International Journal of Project Management 31 (2013) 355–365
Constructing the market position of a project-based firm
Tuomas Ahola a,⁎, Jaakko Kujala b, Teuvo Laaksonen c, Kirsi Aaltonen a
a Aalto University, School of Science, Department of Industrial Engineering and Management, P.O. BOX 5500, FI-00076 Aalto, Finlandb University of Oulu, Department of Industrial Engineering and Management, P.O. Box 4610, FI-90014 University of Oulu, Finland
c Metso Automation Inc., PO Box 310, FI 00811 Helsinki, Finland
Received 27 January 2012; received in revised form 4 September 2012; accepted 18 September 2012
Research on project marketing highlights the importance ofproject-based firm (PBF) to build inter-organizational relation-ships (IORs) to its customers and key suppliers (Cova andSalle, 2007). These relationships contribute to the developmentof both strong functional and relational position in a specificmarket milieu (Cova and Hoskins, 1997; Cova et al., 2002). Inthis paper we define that combined these two conceptsconstitute the market position of a project-based firm.
The functional position of a project-based firm refers to itscapability to deliver complete solutions to its customers (Covaand Salle, 2004). Functional position is dependent on both thecore technologies and competencies of the firm as well as oncapability to deliver solutions leveraging them to specific
customers. The relational position of a PBF refers to how wellconnected it is to key business and non-business related actorsin the milieu via IORs (Cova and Hoskins, 1997; Cova andSalle, 2011). The main objectives for developing IORs are tocreate a strong position in the network in order to initiate andmaintain profitable customer relationships and, on the otherhand, to gain access to resources of suppliers (Tikkanen et al.,2007). Thus, functional and relational positions are tightlyinterrelated. A PBF needs some functional capability to be anattractive partner in the milieu, but on the other hand,development of IORs provides access to new resources andleads to a stronger functional position. A PBF occupying astrong relational position is able to credibly demonstrate that itis collaborating with key actors in the milieu whereas a PBFoccupying a weak relational position may easily be perceivedas an outsider with limited credibility as a business partner. Toconclude, a PBF holding a strong market position (both strongfunctional position and strong relational position) can beexpected to differentiate from those competitors that holdweaker market positions by its superior ability to secure projectdeliveries and to deliver them profitably.
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An IOR is a link between two organizations that forms whenthey repeatedly interact with each other and its nature can bedescribed by various dimensions such as trust, dependence, andthe sharing of business critical information (e.g. Uzzi, 1997;Van de Ven, 1976). The importance of IORs is emphasized inproject marketing as success in securing project deliveries isdependent on the extent of a PBF's ability to collaborate withits subcontractors, partners and other relevant actors inestablishing a multi-organizational coalition that holds both astrong functional and a strong relational position in the milieu(Cova et al., 2002; Skaates et al., 2002; Tikkanen et al., 2007).
While earlier research has demonstrated that IORs mayaffect success both in project marketing and in project deliveries(e.g. Eccles, 1981; Hellgren and Stjernberg, 1995; Sorenson andWaguespack, 2006), both theoretical and empirical researchaddressing the role of IORs in developing the market presence ofa PBF in a specific milieu is still scant. Furthermore, even thoughprior research has acknowledged the importance of differenttypes of activities directed towards the creation and maintenanceIORs, these activities have only rarely been examined empiricallyin a longitudinal study setting. In addition, the project marketingliterature has primarily focused on relationship maintenanceactivities that project-based firms use to manage the “sleepingphase” between active project deliveries (e.g. Mandják andVeres, 1998), whilst there is less research on relationshipdevelopment activities in milieux where projects are repetitivelydelivered to the same customer. Consequently, less attention hasbeen paid on the specific role of actual project deliveries in thedevelopment of inter-organizational relationships.
The objective of this paper is to contribute to literaturesaddressing project marketing and project business by studyinghow the market position of a project-based firm can beconstructed by developing and leveraging inter-organizationalrelationships to key actors in the milieu both during the projectdeliveries and in between them. More specifically, we seekanswers to the two following research questions:
Through what kinds of activities, do project-based firmsdevelop inter-organizational relationships to other actors?
And,
How can a strong market position of a project-based firm beconstructed through the development of inter-organizationalrelationships to other actors?
First, we review literature addressing the characteristics ofproject business and literature discussing inter-organizationalrelationships in project contexts. The literature review isfollowed by an empirical case study that discusses how MetsoAutomation Projects (MAP), a world-leading supplier ofautomation solutions, gradually developed a strong marketposition in the Russian automation market. Building on theinformation gained in our empirical study and the literaturereview, we then go on to discuss how project-based firms canstrengthen their market position by actively developing IORs,how the findings of this study relate to earlier literature, andwhat their practical implications are.
