1 Journal of Management and Governance 8: 3 25, Kluwer Academic Publishers. Printed in the Netherlands. 3 Governing Project-based Firms: Promoting Market-like Processes within Hierarchies LARS LINDKVIST Department of Management & Economics, Linköping University, S Linköping, Sweden ( Abstract. This article takes an empirical point of departure in an in-depth study of an R&D organization that was transformed into a strongly project-based organization. As demonstrated in the analysis, its mode of governance differed radically from traditional bureaucratic and cultural conceptions of governance. Instead the new rules-of-the-game introduced amounted to creating an institutional framework, promoting new individual responsibilities and enabling lower level marketlike processes of self-organizing discovery. The specific set-up used, included a new organization structure, new responsibilities, etc and the use of prices, playing a role both in shaping incentives and guiding knowledge work. The interpretation put forward relies on combining economic theories of governance with more fine-grained organization theories, and suggests that there is some discretion for top managers to engage in the design of a market-promoting mode of governance for their project-based firms. Key words: governance, project-based firms, R&D organization 1. Introduction 1.1. THE CASE STORY AND INTERPRETATION IN BRIEF In this article I take an empirical point of departure in an in-depth case study of an R&D organization, Tetra Pak Converting Technologies Inc. (CT), within a large globally operating company. CT was established in 1989 but as early as the beginning of the 90 s there was a diminishing demand for its services. At that time, CT had a traditional line-of-command structure organized along functional units, which was sub-divided into smaller technical specialist departments. In September 1994 demand was very low and the future of CT was strongly questioned. The newly appointed managing director then initiated a comprehensive SWOT analysis. This resulted in several conclusions. It became obvious that the organization was not very market-oriented. Line managers tended to focus more on their line duties than project goals, but maintained great influence over how projects were carried out. This led to a reinforcement of their technical character while downplaying a customer or market focus. Furthermore, individual project members felt torn between the demands from the line organization and the projects they were
2 4 LARS LINDKVIST engaged in, creating obstacles to cooperation and coordination in their attempts to attain project goals. It became clear that minor changes were hardly sufficient. To bring about increased focus on customers, projects, and competencies, more profound changes in the ways of thinking and acting were needed. After the SWOT analysis we realized that we had to renew ourselves. Renew the organization, renew our mentality, our way of working, everything had to be renewed. We started to think in terms of processes instead of functions.... This was the key and then we could not at all understand our line organization. The managing director and a team of top managers in CT thus decided to undertake a fundamental reorganization. The former matrix organization dominated by the functional units was abolished, and instead a project-based organization was introduced in In the change process, functional units were dissolved, leaving individuals without a home base or superiors in a traditional line-of-command sense. Instead they only belonged temporarily to projects and were subjected to new project leaders as their assignments changed. In the new structure, a number of competence networks covering core technical processes were also established. These radical change efforts, creating a strongly project-based organization, were successful. As a consequence, the organization was no longer on the edge of survival, but was prospering with highly increased demand for its services, increased creativity manifested in its patent records, low personnel turnover and more motivated members as measured regularly through anonymous questionnaire surveys. Between 1995 and 2000, demand for its services doubled several times over, and the same was true for the number of patents registered yearly. Based on this case story, to be elaborated below, my theoretical interpretation will focus on what kind of behavior CT wanted to promote and how it managed to bring this about. As to the first question my answer will emphasize the desire to have individuals acting in a far more mindful and attentive way than prior to the reorganization and to promote lower level market-like processes of self-organizing discovery. Relying more on projects, it was hoped, would increase individual entrepreneurship and flexibility and adaptability of the firm, characteristics often seen as virtues of markets. As to the second question, the CT governance mode is conceived of as incorporating, not only a new organization structure, new responsibilities, etc., but also prices, playing a role both in shaping incentives and in guiding knowledge work. Before turning to the specific framing of the governance problematic, I below briefly present some general problems that in the literature have been associated with managing or governing project-based firms SOME GENERIC PROBLEMS IN GOVERNING PROJECT-BASED FIRMS Increasingly technology-based as well as service-providing firms, operating in dynamic contexts, organize their operational and development activities in projects
3 GOVERNING PROJECT-BASED FIRMS 5 (DeFillippi and Arthur, 1998; Gann and Salter, 1998; Grabher, 2002; Hobday, 2000; Prencipe and Tell, 2001). Firms performing their activities within projects often display a matrix structure of projects and a hierarchical structure organized along functions (Wheelwright and Clark, 1992). As argued by Allen (1996), however, in the context of high degrees of change in markets and when product development activities are highly interdependent, the emphasis should rather be on the project dimension of the matrix. Firms that privilege strongly the project dimension and carry out most of their activities in projects may generally be referred to as project-based firms. The governance of such firms is a challenging task. First, their heavy reliance on projects implies that a high degree of discretion is granted to lower levels. Since projects enjoy great autonomy, they easily become separated from each other, with the risk of turning the firm into little more than a series of disconnected projects. Project-based firms will tend to suffer from certain weaknesses, e.g., bring about company-wide development and learning (Hobday, 2000) and difficulties in linking projects to firm level business processes (Gann and Salter, 2000). Second, projects typically comprise a mix of individuals with highly specialized competences, belonging to different functionally differentiated thought worlds (Dougherty, 1992) making it difficult to establish shared understandings, a common knowledge base, etc. As a result project-based firms tend to be, not only strongly decentralized, but also quite loosely coupled (Orton and Weick, 1990). This also applies to the knowledge dimension. Relevant pieces of knowledge will be distributed (Tsoukas, 1966) into a multitude of local settings and to a great extent reside in individual members. Governance in such a context must take into account the organization s fundamental dependence on its knowledgeable individuals, and its potential weaknesses in dealing with issues of firm integration and development MODES OF PROJECT-BASED GOVERNANCE With reference to Williamson s (1975) now classic exposition of two basic modes of governance, the market and the hierarchy, relying on prices and authority respectively, the introduction of a project-based structure may be interpreted as a way of adopting a hybrid mode of governance. As noticed by Zenger (2002) various kinds of internal hybrids, mixing elements of market and hierarchical governance, are being used extensively in practice, but their basic organizing properties and the specific governance mechanisms involved have so far received limited attention. To somehow incorporate, he continues, the often recognized strengths of markets to provide high rates of flexibility and the capacity for autonomous adaptation (p. 80) is obviously an alluring option. However, he also warns that selective infusion of market elements is likely to violate patterns of complementarity or coherence that, e.g., sustain traditional, bureaucratic hierarchy. As an example of such a mismatch he mentions that firms starting to use cross-functional teams, often keep their bureaucratic measurement and payment systems. Internal
