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The impact of a delivery project's business model in a project-based firm
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International Journal of Project Management 31 (2013) 166 – 176 www.elsevier.com/locate/ijproman
The impact of a delivery project's business model in a project-based firm Sanna Mutka ⁎, Pertti Aaltonen
1
Aalto University School of Science, P.O. Box 15500, 00076 Aalto, Finland Received 22 December 2011; received in revised form 17 July 2012; accepted 19 July 2012
Abstract If projects are independent business organizations having goals of their own instead of being direct subordinates to the parent firm, then projectlevel goals might contradict those of the parent firm. This raises an empirical question on the impact of delivery projects in a project-based firm. We use the business model concept to study the mechanisms of generating revenues in five delivery projects in a case firm from the mining and metallurgical industry. Our findings suggest that although project-level business models are often derived top–down from firm-level business models, projects also create autonomous business models that have a bottom–up effect on the firm by shaping the existing business models or creating completely new ones. These results strengthen the understanding of the dynamic relations between a project-based firm and its delivery projects. © 2012 Elsevier Ltd. APM and IPMA. All rights reserved. Keywords: Business model; Project-based firm; Project
1. Introduction Project-based firms (PBFs) organize most of their internal and external activities in projects (Wikström et al., 2009). Instead of continuous manufacturing or service activities, the business is conducted in temporary organizations established to complete a single specific goal time and again (Lundin and Söderholm, 1995; Packendorff, 1995). Traditionally, projects are perceived as vehicles for achieving firm-level goals (Morris and Jamieson, 2004; Shenhar et al., 2007). More recently, suppliers in several project-based industries are facing increasing pressure to tailor their delivery projects according to the specific needs of an individual client (Hobday, 1998). For example, they might combine the physical deliverable with various services such as maintenance and operational support (Kujala et al., 2011; Oliva and Kallenberg, 2003). Contrary to the traditional view, a project
⁎ Corresponding author. Tel.: +358 503276052. E-mail addresses: [email protected] (S. Mutka), pertti.aaltonen@aalto.fi (P. Aaltonen). 1 Tel.: + 358 509195482. 0263-7863/$36.00 © 2012 Elsevier Ltd. APM and IPMA. All rights reserved. http://dx.doi.org/10.1016/j.ijproman.2012.07.006
can be seen as an independent business organization in its project-specific environment (Artto et al., 2008, 2009, 2011; Wikström et al., 2009, 2010). If delivery projects may vary within one firm, does the traditional view of projects as obedient servants implementing firm-level goals always accurately represent the activities in a PBF? We seek to clarify whether project-level goals are determined by firm-level goals or whether projects actually influence the firm-level goal setting by examining a case firm in the metallurgy industry whose delivery projects vary due to every customer's unique specifications with regard to the ore they seek to refine and the end product they intend to do business with in a historically specific plant site setting. We use the business model concept defined both on the firm and delivery project levels to be able to compare the similarities and differences of goals and ways of operating between the firm and its projects, and across the projects. In a PBF, business models can be found on both the level of the firm and the project (Kujala et al., 2011). But there is a gap in the literature on what the origins of project-level and firmlevel business models are. Do project-level business models originate from the firm-level business models applied to the
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project's business environment? Are business models at project level deployed top–down to realize the firm's business model; or is the relation rather bottom–up? How do project-level business models influence the development of firm-level business models? The purpose of this paper is to contribute to the understanding of the role of project-level business models in a PBF. Therefore, we set the following research question: RQ: What is the impact of project-level business models in a project-based firm? In Section 2, we build a theoretical framework for the simultaneous business model concepts at project and firm levels in a PBF. In Section 3, the research methodology design is presented. Section 4 is a case description of the firm and five of its case projects that are chosen for detailed analysis. Section 5 describes the analysis. Finally, Section 6 is a discussion about the results compared with previous research, presenting the conclusions of the study.
2. Theoretical framework 2.1. The business model concept In the past decade, the concept of business models has become more and more popular in both management practice and research (Casadesus-Masanell and Ricart, 2007; Demil and Lecocq, 2010; Morris et al., 2005; Osterwalder et al., 2005; Shafer et al., 2005). In its most simple form, a business model can be described as the way a company operationalizes its strategy to concrete business activities or initiatives (Casadesus-Masanell and Ricart, 2007; Chesbrough and Rosenbloom, 2002). Earlier, scholars suggested that a firm chooses one business model for its operations (Amit and Zott, 2001; Magretta, 2002; Morris et al., 2005), but they increasingly recognize that firms have multiple business models to be used simultaneously for exploration and exploitation purposes (Chesbrough, 2007; Gilbert, 2006; Linder and Cantrell, 2001; Shafer et al., 2005). Focusing on the definition of the concept, scholars seek to define what elements constitute a business model and how business models can be classified and represented (Demil and Lecocq, 2010; Osterwalder et al., 2005; Pateli and Giaglis, 2004). However, there are gaps in the literature regarding the nature of relationships between business model components (Hedman and Kalling, 2003), the conditions that make a particular model appropriate, the ways in which models interact with organizational variables, the existence of generic model types, the dynamics of model evolution, and evaluating model quality (Morris et al., 2005). Gaps in the literature stem from the fact that there is no consensus regarding the definition, nature, structure and evolution of the business model (Amit and Zott, 2001; CasadesusMasanell and Ricart, 2007; Magretta, 2002; Morris et al., 2005; Osterwalder et al., 2005; Shafer et al., 2005). This lack of consensus has been attributed to the fact that the concept draws from and integrates a wide range of academic and practical disciplines (Aaltonen et al., 2011; Chesbrough and Rosenbloom, 2002; Pateli and Giaglis, 2004; Shafer et al., 2005).
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This study of a project-based firm and its delivery projects aims to deepen the understanding on both the relationships between business models and their dynamics. Therefore, a business model framework constituting of a working definition and including elements is required for structuring the remainder of the study. To create the framework, seven review articles (Amit and Zott, 2001; Casadesus-Masanell and Ricart, 2010; Chesbrough and Rosenbloom, 2002; Hedman and Kalling, 2003; Magretta, 2002; Morris et al., 2005; Osterwalder et al., 2005; Shafer et al., 2005; Tikkanen et al., 2005) focusing on defining the business model concept were chosen for in-depth analysis. The review articles were chosen because they explicitly focused on elaborating both the definition and the elements of a business model. Table 1 summarizes the various business model definitions from the review articles representing mainly general management literature. Many of the definitions see business models as representing the core logic of how the firm creates and captures value (Amit and Zott, 2001; Magretta, 2002; Osterwalder et al., 2005; Shafer et al., 2005). In many of the definitions, the authors have also defined what kinds of elements are included in the business models (Amit and Zott, 2001; Hedman and Kalling, 2003; Magretta, 2002; Morris et al., 2005). The elements can essentially be classified to three groupings, covering aspects related to the firm's strategy, organization and financial logic
Table 1 Business model definitions of the review articles. Author Amit and Zott (2001)
Business model definition
The content, structure and governance of transactions designed to create value through the exploitation of business opportunities. Chesbrough and Rosenbloom A business model takes technological (2002) characteristics and potentials as input and converts them through customers and markets into economic outputs. Hedman and Kalling (2003) A conceptualization including customers and competitors, the offering, activities and organization, xresources and factor market interactions. The causal inter-relations and the longitudinal processes by which business models evolve should also be included. Magretta (2002) Stories about how enterprises work, answering questions like who is the customer, what does the customer value, how do we make money and what is the logic by which we can provide value to customers. Morris et al. (2005) A concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture and economics is addressed to create sustainable competitive advantage in defined markets. Osterwalder et al. (2005) A conceptual tool containing a set of objects, concepts and their relationships, which describe what value is provided to the customers, how this is done and with what financial consequences. Shafer et al. (2005) A representation of a firm's underlying core logic and strategic choices for creating and capturing value within a value network.
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revenue creation logic, (5) customer, (6) value proposition, (7) partner network and (8) competitive strategy. The first four elements are internal to the company and the latter four of them are external. In the seventh element, we choose to use the terminology offered by Osterwalder et al. (2005), as we see that the term partner network best describes the element that has been named by others as for example value or supplier network (Hedman and Kalling, 2003; Shafer et al, 2005). All the eight business model elements were mentioned in at least four of the review articles, overlapping significantly and suggesting that saturation was achieved (Charmaz, 2006).
(Morris et al., 2005). Based on this analysis of the review articles, the following definition is derived to be used in this article: A business model conceptualizes the ways in which a firm creates and captures value. It comprises the strategic choices, the organizational architecture and the economics of the firm. The business model framework also defines what elements a business model contains. Whereas the business model of a specific firm may be very rich in details (e.g. Siggelkow, 2001), describing the business models of firms or even projects as a short set of elements may seem rigid but it enables the comparison of different business models. The process of finding the elements of the framework based on the review articles is illustrated in Table 2. First, the elements from each of the article were described and listed. The elements in different articles were then compared with each other and grouped together into categories that were similar to each other across all review articles. The analysis resulted in eight categories, i.e. concluding elements for the business model framework (highlighted in gray in Table 2): (1) offering, (2) resources and capabilities, (3) internal organization and activities, (4)
2.2. Multiple embedded business models Multiple embedded business models within one firm may co-exist when firms try to innovate new earning logics to complement existing ones, thus using exploitation and exploration simultaneously, (March, 1991; March and Olsen, 1975) resulting in different types of business models (Chesbrough, 2007; Linder and Cantrell, 2001; Osterwalder et al., 2005; Shafer et al., 2005; Smith et al., 2010). If the business models will compete against each other for resources, this should be
Table 2 Business model elements. Amit and Zott
Exchanged goods
(2001)
and information
Resources and
Internal parties and
capabilities required
the way they are
to enable exchanges
linked
Included in exchange mechanism
External parties and Customer as a party
the way they are linked
Cost structure and Chesbrough and Rosenbloom (2002)
Structure of value
profit potential of
Market segment -
Value proposition -
Position in the value
chain required to
producing the
users for whom the
value created to users
network given
create and distribute
offering given the
technology is useful
by offering based on
suppliers and
the offering
value proposition and
and for what purpose
technology
customers
Competitive strategy by which firm gains advantage over rivals
value chain
Hedman and Kalling (2003)
Offering (physical
Resources (human,
and service ), price
physical,
and cost)
organizational)
Suppliers (factor
Activities and
Customers
organization
markets and
Competitors
production inputs)
How do we make money? What economic logic
Magretta (2002)
explains how value is
Who is the customer?
