Dynamic Capabilities for IT Project Portfolio Management

Universidade Técnica de Lisboa. CISTM 2012 – ISEG / UTL
Instituto Superior de Economia e Gestão.

Organizational Dynamic Capabilities for IT Project
Portfolio Management
In Portuguese Financial Institutions

Fernando Albuquerque
ISEG/UTL - PhD Program in Management

Supervisors:
• Profª Cristiane Drebes Pedron
• Profº Mário Fernando Maciel Caldeira
2012, 22 June

Contents

 Research Motivation and Goals
 Research Question
 Theoretical Background:
 Dynamic Capabilities as an Extension of the Resource Based
View (RBV)
 Organizational Project, Program and Portfolio Management

 Dynamic Capabilities applied to the IT Project Portfolio
Management
 Research Method

Research Motivation
 IT Project Portfolio Management (IT PPM) and Dynamic Capabilities are new
research areas
 Hardly ever the two research areas are studied together

 IT Project Portfolio Management (IT PPM) processes are:

 Mainly developed by communities of practice and based on best-practices

 With lack of theoretical background, and

 Few empirical studies that validate the models

 Historically difficult to implement in organizations

 Besides some conceptualization weaknesses, and few empirical validation, both
research areas has multiple knowledge gaps

Research Goals
 Contribute for a better theoretical background in the Organizational IT Project Portfolio
Management (PPM IT)
 Contribute for the research on Organizational Dynamic Capabilities:
 Deepen the concept and theoretical background
 Propose a new scope to the dynamic capabilities are of study
 Useful for the operational management (IT Project and Portfolio Management) and not only for
strategic management
 As a mechanism for answering to internal and operational changes and not only to external and
strategic changes
 Can be used in organizations regardless the external environment degree of change
 Related to the organization “middle-management”
 Contribute to the empirical validation of dynamic capabilities concept

 Evaluate how PPM IT contribute to the organizational performance

 Contribute to a better understanding of the PPM IT implementation mechanisms in the
organizations in order to improve the success of their practical use.

Research Questions
 Prime Research Question:

 How does the Capacity for IT Project Portfolio Management contributes to
business performance in financial institutions?

 To answer to this prime question its necessary answered to the following three
instrumental questions:
 R1) How does the success in IT Project Portfolio Management contribute to
the business performance in Portuguese financial organizations?
 R2) How does the IT Project Portfolio Management in an organization of the
financial sector is influenced by the set of capabilities owned or controlled
by the organization?
 R3) What capabilities are needed to allow the organization being well-
succeeded in the adoption of IT Project Portfolio Management strategy?

Major Resource Based-View (RBV) Concepts.

“Despite the economical theory predictions that the differences between rival companies tend
to disappear when exposed to the competitive process, the empirical evidence demonstrates
the opposite” (Zott, 2000, p. 97).
Because competitors differ in the strategic resources and in the capabilities that they hold
(Dierickx e Cool, 1989; Peteraf, 1993; Amit e Schoemaker, 1993; Helfat e Peteraf, 2003).

 Strategic resources and capabilities persistent heterogeneity creates the
conditions for:
 Imperfect imitation (Barney, 1991)

 High copy costs (Caldeira e Ward, 2003)

 Allowing the organization to hold competitive advantages, ie. operate with high
performance levels and obtain higher incomes than those of its competitors
(Peteraf, 1993; Caldeira e Ward, 2003)
 These competitive advantages are sustainable:
 When subsists during a long time period (Porter, 1985; Jacobsen, 1988)

 If persists after competitors efforts to imitate has ceased (Lippman e Rumelt, 1982;
Barney, 1991)


 In the light of RBV the source of sustainable competitive advantages are the
organizational resources, capabilities and competencies

Organizational Organizational Organizational
Resources Capabilities Competencies

Group of tangible and intangible Distinctive set of resources
factors to which the company has characteristics that give to Ability that allows the
access and can be converted in the organization the ability to organization to select the
products or services (Amit e perform, with quality and in a resources and capabilities
Schoemaker, 1993; Peppard e systematic way, a specific that are relevant to achieving
Ward, 2004). activity or process (Amit e a specific value strategy,
By is own resources does not Schoemaker, 1993; Caldeira e combining them with other
create value. Value creation Ward, 2003; Willcocks e organizational processes in
depends of the organizational Feeny, 2006; Helfat e Winter, order to obtain a particular
capability to manage and organize 2011) outcome. (Peppard e Ward,
those resources in order to achieve 2004)
a specific goal (Teoh, 2010)

 But RBV is mainly about the mechanisms to obtain competitive advantages and does
not offer enough explanations about the mechanisms that contribute to the
sustainability of those advantages