4 6 LARS LINDKVIST hybrids, such as project-based firms, will therefore tend to be inherently unstable, spiraling towards becoming either coherent bureaucracies or purely market like team-organizations with a consistent configuration of structure, measurement and payment system. Similarly, Foss (2002, p. 9) suggests that coordination mechanisms will... cluster in certain predictable combinations..., and that in particular there are incentive limits to introducing market mechanisms within firms. Those who possess ultimate decision rights can always overrule employees to their own advantage, and reduced motivation is unavoidable. Such ideas of imperative complementarity demands obviously leave little discretion to managers as architects of organizational form. In contrast to such views of constrained flexibility in crafting internal, hybrid governance forms, Grandori (1997) maintains not only that prevailing notions of governance are severely underspecified, but also that there is a much greater scope for combining different elements or mechanisms in practice than generally recognized. Adhering to such a less conservative view I will below show how CT promoted the kind of individual agency and market-like processes that was intended. In characterizing the new mode of governance used, I will thus refer also to ideas within organization theory. Most importantly I will rely on the Weick et al. (1999) analysis of how to promote mindfulness in High Reliability Organizations (HROs), i.e., organizations where errors may easily escalate into catastrophe. Based on examining self-designing systems and effective practice in HROs, these authors suggest that success in managing unexpected events, is mediated by a way of being that is fostered by an apparent ongoing focus on failure, simplification, current operations, resilience, and underspecified structures... (p. 91). In my view, the insights originating from contexts of this kind, where responsiveness and flexibility are a sine qua non, are illuminating the way in which the case-study firm counteracted inertia and promoted market-like processes OUTLINE OF PRESENTATION Below I first present methodological considerations and continue with the presentation of the case study. In the analysis section I discuss seriatim how projects were operated while being embedded in a context of competence networks and how the new individual responsibilities were promoted. Finally, in the concluding section I argue that the governance philosophy of the case study firm differed radically from traditional, bureaucratic and cultural conceptions of governance and instead amounted to creating a kind of institutional framework enabling mindful behavior and market-like processes of self-organized problem-solving and discovery.
5 GOVERNING PROJECT-BASED FIRMS 7 2. Methodology In case-based research, the choice of empirical case is a crucial one. Considering the purpose of exploring how projectified firms are operated, an in-depth study of Tetra Pak Converting Technologies, Inc. (CT), a development unit within Tetra Pak, appears to be a highly relevant choice. First of all, after its transformation and successful turnaround, it came out as a quite extreme version of a projectbased organization. As argued by Daft and Lewin (1993) such outliers provide with possibilities for theorizing in new and interesting ways. Secondly, it is mainly in situations of change that the fundamental principles of governance come to the surface. In CT I had the possibility of getting a close and detailed view of the transformation process and also of tracking what happened after the implementation of this new form of organization. The new organization was introduced in January 1995 and appeared to work broadly as intended as the research process was initiated in In order to avoid premature conclusions, it was decided from the outset to extend the research period. As a result the research activities were divided into a first phase carried out during 1997 and a second one during The first phase started with a four-hour interview with the one manager who was most familiar with the principles of the new organization. This was followed by ten interviews, with members engaged in projects and competence networks. These were two-hour semi-structured interviews mirroring the issues raised above. Areas covered thus included both more organizational ones (the nature of project work, the role of competence networks, the role and expectations signaled by leaders, what communication media and arenas were being used, etc.) and knowledge related ones (the issue of knowledge transfer between projects, how knowledge was stored, etc.). Throughout these inquiries, a distinction was upheld between willingness to cooperate (assuming parties with different interests) and the pure coordination problematic (where possibilities of opportunism and strategic action are assumed away), as discussed by Grant (1996). In practice these cooperation and coordination aspects are interrelated and while focusing more on the latter one, I try to illuminate both. In doing that I discuss the role of various explicit and background operating governance mechanisms. A first report covering these issues was also discussed at a special meeting at the case study firm later on this first year. In 1999 a new four-hour interview was conducted with the same manager as was initially interviewed, focusing more specifically on the various facets of governance discussed in the introduction. Based on this interview five more interviews were conducted (including two project leaders, a network leader and two project members). In addition competence network meetings were attended. In spring 2000 another in-depth interview was conducted with the above-mentioned leader, and finally a three-hour seminar, based on a first version of this report, was held with the managing director and seven top managers as participants. All interviews were taped and transcribed in order to facilitate interpretation and to enable the use of quotes in promoting trustworthiness of results. Quotes,