What does the customer value?
delivered at an appropriate cost?
Morris et al. (2005)
Offering - How do we create value
Internal capability -
Economic factors -
What is our source of
How do we make
competence?
money?
Oster walder et al. (2005)
of activities and
view of a company's
resources, Core
bundle of products
competencies
and services.
necessary to execute
How do we
create value for?
competitively position ourselves?
Target customer -
Value configuration Product - an overall
Competitive strategy Market - Who do we
Revenue model - the
segments of
Value configuration
way a company
customers to which
of activities and
makes money
value is offered,
resources
through a variety of
relationship -
revenue flows.
company's links to
business model
Value proposition an overall view of a company's bundle of products and services
Partner network of other companies necessary to efficiently offer and commercialize value
customer segments
Competencies/ Shafer et al. (2005)
Output as a strategic choice
capabilities as strategic choice, resources/ assets as
Processes/ activities
Value capture:
as creating value
Revenues and profits
Customer - target market, scope - as strategic choice
Value proposition as strategic choice
Value network (from suppliers to customers)
Competitors as strategic choice
creating value Conclusion
Offering
Resources and capabilities
Internal organization and activities
Revenue creation logic
Customer
Value proposition
Partner network
Competitive strategy
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encouraged in order to protect the new business models from internal feuds and give all models a chance to demonstrate their viability (Chesbrough, 2007; Smith et al., 2010). In fact, new models can be tried in the marketplace and successful ones can be used as a basis for future business (McGrath, 2010). Ultimately, customers choose the business model among those offered to them (Chesbrough, 2007). The view of firms using multiple business models simultaneously for both exploitation and exploration purposes (Chesbrough, 2007; Gilbert, 2006; Linder and Cantrell, 2001; Sabatier et al., 2010; Shafer et al., 2005) emphasizes the firm's own development initiatives rather than as a response to contextual factors (Kujala et al., 2009). We focus on analyzing the dynamic relations between different projects and the PBF rather than analyzing different approaches on the management of individual projects (e.g. Söderlund, 2011). To achieve this, we introduce the process model of strategic venturing (Burgelman, 1983a,b) applied to business models, which can be seen as a way to operationalize strategy (Casadesus-Masanell and Ricart, 2007). The two-way process model of strategic venturing (Burgelman, 1983a,b) identifies both top–down and bottom– up processes in corporate strategy formation, manifested as induced and autonomous behavior. Induced strategic behavior is derived from the firm's current strategy whereas autonomous venturing activities fall outside the current strategy. Corporate structure, however, is built to reinforce the current strategy and behavior that supports this strategy, namely induced behavior. Corporate structure, set up by top management, is a collection of various administrative mechanisms. The current structure does not favor autonomous activities, such as internal new business venturing. Rather, structures try to select “out” any such initiative that falls outside current corporate strategy (Burgelman, 1983a,b). The idea of induced and autonomous strategic behavior brings a new viewpoint for the business model literature. Business models are not always necessarily planned by the company (induced behavior) but can be a result of the environmental pressure (autonomous behavior). Therefore, the emerging new business model can either be aligned to the firm's existing business model or it may create a business model of its own. If the emerging business model is aligned with the firm's business model, the two models at different levels are interrelated. However, if the emerging business model is not aligned to the firm level business model, the models are disconnected (Sabatier et al., 2010). Disconnected business model development might easily be overlooked though if those business models are in conflict with the established business models (Demil and Lecocq, 2010; Smith et al., 2010). The notion of multiple, co-existing interrelated or disconnected business models is specifically interesting for project business research, as projects have been seen both as temporary, independent organizations with self-established goals (Artto et al., 2008) and as subordinates to the firm's objectives (Morris and Jamieson, 2004; Shenhar et al., 2007). The following methodology is designed to understand the role that project-level business models have in relation to firm-level business models in a PBF.
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3. Methodology 3.1. Case study approach The study is conducted as a qualitative, inductive embedded unit case study (Yin, 2003) and the unit of analysis is one firm and five embedded case projects within the firm. Case studies allow gaining in-depth understanding about the phenomenon under study in natural settings, learn about the state of the art, and generate theories from practice. Therefore, case studies are used for studying new phenomena and organizational change where quantitative research methodologies are not possible or appropriate (Yin, 2003). Even though a single case study approach implies several limitations concerning the degree of the generality of the results, it is still a powerful tool for indepth analysis of a complex change process in order to provide material for theory-building (Eisenhardt, 1989). Indeed, single case studies apply theoretical sampling instead of probabilistic sampling; the goal is not to describe all possible variations, but to gain a deeper understanding of analyzed cases (Yin, 2003). Recently, for example Winch et al. (2012) and Cao and Hoffman (2011) have utilized single case studies to describe the complex nature of project-based organizations. Due to the complexity of the relationship between the business models of a project-based firm and its delivery projects operating in their own environments, the study relies on theoretical sampling by focusing on a single case firm where the phenomenon is transparently observable. Limitations aside, as the study is an attempt to understand the logic and dynamics of the project-based firm, it meets the criteria set for the case study methodology. 3.2. Company overview To study the business models of a project-based firm and its delivery projects, the main requirement for the case firm is that it delivers its clients complex projects which include varying elements from design and engineering to concrete equipment deliveries. Even though these delivery projects might be executed in a similar way than previous projects, they are still created for each client's situation and needs. The chosen case firm, Velvet (for confidentiality reasons, pseudonyms are used), meets this criterion as it provides metallurgical processing technology in a high variety of projects. Customer needs in the mining and metallurgy industry are unique and depending on the ore that needs to be refined. This is why the firm's project scopes range from simple pre-studies and basic engineering projects to equipment deliveries and larger technology packages. Construction and installation (turnkey) projects are offered only in special cases. The firm offers also on-site services during the project and after sales services as well as spare parts. In maintenance projects, existing equipment is upgraded and rebuilt. Velvet is hereafter referred to as “the firm”. To analyze Velvet on both the level of the firm and projects, five case projects were selected for analysis as embedded units of analysis within the firm. The selected project offerings were rather different from each other. One of the case projects was a
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Table 3 Case projects.
Size Staff (at most) Type of project Customer segment Duration Situation on interview date
Crimson
Magenta
Green
Violet
Yellow
Medium 15–20 Technology package Industrializing 2 years Delivered and accepted by client
Small 10 Equipment delivery Industrializing 1 year Delivered and accepted by client, equipment uninstalled
Small 45 Basic engineering Industrializing 6 months Delivered and accepted by client, investment on-hold
Medium 15–20 Maintenance project Continental 2 years Ramp-up/handover to customer
Large 40 Technology package Industrializing 3 years Ramp-up/handover to customer
basic engineering project. Two of the projects were technology package deliveries and one an equipment delivery. The fifth project was a maintenance project. The projects are introduced in more detail in Table 3. 3.3. Data collection To gain an in-depth analysis of the business models of the firm and the five case projects, data was collected in semi-structured interviews. The interviews were conducted face-to-face to enable open discussion between the interviewee and the interviewers. Each interview lasted from 1.5 to 2 hours. To support processing of data, the interviews were tape-recorded. In addition, notes were taken during the interviews. Altogether 20 interviews were conducted, 15 of which were related to the case projects and five of which to the firm-level. The interviewees represented various functional areas in the organization. The firm-specific interviewees included for example the president of the firm, head of operational development and product-line managers, who, due to their management positions, had a general view of the business. The project interviewees included project managers, technology managers, salespeople and purchasing managers for each project. Many of the interviewees had several years of experience in the firm. This ensured a deep understanding of the firm's the business model. Semi-structured interviews were used to ensure flexibility in the discussion; even though the interviews had a predetermined structure, there was still an opportunity to adjust the discussion according to the interviewees personal focus areas. Two separate interview structures were created for the interviews, one for the project-level interviews and one for the firm-level interviews. However, the project-level interviews seldom focused only on the project in question. As the project-level interviewees had many years of experience from various projects in the firm, they had deep insight also about the firm-level business model. Similarly, the firm-level interviews also included discussion on individual projects that had been significant for the firm in the history. The firm-level interviews started with a discussion of the strategy and long-term goals of the firm. After that the interviewee was asked to describe how the firm operates and what the offerings are. The interviewees were given examples of elements included in the business model framework but no explicit definition of the business model concept was given nor was the word mentioned unless the informant took it up spontaneously. Thus, the interviewees described the business model as per their
own understanding of the concept. The interviewees also then analyzed the way the firm guides and supports its projects. Finally, the interviewee was asked to give concrete examples of projects which did and did not reflect the firm's goals. The project-level interviews moved the focus from the firmlevel to the level of an individual project. First, the interviewee was asked to describe the project from its early sales phases to after its delivery. Then the interviewee was asked to reflect on the project's organization and working methods as well as its external environment and stakeholders. The final questions were related to the project's role in the firm and the project was compared to other projects. Again, the term business model was not used unless the informant spontaneously took it up. This structure enabled an open discussion around the projects and their business logics without limiting the discussion to the business model framework. 3.4. Case analysis The interviews were transcribed from the tape-recordings in order to enable consistent content analysis. Content analysis was conducted through the coding method (Miles and Huberman, 1994). A coding manual was constructed by the researchers who had participated in the interviewing process. To ensure consistency with the theoretical framework, the coding manual was based on the business model framework presented earlier in Table 2. Thus, the firm-level interviews were coded with the eight business model elements on the firm-level. Similarly, the project-level interviews were coded with the eight business model elements on the project-level. This allowed a detailed understanding of the business models on both levels. However, as the firm-level interviewees mentioned something about individual projects or the project-level interviewees about the firm-level, the project-level interviews also included firm-level codes and vice versa. The coding resulted in categorized data about the chosen phenomenon. The categorizations resulted in descriptions of the firm- and project-level business models. These descriptions were finalized for presentation by summarizing the interview findings and using visual representations methods such as cross-tabulation. 4. Case description 4.1. The case firm Velvet supplies metallurgical processing technology. In so doing, it has set a mission of providing sustainable life cycle
