The Project-Based Firm: A Theoretical Framework for Building Dynamic Capabilities

Abstract

The problem of achieving individual project performance has been replaced by the problem of achieving organizational goals through project performance. Only project-based firms able to learn and build project capabilities can successfully compete in today’s dynamic environments. The purpose of this paper is to present a dynamic capability-based framework that sheds light on how project and organizational dynamic capabilities are built and how these dynamic capabilities allow project-based firms to perform in dynamic environments. Our theoretical framework unpacks the processes of building dynamic capabilities inside a project-based firm, discussing the routines and procedures that are useful to manage projects in unstable and dynamic environments and to build and reconfigure organizational capabilities from project-led knowledge.

The effect of project management dynamic capabilities on firm performance

“…PM dynamic capabilities help to determine the importance of environmental changes and the corrective actions to be taken. Furthermore, PM dynamic capabilities encompass routines that test whether current PM processes are best suited, thus providing project managers with the possibility to renew inappropriate ones by redeploying PM assets (Hermano and Martin-Cruz, 2020). Thus, we maintain that PM dynamic capabilities enhance project performance by helping project managers to develop the managerial skills needed to address relevant changes in both the project environment and client needs.…”

“…At the project-level, PM dynamic capabilities allow project managers to address environmental and stakeholders' changes (PM sensing routines); to build structures, procedures, and designs that help the project team to identify changes required once opportunities or threats are sensed (PM seizing routines); and to manage threats and reconfiguration (PM transforming routines) (Hermano and Martin-Cruz, 2020).…”

“…At the organization-level, PM dynamic capabilities allow top managers to scan the performance of project-level processes to discover experiences gained during the project life cycle that can be employed in subsequent projects (organizational sensing routines); to identify which potential sensed projects should be given priority and which should be discarded, and which potential clients should be satisfied (organizational seizing routines); and to implement top management decisions to achieve evolutionary fitness and avoid path dependencies (organizational transforming routines) (Hermano and Martin-Cruz, 2020; Teece, 2007).…”

“…Since project constraints cannot be extensively recognized when the project starts, project managers need to continuously sense the project environment (Perminova et al, 2008). Thus, PM dynamic capabilities allow project managers to address changes both in project environment and in stakeholders' requirements by reconfiguring the PM plan during project execution (Hermano and Martin-Cruz, 2020). However, not every change in the project environment should lead to changes in the project plan.…”

“…At the portfolio level, PM dynamic capabilities address the consolidation of project knowledge, allowing the firm to use the acquired knowledge through project implementation in order to develop and reconfigure organizational capabilities (Hermano and Martin-Cruz, 2020). Thus, PM dynamic capabilities enable the firm to fully exploit its PM processes and achieve long-term performance through multiple shortterm projects.…”