6 8 LARS LINDKVIST moreover, are a way of providing richness of meaning, which should be considered a qualitative mark of a qualitative study (Alvesson and Sköldberg, 2000). It should be noticed that most of those interviewed acted as both project members and project leaders and all of them belonged to one or more competence networks. As a result I have not designated the quotes in the case story with the position of the person interviewed. Instead, where this is deemed to be essential it is stated explicitly in the text. Besides these interviews I had access to all internal documents, reports, etc, as requested. Taken together I believe that I have had very good opportunities to reach an in-depth understanding of the operations and governance mechanisms of the case study firm, something that should characterize a well-grounded study of a single case (Dyer and Wilkins, 1991). 3. The CT Case 3.1. BACKGROUND Tetra Pak Converting Technologies (CT) is an R&D unit within Tetra Pak, a leading company worldwide in developing and producing process, packaging and distribution systems for liquid food. Tetra Pak is organized in a matrix structure with 3 Business Areas Carton, Plastic and Processing, and 2 Regions Asia/America and Europe/Africa including 70 Market Companies. CT belongs to the Carton business area, which is the largest of the three. Within Carton there are two main R&D units. Besides CT, dealing with converting technologies, there is another complementary R&D unit engaged in developing filling machines. Taken together, these units of approximately equal size employ about 250 people. Serving the entire Tetra Pak company there is also a central R&D unit, engaged in basic research and prospecting future packaging technologies. CT is engaged in developing, implementing and optimizing material and converting technologies, covering the whole process (including lamination, printing, etc.) of transforming raw carton into ready-made packages. Most of its development projects are customer initiated, either by Tetra Pak factories or by Market Companies after agreements with external customers. But they also initiate their own R&D projects and Advanced Development projects involving highly openended basic technological research. In this article the discussion will, however, mainly relate to the customer-attached, product development projects, involving incremental rather than radical innovation. Although CT is legally an independent company it is financially operated as a cost centre, receiving centrally allocated funds based on performance, reputation and demand for its services THE PROJECT GROUPS In the new structure, projects made up a core part of the organization. Projects in CT were fairly short-lived, usually lasting about a year, and each new project had a unique mix of members representing different specialist areas. The project leaders
7 GOVERNING PROJECT-BASED FIRMS 9 were accountable for attaining the project goals, in CT s goal model framed as TQM (Time, Quality and Money) and the project team had full discretion in carrying out the project work within limits set. As stated by one project leader, getting the right mix of competencies in the project was thus extremely important. Yet, it was also recognized that due to the complexity of the problem-solving processes involved, it was not possible to know this with precision apriori. Project leaders had to guess who should be able to contribute and how to get a broad enough mix, hoping that the team as a whole would manage the task challenge.... in development work the important thing is to collect those you believe might contribute... you take some of them and some of them... and when they start to thrash it out they come up with a solution... but if you have forgotten any of them it does not work. This is not to say that team composition was a haphazard undertaking. The potential project members had a reputation for professional competence, previous experience, ability to work with others, etc, acquired in earlier project engagements. Although project leaders did not know in any great detail what kind of problems might appear during the project, they had a good intuition as to what individual members and what mix of interacting members, i.e., what team was likely to be able to manage a given development task. Projects thus typically comprised individuals with different (technical) competences, and different experience from other projects. As most employees were engineers, they obviously had a certain degree of overlapping formal knowledge and similarities in general attitudes. Several said that, over time, they learnt a little about the other s specialist areas and the interfaces between their own specialty and neighboring ones. But they were not able to develop a shared task-relevant knowledge base in any strong sense. What they learnt was rather a matter of how to interact with other specialists in problem-solving processes. Guided by their knowledge of what others were able to do, how they approached various kinds of problems, they learnt when and how they might contribute in the collective effort to bring about project goals. Another salient characteristic was the real-time-action character of project work. The goals of projects were so strong that individual orientations as well as reporting practices were adapted to the basic project logic of moving forward towards the goals as fast as possible. Projects are very focused on their goals and nothing else. It s like there is an abyss after its completion.... well we write a report but it might well be insufficient... if there was a problem we only write we solved it, you don t write how you perhaps tried two-hundred thousand other things that did not work... In projects, people had to learn how to use their expertise knowledge in a practical context, where action and results as well as swiftness were the dominant governing norms or values. Much of the knowledge generated within projects was however
8 10 LARS LINDKVIST hard to formalize and incorporate into the development reports, the final reports or other kinds of written material. As to the reasons why this was so, many pointed at the tacit character of knowledge....it is hard to come and tell something because you feel it is so self-evident, they already know this. You easily end up like this because it is so damned self-evident to yourself, being inside it. And how receptive are they... people are receptive only when they need something. This does not mean that written documentation was not used at all. Especially in setting up new projects, during the pre-study phase, many said they looked at development reports and, sometimes, final reports too. Often the ambition in reading the reports was to find out who had relevant experience and to whom you could talk about your problematic in an informal way. Both in the start-up phase of a project and during its execution, informal communication with people in personal and informal networks represented a major medium. The information flow today is formidable, and there is no chance of classifying that. Instead it is very much a matter of having a hunch of what is on, what has been going on and who was involved. So once I need something I know where to start looking. Should we take this [informal communication] away, everything would immediately die. Projects as pictured above are thus separated, time-paced and time-pressured undertakings and much knowledge is generated and immediately applied within projects. In such a context, it is hard and perhaps even a bit illogical to spend time documenting and transferring knowledge in order to benefit other projects. But projects do not exist in isolation. Without the competence networks, the CT model would not be a viable one THE COMPETENCE NETWORKS Within CT there were competence networks covering the key technologies involved in the entire converting process (such as lamination, printing, automation, etc.). There was also a project leadership network. The network members chose a leader, with no formal authority or accountability. Yet it was clear that network leaders were expected to secure the development of a deep enough competence within their specialist area. This included both a concern for the total amount and depth of specialist knowledge and judgment of the strengths and weaknesses of each of the members. They also initiated more fundamental development activities with no connection to specific customers. Apart from providing with possibilities of discussing current problems or experience gained in project work, the network meetings were also arenas where project leaders and others could find out who knew what, what were his/her experience in