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solutions, which guarantee the best return on customer's investment. As a PBF, it has two main types of project offerings: equipment deliveries and technology packages. Turnkey deliveries are preferably avoided due to the associated risk. Projects usually include a separate preliminary basic engineering project in which technologies and processes needed for the main projects are identified. Equipment deliveries most often involve manufacturing machinery with established technology, which can be delivered in a straightforward and standardized manner. Technology packages again deliver not only equipment but also the know-how related to the entire manufacturing process. Therefore, the emphasis of technology packages is on a metallurgical process or part of a process, and they should include engineering, both proprietary and other key equipment, automation, a sparepart package and on-site services. Automation and services can incorporate the immaterial process know-how to the technology package to help the customer fine tune their process and to increase the scope of Velvet's deliveries. This is a new way of doing business as traditionally especially services have been sold separately at the end of a project, but now the aim is to include spare parts and expert services already in the main contract. The firm's key resources are its patented technologies and licensed processes which are based on the firm's experience and know-how. The process know-how is based on technologically skilled employees that are organized in three specialized product units. Salespeople and the project staff have both theoretical and practical skills. In order to sell process know-how and related technologies efficiently, the firm has developed standardized project management capabilities ensuring efficiency. Velvet's customers are metal producers that have a long experience of the mining and metallurgical industry. Most customers do not have the capability of engineering offices or contractors. As Velvet does not want to take responsibility on-site, the customer often hires an engineering office and a contractor which are important stakeholders in the project. In industrializing countries, customers have more capabilities in-house and therefore they can manage relationships to contractors and engineering offices better than customers from developed countries. As the market is consolidated, there are only some hundreds of customers worldwide. Therefore, customer references are important—without them it would be quite difficult to do business in the industry. In fact, references and reputation are the most important competitive advantages of Velvet. However, also the broad and unique offering provides a competitive edge over metallurgy technology suppliers. The technologies and related know-how are important when competing with engineering offices. As Velvet is a high-end producer superior technologies and processes are also valued by the customer as they provide higher yields and more efficient operations. In addition, new technologies are environment-friendly, safe and ergonomic. 4.2. Case projects Project Crimson was a small technology package delivery for an existing plant. Internally, the project was regarded as a standard equipment delivery, but an extensive automation package added
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after the engineering phase turned it into a technology package. The customer was known, and even though the customer relationship was infected due to an unsuccessful delivery in the seventies, the best available technology and many customer references convinced them to buy the equipment from Velvet. As the equipment itself was very standardized, Velvet was able to use its technological expertise in delivering the project. However, for the automation solution there was some lack of capabilities as this had not been done before and the skills needed to be developed. The customer, from an industrializing country, had a skilled project management organization. This was needed, as the project was a partial delivery and the customer hired an engineering office for the installations. The project was regarded as successful: even though the size of the project was small, the profitability was good due to standardization of the technology. Similar to Crimson, Project Magenta was a small, standardized equipment delivery. The customer was a big metal producer already known to Velvet from previous successful projects. The customer had a strong project organization that did overall planning and subcontracted the technology-related parts of it as separate projects to Velvet. Velvet competed with another technology supplier and was considered superior due to its high quality and long experience reflected in many customer references. As the project was a standard delivery of equipment that had been offered for a long time, the project utilized the existing resources and capabilities: know-how, experience and patented equipment. The standard project also had low risks and yielded good profits but had low volume. Project Yellow was a technology package for a new process, which differed from the usual way to refine the metal in question. The customer was primarily interested in the project because the process was more environment-friendly and safer than the alternative, traditional way of producing the metal. However, the process was also cheaper, more reliable and produced higher yields. The scope of delivery included basic engineering, two process licenses, equipment, a spare parts package and on-site supervisory services for installation and ramp-up. Contrary to the traditional way of doing business, engineering and the technology package were sold in the same contract. Automation was sold separately after the basic engineering phase. After completing the project, the purpose is to sell after sales-services for the proprietary equipment and spare parts for automation. As the process, owned by Velvet, had been delivered only two times, there were no serious competitors for the project. Velvet had the needed theoretical knowledge but the practical knowledge was basically missing. Thus, a lot of development work was done during the project. Despite the lack of capabilities, the project was successful financially. Project Green was a basic engineering project including two licenses for a process that had not been delivered many times before. In fact, project Yellow was a predecessor for project Green, and the process in question had been delivered only a few times a couple of decades ago. Basic engineering was offered separately from the technology package and, at the moment, Velvet is waiting for an investment decision about the technology package proposal. The customer was a big company from an
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industrializing country for which Velvet had delivered technologies before. As the target plant was located in the middle of a city, the customer valued the novel process which was a more environment-friendly and safer way to produce metal. As the technologies had not been delivered many times before, outside project Yellow there was little experience and tools to build on in the project. All in all, the project was profitable. However, as basic engineering projects are seen as paid planning, the project would not generate significant revenues unless it proceeds to include the technology package.
Finally, Project Violet was a maintenance project. The customer from an industrializing continental country was known to Velvet but no projects had been delivered to the factory before. The customer did not have an own maintenance department, which led them to ask for a turnkey delivery. The project scope included repairing an electric furnace delivered by a competitor and a small automation package for monitoring purposes. In addition, disassembly, installations and ramp-up services were included. The project's value proposition was based on the knowledge of how to fix the existing equipment.
Table 4 Two firm-level and five project-level business models (differences in firm-level business models marked with gray). Firm's established business model
Firm's extended business model •Basic engineering +
Offering
•Basic engineering +
technology package -
equipment delivery
seldom turnkey
•Separate services
•Inclusion of
and automation
services and automation
Project Crimson
Project Magenta
Project Green
Project Violet
•Small technology package with
•Equipment delivery
•Basic engineering
automation
•Standard
•New process and
•Standard
technology
technologies
technology
•Turnkey
package with
maintenance project
automation and after-
•Standard
sales services
technology
•New process and technologies
•Technological •Technological
•Process know-how
know-how and
•Technological
know-how and
and experience
experience
know-how and
Resources and
experience
•Licensed processes
•Standard equipment
experience
capabilities
•Patented
•Patented
•Project management
•Standard equipment
technologies
technologies
•Lack of commitment
•Project
project capabilities
•Project management
•Project management
to automation
management
•Scarce resources
•Three product lines
•Three product lines
•Separate
•Separate
•Product line X,
•Product line X,
Internal
engineering, service
engineering, service
engineering and
engineering and
organization
and procurement
and procurement
procurement
procurement
and activities
•Standard project
•Standard project
•Standard project
•Standard project
management
management
management
management
processes
processes
•Profit but small
•Profit but small
•Profit but small
volume
volume
volume
•Known •Strong project
Internal elements
Project Yellow •Technology
•Project management •Lack of technological capabilities and experience
•Product line Y and engineering •Standard project management
•Technological know-how and experience •Lack of turnkey
•Product line Z, engineering and procurement •Standard project management
•Project management •Lack of technological capabilities and experience •Local office's changing role
•Product line Y, engineering, procurement and service unit •Standard project management
•Profits from Revenue creation logic
•Profits from
technologies and
technologies, small
licenses, but volume
size
from technology
•Low profit
•Profit and volume
•Known
•Known
•Known
•Strong project
•Weak project
•Strong project
organization
organization
organization
organization
packages
Customers
Value proposition
External elements
Value network
Competitive strategy
•Usually known, as
•Usually known, as
not many players
not many players
•Preferred scope
•Preferred scope
depends on project
depends on project
organization
organization
•High-end technologies
•Known, but inflamed relations •Strong project organization
•Process know-how
•Technologies
•Technologies
•Process know-how
•Know-how to repair
•Process know-how
•High-end technologies
•Process know-how
•Process know-how
•Technologies
existing equipment
•Technologies
•Both known and
•Both known and
•Known suppliers
•Known suppliers
new suppliers
new local suppliers
•Customer's
•Project not
•Project not
•Local contractors
•Customers
engineering office
proceeded to
proceeded to
based on customer's
engineering office
and contractor
installations
execution
recommendation
and contractors
•Labor unions with
•Environmental
strict requirements
authorities
•Known, fixed,
•Known, fixed,
domestic suppliers,
domestic suppliers,
also global sourcing
also global sourcing
•Customer's
•Customer's
engineering office
engineering office
and contractor
and contractor
handle installations
handle installations
•Technology
•Technology
providers as
providers as
competitors
competitors
•Unique scope
•Unique scope
•Customer
•Customer
references
references
•Reputation
•Reputation
•Customer relations
•Customer relations
•R&D resources lead
•R&D resources lead
to better know-how
to better know-how
and technologies
and technologies
•Superior technology
•Superior process
•Salesperson's
•Salesperson's
and technologies
•Superior process
relations and activity
relations and activity
•Customer
•Previous relations
•Customer
•Customer
•Previous relations
references
•Reputation
references
references
•Customer
•Reputation
•Reputation
references
•Previous relations
•Previous relations
and technologies
S. Mutka, P. Aaltonen / International Journal of Project Management 31 (2013) 166–176
Dismantling made the project unique for the firm and, in addition, this was the first partial delivery for the metal in question. However, Velvet was very familiar with the technology in question, and thus could utilize its technological capabilities and skilled employees. This did not, however, help the firm to avoid the risks of turnkey business. The project was not successful financially as a lot of capabilities to offer turnkey projects were missing causing poor pricing decisions and extra costs from on-site work. For Velvet, it was a new situation to take all responsibility of the on-site work which was previously dealt by third party subcontractors. 5. Results We used the business model framework to describe the project-based firm and its projects. Each of the eight elements was identified separately from the case descriptions and in that way, a general view on both the firm- and project-level business models was formed. Analyzing Velvet on the firm level, we found two distinct business models: an established business model and an extended business model. The two business models differed on four of the eight business model elements: offering, core capability, value proposition and revenue creation logic. The established model of Velvet emphasizes the equipment that is delivered to the customer whereas the extended business model's offering is built around process. In addition to the equipment and technologies, projects following the extended business model include services and automation. The core capability and resources needed for the established business model are the patents and technological know-how, whereas the extended business model requires deep process understanding. Similarly, the value proposition is related to superior technologies in the established model, and to understanding of the metallurgical processes in the extended model. Finally, projects following the established business model are often very profitable but have a small scope, whereas the established business model offers a means for growth by larger scopes (which also results in lower profitability). Table 4 summarizes the above descriptions on business model elements for the two firm-level business models and the five projects. The gray cells indicate the business model elements on which the firm-level business models differ. The business model elements in the five case projects are exposed for comparison in the following section. In order to study the relations between the business model elements of the firm and the projects presented in Table 4, we pictured Velvet having two business model templates which the projects might or might not follow. In this way, the similarities and differences in all the business model elements were analyzed, and the results are displayed in Table 5. Table 5 shows business model elements in rows and the projects in columns. Each cell describes whether the business model element of a specific project coincides with the template of firm level business model. The white cells indicate that the elements of a project's business model overlap with the firm's established business model, whereas the gray cells overlap with the firm's extended business model. Business model elements