2. Literature review
2.1. Characteristics of project business
Project business is networked business. In many industriessuch as construction, film production, and automation systemdeliveries, it is the norm that individual PBFs complement theirown resource base with resources controlled by other firms intheir environment (Miller et al., 1995). Project business ischaracterized by demand of a discontinuous nature, uniquenessand complexity of both the delivered solution and the productionprocess (Cova et al., 2002; Hadjikhani, 1996; Mandják andVeres, 1998). Discontinuity of demand is particularly apparent,for example, in power plant and automation system businesses asin these contexts it is typical that after the handover of a specificproject, the same customer will not purchase another similardelivery for several years. Many project-based industries arefurther characterized by a high heterogeneity of customer needs,giving rise to a need to design and deliver unique solutionstailored to the specific requirements and context of each client.Finally, both the scopes of individual project deliveries and theproject organizations required for their realization are oftenhighly complex. For example, in shipbuilding, a typical projectdelivery encompasses numerous interdependent systems, manyof which involve both tangible and intangible components thatneed to be integrated as a functional whole (Ahola, 2009).
2.2. Inter-organizational relationships in project business
The characteristics of project business have implications forthe development of inter-organizational relationships in projectcontexts. Kadefors (2004) has highlighted the prominence ofcontractual economic incentives and close monitoring of partiesthat may hinder the development of long term IORs. Inaddition, it has been argued that project-based firms continu-ously balance their short term (i.e. project-term) interestsagainst their long term interests. This balancing activity hasbeen shown to be closely coupled to the development of IORsbetween PBFs (Ahola et al., 2008; Hellgren and Stjernberg,1995). Several studies have shed light on activities used byproject-based firms to either establish or to strengthen inter-organizational relationships to other firms in their environ-ments. For example, Johanson and Mattsson (1987) emphasizeroutines and social interaction processes in the development ofIORs, while Cova et al. (2002) have focused on rituals androutines, and Aaltonen and Sivonen (2009) discuss strategiesused by PBFs to actively respond to the demands of otherorganizations in their environment.
The role of IORs in marketing has received considerablescholarly attention. Eccles (1981) has demonstrated how, in thecontext of the construction industry, main contractors increasethe effectiveness of their deliveries by routinely employingspecific trade subcontractors, and only occasionally resort totraditional competitive tendering in order to prevent theescalation of prices. Cova et al. (2002) have described projectmarketing as an activity that is carried out by coalitions ofproject-based firms interconnected by IORs. Thus, IORs may
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actually constitute a necessity for success in project marketingas they enable the supplying coalition to establish credibility inthe decision-making processes of the potential buyer.
Several researchers have discussed the relatedness of IORsand project execution. Manning (2008) has shown how IORssimultaneously facilitate and constrain project organizing. Thisfinding has later been supported by the findings of Martinsuo andAhola (2010) in their research focusing on supplier integrationpractices in project deliveries. Furthermore, Windeler and Sydow(2001) have demonstrated how IORs between firms engaged inprojects can facilitate the development of a shared understandingconcerning the task requirements in a project, supporting thecoordination of work across organizational boundaries. The lackof long-term IORs between project parties may lead to reducedefficiency and innovation (Dubois and Gadde, 2000), and reducethe probability of project success (Söderlund and Andersson,1998). Artto et al. (2008a, 2008b) and Aaltonen et al. (2010) havedemonstrated how IORs may function as source of risk anduncertainty in projects, potentially unfavorably contributing toproject execution.
3. Case study: automation business in the Russian oil andgas market
In the following, we discuss how Metso Automation Projects(MAP), a project-based firm specialized in the delivery ofdemanding process automation systems and gradually developeda strong position in the Russian oil and gas market. In particular,we focus on MAPs project deliveries to a single key customerOilCo (a codename).
3.1. Research strategy
Our empirical research data was collected by means of aqualitative case study. The following factors supported theapplication of this approach over other alternatives (e.g. survey-based study, experiment-based study):
• Our research objective was exploratory and descriptive innature.
• Our focus was on events and phenomena that had takenplace in the past.
• No quantitative measures were readily available that coulddirectly be used to study the concepts central to our study.
• Our access was limited to four informants representing thesenior management of MAP. All informants had been highlyinvolved with the studied events and phenomena on apersonal basis.
We collected empirical data on critical events that hadcontributed to the project marketing efforts of MAP or to thedevelopment of IORs between MAP and other key actors in themilieu relying primarily on the critical incident technique (CIT)originally introduced by Flanagan (1954). Since its introduc-tion, CIT has been used to describe sequences of critical eventsin various fields of research such as sociology, medicine, andproject research (Ahola, 2009; Miles and Huberman, 1994;
Stiegelbauer et al., 1982). We focused on critical incidents thathad occurred between the years 1996 and 2006 and inter-organizational relationships between MAP and other key actorsin the milieu. All information was provided by four individualsrepresenting MAP senior management. Our empirical case dataconsists of the following:
• Personal interviews with MAP senior management.• Two four hour workshop sessions with MAP seniormanagement.
• Quotation documents, written correspondence with clients,project plans, meeting memos, emails, and other writtendocuments accessible to MAP senior management.