9 GOVERNING PROJECT-BASED FIRMS 11 various project settings, etc. As emphasized by one network leader this was a matter of learning the roads to knowledge rather than the content of other s knowledge....one may not fail if the adequate competence is in this house...you must know the roads to all competencies...what you should know is, that it is he who knows, you shall not know that what he knows... These networks thus constituted formalized arenas for cross-talk between the projects, for identifying technical competence needs, and for continuous up-dating of who-knows-what. Unlike project work the networks had a longer-term orientation and were engaged in exploring new technological ideas. They were also connected to the visions or strategies about the core competencies of the entire organization and their leaders met the managing director quite regularly in the PPM (Project Portfolio Management) group, where technological and market strategies of CT were matched against the project mix and where changes in either of these were considered THE INDIVIDUAL MEMBERS In CT there are leaders (a managing director, mentors, project and network leaders) but no bosses. This was the message sent by introducing the new organization structure. Obviously this did not mean that decisions regarding strategy, recruitment and wage setting were left to the employees, with only supporting guidance from the leaders. Yet the new structure and philosophy in most other areas have brought about substantial changes, affecting the individuals relation to the organization in fundamental ways. In the old basically functional organization information was flowing along hierarchical lines, with considerable selection and filtering processes involved on its way up and down. These ideas of information distribution were abandoned and instead every individual was made responsible for searching the kind of information he needed or wanted, in the newly installed conference system and other electronic media, or elsewhere inside or outside the organization. This reliance on the individual to be the one with best knowledge of what information s/he needed and where to find it, was paralleled by the policy of everybody having access to everything, the maps of all networks, including letters, documents, etc., in uncondensed form. Everybody should think in terms of communication was the new message. Nobody should complain that I have not got any Information....you should no longer have information served, instead we turned it upside down. We told the employees that now you have to search for information... This information-seeking philosophy was generally accepted and a climate emerged in which people tended to share their information or knowledge with others. Opportunism in this respect was thus seen as a very minor problem.... all must participate and all who know something must share this with others....the climate now is that everybody wants to help everybody.
10 12 LARS LINDKVIST One explanation had to do with the change in focus from functional units to projects. In the latter context this kind of knowledge opportunism was less likely to pay off....in the line organization you could keep some information to yourself and use it to your own benefit later on, but in a project you have no use for it, because it is likely to be a long time before you are in a similar position again, so all information has to come out all the time... In CT, projects were short-lived and people had to engage in swift socialization and quickly find a way to carry out a complex task within limits set. As witnessed by many, the project goals were very strong and there appeared to be little incentive or even perceived time available for engaging in private strategizing. The quite limited overlap among specialist competences also meant that you could help others without risking that these would be able to capitalize extensively on your advice. In addition, as project work was typically carried out in rather public interaction, those who did not contribute actively and shared their experiences with others, ran the risk of developing a bad reputation and low demand for his/her services. Getting a reputation for non-cooperative behavior would be devastating in this organization, since this would mean that nobody would ask you to participate in (exciting) projects or ask for your advice. In a limited labor market no one can escape his/her history. A helping attitude was also rewarded in the wage-setting procedure. The mentor talked to the project leaders about employees not only about their specialist competencies, but also about their ability and willingness to use and share their knowledge. Individuals, however, did not seem to have a very strong sense of belonging to or identification with CT. To some individuals the projects represented an important social collectivity, to others the competence networks were seen as more important. But these senses were far less accentuated than in the old organization, where people more clearly had a sense of belonging to their functional unit. Instead of relating their membership identity strongly to the organization or parts thereof, they tended to rely primarily on their competencies.... there is no longer the same need to belong to an organizational unit. People identify with their competencies...they feel at home in their working activities... Neither was there any management intention or expectation that the individual should feel more like they were integrated parts of the organization. As expressed by one of the leaders, you should take care not to glorify the organization too much....the focus on the organizational unit may become so strong that you forget why you are here...a reduction in customer focus Apparently CT provided a highly motivating social context for the members. With reference to Maslow one leader maintained that, although people were
11 GOVERNING PROJECT-BASED FIRMS 13 very different, a need for confirmation seemed to be basic to most of them. Another leader noticed how these confirmation/demand issues were connected to the construction of status differences within the organization.... a fundamental need for confirmation, when somebody asks: could you join our project, you feel like a prince... Status I guess is to be needed... The worst thing that can happen to a person is not to be needed and inversely it has to be a kind of status to be in demand. Everything else, such as having an extravagant car or a high salary, is merely exterior signs of that. Moreover, due to recruitment policies and self-selection mechanisms, those working in the organization apparently liked to be engaged in knowledge development, to work in project teams, etc. They all tended to emphasize strongly that they were primarily driven by curiosity, their own interest in discovering and learning about new things, etc. Several also said that they got a kick out of managing a difficult project, and some appreciated that project work meant that you actually finished something and could start anew with other things. So, as evidenced also by survey data, most were happy to work in CT and accepted its basic philosophy and image as a project-based, knowledge-based and individual-based organization. Generally, personnel turnover was very low. To the individuals the key to career was to have adequate knowledge and competencies and to prove that in the real life context of project work. 4. Analysis The diagnosis prompting the kind of re-organization that CT went through in 1995, centered