173
that are marked as black are not overlapping with either one of the two business models on firm level. Thus, black cells indicate no overlap with the firm-level business model element. It should be noted that the internal organization, customer, partner network and competitive strategy elements in the extended business model retained some elements from the established business model. The analysis reveals three project groups: projects Crimson and Magenta overlap with the established business model since almost all of their project level cells in Table 5 are white; projects Yellow and Green overlap with the extended business model since many though not all elements are gray; and finally, project Violet has no overlap with the extended and little overlap with the established business model, since most cells are black. Projects Crimson and Magenta involved the delivery of standardized equipment in a straightforward way. Therefore, the projects were exploitative by nature, realizing the established way of doing business. However, Crimson included an extensive automation package which made it slightly resemble the extended business model due to a broader scope of offering and related capability creation. Internally, it was not easy to convince the staff of the usefulness of automation, though. The standardized project was seen strictly as an equipment delivery even though it could have been more process-oriented and in this way moves toward the firm's extended business model. Projects Green and Yellow were technology packages that included (or in the case of Green will include) both technologies and services in order to develop the best solution and process for the customer. Therefore, the projects followed the extended business model. Due to the novelty and Velvet's lack of experience of the offered process, the projects were explorative by nature and the extended business model was strengthened by developing resources and capabilities for future projects. Finally, most of the business model elements in Violet were not overlapping with either one of the two firm-level business models. The customer expected a turnkey delivery, with different value propositions, resources and capabilities, partner network as well as revenue creation logic from what Velvet was used to delivering. This also resulted in a different competitive strategy as fixing a competitor's product could not be based on own superior technologies or processes. Therefore, Velvet would have preferred to avoid turnkey deliveries altogether. This is not to say that project Violet was outside of the scope of Velvet's business model and should not have been realized. Table 5 Comparison of firm- and project-level business models. Crimson
Magenta
Yellow
Offering Resources and capabilities Internal organization and activities Revenue creation logic Customer Value proposition Value network Competitive strategy Elements overlap with established business model Elements overlap with extended business model No overlap with elements in the firm−level business models
Green
Violet
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The firm pursued growing the share of services and service projects, and project Violet strengthened that goal. The results suggest that project-level business models in some projects are subordinates to the firm-level business models (Magenta, Crimson, Yellow, and Green). To pursue growth, a PBF might establish a new business model on the firm level and use projects as top–down tools for exploration (Yellow, Green). However, autonomous project-level business models might emerge outside the boundaries of the firm-level business models (Violet). 6. Discussion The purpose of this study was to describe and analyze the impact of project-level business models in a PBF. We found that two of the project-level business models overlapped with the established firm-level business model, two overlapped with the extended firm-level business model, and one overlapped with neither of the firm-level business models. Fig. 1 shows our findings. First, our findings support the traditional view that firm-level business models dictate project-level business models i.e. suggesting but not explicitly confirming the direct top–down effect of the PBF. This is in line with the view of projects being direct subordinates of the PBF's strategy (Morris and Jamieson, 2004; Shenhar et al., 2007). Following the nomenclature of Linder and Cantrell (2001), there were two distinct business models on the firm-level: an established one and a newer extended one. Together the firm-level business models represented behavior which is guided from above by the firm's current concept of strategy as suggested by Burgelman (1983a,b). The two firm-level business models deployed exploitation (established business model) and exploration (extended business model) simultaneously, which is common for mature firms looking for new business areas according to Sabatier et al. (2010). We agree with scholars who consider that firms can use projects as top–down tools for both intentional exploration and exploitation (Brady and Davies, 2004; Morris and Jamieson, 2004; Shenhar et al., 2007). Second, we found that one project-level business model was fairly autonomously emerging from outside the boundaries of the two firm-level business models, suggesting that the top–down effect of the PBF on this project is unlikely. Due to its turnkey nature, project Violet introduced a new business model that could have a bottom–up effect on the firm-level by shaping the existing business models or creating completely new ways of doing
business through autonomous project-level business models. This finding contradicts the traditional view on projects, and suggests, similar to Artto et al. (2008) that projects are temporary, independent organizations with self-established goals and business models. The history of Velvet also tells that the current established firm-level business model had once emerged through an autonomous project-level business model at the early stages of the firm. In the past, the firm only sold the license to a metallurgy process, but a proactive salesperson decided to couple the license with engineering. The project resulted in a new, broader business which is the basis for Velvet's operations today. Project Violet received a lot of interest in the company and some early signs show that it might well create a new firm-level business model. Soon after the project was completed, the company acquired a company specialized in construction work, signaling that there is increasing interest in taking responsibility associated with turnkey deliveries. We suggest that projects with autonomous, bottom–up business models might be just as important for the firm as the ones derived from firm-level. Due to the dominant logic (Siggelkow, 2001) and the corporate structure of a firm (Burgelman, 1983a,b), these kinds of business models are however easily overlooked, especially if they are in conflict with the existing ones. To conclude, we suggest that autonomous project-level business models emerge that can significantly shape the way a firm does business in spite of the fact that project-level business models are often derived from the firm-level business models. The study contributes to the business model literature by describing the interrelations of multi-level embedded business models. The understanding of the logic and dynamics of a PBF is strengthened by stating that a project-based firm's business models do not only form intentionally top -down, but also unintentionally due to project-level business models' bottom -up impact. Thus, the study contributes to the business model literature by describing the interrelations of multi-level embedded business models. The study has important managerial implications related to managing multiple business models on firm and project levels. While managers are used to utilizing project-level business models as top–down tools to both exploit and explore the existing firm-level business models, they should be careful that those intentional business models do not restrict unintentional and autonomous business model development happening in projects due to their unique nature and environment. Instead, this development could be used for altering the existing firm-level business models or creating completely new ones. Autonomous project-level business models can signal for example a change
Fig. 1. The case projects in relation to the firm's business models.
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in customer needs and in this way support the company to be more alert and agile to respond to potential changes in the marketplace. Our study has several limitations. First, the firm was regarded as an independent PBF. However, it is part of a larger corporation, and therefore the perspective of the holding company is missing from the study. This might create some bias as both the corporation and the other firms might affect the business models in Velvet. Second, even though the case projects were of high variety, they do not necessarily provide a comprehensive picture about the business logic of a project-based firm and might exclude some aspects related to the business model of Velvet. Based on our research, further studies are warranted. First, the study examines how the project-level business models affect the firm-level business models. It could be beneficial to understand, how the firm-level business models affect the dynamics of project-level business models. Second, the study describes the complex business logic of a project-based firm, which is composed of many business models on different levels. An assumption was made that business models reside at the firm level or at the project level. However, business models might be composed of elements on many different levels and in many different units (projects, firms, corporations, other firms). Therefore, business model research should not be restricted to the boundaries of various organizational entities. Instead, in the future the focus could be on understanding how these cross-boundary business models affect the business logic of a PBF. References Aaltonen, P., Mäki, T., Aspara, J., 2011. The dispersed theoretical origins of the business model concept. Paper presented at the Academy of Management Annual Meeting, August 8–12, 2011, San Antonio, USA. Amit, R., Zott, C., 2001. Value creation in e-business. Strategic Management Journal 22 (6–7), 493–520. Artto, K., Kujala, J., Dietrich, P., Martinsuo, M., 2008. What is project strategy. International Journal of Project Management 26 (1), 4–12. Artto, K., Lehtonen, M., Aaltonen, K., Aaltonen, P., Kujala, J., Lindeman, S., Murtonen, M., 2009. Two types of project strategy—empirical illustrations in project risk management. Paper presented at Ninth International Conference of the International Research Network on Organising by Projects, IRNOP IX Research Conference, October 11–13, 2009, Berlin, Germany. Artto, K., Davies, A., Kjuala, J., Prencipe, A., 2011. The project business— analytical framework and research opportunities. In: Morris, P.W.G., Pinto, J.K., Söderlund, J. (Eds.), The Oxford Handbook of Project Management. Oxford University press, New York, pp. 133–153. Brady, T., Davies, A., 2004. Building project capabilities: from exploratory to exploitative learning. Organization Studies 25 (9), 1601–1621. Burgelman, R.A., 1983a. A model of the interaction of strategic behavior, corporate context, and the concept of strategy. The Academy of Management Review 8, 61–70. Burgelman, R.A., 1983b. A process model of internal corporate venturing in the diversified major firm. Administrative Science Quarterly 28, 223–244. Cao, Q., Hoffman, J.J., 2011. A case study approach for developing a project performance evaluation system. International Journal of Project Management 29, 155–164. Casadesus-Masanell, R., Ricart, J.E., 2007. Competing through business models. IESE Business School Working Paper No. 713. Casadesus-Masanell, R., Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning 43 (2–3), 195–215. Charmaz, Kathy, 2006. Constructing Grounded Theory: A Practical Guide Through Qualitative Analysis. Sage, Thousand Oaks, CA.