All informants involved in our study were personallyinvolved with the Russian oil and gas market and thus, it washighly likely that they were the individuals who possessed themost complete and accurate information available for thepurposes of our study. The organizational positions of theinformants were marketing director, technical director, seniorsales manager and general director and together they repre-sented a clear majority of the top management team responsiblefor planning and implementing MAPs marketing activities inthe studied context. In addition, they had unrestricted access toall documents, meeting memos, and written correspondencethat was relevant for our study.
The processes of collecting and analyzing empirical dataoverlapped and involved the active participation of both ourresearch team and the four informants. Information wasgathered using personal semi-structured interviews and twofour-hour workshop sessions. The role of the interviews was todevelop a sufficient pre-understanding of MAP, its customerand the surrounding milieu to be able to plan the ensuingworkshop sessions. The purpose of the ensuing workshopsessions was to identify and document all critical incidentsrelated to project deliveries by MAP to OilCo (a code name forthe key customer). We defined a critical incident as any eventthat has occurred in the past and has significantly, as judged bythe informant, affected the outcomes of project marketing or thedevelopment of inter-organizational relationship between twoactors in the studied milieu.
Data collection resulted in the identification and documenta-tion of 45 critical incidents. Together with the informants, theincidents were arranged similarly to Stiegelbauer et al. (1982) toverify their chronological sequence and to identify any relationsbetween consequent incidents. Furthermore, in accordance withMiles and Huberman (1994: 44) the workshops produced threeillustrations describing relevant actors and inter-organizationalrelationships that appear (as simplified and visually refinedversions) in this paper as Figs. 1–3. To increase the reliability andvalidity of collected data and the outcomes of its analysis,identified critical incidents were confirmed and more additionaldetails were described using written documents such as tenderdocuments, email correspondence, or project documentationwhenever such information was available. Thus, the primary roleof archival data was to add further detail to the descriptions ofcritical incidents identified during the workshops, in particular
OilCo
MAP
Supplier 2
Competitor1
Partner
Supplier1
Competitor2
Competitor3
University
Weak inter-organizational relationship
Moderate inter-organizational relationship
Strong inter-organizational relationship
Conflict
Fig. 1. Network of actors and their inter-organizational relationships at the end of year 1999.
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concerning the time of their occurrence and other details oftendifficult to recall in interview situations.
3.2. Introduction: a strategic intent to secure deliveries in theRussian oil and gas industry
The studied project supplier, Metso Automation Projects, isa business unit of Metso Automation Inc. a global automationsystems supplier that has over 3000 employees and sales andcustomer support units in over 30 countries. MAP employsmore than 50 individuals and its business is mainly focused onRussia and other countries of the former Soviet Union.
Prior to 1996, the top management team of MAP set thestrategic goal of establishing themselves as one of the leadingautomation system suppliers in the Russian oil and gas market. Inthis context, all system deliveries are bespoke and the degree ofcustomization is high. Further, during the last two decades, themarket has gone through dramatic changes and restructuring due
MAP
Supplier 2
Competitor1
Competitor2
Competitor3
OilCo
Fig. 2. Network of actors and their inter-organiza
to the privatization of assets in Russia (Locatelli, 1999). A limitednumber of very large oil companies operate in the oligopolisticindustry.
OilCo, one of MAP's most important customers, is one of thelargest oil companies in the Russian oil and gas industry. OilCo isa relatively centralized organization, and it makes all significantinvestment decisions at the top-management level, leaving ratherlimited power to local subsidiaries. The organizational culture ofOilCo is somewhat risk adverse, and managers are heldpersonally responsible for their decisions. OilCo is also knownfor rewarding its highest performing managers with generoussalaries and bonuses.
3.3. Initial period: forming contacts and opening doors
Before the initial marketing-related contacts between MAPand OilCo, MAPs senior management already knew some of theOilCo decision makers at a personal level. For example, a senior
Partner
Supplier 1
University
Weak inter-organizational relationship
Moderate inter-organizational relationship
Strong inter-organizational relationship
Conflict
tional relationships at the end of year 2002.
MAP
Supplier 2
Competitor1
Partner
Supplier 1
Competitor2
Competitor3
Bankruptcy
University
Weak inter-organizational relationship
Moderate inter-organizational relationship
Strong inter-organizational relationship
Conflict
OilCo
Fig. 3. Network of actors and their inter-organizational relationships at the end of year 2005.