on its lack of customer focus, its failure to realize that it was involved in a competence-based competition, the fact that many worried more about their line duties than contributing to attaining project goals, etc. CT was thus not a very market-oriented organization where individuals were engaged in mindful interaction. Below I discuss how the new governance philosophy, signified by the organization chart and the explicitly stated rules-of-the-game, promoted new responsibilities among individuals and new ways of interaction within projects and competence networks CT PROJECTS SELF-ORGANIZATION WITHIN LIMITS SET Relying more on project may be interpreted as promoting an increased degree of self-organization within limits set. It was up to the team, i.e., the people who will do the work (Weick, 1977), to find out how to achieve the collective goal and in CT they did not even have to follow any project manual. Abolishing the old organization structure that gave primacy to a functional line-of-command structure, meant that it became less easy for people to think of their work as role-governed and informed by their functional belonging and identity. The possibilities of adhering to a logic of appropriateness diminished, extending the space for a logic of
12 14 LARS LINDKVIST consequentiality (March and Olsen, 1989). In a way the project members were thus being forced to think for themselves to a greater extent (Lindkvist et al., 1998). This was also underlined by the CT philosophy of telling people what to achieve but never, ever tell them how to do it. More generally, the new organization represented a means of downplaying structure. As discussed in Weick et al. (1999) and Weick and Westley (1996) such underspecification of structure tends to foster increased sensitivity to local conditions and mutual adjustment interaction. The flexible allocation of individuals to projects, the diversity and limited overlap of interdependent skills, and the short term nature of projects, implied that the CT project groups hardly became well-developed groups (Weick and Roberts, 1993) in the traditional sense with shared values, shared understandings, shared knowledge base, etc., facilitating concerted action. Instead project members had to coordinate their activities guided merely by the explicitly stated project goals and their knowledge of who knows what. Project goals here had a role as a kind of boundary objects (Star, 1993) that were both plastic enough to adapt to local needs and constraints, yet robust enough to establish a common point of reference, for the various specialists to interact in a self-organizing fashion across functional areas, envision a possible division of labor, negotiate on necessary compromises, etc, to meet deadlines (Lindkvist et al., 1998). The extensive use of milestones, practical testing and other feedback measures, here also signifies the preoccupation with failure, characterizing successful HROs (Weick et al, 1999) and the need for cultivating doubt (Weick and Westley, 1996) in such contexts. More generally stated, the specificity of project goals and sub-goals made possible deliberate goal-directed trial-and-error processes (Lindkvist and Söderlund, 2002). Within the autonomous CT projects, the individuals were thus both encouraged and forced to be imaginative, creative and pay close attention to consequences (Weick et al., 1999), anticipated as well as unexpected, and timing aspects. The authority of the project deadline turned project work very much into a matter of what must be achieved and what must be ready no later than. In trying to solve their problems, the CT members approached each other probing their ideas, hoping to get feedback about their strengths and weaknesses, using each other both as parties in a co-evolution of new knowledge. This produced an action orientation among those working in the project, i.e., a strong sense that problems must be solved here and now, promoting the image of bricolage, referring to people using whatever resources and repertoire one has to perform whatever task one faces (Weick, 1993, p. 63). Such a context, where people have to react rather immediately to the actions of others and emerging contingencies, does not favor extended ventures into lessons learnt in previous projects and project members were reluctant to spend too much time going through formal documents and the like. Instead they favored a more swift exchange of information and knowledge with fellows having relevant insights or experience. Generally, the bricolage nature and emerging character of problem-solving tended to turn each project into a unique event. Obviously, unique
13 GOVERNING PROJECT-BASED FIRMS 15 experience makes conventional way of storing lessons learnt, e.g., in routines, inoperative. As hypothesized by Weick et al. (1999) making a system more fully mindful may leave less to be explained by concepts of organizational learning. Project success was vital for CT, but this does not mean that projects should be analyzed in isolation. Projects were decoupled from the rest of the organization, submitted to a tight deadline and often so strongly focused on the task that everything outside and beyond their boundaries was completely neglected. And we may add that this is what projects should be good at, getting things done and delivering on time. However, as coordination must rest to a great extent on mutual adjustment involving a significant amount of face-to-face interaction (Grant, 1996), the number of project members must be limited, and the risk of lacking competence is always present in projects CT COMPETENCE NETWORKS ENABLING AN EXTENDED NETWORK MEMORY One should therefore conceive of the projects as embedded in a wider organizational context and the CT idea of competence network was a necessary complementary organizational innovation, constituting the backbone of the firm as noticed by one of the leaders. To some extent these networks fulfilled the role of knowledge containers similar to that of the functional units abolished in the reorganization. But more importantly they constituted arenas displaying the specific competencies, experience and personalities of network members. The networks made it possible for the individuals to learn who knows what, facilitating the composition of new projects and extending the knowledge base of ongoing projects. Projects thus benefited from these networks because they extended their potential to connect with specific, more distant knowledge bases. Somewhat surprisingly, problems encountered were normally not discussed in any great detail at the competence networks meetings and little effort was made to arrive at any common interpretation or conclusion. Rather than being used in order to arrive at shared meanings these meetings were arenas for sharing experience. The competence networks were thus arenas for exposing knowledge, guiding considerations about who should participate in a certain project and who to approach if problems turned up during project execution. In the terminology of Wegner et al. (1991) the competence networks enabled the creation of a transactive memory where people were responsible for remembering different pieces of knowledge and where people knew about locations rather than details. In effect, although the organization as a whole was basically a distributed knowledge system (Tsoukas, 1996), the diverse and localized knowledge bases became well-connected. As a result individual knowledge bases were made social or organizational, constituted as nodes in a network memory, enabling coordination due the well-connectedness of individual knowledge bases rather than individual knowledge base similarity (Lindkvist, 2003). By using each other as external