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International Journal of Project Management 31 (2013) 166 – 176 www.elsevier.com/locate/ijproman
The impact of a delivery project's business model in a project-based firm Sanna Mutka ⁎, Pertti Aaltonen
1
Aalto University School of Science, P.O. Box 15500, 00076 Aalto, Finland Received 22 December 2011; received in revised form 17 July 2012; accepted 19 July 2012
Abstract If projects are independent business organizations having goals of their own instead of being direct subordinates to the parent firm, then projectlevel goals might contradict those of the parent firm. This raises an empirical question on the impact of delivery projects in a project-based firm. We use the business model concept to study the mechanisms of generating revenues in five delivery projects in a case firm from the mining and metallurgical industry. Our findings suggest that although project-level business models are often derived top–down from firm-level business models, projects also create autonomous business models that have a bottom–up effect on the firm by shaping the existing business models or creating completely new ones. These results strengthen the understanding of the dynamic relations between a project-based firm and its delivery projects. © 2012 Elsevier Ltd. APM and IPMA. All rights reserved. Keywords: Business model; Project-based firm; Project
1. Introduction Project-based firms (PBFs) organize most of their internal and external activities in projects (Wikström et al., 2009). Instead of continuous manufacturing or service activities, the business is conducted in temporary organizations established to complete a single specific goal time and again (Lundin and Söderholm, 1995; Packendorff, 1995). Traditionally, projects are perceived as vehicles for achieving firm-level goals (Morris and Jamieson, 2004; Shenhar et al., 2007). More recently, suppliers in several project-based industries are facing increasing pressure to tailor their delivery projects according to the specific needs of an individual client (Hobday, 1998). For example, they might combine the physical deliverable with various services such as maintenance and operational support (Kujala et al., 2011; Oliva and Kallenberg, 2003). Contrary to the traditional view, a project
⁎ Corresponding author. Tel.: +358 503276052. E-mail addresses: [email protected] (S. Mutka), pertti.aaltonen@aalto.fi (P. Aaltonen). 1 Tel.: + 358 509195482. 0263-7863/$36.00 © 2012 Elsevier Ltd. APM and IPMA. All rights reserved. http://dx.doi.org/10.1016/j.ijproman.2012.07.006
can be seen as an independent business organization in its project-specific environment (Artto et al., 2008, 2009, 2011; Wikström et al., 2009, 2010). If delivery projects may vary within one firm, does the traditional view of projects as obedient servants implementing firm-level goals always accurately represent the activities in a PBF? We seek to clarify whether project-level goals are determined by firm-level goals or whether projects actually influence the firm-level goal setting by examining a case firm in the metallurgy industry whose delivery projects vary due to every customer's unique specifications with regard to the ore they seek to refine and the end product they intend to do business with in a historically specific plant site setting. We use the business model concept defined both on the firm and delivery project levels to be able to compare the similarities and differences of goals and ways of operating between the firm and its projects, and across the projects. In a PBF, business models can be found on both the level of the firm and the project (Kujala et al., 2011). But there is a gap in the literature on what the origins of project-level and firmlevel business models are. Do project-level business models originate from the firm-level business models applied to the
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project's business environment? Are business models at project level deployed top–down to realize the firm's business model; or is the relation rather bottom–up? How do project-level business models influence the development of firm-level business models? The purpose of this paper is to contribute to the understanding of the role of project-level business models in a PBF. Therefore, we set the following research question: RQ: What is the impact of project-level business models in a project-based firm? In Section 2, we build a theoretical framework for the simultaneous business model concepts at project and firm levels in a PBF. In Section 3, the research methodology design is presented. Section 4 is a case description of the firm and five of its case projects that are chosen for detailed analysis. Section 5 describes the analysis. Finally, Section 6 is a discussion about the results compared with previous research, presenting the conclusions of the study.
2. Theoretical framework 2.1. The business model concept In the past decade, the concept of business models has become more and more popular in both management practice and research (Casadesus-Masanell and Ricart, 2007; Demil and Lecocq, 2010; Morris et al., 2005; Osterwalder et al., 2005; Shafer et al., 2005). In its most simple form, a business model can be described as the way a company operationalizes its strategy to concrete business activities or initiatives (Casadesus-Masanell and Ricart, 2007; Chesbrough and Rosenbloom, 2002). Earlier, scholars suggested that a firm chooses one business model for its operations (Amit and Zott, 2001; Magretta, 2002; Morris et al., 2005), but they increasingly recognize that firms have multiple business models to be used simultaneously for exploration and exploitation purposes (Chesbrough, 2007; Gilbert, 2006; Linder and Cantrell, 2001; Shafer et al., 2005). Focusing on the definition of the concept, scholars seek to define what elements constitute a business model and how business models can be classified and represented (Demil and Lecocq, 2010; Osterwalder et al., 2005; Pateli and Giaglis, 2004). However, there are gaps in the literature regarding the nature of relationships between business model components (Hedman and Kalling, 2003), the conditions that make a particular model appropriate, the ways in which models interact with organizational variables, the existence of generic model types, the dynamics of model evolution, and evaluating model quality (Morris et al., 2005). Gaps in the literature stem from the fact that there is no consensus regarding the definition, nature, structure and evolution of the business model (Amit and Zott, 2001; CasadesusMasanell and Ricart, 2007; Magretta, 2002; Morris et al., 2005; Osterwalder et al., 2005; Shafer et al., 2005). This lack of consensus has been attributed to the fact that the concept draws from and integrates a wide range of academic and practical disciplines (Aaltonen et al., 2011; Chesbrough and Rosenbloom, 2002; Pateli and Giaglis, 2004; Shafer et al., 2005).
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This study of a project-based firm and its delivery projects aims to deepen the understanding on both the relationships between business models and their dynamics. Therefore, a business model framework constituting of a working definition and including elements is required for structuring the remainder of the study. To create the framework, seven review articles (Amit and Zott, 2001; Casadesus-Masanell and Ricart, 2010; Chesbrough and Rosenbloom, 2002; Hedman and Kalling, 2003; Magretta, 2002; Morris et al., 2005; Osterwalder et al., 2005; Shafer et al., 2005; Tikkanen et al., 2005) focusing on defining the business model concept were chosen for in-depth analysis. The review articles were chosen because they explicitly focused on elaborating both the definition and the elements of a business model. Table 1 summarizes the various business model definitions from the review articles representing mainly general management literature. Many of the definitions see business models as representing the core logic of how the firm creates and captures value (Amit and Zott, 2001; Magretta, 2002; Osterwalder et al., 2005; Shafer et al., 2005). In many of the definitions, the authors have also defined what kinds of elements are included in the business models (Amit and Zott, 2001; Hedman and Kalling, 2003; Magretta, 2002; Morris et al., 2005). The elements can essentially be classified to three groupings, covering aspects related to the firm's strategy, organization and financial logic
Table 1 Business model definitions of the review articles. Author Amit and Zott (2001)
Business model definition
The content, structure and governance of transactions designed to create value through the exploitation of business opportunities. Chesbrough and Rosenbloom A business model takes technological (2002) characteristics and potentials as input and converts them through customers and markets into economic outputs. Hedman and Kalling (2003) A conceptualization including customers and competitors, the offering, activities and organization, xresources and factor market interactions. The causal inter-relations and the longitudinal processes by which business models evolve should also be included. Magretta (2002) Stories about how enterprises work, answering questions like who is the customer, what does the customer value, how do we make money and what is the logic by which we can provide value to customers. Morris et al. (2005) A concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture and economics is addressed to create sustainable competitive advantage in defined markets. Osterwalder et al. (2005) A conceptual tool containing a set of objects, concepts and their relationships, which describe what value is provided to the customers, how this is done and with what financial consequences. Shafer et al. (2005) A representation of a firm's underlying core logic and strategic choices for creating and capturing value within a value network.
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revenue creation logic, (5) customer, (6) value proposition, (7) partner network and (8) competitive strategy. The first four elements are internal to the company and the latter four of them are external. In the seventh element, we choose to use the terminology offered by Osterwalder et al. (2005), as we see that the term partner network best describes the element that has been named by others as for example value or supplier network (Hedman and Kalling, 2003; Shafer et al, 2005). All the eight business model elements were mentioned in at least four of the review articles, overlapping significantly and suggesting that saturation was achieved (Charmaz, 2006).
(Morris et al., 2005). Based on this analysis of the review articles, the following definition is derived to be used in this article: A business model conceptualizes the ways in which a firm creates and captures value. It comprises the strategic choices, the organizational architecture and the economics of the firm. The business model framework also defines what elements a business model contains. Whereas the business model of a specific firm may be very rich in details (e.g. Siggelkow, 2001), describing the business models of firms or even projects as a short set of elements may seem rigid but it enables the comparison of different business models. The process of finding the elements of the framework based on the review articles is illustrated in Table 2. First, the elements from each of the article were described and listed. The elements in different articles were then compared with each other and grouped together into categories that were similar to each other across all review articles. The analysis resulted in eight categories, i.e. concluding elements for the business model framework (highlighted in gray in Table 2): (1) offering, (2) resources and capabilities, (3) internal organization and activities, (4)
2.2. Multiple embedded business models Multiple embedded business models within one firm may co-exist when firms try to innovate new earning logics to complement existing ones, thus using exploitation and exploration simultaneously, (March, 1991; March and Olsen, 1975) resulting in different types of business models (Chesbrough, 2007; Linder and Cantrell, 2001; Osterwalder et al., 2005; Shafer et al., 2005; Smith et al., 2010). If the business models will compete against each other for resources, this should be
Table 2 Business model elements. Amit and Zott
Exchanged goods
(2001)
and information
Resources and
Internal parties and
capabilities required
the way they are
to enable exchanges
linked
Included in exchange mechanism
External parties and Customer as a party
the way they are linked
Cost structure and Chesbrough and Rosenbloom (2002)
Structure of value
profit potential of
Market segment -
Value proposition -
Position in the value
chain required to
producing the
users for whom the
value created to users
network given
create and distribute
offering given the
technology is useful
by offering based on
suppliers and
the offering
value proposition and
and for what purpose
technology
customers
Competitive strategy by which firm gains advantage over rivals
value chain
Hedman and Kalling (2003)
Offering (physical
Resources (human,
and service ), price
physical,
and cost)
organizational)
Suppliers (factor
Activities and
Customers
organization
markets and
Competitors
production inputs)
How do we make money? What economic logic
Magretta (2002)
explains how value is
Who is the customer?