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MAP sales manager had graduated from the same university assome of the OilCo decision makers and had built relationships tothem during years of study. A trade seminar in Western Siberiawas identified as the starting point for active marketing efforts, asMAP met some of OilCo's key decision makers there andengaged in tentative discussions concerning potential for futurecooperation. The discussions were encouraging and MAP madethe decision to invest considerable resources in active marketingefforts. Later in 1996, MAPmanagers and OilCo decision makersmet again to discuss the possibility of a project delivery in greaterdetail. At this point, OilCo let MAP management understand thatthey were not fully convinced of the supplier's ability to deliverprojects in Russia. To assess MAP's reliability and credibility,OilCo decided to contact Supplier 1, a Russian engineeringcontractor that had collaborated with MAP in the past. OilCowanted to ensure that Supplier 1 would be involved in anypotential projects to reduce the risks associated with buying aproject from a foreign supplier. At this point in time, Supplier 1did not demonstrate a high level of interest in engaging in a jointproject withMAP, but it openly discussed this possibility. Later in1997, OilCo decided to make additional investments in theautomation of its production facilities and announced thisintention publicly at an industry seminar. Simultaneously it alsostarted to review MAP's project references abroad to furtherassess its credibility as a supplier. At this point in time, MAPmanagers were frequently in contact with OilCo key decision-makers and had succeeded in establishing several inter-personalrelationships characterized by open informal discussions andfriendship. Through these relationships MAP received a lot ofin-depth information concerning the Russian oil and gas market,some of which was, according to our informants, very likely notavailable to all of MAPs competitors as illustrated by thefollowing quote:
“After we built a certain level of trust [the individualsrepresenting OilCo] started to share information with usthat did not exist in printed format.”
MAP also made initial contacts with several senior individualsrepresenting University, an institution of higher education thathas a highly visible role in the Russian oil and gas industry as iteducates a considerable percentage of engineers employed by thesector. In addition, University arranges various industry seminarsand meetings and is well known and trusted by most potentialMAP customers. A few months after the seminar, MAP wascontacted by Partner, a Finnish company that had recently signeda contract with OilCo for the delivery of another project. AsMAPpossessed capabilities that were complementary to Partner's, itwas interested in collaborating with MAP to deliver projects toOilCo. Partner expected that collaboration between the two firmswould increase the credibility of both actors in the Russianmarket. In mid 1998, OilCo publicly announced that it waswilling to invest in the automation of three compressor stationsand a few months later sent a request for a quote to MAP andthree of its competitors. At this point MAP's interpersonalrelationships to OilCo decision makers, characterized by a strongdegree of trust and even friendship, allowed it to gain someinformation that the representatives of MAP believed was likelynot readily available to its competitors — strengthening MAP'sposition in the tender as illustrated by the following:
“In the initial meetings [with OilCo] one of our partners waspresent, but later on it was just the two of us. [The MAPmanager] somehow managed it so that we stayed while they[Partner] was dropped out. [The OilCo representatives]wanted to deal with us — we somehow managed to find ashared language.”
MAP's offer was further strengthened by the involvement ofSupplier 2, another Russian engineering contractor with a positivehistory of working for OilCo. In particular, Supplier 2 had beeninvolved as a sub-supplier in several relatively successfulautomation deliveries that relied on technologies offered byMAPs competitors. At the time, Supplier 2 was not involved inany other projects delivered to OilCo and by involving Supplier 2
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as a supplier in its offer to OilCo, MAP was able to incorporateproprietary and highly advanced technology owned by Supplier2. Suddenly, in mid 1999 it came to the knowledge ofMAP seniormanagement that Competitor 1 had unsuccessfully attempted toaffect the results of the tender through a decision maker involvedin the tender process leveraging business practices that can becharacterized as questionable. Shortly after this attempt, MAPwon the tender. Unfortunately for MAP, the first delivery toOilCo began with unwelcomed friction, partially due to anunexpected modification to the project scope by OilCo. Thenegotiations concerning the project involved more than 20persons and were even suspended for a week and during theweekend the general director of MAP engaged in long telephonediscussions with a senior manager representing OilCo and thegeneral director of Supplier 1. The following quote illustrates thesensitive and personal nature of the discussions:
“He [OilCo representative] was very worried – he thoughtthat he might be fired because he had continuously andopenly supported us and our project proposal arrangingcontacts with several executives – and now there was arealistic possibility that MAP would withdraw from the dealafter winning the tender.”
Supported by the discussions that had taken place during theweekend, the intense, yet constructive negotiations were finallyconcluded successfully during the following week. The followingquote describes the positive conclusion of the negotiations:
“Immediately after the negotiations were concluded, thechairman, one of the senior directors of OilCo, signaled toopen the doors to an adjacent room where champagne andfood was waiting for us. The atmosphere was very warm andrelieved. The following Monday the execution of the projectstarted in schedule.”
According to our informants, it is very likely that MAP'sstrong relationships to OilCo key decision makers allowed someadditional flexibility in the joint problem solving activities thatresulted in successful, albeit difficult, negotiations. A fewmonthslater, MAP successfully handed its first delivery over to OilCo.Fig. 1 below illustrates the network of actors involved in thetender for the first delivery and the state of the inter-organizational relationships between them at the end of 1999.
3.4. Intermediate period: losing grip on the market?
The beginning of the year 2000 brought several severeproblems for MAP. It had signed a contract with Partner for thedelivery of a joint project to OilCo and at the end of 1999 it hadbecome evident that this project would face a delay, primarily dueto Partner's problems with local subcontractors it was employing.Partly due to its strong IOR to OilCo, MAP was able to negotiatethe problematic situation in such a manner, that its credibility as areliable supplier of automation systems was not significantlyeffected. However, the IOR between Supplier 1 and OilCodeteriorated quickly as OilCo made it clear to all involved parties
that it was dissatisfied with Supplier 1's performance in theproject. Following the satisfactory conclusion of this delivery,MAPmanaged to secure contracts for several additional deliveriesto OilCo without open tendering. An informant describes how therelationships between MAP and OilCo management had growneven stronger:
“The wife of the [OilCo senior manager] had prepared somemeat and we drank some vodka. After that the decision wasmade that it was time to go to sleep. He escorted us to whereour clothes were and he noticed my hat, stated that – this isnot the kind of hat that we wear in Siberia – you will use thisone! [presenting me with his own mink fur hat].”