14 16 LARS LINDKVIST memories, they could economize on their own limited cognitive capabilities. Should a problem turn up in a project, relevant parts of this latent extensive network memory could be activated and brought to bear swiftly on the problem encountered. Establishing such a network memory, may be seen as a way of enabling processes of resilience, in which knowledgeable people self organize into ad hoc networks to provide expert problem solving (Weick et al., 1999, p. 100). Again, this is a characteristic of successful HROs according to these authors. Mainly the CT network memory appears to build on the strength of weak ties (Granovetter, 1973) making possible highly unpredictable connections between people who know different things. In the terminology of Hansen (1999) these networks mainly utilize the search benefits of weak ties. However, judging from the interviews, once the appropriate connection had been established and people met face-to-face, a non-negligible amount of knowledge transfer, both tacit and explicit, was no doubt taking place. To some extent there was thus a dynamic between periods where certain ties were almost completely dormant and more lively periods, where stronger ties benefiting knowledge transfer were erected. In this way CT was able to make use of individualized knowledge quite informally without resorting to knowledge management strategies of encoding, documentation and transfer. By letting knowledge and experience stay with the individual, the continuous up-dating was individualized and the risks of generalizing highly time and context bound knowledge into organizational routines were reduced. This way of managing knowledge was reflected in the great reluctance of project leaders and members to spend much time writing long reports of experience gained and other ways of codifying their knowledge. Most maintained that lessons learned were soon forgotten or becoming too decontextualized in writing about them. Their attitude may also be interpreted as mirroring a reluctance to simplify interpretations, another characteristic of mindful organizing in HROs, according to Weick et al. (1999) THE RESPONSIBLE INDIVIDUAL IN CT As discussed above much pedagogical work accompanied the introduction of the new organizational chart. The message communicated by the chart was that now there is no line organization work is done in projects, competence networks are necessary complements, customer satisfaction, project organization and competence development are the success factors, etc. In addition a number of other complementary rules-of-the-game, affecting the individual s sense of responsibility, were explicitly stated. Each individual should decide what competence network s/he wanted to join, and each individual should select his/her own mentor. They should also develop their own ways of seeking information and consider how to further their own competence development. There was much freedom, but it was a freedom with responsibility as pointed out by one of the leaders. For the project
15 GOVERNING PROJECT-BASED FIRMS 17 team members this philosophy of responsibility was expressed through the TQMgoals; the task had to be managed and had to be managed in due time. Considerable autonomy was granted, allowing for creative and innovative problem solving, but you should also deliver. Entrepreneurial activity and creative knowledge generation became both a possibility and a duty. In CT, the expectation that each individual should have a cooperative orientation was strongly underlined. Whether this was actually the case was also considered in the wage setting procedure. The fact that each individual had to create a demand for their services in the internal labor market, including building a reputation for a willingness to contribute and help others, also provided with strong, social incentives, for individual as well as for cooperative effort. So, while CT continued to be a weak incentive regime, where rewards were not linked to project performance in a direct, market-simulating manner (Williamson, 1985; Zenger, 2002), it yet provided a strongly motivating context for its individuals. 5. Concluding Discussion Firms downplaying structure and placing great reliance on their members, like CT, may generally be conceived of as individualized. Contrary to the basic idea of the bureaucracy of having vital knowledge built into its structure or system of rules with individuals cast as easily replaceable carriers of offices or roles vital knowledge in such a firm inhere in its individuals. While we may think of bureaucracies very much as organizations without individuals, project-based firms are highly dependent on their individuals and their abilities to self-organize in carrying out project work. As it seems, the CT rules-of-the-game represent almost an antithesis of the kind of instructional rules typically associated with the bureaucracy and cultural conceptions of the firm THE CT MODE OF GOVERNANCE BEYOND BUREAUCRATIC AND CULTURAL RULING In the Weberian ideal type bureaucracy explicit rules contain the knowledge needed to carry out tasks. Moreover, it is then a top management responsibility to formulate these rules and role instructions for them to form a coherent body of responses to the various contingencies that may appear. Explicit rules take care of interdependencies inherent in operations, and there is little need for additional interactive communication. This is an inexpensive form of governance as noticed by Grant (1996). People can work alone, adhering to prevailing rules, plans and roles. They need not know or like their fellow workers, know the same thing as they know, or know what they know. Both value creation and the image of work held in such a firm, take on a specific character. Value creation overall is envisaged only by very top managers, and then is differentiated into independent steps that are assigned to separate departments
16 18 LARS LINDKVIST or offices....with this archetype, people imagine their role and their unit s obligations apart from those of others in the organization, and apart from the situated complexities of a particular task. (Dougherty, 2001, p. 615) Following explicit and unambiguous rules would require limited amounts of reflective activity of organizational members. You do as you are told and if there are doubts about what to do, you may look it up in the manual. Individual members may well have some specialist knowledge, but top managers know enough about their knowledge to be able to design a coherent, central system of rules, routines, roles or offices. Adherence to these prescribed rules is rewarded in a bureaucracy. Idiosyncratic individual knowledge, acquired through practice or formal education, inhibiting central planning is unthinkable in the bureaucracy (Lindkvist and Llewellyn, 2003). Paralleling its reliance on central knowledge, bureaucracies are typically organized in a strict hierarchical manner, where the different subordinate parts or offices represent the variety of expertise needed to accomplish the goals of the organization. As a consequence, results can be meaningfully measured only at the level of the entire organization. The use of cultural rules introduces additional governance options, manifested, e.g., in ambitions to create a strong corporate culture or identity, which might guide action in problematic situations. Spender (1996) thinks of such communal background knowledge as the most secure and strategically significant kind of organizational knowledge (p. 52) and forges a tight link between the identity of the individual and that of the organization....organizations learn and have knowledge only to the extent that its members are malleable beings whose sense of self is influenced by the organization s evolving sense of social