What does the customer value?
delivered at an appropriate cost?
Morris et al. (2005)
Offering - How do we create value
Internal capability -
Economic factors -
What is our source of
How do we make
competence?
money?
Oster walder et al. (2005)
of activities and
view of a company's
resources, Core
bundle of products
competencies
and services.
necessary to execute
How do we
create value for?
competitively position ourselves?
Target customer -
Value configuration Product - an overall
Competitive strategy Market - Who do we
Revenue model - the
segments of
Value configuration
way a company
customers to which
of activities and
makes money
value is offered,
resources
through a variety of
relationship -
revenue flows.
company's links to
business model
Value proposition an overall view of a company's bundle of products and services
Partner network of other companies necessary to efficiently offer and commercialize value
customer segments
Competencies/ Shafer et al. (2005)
Output as a strategic choice
capabilities as strategic choice, resources/ assets as
Processes/ activities
Value capture:
as creating value
Revenues and profits
Customer - target market, scope - as strategic choice
Value proposition as strategic choice
Value network (from suppliers to customers)
Competitors as strategic choice
creating value Conclusion
Offering
Resources and capabilities
Internal organization and activities
Revenue creation logic
Customer
Value proposition
Partner network
Competitive strategy
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encouraged in order to protect the new business models from internal feuds and give all models a chance to demonstrate their viability (Chesbrough, 2007; Smith et al., 2010). In fact, new models can be tried in the marketplace and successful ones can be used as a basis for future business (McGrath, 2010). Ultimately, customers choose the business model among those offered to them (Chesbrough, 2007). The view of firms using multiple business models simultaneously for both exploitation and exploration purposes (Chesbrough, 2007; Gilbert, 2006; Linder and Cantrell, 2001; Sabatier et al., 2010; Shafer et al., 2005) emphasizes the firm's own development initiatives rather than as a response to contextual factors (Kujala et al., 2009). We focus on analyzing the dynamic relations between different projects and the PBF rather than analyzing different approaches on the management of individual projects (e.g. Söderlund, 2011). To achieve this, we introduce the process model of strategic venturing (Burgelman, 1983a,b) applied to business models, which can be seen as a way to operationalize strategy (Casadesus-Masanell and Ricart, 2007). The two-way process model of strategic venturing (Burgelman, 1983a,b) identifies both top–down and bottom– up processes in corporate strategy formation, manifested as induced and autonomous behavior. Induced strategic behavior is derived from the firm's current strategy whereas autonomous venturing activities fall outside the current strategy. Corporate structure, however, is built to reinforce the current strategy and behavior that supports this strategy, namely induced behavior. Corporate structure, set up by top management, is a collection of various administrative mechanisms. The current structure does not favor autonomous activities, such as internal new business venturing. Rather, structures try to select “out” any such initiative that falls outside current corporate strategy (Burgelman, 1983a,b). The idea of induced and autonomous strategic behavior brings a new viewpoint for the business model literature. Business models are not always necessarily planned by the company (induced behavior) but can be a result of the environmental pressure (autonomous behavior). Therefore, the emerging new business model can either be aligned to the firm's existing business model or it may create a business model of its own. If the emerging business model is aligned with the firm's business model, the two models at different levels are interrelated. However, if the emerging business model is not aligned to the firm level business model, the models are disconnected (Sabatier et al., 2010). Disconnected business model development might easily be overlooked though if those business models are in conflict with the established business models (Demil and Lecocq, 2010; Smith et al., 2010). The notion of multiple, co-existing interrelated or disconnected business models is specifically interesting for project business research, as projects have been seen both as temporary, independent organizations with self-established goals (Artto et al., 2008) and as subordinates to the firm's objectives (Morris and Jamieson, 2004; Shenhar et al., 2007). The following methodology is designed to understand the role that project-level business models have in relation to firm-level business models in a PBF.
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3. Methodology 3.1. Case study approach The study is conducted as a qualitative, inductive embedded unit case study (Yin, 2003) and the unit of analysis is one firm and five embedded case projects within the firm. Case studies allow gaining in-depth understanding about the phenomenon under study in natural settings, learn about the state of the art, and generate theories from practice. Therefore, case studies are used for studying new phenomena and organizational change where quantitative research methodologies are not possible or appropriate (Yin, 2003). Even though a single case study approach implies several limitations concerning the degree of the generality of the results, it is still a powerful tool for indepth analysis of a complex change process in order to provide material for theory-building (Eisenhardt, 1989). Indeed, single case studies apply theoretical sampling instead of probabilistic sampling; the goal is not to describe all possible variations, but to gain a deeper understanding of analyzed cases (Yin, 2003). Recently, for example Winch et al. (2012) and Cao and Hoffman (2011) have utilized single case studies to describe the complex nature of project-based organizations. Due to the complexity of the relationship between the business models of a project-based firm and its delivery projects operating in their own environments, the study relies on theoretical sampling by focusing on a single case firm where the phenomenon is transparently observable. Limitations aside, as the study is an attempt to understand the logic and dynamics of the project-based firm, it meets the criteria set for the case study methodology. 3.2. Company overview To study the business models of a project-based firm and its delivery projects, the main requirement for the case firm is that it delivers its clients complex projects which include varying elements from design and engineering to concrete equipment deliveries. Even though these delivery projects might be executed in a similar way than previous projects, they are still created for each client's situation and needs. The chosen case firm, Velvet (for confidentiality reasons, pseudonyms are used), meets this criterion as it provides metallurgical processing technology in a high variety of projects. Customer needs in the mining and metallurgy industry are unique and depending on the ore that needs to be refined. This is why the firm's project scopes range from simple pre-studies and basic engineering projects to equipment deliveries and larger technology packages. Construction and installation (turnkey) projects are offered only in special cases. The firm offers also on-site services during the project and after sales services as well as spare parts. In maintenance projects, existing equipment is upgraded and rebuilt. Velvet is hereafter referred to as “the firm”. To analyze Velvet on both the level of the firm and projects, five case projects were selected for analysis as embedded units of analysis within the firm. The selected project offerings were rather different from each other. One of the case projects was a
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Table 3 Case projects.
Size Staff (at most) Type of project Customer segment Duration Situation on interview date
Crimson
Magenta
Green
Violet
Yellow
Medium 15–20 Technology package Industrializing 2 years Delivered and accepted by client
Small 10 Equipment delivery Industrializing 1 year Delivered and accepted by client, equipment uninstalled
Small 45 Basic engineering Industrializing 6 months Delivered and accepted by client, investment on-hold
Medium 15–20 Maintenance project Continental 2 years Ramp-up/handover to customer
Large 40 Technology package Industrializing 3 years Ramp-up/handover to customer
basic engineering project. Two of the projects were technology package deliveries and one an equipment delivery. The fifth project was a maintenance project. The projects are introduced in more detail in Table 3. 3.3. Data collection To gain an in-depth analysis of the business models of the firm and the five case projects, data was collected in semi-structured interviews. The interviews were conducted face-to-face to enable open discussion between the interviewee and the interviewers. Each interview lasted from 1.5 to 2 hours. To support processing of data, the interviews were tape-recorded. In addition, notes were taken during the interviews. Altogether 20 interviews were conducted, 15 of which were related to the case projects and five of which to the firm-level. The interviewees represented various functional areas in the organization. The firm-specific interviewees included for example the president of the firm, head of operational development and product-line managers, who, due to their management positions, had a general view of the business. The project interviewees included project managers, technology managers, salespeople and purchasing managers for each project. Many of the interviewees had several years of experience in the firm. This ensured a deep understanding of the firm's the business model. Semi-structured interviews were used to ensure flexibility in the discussion; even though the interviews had a predetermined structure, there was still an opportunity to adjust the discussion according to the interviewees personal focus areas. Two separate interview structures were created for the interviews, one for the project-level interviews and one for the firm-level interviews. However, the project-level interviews seldom focused only on the project in question. As the project-level interviewees had many years of experience from various projects in the firm, they had deep insight also about the firm-level business model. Similarly, the firm-level interviews also included discussion on individual projects that had been significant for the firm in the history. The firm-level interviews started with a discussion of the strategy and long-term goals of the firm. After that the interviewee was asked to describe how the firm operates and what the offerings are. The interviewees were given examples of elements included in the business model framework but no explicit definition of the business model concept was given nor was the word mentioned unless the informant took it up spontaneously. Thus, the interviewees described the business model as per their
own understanding of the concept. The interviewees also then analyzed the way the firm guides and supports its projects. Finally, the interviewee was asked to give concrete examples of projects which did and did not reflect the firm's goals. The project-level interviews moved the focus from the firmlevel to the level of an individual project. First, the interviewee was asked to describe the project from its early sales phases to after its delivery. Then the interviewee was asked to reflect on the project's organization and working methods as well as its external environment and stakeholders. The final questions were related to the project's role in the firm and the project was compared to other projects. Again, the term business model was not used unless the informant spontaneously took it up. This structure enabled an open discussion around the projects and their business logics without limiting the discussion to the business model framework. 3.4. Case analysis The interviews were transcribed from the tape-recordings in order to enable consistent content analysis. Content analysis was conducted through the coding method (Miles and Huberman, 1994). A coding manual was constructed by the researchers who had participated in the interviewing process. To ensure consistency with the theoretical framework, the coding manual was based on the business model framework presented earlier in Table 2. Thus, the firm-level interviews were coded with the eight business model elements on the firm-level. Similarly, the project-level interviews were coded with the eight business model elements on the project-level. This allowed a detailed understanding of the business models on both levels. However, as the firm-level interviewees mentioned something about individual projects or the project-level interviewees about the firm-level, the project-level interviews also included firm-level codes and vice versa. The coding resulted in categorized data about the chosen phenomenon. The categorizations resulted in descriptions of the firm- and project-level business models. These descriptions were finalized for presentation by summarizing the interview findings and using visual representations methods such as cross-tabulation. 4. Case description 4.1. The case firm Velvet supplies metallurgical processing technology. In so doing, it has set a mission of providing sustainable life cycle
