International Business Review 10 (2001) 305–322
www.elsevier.com/locate/ibusrev
Managing inter-firm industrial projects — on
pacing and matching hierarchies
J. Dahlgren , J. Söderlund
*
School of Management, Linköping University, SE-58183 Linköping, Sweden
Abstract
The purpose of this article is to present a conceptual framework useful for understanding
and analyzing the management and organization of the execution phase of inter-firm industrial
projects. On the basis of an exploratory case study of a project within the ABB (Asea Brown
Boveri) Group, we develop two concepts. One is pacing, which focuses on the mutual coordination of activities between client and contractor. Pacing refers to the temporal orientation of
the parties involved in inter-firm projects. The other concept is matching hierarchies, which
focuses on how the interacting parties establish joint-decision making in order to handle overall
project-related dependencies and conflicts. The suggested concepts are linked to each other in
the sense that a configuration with matching hierarchies provides the arena for solving pacing
problems, while, on the other hand, the pacing process provides the mechanism for linking
hierarchies.  2001 Published by Elsevier Science Ltd.
Keywords: Project management; Project marketing; Client–contractor relationships; Temporary organizing; Coordination; Cooperation; Pacing; Matching hierarchies; ABB
1. In the midst of the storm
“What is happening?” The project manager of one of ABB’s (Asea Brown Boveri)
most important industrial projects could not believe what he was experiencing. In
the last 11 months, some 10,000 letters, all full of questions and demands for new
and renewed tests, had flooded the entire company. In the previous project in Finland
* Corresponding author. Tel.: +46-13-284065; fax: +46-13-281873.
E-mail address: jonso@eki.liu.se (J. Söderlund).
0969-5931/01/$ - see front matter  2001 Published by Elsevier Science Ltd.
PII: S 0 9 6 9 - 5 9 3 1 ( 0 1 ) 0 0 0 1 8 - X
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that he had been in charge of, only 75 letters were received during the entire project!
10,000 letters meant roughly 50 per day! And as if the sheer number of letters was
not enough, the tone of the letters, seemingly insinuating lack of competence and
expressing distrust, irritated those who were targeted.
It’s impossible to work with a client who engages almost everyone in the
organization with his questions. We don’t get the time to plan and think ahead
when all of our time is consumed by reacting to the client’s requests. And I
haven’t got the faintest idea what we should do to stop this.
The above text is a short excerpt from our material on a project carried out by
the Swiss–Swedish firm ABB. In the end, the project was a failure in terms of two
of the normal success criteria for projects, on budget and on time, although the
overdraft in time was caused mainly by factors external to the project. The client
was satisfied with the functionality of the plant, but realized that the project could
have been carried out with less resources devoted to negotiations and conflict resolution.
The fact that the project was unsuccessful is in itself a reason for further analysis.
Apart from this, we believe that two questions provide additional reasons for analysis:
1. What caused the behavior of the contractor and the client to differ so dramatically
in intensity?
2. Why were the companies’ attempts to manage the relationship unsuccessful?
In this paper we are going to suggest answers to these questions — answers that we
believe will have some important theoretical implications.
2. Managing the violation of the decoupling principle
In industrial inter-firm projects, combining the effort of several companies is of
major concern. In such multi-organizational contexts, interdependencies in areas such
as planning operations and information create uncertainty, which has to be resolved
through the cooperation between the contracting parties. The need for coordination
is thus a function of the degree of interdependence (Chisholm, 1989). In his discussion on project administration in the North Sea, Stinchcombe (1985, p. 70) particularly emphasizes the importance of the ‘decoupling principle’. The principle asserts
that if two activities are highly interdependent, they should be carried out by the
same organization, under the same authority. If this is not possible, the activities
should be made independent (decoupled). In large engineering projects, where joint
effort from several organizations is involved, interdependent engineering work is,
however, often split up between organizations. This results in a violation of the
decoupling principle. The reason is that an organization has to manage many interdependencies and the interdependence in engineering work is only one of them. Coup-
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ling in other areas, e.g. strategy and knowledge bases, must sometimes be given
priority. Thus, what is important is not how to avoid violating the decoupling principle, but rather to increase our understanding of how to manage situations where
it has to be violated.