 In the light of RBV the source of sustainable competitive advantages are the
organizational resources, capabilities and competencies (Prahalad and Hamel, 1990).
 A company is a portfolio of competencies
 A competitive strategy must be based on internal resources, capabilities and competencies
 The efforts most focus on identifying which of them create competitive advantage
 But RBV is mainly about the mechanisms to obtain competitive advantages and less
about the mechanisms that contribute to the sustainability of those advantages
 Organizations can sustain a competitive advantage thru:
 The control of resources that others cannot copy or understand (Peppard and Ward, 2004;
Judgev et al. 2007)
 Investing in idiosyncratic or inimitable competencies (Peppard and Ward, 2004)
 But to be able to compete in a changing world the organization must also have
mechanisms that will allow it:
 To learn new skills and capabilities (Drnevich and Kriauciunas, 2011)
 To reconfigure his resource base in a new set of operational capabilities (Pavlou and Sawy,
2011)

Organizational Capabilities - Typology.
How can organizations learn new abilities and capabilities and reconfigure his
resource base in order to create new operational capabilities?

Heterogeneous Capabilities Homogeneous Capabilities

Unique, idiosyncratic, customized Common to a industry and
and/or specific of the organization undifferentiated in relation to
competitors

Organizational
Capabilities

Dynamic Capabilities
Operational Capabilities
A subset of capabilities that represent
Used by the company for daily an intentional effort to create, modify or
functions and allowing organization’s to reconfigure the resources and the
execute a specific activity in a operational capabilities, with the
continuous way intention of creating new products or
services

Dynamic Capabilities. What are They?

A subset of capabilities that represent an intentional effort to create, modify or reconfigure
the resources and the operational capabilities, with the intention of creating new products
or services (Teece and Pisano, 1994; Teece et al. 1997; Eisenhardt and Martin, 2000; Winter,
2003; Zahra et al. 2006; Ambrosini and Bowman, 2009b; Pavlou e Sawy, 2011)

According to this definition the dynamic capabilities are:

 A way of the organization responding to changes in the external environment, and a
source of competitive advantage in turbulent environments (Teece e Pisano, 1994;
Teece et al., 1997; Lee et al., 2002; Teece, 2007; Pavlou e Sawy, 2011),
 Also relevant in stable environments (Eisenhardt e Martin, 2000)
 Especially important in technological areas (Teece, 2007; Drnevich e Kriauciunas,
2011):
 Where success depends on the discovery and creation of innovative opportunities
 The invention of new business models
 The capacity to take innovative management decisions
 Where technology is used to power the arising of new capabilities

Dynamic Capabilities - Typology

A subset of organizational capabilities that represent an intentional effort to create, modify or
reconfigure the resources and the operational capabilities, with the intention of creating new
products or services (Teece and Pisano, 1994; Teece et al. 1997; Eisenhardt and Martin, 2000;
Winter, 2003; Zahra et al. 2006; Ambrosini and Bowman, 2009b; Pavlou e Sawy, 2011)

 Reconfiguring - Organizational mechanisms to
 Detection – That allows the identification of new
modify the project portfolio and to allocate
threats and opportunities human and financial resources within the
 Learning and Adaptation – That allows to take portfolio
advantage of those new opportunities and face  Seizing – Includes organizational mechanisms for
the threats more efficiently and effectively deciding changes to the project portfolio once a
potential need for change has been sensed.
 Integration, Innovation and Reconfiguration –
That allows the maintenance of competitiveness  Sensing – Mechanisms put in place to identify
through the reinforcement, combination, the changes in the environment and translate
protection and reconfiguration of the resources them into potential new (or changed)
and operational capabilities in order to allow the requirements for the projects
appearance of a new resource base and the  Transforming – Describes high-order activities of
development of new products and services. improving PPM activities. Include two broad
category of actions: 1) modifying reconfiguring,
 Coordination – The ability to orchestrate and put
seizing ans sensing; 2) introduce new structures,
in practice the tasks, resources and activities
processes or tools to support PPM activities
related to the new operational capabilities
Teece, 2007; Wang and Ahmed, 2007; Killen et al. 2008; Ambrosini and
Teece, et al. 2007 cited by Petit and Hobbs, 2012
Bowman, 2009a; Pavlou and Sawy, 2011