The secured projects were quite similar in scope to MAPsinitial delivery for OilCo and they were also successfullydelivered. Now it had became evident to MAP managementthat OilCo relied on a strategy of selecting a supplier throughcareful negotiations and tight tendering and then replicated thisproject for its other sites (provided that the initial project deliveryturned out as successful) as illustrated by the following quote:
“…this [intent to purchase additional deliveries from us andshare information about potential automation needs]created an impression that this is not a single opportunisticdeal that needs to be done but that it can lead tostrategically significant collaboration between the twocompanies”.
Between years 2000 and 2002 MAP's inter-organizationalrelationship to Supplier 1 developed quite dramatically. At thistime, OilCo no longer considered the participation of Supplier 1mandatory as MAP had already proven itself as reliable supplier.Furthermore, Supplier 1 started to actively collaborate withCompetitor 2 and these two firms even made an offer to OilCothat competed with MAPs offer. The joint offer was not acceptedby OilCo but nevertheless it resulted in some unwelcomedtension to the relationship between MAP and Supplier 1. As aslight surprise to MAP, during 2001 and 2002, OilCo graduallymade MAP aware that it no longer wanted to depend on a singlesupplier for its automation needs. This unexpected change inOilCo's purchasing policy may potentially be related to a lettersent by Competitor 3 to OilCo senior management stressing thehazards that may result from relying on a single source. The keycontents emphasized in the letter also came to the attention ofMAPs management through informal discussions. To strengthenits relational and functional positions in the market, MAP decidedto establish a formal partnership agreement with University in2002, with which it had already collaborated informally for anumber of years as illustrated by the following quote:
“Our collaborative relationship with University developedquickly and strongly after we had delivered a system forteaching purposes for free and after sold other supportiveautomation technology for a very competitive price.We alsoprovided training for teachers utilizing the system. Thestudents became highly motivated when they became aware
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that now they could utilize the same latest equipment andtechnology that their potential future employers werealready using. The senior management of the Universitywas also highly satisfied with this arrangement and signed astrategic collaboration agreement with us.”
As mentioned above the partnership included the delivery of ademonstration system, which the University could use for botheducational and research purposes free of charge. Reciprocally, aresearch unit closely related to University committed to provideMAP engineering services for a highly competitive price. Inaddition, University played an important role as a source forrecruiting highly skilled engineers for MAP and its partners.Finally, University also played a crucial role in the developmentof relationships between MAP and additional potential cus-tomers, since it arranged highly visible and well-attendedseminars and meetings for key oil and gas industry actors.
In mid 2002, MAP experienced a serious setback for itsposition as OilCo's trusted supplier of automation systems. Anautomation system delivery that OilCo had decided to subjectto open tender was lost to Competitor 3, apparently primarilydue to a considerably lower price offered by Competitor 3.Competitor 3's offer was based on American system platformcompleted by services delivered by a Russian system integratorcompany, who had offered their services earlier, and sometimessuccessfully, to OilCo and also to MAP. During the tendernegotiations the price of Competitor 3's quotation and MAP'squotation were initially very close to each other, but in thefollowing negotiations that focused on the price level of theoffers, Competitor 3 was ready to commit to a 25% discountwhile MAP was only ready to commit to a 5% discount. MAP'ssenior management was not entirely surprised at the loss of thistender, as its contacts within OilCo had been uncommonly busyduring the recent months and finding time for discussions andmeetings had been somewhat challenging. It had now becomepainfully evident to MAP that OilCo had decided to give one ofits competitors a chance to replace it as the preferred supplier ofautomation systems.
Fig. 2 below illustrates the network of actors at the end of2002.
3.5. Final period: securing a strong market position
After the loss of a delivery to Competitor 3 MAP's inter-organizational relationship to OilCo soon demonstrated itsstrength as MAP managed to secure yet another delivery withouta tender. Then, after just a few months, Competitor 3 started toexperience difficulties with meeting its obligations regarding thedelivery it had managed to secure. As in MAP's first project in1999, some conflicts surfaced between the supplier and thecustomer that were related to the scope of the delivery. Further,Competitor 3 faced severe challenges in coordinating the work ofone of its Russian subcontractors which clearly weakened the IORbetween OilCo and Competitor 3. Competitor 3 did eventuallydeliver the project but has not been able to secure any furtherdeliveries for OilCo. Soon after witnessing Competitor 3'sproblems, MAP's senior management received an invitation to
discuss tendering and pricing practices at OilCo headquarters. Atthat time MAP's senior management faced strong pressure toincrease the price level of project deliveries, mainly due tochanges in currency exchange rates. The negotiations betweenOilCo and MAP turned out to be very intensive as OilCo, onceagain considering the possibility of relying on a single supplier,made it very clear that it did not welcome the prospect ofescalating costs. The following quote illustrates the intensivenature of the discussions:
“They [OilCo] had calculated a price-level that should berealistic for us and pressured us to meet it. At that point intime we were already drinking tea and had agreed that wewill surely find a price level acceptable for the both of us. Iand my colleagues at MAP have used to say that he [a MAPmanager] started to cry that we cannot possibly go this low[on price]. Eventually we did find a solution that wasmutually acceptable….”