identity. (Spender, 1996, p. 53) In CT surprisingly little effort was made to build a strong organizational identity or corporate culture with the aim of merging the individual and the organization (Alvesson and Lindkvist, 1993) or buying their souls, as reported in Kunda s (1980) well-known study of Tech. The view of leaders was rather that such glorification should not be too strong, to avoid a reduction in customer focus. In the former structure people had a more clear sense of belonging to their own functional unit. Now some felt that they belonged to projects and others mentioned the competence networks. To a great extent their sense of security was connected to knowing that they had appropriate competencies and that both network leaders and mentors were helpful in letting them develop their competence as needed. However, people liked to work and were somewhat proud of working for CT and Tetra Pak. As it seems people actually identified not only with their own work activities but also with the line of business they and their firm were engaged in. This kind of professional/entrepreneurial identity, as contrasted to identity based on social belonging, appears to match what top managers wished to achieve by introducing the new project-based organization. Both bureaucratic and cultural mechanisms in a sense imply a preference for systemic governance. In dealing with uncertainty both resort to generic rules
17 GOVERNING PROJECT-BASED FIRMS 19 that serve to homogenize activity, as their basic recipe for reinstating order. Such rules obviously appear in many forms and media, such as role prescriptions, routines, or as inexplicable cultural rules inhering in the walls. Within such modes of governance vital knowledge is built into the firm as a whole, reducing its dependence on specific individuals. As suggested by the case study observations, project-based firms cannot rest solely on such ideas of governance. As it seems quite different notions were at the heart of the re-organization. Recognizing the fundamental dependence on its individuals, this project-based firm tried to create both flexibility and order through its parts. While certainly bureaucratic and cultural rules circumscribing individual action were in place, the set of new rulesof-the-game introduced, primarily aimed at counteracting previous tendencies of people to base their activities on pre-specified roles, routines, and organizational identity and at encouraging individual imagination, reflection, flexible adaptation, and responsibility. In conclusion, we have to move beyond such bureaucratic and cultural ruling in governing a highly individualized, project-based firm THE CT MODE OF GOVERNANCE DISTINCTIVE FEATURES Rules-of-the-game The new project-based organization structure was an important way of announcing the new rules-of-the-game. Since the start of the re-organization, this was a major means to convey expectations and bring about new attitudes and behaviors. Moreover, this was not only seen as a matter of re-arranging boxes on a paper. Instead a salient feature was the energetic endeavors to communicate clearly, to explain the whys and hows of the new structure, the underlying philosophy and what new responsibilities it implied. Besides structural support for processes of self-organization, the CT mode of governance thus also involved more direct attempts at stabilizing the mindset of its individuals. By clearly stating what was expected of members the leaders were in effect trying to institutionalize a reliable cognitive infrastructure, generating processes of mindful, flexible action and interaction. The promotion of such processes of self-organization should, however, not be seen as a matter down-playing the ultimate authority or the importance of top managers. The weaknesses of project-based firms as identified by Hobday (2000) need to be counteracted in processes at the level of the entire firm. In the case study firm, top managers were no doubt responsible for the formulation of market and technology strategies and various organizational rules-of-the-game as illustrated above. Moreover they were centrally implicated in setting project goals and considering whether the entire project portfolio was matching strategic intentions. The projects selected should rather be seen as a kind of intentionally set experiments testing the adequacy of prevailing strategies. Organizational knowledge or theories, as contained in strategies, here intersected with local knowledge generation as produced in project work. As phrased by one of the leaders, in CT the ambition
18 20 LARS LINDKVIST was to build a decentralized, self-adaptive organization with the ability to change its identity. Instead of adhering to a top-down strategic learning process, the idea was to further the long-term dynamic of the firm through an interactive process, taking advantage of local level, project-based experience. CT was thus not without hierarchy, and top managers certainly had the formal authority to rule in whatever way they deem appropriate. Moreover, it may be likened to a mini-society, in which their role is similar to that of a government. As with societies, governing a firm is not an easy undertaking. While some instructive rules and cultural guidance may be centrally promoted, governors must essentially engage in establishing a rule-of-game context, within which people are motivated and able to carry out their activities in a self-organized manner. This basic logic of governance mirrors the ideas of North (1990) about the importance of the institutional context or rules-of-the-game of a society in enabling as well as constraining market forces. This also means that processes of a market-like nature, whether in societies or firms, are always to be seen as socially embedded (Granovetter, 1985). Obviously, societal institutions protecting property rights, employee rights, the environment, etc, are of vital importance, but as is well recognized external markets may also sometimes overpower the ruling capacity of governments. Within firms, on the other hand, there is often greater scope for top managers to establish an authoritative order. As illustrated in the CT case, it was possible to create a new, respected rules-of-the-game context, by introducing a new organizational structure, new expectations, etc. The institutional context set up in order to both enable and constrain market-like processes in CT, involved classical structural means, such as technological and market strategies, a project-based structure, competence networks, and a reward system, as well as more direct expectations regarding individual responsibility and responsible interaction. Below I specifically discuss the market-promoting effects of these efforts, while making a clear distinction between incentive and knowledge features Markets and Incentives Apparently, the way of infusing the CT hierarchy with market elements was not fully in line with the complementarity approach as discussed in Zenger (2002), where it is stressed that the introduction of a new project-based structure should be accompanied by a new system of performance measurement and a new reward structure, mirroring a strong incentives approach. While CT managers certainly introduced a new project-based structure, they did not alter the measurements used or the system of individual merit pay used initially. What did happen, however, was that the importance of attaining project TQM-goals was being strongly underlined. In a similar vein, the individual s collective orientation, manifested in their willingness to help others, share their knowledge, etc., was valued much higher in the yearly wage-setting process, relative to the pre-transformation situation where individual specialist competence mattered more.