Organizational Project, Program and Portfolio
Management
 A project portfolio is:
 A collection of projects, programs and other types of work with the aim of improve management
effectiveness and alignment with business goals (Patanakul e Milosevic, 2008; PMI, 2008; Killen et al.
2008)
 A useful instrument to achieve corporate business strategy because allow the translation of the strategy
formulations in specific objectives (Archer e Ghasemzadeh, 1999; Morris e Jamieson, 2004;
Srivannaboon, 2006; Shenhar et al., 2007)
 Unlike projects and programs, portfólios are not temporary endeavors (PMI, 2008c)
 In financial services industry, where practically every offered products and services are based
on information and technology, the majority of projects are IT projects (Prifling, 2010, p. 762).
 IT Portfolio management (PPM TI) its a dynamic process during which the project that are
being carried out (Kao et al., 2006):
 Are continuously reviewed and modified
 New projects are assessed, prioritized and selected
 Resources are allocated and reallocated among the different projects
 The schedule goals are redefined, in order to continuously adapt the resource needs with the resources
availability, while maintaining the portfolio equilibrium
 The adoption of IT PPM in the organizations unfolds in the scope of a phased process of
incremental maturity (Jeffery e Leliveld, 2004; Reyck et al. 2005)

Dynamic Capabilities Applied to IT Portfolio
Management

Strategic Alignment
 Being the project portfolio a sustained
effort, and
Porfolio Balance
 Being the IT Project Portfolio Management
a (PPM IT) dynamic process
Benefits (Value)
 The Evaluation of New Oportunities under
Maximization
PPM IT consists of:
PPM TI Planning, Executing and  Review and modify the project in execution
Monitor the Projects in
Goals Execution  Evaluate, prioritize and select new projects to
integrate the portfolio
Reporting Information for
Decision
 Perform the allocation and reallocation of the
resources
 These processes of allocation and
Evaluate New Opportunities
reallocation are relevant to the dynamic
capabilities (Helfat et al. 2007; Killen e
Continuously Improve the Hunt, 2010)
Maturity Level

(Cooper, 2003; Blomquist e Muller, 2006; PMI, 2008b; PMI2008c; Artl, 2010; Petit e
Hobbs, 2012)

Dynamic Capabilities Applied to IT Portfolio
Management
 The PPM TI is supported by specific organizational capabilities (PPM Capabilities)
 A PPM Capability (Killen et al. 2008):
 Is the combination of organizational structures, processes and people involved in specific project portfolio
management
 Seeks to ensure alignment between the project portfolio and strategy

 Dynamic Capabilities help to explain the contribution of the PMM Capability in the achievement of
competitive advantages (Killen e Hunt, 2010)
 Likewise the remaining organizational capacities, also the PPM capabilities can be divided into:
 PPM Operational Capacities
 PPM Dynamic Capabilities

 Those PPM Dynamic Capabilities creates the foundations on which, in a persistent way, the PPM
Operational Capabilities will be transformed in order to:
 Create and develop the operational capabilities that best suit the organization's projects (project type, specific
context e organizational culture)
 Improving the efficiency of IT project portfolio management (Information to decision and decision process)
 Increase the effectiveness with which the projects contribute to the organization's business performance (choose the
right projects)

Dynamic Capabilities on PMI / OPM3 Maturity Model

The adoption of IT PPM in the organizations unfolds in the scope of a phased process of incremental
maturity (Jeffery e Leliveld, 2004; Reyck et al. 2005)

 OPM3 Core Concepts
 Domains (Project, Program and Portfolio)
 Organizational Enablers (OE)
 Multidimensional Maturity
 Basic Components
 Best-practices
 Capacities
 Outcomes
 A best-practice is supported on two or more
capacities
 Capacities are evaluated thru one or more outcomes
 The outcomes are measured thru KPI’s

Dynamic Capabilities on PMI / OPM3 Maturity Model

 The OPM3 considers the existence of two distinct types of best-practices (PMI, 2008b):
 SMCI Best-Practices - Linked to the maturity model and necessary for the consistent use of
procedures for organizational project management
 OE Best-Practices – Organizational Enablers) which are structural, cultural, technological and
human resources
 Make easier the implementation of SMCI best-practices SMCI
 Includes the organization's management processes that are not explicitly mentioned in the
project management methodologies, but that support these methodologies
 Make the obtained organizational improvements sustainable

The Dynamic Capabilities for IT PPM are “an intentional effort to create, modify and reconfigure
IT PPM operational capabilities in order to be able to maintain a portfolio of projects
continuously aligned with the organization goals"

Final Thoughts

 Prime Research Question:
 How does the Capacity for IT Project Portfolio Management contributes to business
performance in financial institutions?

 There is in literature and in the communities that practice standards evidence
that:
 The successful adoption of IT PPM will depend on the existence of certain IT PPM
capabilities
 Some of those IT PPM capabilities are conceptually identical to what the management
literature calls of Dynamic Capabilities
 Specifically to the IT Projects Portfolio. What are those capabilities, and how they
contribute to the success of IT Portfolio Management and business performance
on financial organizations?

Thanks for your
attention

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Dynamic Capabilities for IT Project Portfolio Management

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