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solutions, which guarantee the best return on customer's investment. As a PBF, it has two main types of project offerings: equipment deliveries and technology packages. Turnkey deliveries are preferably avoided due to the associated risk. Projects usually include a separate preliminary basic engineering project in which technologies and processes needed for the main projects are identified. Equipment deliveries most often involve manufacturing machinery with established technology, which can be delivered in a straightforward and standardized manner. Technology packages again deliver not only equipment but also the know-how related to the entire manufacturing process. Therefore, the emphasis of technology packages is on a metallurgical process or part of a process, and they should include engineering, both proprietary and other key equipment, automation, a sparepart package and on-site services. Automation and services can incorporate the immaterial process know-how to the technology package to help the customer fine tune their process and to increase the scope of Velvet's deliveries. This is a new way of doing business as traditionally especially services have been sold separately at the end of a project, but now the aim is to include spare parts and expert services already in the main contract. The firm's key resources are its patented technologies and licensed processes which are based on the firm's experience and know-how. The process know-how is based on technologically skilled employees that are organized in three specialized product units. Salespeople and the project staff have both theoretical and practical skills. In order to sell process know-how and related technologies efficiently, the firm has developed standardized project management capabilities ensuring efficiency. Velvet's customers are metal producers that have a long experience of the mining and metallurgical industry. Most customers do not have the capability of engineering offices or contractors. As Velvet does not want to take responsibility on-site, the customer often hires an engineering office and a contractor which are important stakeholders in the project. In industrializing countries, customers have more capabilities in-house and therefore they can manage relationships to contractors and engineering offices better than customers from developed countries. As the market is consolidated, there are only some hundreds of customers worldwide. Therefore, customer references are important—without them it would be quite difficult to do business in the industry. In fact, references and reputation are the most important competitive advantages of Velvet. However, also the broad and unique offering provides a competitive edge over metallurgy technology suppliers. The technologies and related know-how are important when competing with engineering offices. As Velvet is a high-end producer superior technologies and processes are also valued by the customer as they provide higher yields and more efficient operations. In addition, new technologies are environment-friendly, safe and ergonomic. 4.2. Case projects Project Crimson was a small technology package delivery for an existing plant. Internally, the project was regarded as a standard equipment delivery, but an extensive automation package added
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after the engineering phase turned it into a technology package. The customer was known, and even though the customer relationship was infected due to an unsuccessful delivery in the seventies, the best available technology and many customer references convinced them to buy the equipment from Velvet. As the equipment itself was very standardized, Velvet was able to use its technological expertise in delivering the project. However, for the automation solution there was some lack of capabilities as this had not been done before and the skills needed to be developed. The customer, from an industrializing country, had a skilled project management organization. This was needed, as the project was a partial delivery and the customer hired an engineering office for the installations. The project was regarded as successful: even though the size of the project was small, the profitability was good due to standardization of the technology. Similar to Crimson, Project Magenta was a small, standardized equipment delivery. The customer was a big metal producer already known to Velvet from previous successful projects. The customer had a strong project organization that did overall planning and subcontracted the technology-related parts of it as separate projects to Velvet. Velvet competed with another technology supplier and was considered superior due to its high quality and long experience reflected in many customer references. As the project was a standard delivery of equipment that had been offered for a long time, the project utilized the existing resources and capabilities: know-how, experience and patented equipment. The standard project also had low risks and yielded good profits but had low volume. Project Yellow was a technology package for a new process, which differed from the usual way to refine the metal in question. The customer was primarily interested in the project because the process was more environment-friendly and safer than the alternative, traditional way of producing the metal. However, the process was also cheaper, more reliable and produced higher yields. The scope of delivery included basic engineering, two process licenses, equipment, a spare parts package and on-site supervisory services for installation and ramp-up. Contrary to the traditional way of doing business, engineering and the technology package were sold in the same contract. Automation was sold separately after the basic engineering phase. After completing the project, the purpose is to sell after sales-services for the proprietary equipment and spare parts for automation. As the process, owned by Velvet, had been delivered only two times, there were no serious competitors for the project. Velvet had the needed theoretical knowledge but the practical knowledge was basically missing. Thus, a lot of development work was done during the project. Despite the lack of capabilities, the project was successful financially. Project Green was a basic engineering project including two licenses for a process that had not been delivered many times before. In fact, project Yellow was a predecessor for project Green, and the process in question had been delivered only a few times a couple of decades ago. Basic engineering was offered separately from the technology package and, at the moment, Velvet is waiting for an investment decision about the technology package proposal. The customer was a big company from an
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industrializing country for which Velvet had delivered technologies before. As the target plant was located in the middle of a city, the customer valued the novel process which was a more environment-friendly and safer way to produce metal. As the technologies had not been delivered many times before, outside project Yellow there was little experience and tools to build on in the project. All in all, the project was profitable. However, as basic engineering projects are seen as paid planning, the project would not generate significant revenues unless it proceeds to include the technology package.
Finally, Project Violet was a maintenance project. The customer from an industrializing continental country was known to Velvet but no projects had been delivered to the factory before. The customer did not have an own maintenance department, which led them to ask for a turnkey delivery. The project scope included repairing an electric furnace delivered by a competitor and a small automation package for monitoring purposes. In addition, disassembly, installations and ramp-up services were included. The project's value proposition was based on the knowledge of how to fix the existing equipment.
Table 4 Two firm-level and five project-level business models (differences in firm-level business models marked with gray). Firm's established business model
Firm's extended business model •Basic engineering +
Offering
•Basic engineering +
technology package -
equipment delivery
seldom turnkey
•Separate services
•Inclusion of
and automation
services and automation
Project Crimson
Project Magenta
Project Green
Project Violet
•Small technology package with
•Equipment delivery
•Basic engineering
automation
•Standard
•New process and
•Standard
technology
technologies
technology
•Turnkey
package with
maintenance project
automation and after-
•Standard
sales services
technology
•New process and technologies
•Technological •Technological
•Process know-how
know-how and
•Technological
know-how and
and experience
experience
know-how and
Resources and
experience
•Licensed processes
•Standard equipment
experience
capabilities
•Patented
•Patented
•Project management
•Standard equipment
technologies
technologies
•Lack of commitment
•Project
project capabilities
•Project management
•Project management
to automation
management
•Scarce resources
•Three product lines
•Three product lines
•Separate
•Separate
•Product line X,
•Product line X,
Internal
engineering, service
engineering, service
engineering and
engineering and
organization
and procurement
and procurement
procurement
procurement
and activities
•Standard project
•Standard project
•Standard project
•Standard project
management
management
management
management
processes
processes
•Profit but small
•Profit but small
•Profit but small
volume
volume
volume
•Known •Strong project
Internal elements
Project Yellow •Technology
•Project management •Lack of technological capabilities and experience
•Product line Y and engineering •Standard project management
•Technological know-how and experience •Lack of turnkey
•Product line Z, engineering and procurement •Standard project management
•Project management •Lack of technological capabilities and experience •Local office's changing role
•Product line Y, engineering, procurement and service unit •Standard project management
•Profits from Revenue creation logic
•Profits from
technologies and
technologies, small
licenses, but volume
size
from technology
•Low profit
•Profit and volume
•Known
•Known
•Known
•Strong project
•Weak project
•Strong project
organization
organization
organization
organization
packages
Customers
Value proposition
External elements
Value network
Competitive strategy
•Usually known, as
•Usually known, as
not many players
not many players
•Preferred scope
•Preferred scope
depends on project
depends on project
organization
organization
•High-end technologies
•Known, but inflamed relations •Strong project organization
•Process know-how
•Technologies
•Technologies
•Process know-how
•Know-how to repair
•Process know-how
•High-end technologies
•Process know-how
•Process know-how
•Technologies
existing equipment
•Technologies
•Both known and
•Both known and
•Known suppliers
•Known suppliers
new suppliers
new local suppliers
•Customer's
•Project not
•Project not
•Local contractors
•Customers
engineering office
proceeded to
proceeded to
based on customer's
engineering office
and contractor
installations
execution
recommendation
and contractors
•Labor unions with
•Environmental
strict requirements
authorities
•Known, fixed,
•Known, fixed,
domestic suppliers,
domestic suppliers,
also global sourcing
also global sourcing
•Customer's
•Customer's
engineering office
engineering office
and contractor
and contractor
handle installations
handle installations
•Technology
•Technology
providers as
providers as
competitors
competitors
•Unique scope
•Unique scope
•Customer
•Customer
references
references
•Reputation
•Reputation
•Customer relations
•Customer relations
•R&D resources lead
•R&D resources lead
to better know-how
to better know-how
and technologies
and technologies
•Superior technology
•Superior process
•Salesperson's
•Salesperson's
and technologies
•Superior process
relations and activity
relations and activity
•Customer
•Previous relations
•Customer
•Customer
•Previous relations
references
•Reputation
references
references
•Customer
•Reputation
•Reputation
references
•Previous relations
•Previous relations
and technologies
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Dismantling made the project unique for the firm and, in addition, this was the first partial delivery for the metal in question. However, Velvet was very familiar with the technology in question, and thus could utilize its technological capabilities and skilled employees. This did not, however, help the firm to avoid the risks of turnkey business. The project was not successful financially as a lot of capabilities to offer turnkey projects were missing causing poor pricing decisions and extra costs from on-site work. For Velvet, it was a new situation to take all responsibility of the on-site work which was previously dealt by third party subcontractors. 5. Results We used the business model framework to describe the project-based firm and its projects. Each of the eight elements was identified separately from the case descriptions and in that way, a general view on both the firm- and project-level business models was formed. Analyzing Velvet on the firm level, we found two distinct business models: an established business model and an extended business model. The two business models differed on four of the eight business model elements: offering, core capability, value proposition and revenue creation logic. The established model of Velvet emphasizes the equipment that is delivered to the customer whereas the extended business model's offering is built around process. In addition to the equipment and technologies, projects following the extended business model include services and automation. The core capability and resources needed for the established business model are the patents and technological know-how, whereas the extended business model requires deep process understanding. Similarly, the value proposition is related to superior technologies in the established model, and to understanding of the metallurgical processes in the extended model. Finally, projects following the established business model are often very profitable but have a small scope, whereas the established business model offers a means for growth by larger scopes (which also results in lower profitability). Table 4 summarizes the above descriptions on business model elements for the two firm-level business models and the five projects. The gray cells indicate the business model elements on which the firm-level business models differ. The business model elements in the five case projects are exposed for comparison in the following section. In order to study the relations between the business model elements of the firm and the projects presented in Table 4, we pictured Velvet having two business model templates which the projects might or might not follow. In this way, the similarities and differences in all the business model elements were analyzed, and the results are displayed in Table 5. Table 5 shows business model elements in rows and the projects in columns. Each cell describes whether the business model element of a specific project coincides with the template of firm level business model. The white cells indicate that the elements of a project's business model overlap with the firm's established business model, whereas the gray cells overlap with the firm's extended business model. Business model elements