Cooperative strategies are often tied to the existence of real potential for future
transactions (Macneil, 1980; Axelrod, 1984). Continuing relationships are generally
considered a source of trust, stemming both from historical interactions and/or from
expectations of future transactions (Bryman, Bresnen, Beardsworth, Ford, & Keil,
1987; Goodman & Goodman, 1976). In situations where contractors with turnkey
responsibility use the same sub-contractors for repetitive projects a kind of quasifirm configuration emerges (Eccles, 1981). In these cases institutionalized behavior
manifests itself in standardized interaction sequences supported by common experience, a common knowledge base, common interests and routines that lead to reduced
uncertainty. The institutionalization of such relationships makes an organization
adjust its culture, methods and practices to the other party. The institutionalization
in turn reduces uncertainty and has the potential to trigger action (Sahlin-Andersson, 1992).
A typical characteristic of project industries is the frequent lack of a continuing
relationship between the main actors, which complicates attempts to coordinate interdependent activities (Bonaccorsi, Pammolli, & Tani, 1996; Cova, Mazet, & Salle, 1996;
Kolltveit & Reve, 1998). In this respect a project might be viewed as a ‘one-night stand’
(Kavanagh, 1998; Meyerson, Weick, & Kramer, 1996). Even in a project involving a
product or system with a long service life, e.g. a power plant, the client does not build
strong, long-term relationships with the contractor. Although such an investment has a
service life of more than 30 years, the client must be capable to manage it independently
after the take-over.
During the execution phase a mutual and tight relationship must be established
because of the interdependencies and the uncertainty involved. This might not only
lead to an intense work in bringing the organizations together, but also to activities in
order to curb opportunistic behavior on the part of either party. Owing to the lack of
expectation of future transactions, it might be assumed that this need for coordination
leads to a reliance on formal mechanisms, such as contracts. Even though a contractual
framework forms an important structural background to processes of interaction, it can
sometimes also be an obstruction to control (Bresnen, 1990; Stinchcombe, 1985). The
argument here is that projects are often carried out in environments and situations of
high complexity and uncertainty, which call for organic structural characteristics
(Chisholm, 1989; Söderlund & Andersson, 1998). Macaulay (1963, p. 61) found that
some business people object to elaborate contracts because they indicate a lack of trust
and blunts the demands for friendship, turning a cooperative venture into ‘an antagonistic horsetrade’. Hence, legal ordering is applied only when private ordering fails.
3. In search of a framework
Academic work on the marketing and management of projects is definitely on the
increase (Günter & Bonaccorsi, 1996; Lundin & Midler, 1998). Several attempts have
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been made by researchers to expand our knowledge about client–contractor relationships in project-based industries. A significant trait in these attempts is that the execution
phase has nearly always been neglected. Either studies on the interaction between the
client and the contractor have focused on the time period prior to signing the contract
(Bansard, Cova, & Salle, 1993; Cova & Holstius, 1993; Cova, Mazet, & Salle, 1993),
or the focus has been on the period between projects (Hadjikhani, 1996). Both these
strands of research have contributed greatly to the knowledge about projects, the marketing activities and the strategies for establishing and maintaining customer relationships.
However, the literature dealing with the cooperation and coordination between the client
and the contractor during the execution phase still suffers from meager attention and
lack of good empirical research.
The purpose of the present article is to present a conceptual framework for understanding and analyzing the management and organization of the execution phase of
inter-firm industrial projects. Management is seen here, Sayles and Chandler (1971)
suggest, as a form of handling organizational processes and rates of time. Our explorative case study indicates that the differences in rates of time were a major source of
problems. Our study also points to hierarchy as an important feature of inter-firm projects. The mirroring and matching of the two firms’ respective hierarchies can thus be
regarded as a way to handle the problems arising from the violation of the decoupling principle.