After long negotiations, MAP managed to increase its pricesmodestly and to sell nine additional projects to OilCo withoutan open tender. At the end of 2005 MAP no longer faced anystrong potential competitors. Fig. 3 below illustrates thenetwork of actors at the end of 2005.
3.6. Case summary
Metso Automation Projects began its marketing activities inthe Russian oil and gas automation market in 1996 with a fewinter-personal connections to individuals representing potentialcustomer firms. Well aware of this limitation, MAP initiated aprogram of actively developing IORs to key players in the milieu,including: potential clients, suppliers, partners, and universities.Following approximately three years of hard work, severalsetbacks, and hard negotiations MAP finally managed to secureits first delivery for OilCo. This project began with difficultiesthat MAP eventually managed to overcome by demonstrating astrong capability to negotiate and solve problems along with itsclient and involved key suppliers. Following the initial successfuldelivery in 1999 MAP was able to secure automation systemdeliveries for more than 25 additional OilCo facilities during thesix remaining years (2000 to 2006).
MAPs competitors have clearly been less successful inestablishing a position in the Russian oil and gas automationmarket. Competitor 1 initially managed to secure the deliveryof three automation systems but was then caught usingquestionable business practices and lost the contract. Compet-itor 3 on the other hand, managed to secure a contract withOilCo by offering a relatively low price and, similarly to MAP,employing Russian subcontractors for the project. As withMAPs initial delivery, Competitor 3's project started withproblems related to difficult scope negotiations and manage-ment of its network of local subcontractors. However, unlikeMAP, Competitor 3 was not able to overcome these difficultiesin a manner that satisfied the customer, effectively terminatingthe possibility of securing additional deliveries. In the analysisof our empirical case we identified the following distinct
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activities and practices that were used to develop IORs with keyactors in the milieu:
• Presence at events and seminars. MAP senior managementactively took part in several industry events held instrategically important cities in Russia. These events andseminars allowed MAP to meet key decision makers, get toknow them at a personal level, and to communicate thestrengths and offerings of MAP.
• Personal involvement and closeness. MAPs senior managersfrequently met with key industry decisionmakers in formal—and often informal occasions. According to our informants,long discussions over the phone at unusual hours involvingissues at a very personal level, and meetings held at dachas(summer houses) both in Russia and in Finland werefundamentally important in developing a shared businesslanguage between individuals.
• Reference visits. MAP arranged visits to the sites of itscustomers operating both in Russia and abroad. The visits wereattended by various individuals involved in OilCo decision-making processes (including, engineering chief, engineeringspecialists, and subcontracting managers). Reference visitsfunctioned as an important mechanism for demonstratingcredibility as an automation supplier. To further enhancecredibility some visits were also accompanied by MAPs keysuppliers that also benefited by strengthening their possibilitiesfor inclusion in future delivery projects (either in collaborationwith MAP or directly to customer). These visits also offeredthe possibility to strengthen the relationships to importantdecision makers.
• Negotiations. During the observed period MAP was engagedin two tough negotiations with OilCo. These negotiationswere decisive moments during which there was a considerablerisk of unfavorable development of the MAP-OilCo IOR.MAP was able to demonstrate its flexibility and intimacy inthe negotiations with OilCo and as a result, both parties weresatisfied with the reached outcomes.
• Formal collaboration agreements. MAP established a formalcollaboration agreement with University, and with some ofMAPs customers. These agreements functioned as formalstatements of the long-term interests of the involved parties.
• Buying access to proprietary technologies. MAP purchasedaccess to a technology owned by Supplier 2 in order to makean attractive offer to OilCo.
4. Discussion
Based on existing literature and our empirical case, IORsbetween a project-based firm and other actors in the milieuseem to play a crucial role in the development of both thefunctional position and the relational position of the project-based firm. By developing inter-organizational relationships tokey actors in the market, PBFs simultaneously increase theireffectiveness in delivering solutions (functional position) andenable them to hold a strong position in the network relative tothe customer (relational position). Our findings lend support forprevious findings that rituals such as participation to different
type of events and seminars have an important role in theproject marketing especially in the early stage (e.g. Borghini etal., 2006; Cova and Salle, 2000). However, our analysis alsodemonstrated that after MAP had secured its first projectdelivery, the market position was primarily developed throughrecurrent project deliveries, effectively avoiding the “sleepingphase” of customer relationship. Hence, our findings show howproject deliveries enable the PBF to further strengthen theirIORs to key actors in the milieu and to tailor their productfeatures and business practices to meet customer requirements.When MAP entered the new market area, its technologicalsolutions were highly similar to those of its competitors.However, unlike its three competitors, MAP was able tocontinuously learn about the equipment, processes and needs ofits customer, and utilize this information to develop its offering.Table 1 summarizes how MAP utilized different activities tobuild a strong position in its target market.
