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In industrial sectors such as consulting, advertising, filmmaking, software, architecture, engineering and construction, most individual businesses are “project-based firms”1 — in other words, their activities tend to be organized through the delivery of projects aimed at meeting the highly differentiated and customized needs of clients.2 These firms depend on executing discrete task-oriented packages for clients, often through temporary coalitions with other project-based organizations,3 and on routinely combining knowledge and skills in new ways.
Of course, as with any business, project-based firms need to maintain internal coherence. But they also require flexibility to respond to opportunities, manage workloads and allocate resources to different projects. As a result, this type of organization, which is becoming increasingly common in developed economies, presents special management and leadership challenges. Research on this subject has been dominated by singular projects as the units of analysis.4 By contrast, this article focuses on the leadership, structure and governance of the firms that deliver those projects.5
The Leading Question
How do project-based firms resolve the tensions between flexibility and control?
- The level of centralized control in project-based firms varies widely.
- Executives who lead the organizational units that deliver projects can be thought of as “barons” — powerful individuals who often exhibit competitive, protective and entrepreneurial behavior.
- In more decentralized firms, project barons often “squirrel” away resources — such as money or knowledge — to keep them for their unit’s use rather than share them.
This article draws on more than 200 interviews with project managers and company leaders conducted in 40 project-based firms in eight countries. (See “About the Research.”) We propose the concept of “baronies” to describe the organizational units that execute the projects within project-based firms. The term arose when an interviewee claimed that “we are the barons running the business,” and it emerged in a number of subsequent interviews and workshops as well. This metaphor is appropriate because it describes entities that often are led by powerful individuals who exhibit the baronial characteristics associated with competitive, protective and entrepreneurial behavior. It also suggests the political nature of resource allocation within project-based firms.
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1. See, for example, R.J. DeFillippi and M.B. Arthur, “Paradox in Project-Based Enterprise: The Case of Film Making,” California Management Review 40, no. 2 (winter 1998): 125-139; M. Hobday, “The Project-Based Organisation: An Ideal Form for Managing Complex Products and Systems?,” Research Policy 29, no. 7-8 (August 2000): 871-893; A. Davies and T. Brady, “Organisational Capabilities and Learning in Complex Product Systems: Towards Repeatable Solutions,” Research Policy 29, no. 7-8 (August 2000): 931-953; and D.M. Gann and A.J. Salter, “Innovation in Project-Based, Service-Enhanced Firms: The Construction of Complex Products and Systems,” Research Policy 29, no. 7-8 (August 2000): 955-972.
2. M. Hobday, “Product Complexity, Innovation and Industrial Organisation,” Research Policy 26, no. 6 (February 1998): 689-710; D. Dvir and A. Shenhar, “What Great Projects Have in Common,” MIT Sloan Management Review 52, no. 3 (spring 2011):19-21; and A. De Meyer, C.H. Loch and M.T. Pich, “Managing Project Uncertainty: From Variation to Chaos,” MIT Sloan Management Review 43, no. 2 (winter 2002): 60-67.
3. A. Keegan and J.R. Turner, “The Management of Innovation in Project-Based Firms,” Long Range Planning 35, no. 4 (August 2002): 367-388.
4. M. Engwall, “No Project Is an Island: Linking Projects to History and Context,” Research Policy 32, no. 5 (May 2003): 789-808.
5. J. Cummings and C. Pletcher, “Why Project Networks Beat Project Teams,” MIT Sloan Management Review 52, no. 3 (spring 2011): 75-80.
6. J.F. Padgett and C.K. Ansell, “Robust Action and the Rise of the Medici, 1400-1434,” American Journal of Sociology 98, no. 6 (May 1993): 1259-1319.
7. S.G. Winter and G. Szulanski, “Replication as Strategy,” Organization Science 12, no. 6 (November/December 2001): 730-743.
8. R.A. Burgelman, “A Process Model of Internal Corporate Venturing in the Diversified Major Firm,” Administrative Science Quarterly 28, no. 2 (1983): 223-244.
i. A. Salter and D. Gann, “Sources of Ideas for Innovation in Engineering Design,” Research Policy 32, no. 8 (September 2003): 1309-1324; Gann, “Innovation,” Research Policy 29, no. 7-8 (2000); A. Davies, D. Gann and T. Douglas, “Innovation in Megaprojects: Systems Integration at London Heathrow Terminal 5,” California Management Review 51, no. 2 (winter 2009): 101-125; M. Dodgson, D.M. Gann and A. Salter, “‘In Case of Fire, Please Use the Elevator’: Simulation Technology and Organization in Fire Engineering,” Organization Science 18, no. 5 (September/October 2007): 849-864; and S. Bayer and D. Gann, “Balancing Work: Bidding Strategies and Workload Dynamics in a Project-Based Professional Service Organization,” System Dynamics Review 22, no. 3 (winter 2006): 185-211.