4. Methodology
The study was initiated in January 1995 when we met with the top management of
one of ABB’s subsidiaries to discuss the possible cases for describing and analyzing
client–contractor relationships in industrial projects. We were looking for international
projects that had caused the firm some problems and which were interesting from several perspectives and levels of analysis in the hope that the case would generate good
descriptions of ‘typical’ project management problems. After discussing different types
of projects we decided to make a pre-study of the project accounted for in the present
paper. We soon realized that this project had several interesting aspects, both on practical and theoretical levels. The pre-study consisted of a day of discussion with the former
project manager and one of the site managers, in order to get an overall picture of the
project. They described the project, its scope, objectives, and major problems, and
how the project finally had been executed and finalized a couple of months before we
commenced our study.
Our main study was divided into four intervals to make it possible for us to reflect
upon the interviews and also to sum up and transcribe the interviews, and after that
make a decision about the future direction of the study. On every visit to the company
we met with the project manager to perform follow-up interviews. Every visit lasted
for two days, during which we conducted interviews for approximately 6 h per day.
At every interview we used a tape recorder. In total, our study required more than 20
interviews lasting between 1 and 5 h. Apart from the interviews, we had access to the
written material about the project and several reports and messages from the client.
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From a methodological point of view, we believe that the best way to develop concepts and generate theory based on deep understanding is to use a single case study
approach (Dyer & Wilkins, 1991). We rely on one in-depth study to provide a rich
description for revealing the structure and context of social behavior observed in the
focal project. The dialogue between theory and empirical observations is here of utmost
importance for the construction of theory that is both empirically grounded and theoretically reflexive (Dyer & Wilkins, 1991, p. 616). On the basis of insights about context
and underlying dynamics of the case (Easton, 1998), we develop a conceptual framework for future analysis of client–contractor interactions in projects similar to the one
being analyzed in this article. At this stage we believe that it is more important to get
a rich description of one case than to compare different projects. We suggest that a
comparative approach might be an appropriate next step in this research effort
(Eisenhardt, 1989).
5. The case
ABB is one of the largest companies in the world. One of its business areas is power
transmission. On average, a power plant is an investment of about 500 MUSD. The
market is concentrated and competitive, consisting of three major competitors on the
supply side and mostly state-owned enterprises throughout the world on the client side.
The number of projects in this market is limited, and hence every single project is
considered to be important.
In 1965, ABB delivered the original plant to National Electric (code name). In the
mid-1980s, ABB received indications that National Electric was planning to upgrade
the existing plant and by 1988 ABB learnt that National Electric had carried out tests
in cooperation with one of the major competitors of ABB. Shortly later, ABB sent a
delegation to National Electric to get information and discuss plans for the upgrade. It
turned out that some technical features of the project, e.g. the seismic conditions, the
layout of the sites and the required noise reduction, were very complicated.
5.1. A project in the pipeline
National Electric had several options for configuring the project. In what was seen
as a bold step, a model based on the use of internal resources from National Electric
together with additional individuals and companies was adopted as it appeared to be
the most cost-effective, the most controllable and as an alternative which would most
likely generate long-term benefits for National Electric. It promised to avoid the disadvantages of the other alternatives, which included: (i) lack of technical and quality
control of a turnkey project; (ii) perceived high cost of project management organizations and their previous limited success in managing industrial relations in the country;
and (iii) the need to avoid compromising National Electric’s long-term obligations.
National Electric decided to divide the overall project into eight separate sub-projects,
which were to be managed as either stand-alone, fixed-price contracts or small sets of
fixed-price contracts.
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As the project was crucial to National Electric, several experienced consulting firms
(both technical consulting firms and administrative support) were contracted. Nothing
was to go wrong.
5.2. The tender phase
ABB was invited to take part in the tender process and initially a temporary task
group headed by the sales manager was organized. A proper project manager was
appointed as late as in the final discussions with the customer. The project manager
explained it in the following words:
The reason why I entered the project so late was because I was in the middle of
finalizing another project. However, I was able to hand over that responsibility to
others mainly because only details remained in that project. I discussed the new
project with our CEO and he asked if I was interested in being project manager. I
had about ten days to read through all the material and documentation about the
project before we flew to National Electric to discuss the final parts of our bid. It
was a stressful situation.