The development of a strong functional and relational positionis a gradual process requiring considerable commitment to thedevelopment of IORs to key actors in the milieu. It took threeyears and a considerable amount of investment from MAP todevelop IORs to central actors in the milieu, allowing MAP to beconsidered a credible supplier by the customer. After signing thecontract for the first project, repeated successful project deliveriesenabled MAP to gradually secure a strong relational andfunctional position in the market. These observations are wellaligned with Skaates et al. (2002) who examined a situation inwhich several Danish architecture firms entered a new milieu,and were recurrently successful in securing delivery contracts byactively developing and nurturing inter-organizational relation-ships to central actors in that context.
When established, MAPs strong market position resulted in asustainable competitive advantage. More specifically, MAP,which was then well connected to other key actors by IORs wasselected as the preferred supplier by the customer. Indeed, a closeand trust-based IOR between the buyer and the seller may reducethe buyer's need and motivation to employ purchasing strategiesrelying solely on competitive tendering (Ahola et al., 2008). Thepractice observed in our study is strikingly similar to the strategyof co-development as discussed by Crespin-Mazet and Ghauri(2007). Finally, our findings provide support to the resultsobtained in earlier research that have shown that actors who arecentral in the milieu a PBF is operating in may also includenon-business actors (Cova et al., 2002). In the context weempirically observed, University, a non-business actor, played akey role as it allowed MAP to cost-effectively recruit highlyskilled engineers and served as an intermediary that supported thedevelopment of relationships to customer's key decision makers.University also fostered networking and sharing informationabout project opportunities that were beneficial for MAP.
4.1. Implications for research
The first goal of project marketing is to contend with thediscontinuity of relationships to customers and other key actors(Cova et al., 2002). However, many project-based industries arecharacterized by repetitive deliveries to the same customers, and
Table 1The process of developing inter-organizational relationships in project business.
Supplier's (MAP)inter-organizationalrelationship
Central activities for developinginter-organizational relationships
• The frequent and intensive interactionduring project marketing and projectdeliveries enabled the development of astrong IOR to the customer.
• Repeated deliveries to the same customerallowed the development of a highlystandardized delivery which was technologicallysuperior to the competitor's offerings
• Repeated deliveries allowed access to in-depthinformation concerning the technologies usedby the customer
• University arranged events during whichMAP could strengthen its relationalposition.
• Customer consulted university expertsduring supplier selection processes. MAPsrelationship with University was an assetduring this phase.
• IOR to University enabled access to state-of-the-artautomation expertise, resulting in more efficientand effective deliveries to the customer.
• MAPs strong IOR to University allowed it to recruitexpert engineers trained by University.
• Important marketing and sales support as Universityrepresentatives advisors were familiar with MAP and itstechnological solutions as well as working methods.
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as a result IORs between actors exceed the life cycle of any givenproject (Sydow and Staber, 2002). We observed that MAP wasable to effectively tackle the challenge of discontinuity throughfrequent and even overlapping project deliveries to the samecustomer. Although deliveries to a single customer site wereinfrequent (typically in excess of five years), OilCo operatesseveral facilities providing MAP opportunities for maintaining acontinuously active customer relationships at the corporate level.This finding complements earlier research that has mainlyfocused on different kind of rituals (Cova and Salle, 2000,2004) or use of after sales services to maintain IORs in projectbusiness (Artto et al., 2008b; Kujala et al., 2013). This findingmay be important in the context of industries, in which projectdeliveries are difficult to complement with after-sales services. Inthe observed empirical context, continuous project deliveries alsoenabled MAP to provide a steady level of work for itssubcontractors, reducing the problem of IORs to key suppliersdecaying due to inactivity.
Our findings also challenge the traditional (and somewhatlinear) model of project marketing, which has three stages:independent of any project, pre-tender and tender preparation(Cova et al., 2002). In particular, we question its applicability in acontext in which multiple deliveries are provided to the samecustomer over an extended period of time. In the context offrequent project deliveries to a single customer, the first stage ofproject marketing, independent of any project, is often in tandemwith project delivery and implementation. After the first contractis signed with the customer, a project-based firm has anopportunity to strengthen its relationships to the customer andparticipating suppliers during the implementation phase of the
project. By successful project deliveries, open communicationand efficient problem solving activities a project-based firm maybe able to create trust and commitment between the key actorsparticipating in the project delivery. Following a successfuldelivery, when the PBF is in an “independent of any project”marketing situation, it may be able to influence the customer sothat the next project will not be submitted for open tender.Frequent project deliveries and the prospect of future businesswith the same customer, i.e. “shadow of the future” (Heide andMiner, 1992), have been shown to increase cooperative behaviorand ensure that parties are motivated to work towardscomplementary goals. The prospect of future collaboration mayenable a PBF, its key partners and customers to co-develop newinitiatives and approaches for future for projects, as has beendiscussed by Crespin-Mazet and Ghauri (2007). Fig. 4 belowsummarizes the above discussion by illustrating our view ofproject marketing as a processual activity. The project marketingprocess may include several parallel projects delivered to a singlecustomer, which are in different phases of the project life cycle,but strongly influence each other. In this type of context it is alsoimportant that a PBF has practices for the sharing of informationacross its portfolio of delivery projects.
