risks are given and need to be treated to the broader perspective that risks are socially constructed (Sarasvathy, Reference Sarasvathy2001; Winch & Maytorena, Reference Winch, Maytorena, Morris, Pinto and Söderlund2011; Zinn, Reference Zinn2008) and need to be reduced/dissolved (Ackoff, Reference Ackoff2001; Jackson, Reference Jackson2003). Second-order complexity draws our attention to the level of risk that managers can afford, the processes of learning how to define goals and success factors, and how to design resilient project organizations capable of addressing failures as they occur and learn in fast cycles to match the contingencies of their environments.

The perspective outlined in this chapter offers a framework to integrate (Figure 10.1) the perspectives on risk management and governance that were identified in previous reviews of the literature as falling outside the first-order economizing mainstream (Ahola, et al., Reference Ahola, Ruuska, Artto and Kujala2014; Müller, Reference Müller, Morris, Pinto and Söderlund2011; Too & Weaver, Reference Too and Weaver2014) into a holistic framework.

The arguments provided here enable us to connect governance and risk management to other emerging themes of organizational project management research, including project-based organizations as problem-solving organizations (Ahern, et al., Reference Ahern, Leavy and Byrne2014), institutional challenges (Scott, Levitt, & Orr, Reference Scott, Levitt and Orr2011), and projects-as-practice (Hällgren & Söderholm, Reference Hällgren, Söderholm, Morris, Pinto and Söderlund2011). Second-order complexity provides a platform to accommodate new business models in project-based organizations, including CoPS (Miller, Hobday, Leroux-Demers, & Olleros, Reference Miller, Hobday, Leroux-Demers and Olleros1995), and the transition from product-led outcomes to service-led outcomes and client-contractor relationships to joined-up business partnerships, where contractors need to deliver to the changing business needs of a client, rather than a defined outcome (Alderman, Ivory, McLoughlin, & Vaughan, Reference Alderman, Ivory, McLoughlin and Vaughan2014).

This chapter investigated the issues from a scholarly perspective and reviewed a broad range of academic (and practitioner) publications from the perspective of the interactions between project governance and risk management. Some of the conclusions put forward go beyond this narrow remit and we would welcome complementary perspectives on governance other than risk management to inform the second-order complexity perspective outlined here. Beyond the studies reviewed, we would welcome the opportunity to further explore the issues from the perspective of practitioners.