It soon became obvious that an unusual amount of effort had to be put into answering
questions from client’s representatives. One member of the project management team
described the situation in these terms:
It is rare that the customer drives the negotiations like this. They wanted to know
and cover everything. They got into details and covered them thoroughly. They were
so detail-oriented that it looked like they were trying to avoid all the risks in the
project, no matter how minor. They wanted to make sure that nothing went
unnoticed.
Their technical director had a lot of questions during the final negotiations. It
seemed like we were writing formal letters to deal with each question before the
contract was even signed. We had expected to address most of these issues after
the contract was signed (Project Manager).
At this stage National Electric’s involvement was, however, taken as a positive sign.
Although it generated a lot of extra work in the early phases, it might exclude some
problems later on.
Prior to the final bid, representatives of ABB flew out to meet the representatives
of National Electric to discuss and clarify certain aspects of the project. The day after
the ABB representatives had come back to Sweden, the sales department got the
word — the customer wanted to enter into final negotiations with ABB. The sales
manager and the project manager were back on a plane to the customer. The final
discussions on price and details took only one day, and the contract was signed. In the
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meantime, the would-be project manager was interviewed by people from National
Electric who accepted him as their counterpart.
5.3. Project start-up
The ABB project organization slowly began to take form. The contract stipulated,
among other things, that there should be a resident manager locally, whose task was,
so to say, to smoothen out the operations and handle day-to-day communication.
One of the project manager’s concerns was to find the right people:
What worried me most was getting a technical director. My problem was that
everyone I wanted was working in another project. But when the ABB management
told me that I was free to recommend anyone, I did. I had worked with a very
professional engineer in the past and knew he understood the project and its issues.
He was ready for a new challenge. He particularly appreciated the fact that he would
be responsible for commissioning the new plant (Project Manager).
Much to the surprise of ABB, National Electric retained some of the consultants.
Most importantly, their project manager was a consultant. ABB experienced the effects
of the high involvement of consultants in National Electric too soon:
We were worried from the first day. They came in with a lot of questions about
details that clients normally don’t get involved with. They were asking detailed
questions about implementation while we were still trying to put together an organization here at home. We didn’t even know what team we would have on site, and
we were already trying to handle detailed client questions. The questions went much
further into ABB’s organization than what normally was the case. We were busy
trying to understand all of the aspects of the business we had agreed to perform. It
takes a while to get ready for implementation in a project like this. We had to read
and re-read the contract and the specifications to truly understand the scope of the
technical solution and some of the technical problems (Technical Director).
The high involvement of consultants had other consequences as well:
They wanted both braces and belts. A consultant can’t give, he can only take,
and he must have documents to be able to show what he has done and why he has
done it (Technical Director).
During the build-up phase of the ABB project organization, there was no real time
for handling the client’s questions and proposals. ABB was therefore forced to react
to client’s proposals rather than being able to actively formulate the rules of the game:
We built our project organization far too late and far too slowly. I was alone but
they had their organization running at full speed. (Technical Director)
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I think that we failed in controlling the project. Everything had already been
decided on when we entered the project. We have to make our moves early in order
to be able to affect the rules of the game (Sales Manager).
Ten months after the project had started, the project manager and the technical director of ABB met with the technical director of National Electric. The project manager
of ABB knew he had problems when he learned that the client did not want to approve
the ‘equipment specifications’, something that ABB needed in order to purchase equipment. The client also demanded more extensive tests than ABB’s time schedule and
budget permitted. The project manager thought that they were losing control over the
situation and that the relationship with the client was deteriorating. He realized that the
project could not be managed properly if he constantly had to follow all of client’s directives.
At this point, the project manager decided to call in his CEO in order to explain
these concerns to the client.
Our CEO had been around for a long time and knew how to handle these kinds
of issues. I called him in because of that experience. Our CEO explained to their
technical director exactly what would happen. If the client kept pushing us with
detailed questions, the project would be delayed. Our CEO raised his voice a few
times in the discussion. They finally agreed to ABB’s approach, but made a note
that the sound levels might not meet the requirements of the specifications.
The project manager felt he had taken a drastic measure:
I would normally never move a project to that level of the organization. I would
much rather take care of the problems myself, but I saw the project deteriorating
and his intervention as the only way out. I think it was the only move that could
be made.
The project manager was not the only one who was frustrated with the client. The
technical director of ABB had his share of concerns as well.