19 GOVERNING PROJECT-BASED FIRMS 21 With reference to the incentive limits discussion in Foss (2002), top managers could obviously overrule employees and prevailing economic rewards were not allocated in a direct, market-like manner. However, neither such improper selective intervention nor motivational problems were a salient feature in CT. The general recognition of the need to overcome the crisis was no doubt a motivating force in CT for several years, but also the expectations of cooperative behavior and the need to be in demand in the internal labor market contributed to making CT into a context, where economic as well as social incentives were perceived as strong. Generally, top managers were also very anxious to see to it that the new governance philosophy did not involve contradictory messages. However, rather than only regard the structural aspects above, identified in the organizational economics literature, their concerns also incorporated the more directly announced expectations about responsibilities, etc., connected to the creation of a certain cognitive infrastructure. The picture that emerges, is thus one of careful attention to erecting a coherent system of explicitly formulated rules, with the intention of fostering increased individual responsiveness and responsibilities for contributing for developing their competence, for building a reputation in the internal labor market, etc. In a general sense individuals would no doubt (have to) feel more like free market agents. Moreover, their rewards would also to a greater extent mirror their contributions to the market success of projects. While this may be seen as relying more on price-like measures, it should also be noticed that still these rewards were manager-mediated and did not correspond in a direct way neither to project results nor individual contributions Markets and Knowledge Project-based governance in CT, however, was not only a matter of incentive regulation. Certainly, introducing a project-based structure, wherein projects have clear goals mirroring what customer wants and are willing to pay, may generally be interpreted as a way of relying more on prices. But prices have several faces. The term incentives is often used in this connection with somewhat misleading connotations, as if the main problem were to induce people to exert themselves sufficiently. However, the chief guidance which prices offer is not so much how to act, but what to do. (Hayek, 1978, p. 187) The increased emphasis in CT on carrying out work within projects, with clearly stated goals as to what should be achieved, is illustrating this second face of prices. Introducing a project-based organization was thus also a means of enabling decentralized processes of self-organized problem-solving. As pointed out by Hayek (1978) prices provide a relevance structure, guiding individuals evaluation of what kind of knowledge is needed and their search for new knowledge. Instead of only focusing on the incentive problematic, there is a need for considering the introduction of project-based organization as a way of dealing with
20 22 LARS LINDKVIST dispersed, knowledge and for enabling a self-organizing discovery procedure (Hayek, 1978). In a similar vein Bartley (1987) underlines that market interaction not only makes the most of existing knowledge but also generates new knowledge. We should think of market interaction, he continues, not merely as a matter of exchange, but as a discovery process, in which we develop new knowledge by articulating and receiving criticism. This second view of markets and prices is focusing mainly on their qualities in guiding the energetic efforts of real market actors to know more by talking to others, and less on its qualities in bringing about a certain incentive structure, operating in a silent manner. Markets are thus of interest as mechanisms for coordinating and growing knowledge. As discussed by Potts (2001, p. 418) within an evolutionary economics understanding, markets are experimental spaces, spaces where existing knowledge is coordinated and where new knowledge is tested. In such social settings, people take on the character of scientists, and it follows that a formal organizations is a visible college of scientists, operating within a shared research programme (Loasby, 1993, p. 212), relying on a system of conjecture, criticism (voice, as well as exit) and testing, which is interpersonal rather than impersonal (p. 213). The kind of knowledge processes going on in such spaces may also be found elsewhere and Bartley (1987, p. 438) maintains that in science and in intellectual life generally, we objectify and probe our ideas through what is often referred to as the marketplace of ideas. In a similar way, we may think of problem-solving processes within projects, as taking place within such a marketplace, where ideas compete for attention and where individuals continuously look for new ideas, criticism, etc., that might help them develop their own thinking. While interaction in external markets is embedded in a societal context of prices and institutional rules, interaction in project groups is guided and restrained by set goals and other rules within a hierarchy. This brings our arguments, about market-like processes within hierarchies to a closing. Such knowledge processes need to be embedded within a guiding framework of project goals, rules-of-the-game, an institutional set-up, or similar. As phrased by Vaughn (1999, p. 142), markets work not solely because people are entrepreneurial but also because they are entrepreneurial with a particular institutional. 6. Epilogue CT managed to create a new mode of governance that was stable during the whole period of study, despite the fact that it did not adhere completely to the complementarity imperatives. In addition to introducing price-like performance measures or strengthening the economic incentives by relating bonuses or profit-sharing schemes more directly to results achieved, they focused on the other face of prices, i.e., as mechanisms guiding decentralized or self-organizing processes of knowledge work and discovery. This points in the direction that there