Efficiency in project networks : the role of inter-organizational relationships in project implementation

Abstract

In many project-based industries such as construction and shipbuilding, the delivery of projects requires the participation of multiple heterogeneous firms. The objective of this dissertation is to explore how inter-organizational relationships influence the efficiency of the implementation phase in project networks. Project networks are defined as temporary inter-organizational networks set up for delivering a project to a client. Furthermore, it is examined how project implementation influences the development of inter-organizational relationships between firms involved in project networks. Based on a review of literature on project business, inter-organizational relationships, transaction cost economics, and critical incidents, a conceptual framework is developed to guide the multiple case study involving four project networks from the Finnish shipbuilding industry. Altogether, the empirical data analyzed in this study consists of a total of 40 personal interviews with individuals representing 13 different organizations, and a broad range of documentation including contracts, meeting memorandums and project plans. The results of this study demonstrate evidence of a relation between inter-organizational relationships and the efficiency of project implementation. Critical incidents unforeseen by the participating actors were analyzed in the four project networks. A part of these critical incidents was found to be related to inter-organizational relationships and to contribute to the efficiency of project implementation by affecting the ex post transaction costs of monitoring, planning, and adapting transactions between involved firms. Furthermore, the contribution of critical incidents on the efficiency of project implementation was found to be predominantly unfavorable as increases, as opposed to decreases, in transaction costs were found as frequent. In two studied project networks, in which inter-organizational relationships between project network actors were characterized by high degrees of trust and dependence, inter-organizational relationships were found to frequently constitute strengths which reduced the unfavorable contribution of critical incidents to the efficiency of project implementation. In all four studied project networks, inter-organizational relationships were also found to frequently constitute weaknesses which increased the unfavorable contribution of critical incidents to efficiency of project implementation. The results of this study also illustrate that the influence of project implementation on the development of inter-organizational relationships between project network actors can often be characterized as modest, as inter-organizational relationships in three studied project networks were rather stable across the observed one year period. However, when project network actors assess the responses of each other to critical incidents as unacceptable, even highly established inter-organizational relationships may deteriorate rapidly as occurred in one of the four studied project networks. This dissertation complements existing knowledge concerning the relatedness of inter-organizational relationships and efficiency of economic transactions by describing how critical incidents function as a mechanism relating these two concepts in project network contexts. In addition, this study contributes to our understanding of how inter-organizational relationships develop between firms operating in project-based industries. Further, this dissertation sheds new light to our understanding of the factors that contribute to the efficiency of work carried out in project contexts by emphasizing the importance of transaction costs that incur between involved firms during the implementation phase of the project life cycle. The results of this study have also implications for practitioners responsible for marketing and managing inter-firm projects who can be considered, to a considerable extent, accountable for both the development of inter-organizational relationships between firms they are employed by and other firms in the surrounding business environment, and the efficiency of work carried out in projects in which their employing firms participate.