They flooded us with letters. Each person involved in a minor facet of the project
would have to answer, and each person would answer from his or her perspective.
The client felt like they were getting conflicting information. Minor questions were
driving an enormous amount of work. Whole studies were conducted to deal with
nonsense (Technical Director).
Even as ABB tried to tolerate the additional burden, client’s requests for information
intensified and remained a source of irritation. ABB was forced to take drastic action.
The local office was overloaded with questions and correspondence while trying to
deal with concerns associated with the development and design work. The number of
formal letters from the client was obvious evidence of the problems.
Everyone within ABB had a feeling that little was being accomplished. The client’s
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behavior had become a constant source of irritation, and ABB’s operational analyses
showed that the situation was becoming critical. It was then decided that ABB’s top
management, including the CEO, would visit National Electric and discuss the situation
with the client. Such an approach had successfully been tried in an earlier project in
the United States.
After the meeting, the CEO of ABB realized that he had to be more proactive. ABB
had no qualified engineering competence on site, which led to extensive work for engineers located in Sweden.
The situation became untenable. Our top management was spending a lot of time
on this. If we’re called in to resolve issues, the system isn’t working. It’s at the
wrong level. There was a risk that the project was going to be delayed and that
more costs would be incurred if it continued like this. We had to come up with
something (CEO).
A new project manager was appointed. Management wanted to back up the project
and therefore moved the initial project manager to the client’s country in order to handle
questions and relations locally.
We wanted to have more competence concerning the technology on site to handle
all the questions from the customer and the consultants (Project Manager II).
ABB’s strategy can be seen as an attempt to locally match both the client’s competence and organization. Further, the new project manager demanded that any communication from the project manager of National Electric should be channeled
through him.
5.4. The problems continue
The new organization did not produce any noticeable difference in Sweden. Questions continued to pour in. ABB still wanted to keep cost and time limits. The world
market is small and any information of a failure spreads easily, affecting the reputation
of the company.
A few months later, the top management of ABB met with the client’s project manager and members of top management at a meeting in Sweden. The purpose of the
meeting was to discuss and agree upon responsibility for some identified technical
problems. A top management agreement was finally reached as to how responsibility
should be divided. However, the meeting ended abruptly.
We met in Sweden to reach an agreement. We discussed and made minor changes.
Their project manager rose suddenly and declared that the National Electric representatives were leaving. They went to the airport. We sat down very confused. We
managed to reach them and they then said that they wanted to talk to our CEO.
This was arranged and they met at the airport. On a subsequent occasion the project
manager of National Electric said that if he had been sitting closer to his own man-
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ager when shared responsibility was agreed on, he would have kicked his leg (Project
Manager II).
The contentious atmosphere continued throughout the project. ABB’s engineers
thought that the National Electric people were asking the wrong questions — questions
they believed were to be sorted out later on. National Electric had their priorities, while
ABB argued that other priorities would be more advantageous for the project.
In the end, the plant was successfully constructed and handed over to the client, who
was satisfied with its functionality. The project was not on time and budget, and according to the technical director of ABB several opportunities that could have been exploited
were missed. From an ABB perspective, an enormous amount of work had been
devoted to negotiations and conflict resolution, which also affected the costs for the client.
6. A theoretical interpretation
Broadly speaking, we would normally regard individual behavior as influenced both
by personal traits and environmental factors. The individual’s predisposition and values
are of great importance for the study of any social relation, but, given our ambition to
understand our case, we will here instead focus on the external influence on the outcome
of behavior in social contexts. Lawrence and Lorsch (1967) recognized that different
time perspectives had implications for the design of organizational structures and processes. However, this did not lead researchers to examine the implications of such
considerations for the distinction between permanent and temporary settings (Bresnen,
1990). Thus there arises a great need to highlight the effects when participation is
perceived as temporary, and the way appropriate organizational and management apparatus differs from permanent settings (Bryman et al. 1987, p. 256). These issues have
induced us to focus on the concept of pacing in a project context.