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that are marked as black are not overlapping with either one of the two business models on firm level. Thus, black cells indicate no overlap with the firm-level business model element. It should be noted that the internal organization, customer, partner network and competitive strategy elements in the extended business model retained some elements from the established business model. The analysis reveals three project groups: projects Crimson and Magenta overlap with the established business model since almost all of their project level cells in Table 5 are white; projects Yellow and Green overlap with the extended business model since many though not all elements are gray; and finally, project Violet has no overlap with the extended and little overlap with the established business model, since most cells are black. Projects Crimson and Magenta involved the delivery of standardized equipment in a straightforward way. Therefore, the projects were exploitative by nature, realizing the established way of doing business. However, Crimson included an extensive automation package which made it slightly resemble the extended business model due to a broader scope of offering and related capability creation. Internally, it was not easy to convince the staff of the usefulness of automation, though. The standardized project was seen strictly as an equipment delivery even though it could have been more process-oriented and in this way moves toward the firm's extended business model. Projects Green and Yellow were technology packages that included (or in the case of Green will include) both technologies and services in order to develop the best solution and process for the customer. Therefore, the projects followed the extended business model. Due to the novelty and Velvet's lack of experience of the offered process, the projects were explorative by nature and the extended business model was strengthened by developing resources and capabilities for future projects. Finally, most of the business model elements in Violet were not overlapping with either one of the two firm-level business models. The customer expected a turnkey delivery, with different value propositions, resources and capabilities, partner network as well as revenue creation logic from what Velvet was used to delivering. This also resulted in a different competitive strategy as fixing a competitor's product could not be based on own superior technologies or processes. Therefore, Velvet would have preferred to avoid turnkey deliveries altogether. This is not to say that project Violet was outside of the scope of Velvet's business model and should not have been realized. Table 5 Comparison of firm- and project-level business models. Crimson
Magenta
Yellow
Offering Resources and capabilities Internal organization and activities Revenue creation logic Customer Value proposition Value network Competitive strategy Elements overlap with established business model Elements overlap with extended business model No overlap with elements in the firm−level business models
Green
Violet
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The firm pursued growing the share of services and service projects, and project Violet strengthened that goal. The results suggest that project-level business models in some projects are subordinates to the firm-level business models (Magenta, Crimson, Yellow, and Green). To pursue growth, a PBF might establish a new business model on the firm level and use projects as top–down tools for exploration (Yellow, Green). However, autonomous project-level business models might emerge outside the boundaries of the firm-level business models (Violet). 6. Discussion The purpose of this study was to describe and analyze the impact of project-level business models in a PBF. We found that two of the project-level business models overlapped with the established firm-level business model, two overlapped with the extended firm-level business model, and one overlapped with neither of the firm-level business models. Fig. 1 shows our findings. First, our findings support the traditional view that firm-level business models dictate project-level business models i.e. suggesting but not explicitly confirming the direct top–down effect of the PBF. This is in line with the view of projects being direct subordinates of the PBF's strategy (Morris and Jamieson, 2004; Shenhar et al., 2007). Following the nomenclature of Linder and Cantrell (2001), there were two distinct business models on the firm-level: an established one and a newer extended one. Together the firm-level business models represented behavior which is guided from above by the firm's current concept of strategy as suggested by Burgelman (1983a,b). The two firm-level business models deployed exploitation (established business model) and exploration (extended business model) simultaneously, which is common for mature firms looking for new business areas according to Sabatier et al. (2010). We agree with scholars who consider that firms can use projects as top–down tools for both intentional exploration and exploitation (Brady and Davies, 2004; Morris and Jamieson, 2004; Shenhar et al., 2007). Second, we found that one project-level business model was fairly autonomously emerging from outside the boundaries of the two firm-level business models, suggesting that the top–down effect of the PBF on this project is unlikely. Due to its turnkey nature, project Violet introduced a new business model that could have a bottom–up effect on the firm-level by shaping the existing business models or creating completely new ways of doing
business through autonomous project-level business models. This finding contradicts the traditional view on projects, and suggests, similar to Artto et al. (2008) that projects are temporary, independent organizations with self-established goals and business models. The history of Velvet also tells that the current established firm-level business model had once emerged through an autonomous project-level business model at the early stages of the firm. In the past, the firm only sold the license to a metallurgy process, but a proactive salesperson decided to couple the license with engineering. The project resulted in a new, broader business which is the basis for Velvet's operations today. Project Violet received a lot of interest in the company and some early signs show that it might well create a new firm-level business model. Soon after the project was completed, the company acquired a company specialized in construction work, signaling that there is increasing interest in taking responsibility associated with turnkey deliveries. We suggest that projects with autonomous, bottom–up business models might be just as important for the firm as the ones derived from firm-level. Due to the dominant logic (Siggelkow, 2001) and the corporate structure of a firm (Burgelman, 1983a,b), these kinds of business models are however easily overlooked, especially if they are in conflict with the existing ones. To conclude, we suggest that autonomous project-level business models emerge that can significantly shape the way a firm does business in spite of the fact that project-level business models are often derived from the firm-level business models. The study contributes to the business model literature by describing the interrelations of multi-level embedded business models. The understanding of the logic and dynamics of a PBF is strengthened by stating that a project-based firm's business models do not only form intentionally top -down, but also unintentionally due to project-level business models' bottom -up impact. Thus, the study contributes to the business model literature by describing the interrelations of multi-level embedded business models. The study has important managerial implications related to managing multiple business models on firm and project levels. While managers are used to utilizing project-level business models as top–down tools to both exploit and explore the existing firm-level business models, they should be careful that those intentional business models do not restrict unintentional and autonomous business model development happening in projects due to their unique nature and environment. Instead, this development could be used for altering the existing firm-level business models or creating completely new ones. Autonomous project-level business models can signal for example a change
Fig. 1. The case projects in relation to the firm's business models.
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in customer needs and in this way support the company to be more alert and agile to respond to potential changes in the marketplace. Our study has several limitations. First, the firm was regarded as an independent PBF. However, it is part of a larger corporation, and therefore the perspective of the holding company is missing from the study. This might create some bias as both the corporation and the other firms might affect the business models in Velvet. Second, even though the case projects were of high variety, they do not necessarily provide a comprehensive picture about the business logic of a project-based firm and might exclude some aspects related to the business model of Velvet. Based on our research, further studies are warranted. First, the study examines how the project-level business models affect the firm-level business models. It could be beneficial to understand, how the firm-level business models affect the dynamics of project-level business models. Second, the study describes the complex business logic of a project-based firm, which is composed of many business models on different levels. An assumption was made that business models reside at the firm level or at the project level. However, business models might be composed of elements on many different levels and in many different units (projects, firms, corporations, other firms). Therefore, business model research should not be restricted to the boundaries of various organizational entities. Instead, in the future the focus could be on understanding how these cross-boundary business models affect the business logic of a PBF. References Aaltonen, P., Mäki, T., Aspara, J., 2011. The dispersed theoretical origins of the business model concept. Paper presented at the Academy of Management Annual Meeting, August 8–12, 2011, San Antonio, USA. Amit, R., Zott, C., 2001. Value creation in e-business. Strategic Management Journal 22 (6–7), 493–520. Artto, K., Kujala, J., Dietrich, P., Martinsuo, M., 2008. What is project strategy. International Journal of Project Management 26 (1), 4–12. Artto, K., Lehtonen, M., Aaltonen, K., Aaltonen, P., Kujala, J., Lindeman, S., Murtonen, M., 2009. Two types of project strategy—empirical illustrations in project risk management. Paper presented at Ninth International Conference of the International Research Network on Organising by Projects, IRNOP IX Research Conference, October 11–13, 2009, Berlin, Germany. Artto, K., Davies, A., Kjuala, J., Prencipe, A., 2011. The project business— analytical framework and research opportunities. In: Morris, P.W.G., Pinto, J.K., Söderlund, J. (Eds.), The Oxford Handbook of Project Management. Oxford University press, New York, pp. 133–153. Brady, T., Davies, A., 2004. Building project capabilities: from exploratory to exploitative learning. Organization Studies 25 (9), 1601–1621. Burgelman, R.A., 1983a. A model of the interaction of strategic behavior, corporate context, and the concept of strategy. The Academy of Management Review 8, 61–70. Burgelman, R.A., 1983b. A process model of internal corporate venturing in the diversified major firm. Administrative Science Quarterly 28, 223–244. Cao, Q., Hoffman, J.J., 2011. A case study approach for developing a project performance evaluation system. International Journal of Project Management 29, 155–164. Casadesus-Masanell, R., Ricart, J.E., 2007. Competing through business models. IESE Business School Working Paper No. 713. Casadesus-Masanell, R., Ricart, J.E., 2010. From strategy to business models and onto tactics. Long Range Planning 43 (2–3), 195–215. Charmaz, Kathy, 2006. Constructing Grounded Theory: A Practical Guide Through Qualitative Analysis. Sage, Thousand Oaks, CA.
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