4.2. Implications for practice
Our findings have several implications that may be valuablefor practitioners responsible for marketing andmanaging projects.Firstly, establishing a market position in a new geographical areaappears to be a very significant investment in terms of bothresources and time. We observed that it took approximately three
Development of inter-organizational relationships to key actors in the milieu to establish sufficient
functional & relational positions to secure the first project delivery
Development of a core offer
Co-development of customized/standardized core
offer for the next project
Project delivery results in improved understanding of customer requirements
Project delivery results in improved functional
capability to deliver projects
Successful project delivery develops inter-organizational relationships to key actors in the
milieu, further strengthening functional & relational positions of the project-based firm
A single project delivery
Project m
arketing
Fig. 4. Processual model of project marketing supported by repetitive project deliveries.
364 T. Ahola et al. / International Journal of Project Management 31 (2013) 355–365
years of time, dozens of personal visits and a considerable amountof financial resources to secure the first project delivery in thechosen market segment. In addition to the need to secure arelational position strong enough to allow the customer toconsider the PBF as a credible player in the market, severalinter-organizational relationships had to be gradually built tosuppliers and non-business actors in the milieu as well to ensurethat projects can be successfully delivered. The five practicesidentified and discussed earlier (presence at events and seminars,personal involvement and closeness, reference visits, negotia-tions, formal collaboration agreements, and buying access toproprietary technologies) are likely to serve as useful tools forPBFs in their efforts to craft strong functional and relationalpositions in their milieux. Furthermore, our findings emphasizethe importance of the two interrelated positions for the successfuldelivery of the first project to a new customer. While MAP wasable to leverage these positions and deliver its first projectsuccessfully, its competitor, occupying weaker functional andrelational positions (as it was relying mainly on partners externalto the milieu) was not as successful. Thus, as illustrated by theprocessual model of project marketing supported by repetitiveproject deliveries introduced earlier in this paper, both capabilitiesto secure projects and capabilities to deliver them are mandatoryfor the establishment of a strong market position over the longterm. However, when achieved, a strong market position allowsthe PBF to continuously learn from the customer's changingneeds and practices, and adopt its offering to precisely meet them.
4.3. Other considerations
The fact that the empirical part of this paper draws fromsingle qualitative case raises questions on the generalizability of
the study. In particular, it may be that the oil and gas industry,characterized by very large customer organizations operating aconsiderable number of sites, may provide a particularly fertileground for PBFs to develop customer relationships as frequentdeliveries enabled by large number of customer sites requiringrenovation appear to reduce the challenges related to inactive,i.e. “sleeping” customer relationships . However, other project-based industries such as construction or software may providefewer opportunities to engage in frequent deliveries anddialogue with customer organizations. Recognizing this, wewelcome empirical research testing to what extent theprocessual model developed based on our observations holdsin different project-based industries and national contexts.
While it is our view that the collection of critical incidents asmeans of empirical inquiry was an appropriate method forobtaining data in this study, there are some weaknesses inherentto the method that have to be noted. First, the method relies on alimited number of informants in contrast to, for example, asurvey-based study. Acknowledging this we claim that theinformation obtained from the four involved informants wasrich both in content, detail, and availability of verifiabledocumentation to adequately meet our research objective.Second, all interviewed informants represented a single organi-zation. While we would agree that the empirical evidence couldhave been further strengthened and complemented with in-terviews conducted with informants representing other actors wego on to argue that our informants possessed sufficiently accurateinformation concerning MAPs actions and MAPs inter-organizational relationships to other milieu actors to adequatelydescribe how it has developed its market position in the studiedcontext. Finally, it is likely that the readiness to recall significanthistorical events varied to some extent among our informants, and
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as a result, the effects of respondent bias could not be entirelyeliminated from our study.
5. Conclusion
The development of the market position of a project-based firmis supported by investments in two interrelated positions: thefunctional position and the relational position. Essentially, a strongrelational position is mandatory for securing sales, while a strongfunctional position enables the effective delivery of projects. Underthe correct conditions, these two positions may create a self-reinforcing cycle of repeated sales and successful deliveries. Sincethese two positions are interdependent, a weakness in one is likelyto unfavorably contribute to the development of the marketposition. In the empirical case we concentrated on the role of IORsin the context of the Russian oil and gas industry. Particularly indeveloping countries where there are limited safeguards againstmalfeasance offered by institutions, building strong IORs canprovide a sustainable competitive advantage.
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