6.1. The concept of pacing
At a general level, using a term borrowed from biology, adaptation processes can
be labeled ‘entrainment’, which is defined as “the adjustment of the pace or cycle of
an activity to match or synchronize with that of another activity” (Ancona & Chong,
1996, p. 253). Entrainment induces scholars to look for rhythmic patterns in organizations (Gersick, 1994). Further, the concept directs researchers to analyze how well an
organization’s overall pace matches the rate of change in its particular environment.
Our interest in entrainment is sparked by the fact that adaptation goes on, not only
between an individual and the physical environment, but also, more importantly, in
social contexts. When a company, for instance, finds that a competitor has managed
to get a lead in product development, it needs to speed up its own processes, in order
to keep pace (Brown & Eisenhardt, 1998). Additional examples can be found in the
interaction between individuals from different cultures who do not share the same per-
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ception of time (Levine, 1988), and in counseling where the counselor and the client
need to find activity levels that match in intensity (Maple, 1985).
One idea that emerges from this research is that, for any well-functioning social
relation, there is a need for the establishment of a shared view of actions and time
(Chapple, 1970). Strauss (1978) has labeled the necessary ‘bi-partisan common understanding’ as a ‘negotiated temporal order’. As presented above, the entrainment concept
applies to individual and group levels (McGrath, 1988). We propose that the concept
is equally applicable to the organizational level and to the analysis of two interacting
organizations.
Organizations have idiosyncratic rhythms in the form of time-schedules, accounting
periods, cultures and similar ‘rhythms’, which in an inter-organizational context need
to be attuned to each other for any coordination to function properly. In a social context
we prefer the term pacing to the biological term entrainment. There are several reasons
for this: (i) pacing refers to a context with interacting human beings and not to individuals interacting with the physical environment; (ii) pacing connotes a process with
mutual adjustments and not a one-sided adaptation; and (iii) pacing does not assume
any special rhythmic process for either party in the interaction although such processes
might exist (e.g. the budget period). According to Gersick (1994), pacing is most likely
to occur in three different cases: firstly, when the system members have a deadline,
which they perceive as important; secondly, when the system members have significant
control over their own actions; and thirdly, when the path to and specification of the
final outcome is at least partly indeterminate. These conditions imply that system members are willing and able to alter their course in the interest of synchronization and
meeting a deadline.
The main purpose for using the concept of pacing is to understand how the behavior
of parties in a social interaction, whether they be individuals, groups or organizations,
becomes coordinated and why coordination sometimes fails. Our idea is that each member brings his or her preferences about type of activity, timing, operation, etc. to any
organizational setting and that these preferences need to be synchronized for the organization to function smoothly. There are a number of different paces in a project setting.
Some of these can be part of the intra-organizational interaction in the relation between
a project and departments. Such pacing problems are more easily handled because of
the possibility of imposing a single authority (Sayles & Chandler, 1971).
The pacing concept and the conditions listed above lead us to investigate the coordination problem between client and contractor in more detail. To explain the failure of
pacing, as we argue was observed in the case, we need to further elaborate on the system
members’ control of their own action and their joint decision-making. We believe that
the concept of matching hierarchies offers a further analytical tool for understanding
projects in inter-organizational settings.
6.2. The concept of matching hierarchies
One of the fundamental principles of systems theory is that for its survival an open
system is dependent upon its environment to the extent that the internal structure of
the system is related to the structure of the environment. In terms of Ashby’s (1956,
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p. 208) well-known law: only variety can destroy variety. In dyadic project relations
between organizations, the principle leads to a mapping of organizational structures.
The contractor’s project organization is mirrored by a project organization of the client.
This results in a configuration with matching hierarchies, as shown in Fig. 1. In our
context, this logic can be seen as a way of coupling two otherwise separate systems.
The figure shows that, apart from the vertical relations within each organization, the
interaction process in a project setting results in a structure where lateral relations are
established. At the bottom of the hierarchy, the relations involve lateral contacts between
the organizations at site level. For the middle layer, the structure is made up of the
project management while the top layer consists of the management of each organization. Matching hierarchies may generally be conceived of as an arrangement that has
the potential of simplifying a situation by closing system boundaries in order to make
it possible to handle existing problems within the limited cognitive abilities given to
man (Levinthal & March, 1993). The separation of layers thus contributes to reducing,
or perhaps escaping, complexity and makes action possible (Lindkvist, Söderlund, &
Tell, 1998). Buffered from the rest of the organization, a certain layer of the hierarchy
directs its attention to a limited part of its environment. Such an arrangement also
facilitates pacing. Accordingly, the model represents an effort to make the project process more tightly coupled at each individual level. This type of configuration represents
a lateral approach to the fundamental organizational principle of division of labor. By
opening up the lateral relations between the organizations, each such relation economizes on management capacity, allowing top management to get involved only in the
rarest of cases, and only as a last resort to solve disputes on a more informal, private
ordering basis. Top management has more experience to draw from when settling conflicts, coupled with a decision capacity that provides more alternative solutions.
It is important here to point to the linkage between pacing and matching hierarchies.
As early as 1967, Lawrence and Lorsch argue that in a differentiated system, members
will adopt different time horizons due to the environment of an organization. This
would imply that each layer of a hierarchy focuses on its counterpart’s macro-cycle in
order to ‘negotiate’ a temporal order. Organizing according to the logic of matching
hierarchies thus not only provides a conflict resolution mechanism but also helps pacing
the activities at each level.
Fig. 1.
Matching hierarchies.
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7. The case revisited
7.1. The pacing problem
When the management of ABB realized that their old client was contemplating an
upgrade of his plant, they contacted the client and held a seminar to inform the National
Electric on the technical developments that had occurred since the previous installation.
The client, however, did not seem prepared to move as quickly as might have been
expected and it was not until ABB learned that National Electric was carrying out tests
in plants owned by a competitor that it was clear that the client was actively working
on the project. ABB, together with two competitors, were invited to tender and a normal
amount of work was devoted to making calculations, designs, etc. in preparing the bid.
At this stage, ABB engineers were tied up in finalizing other projects, and consequently
there was no project organization in ABB. At the end of the tendering process, ABB
brought in additional personnel, including a would-be project manager. After National
Electric decided to give the project to ABB, additional personnel were recruited, among
others the technical director. Given this sequence of events, the ABB project team was
forced to start its work by studying all the documents that formed part of the basis for
the contract with National Electric.
ABB’s starting tempo, which did not differ from routine, was not at all compatible
with the pace of the client. National Electric’s consultants had been preparing the project
over a long time and had worked intensely on the details during the tender phase. They
were clearly prepared to start the project right away and began asking for details and
tests as part of the implementation of the contract. The reaction of ABB was to increase
its effort in the project, and, when this failed, to resolve the problems by placing the
project manager close to the client as a deputy project manager and appointing a new
project manager at home. Despite this, ABB did not succeed in catching up with the
pace of the client and they never made up for the slow start.
7.2. Violating the logic of matching hierarchies
In the present case, the structural logic of matching hierarchies was violated, which
caused many of the subsequent difficulties in resolving the pacing problems between
ABB and National Electric. On several occasions the top management level of ABB
got involved in discussions and conflict resolution with the project management level
of National Electric. This occurred, for instance, at the meeting in Sweden where the
CEO of ABB met members of the National Electric’s top management, a meeting in
which also the project manager of National Electric took part (see Fig. 2).
The project management level at National Electric was therefore on several occasions
given access to the top management level of ABB. Even though this might be regarded
as a way of bringing in necessary expertise or increasing the hierarchical push in the
discussion, it had one very dysfunctional effect — it destroyed the conflict resolution
mechanism where the management of each organization could meet without any previous involvement and commitment in the operative process of the project. In a previous
project in the United States, mentioned earlier, such a contact between the management
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Fig. 2. Violating the principle of matching hierarchies.
level of each organization had succeeded in keeping both ABB and its American client
out of the courtroom, thus avoiding a costly legal process.
One possible explanation to why the principle of matching hierarchies was not honored in this case is that no truly dyadic relation existed between ABB and National
Electric. The consultants, the project manager and the technical director that National
Electric hired early in the process, played a far too important role. To a certain extent,
it is likely that they dominated National Electric, although without totally replacing the
decision capacity of the National Electric management.
8. Concluding discussion
The concepts outlined in this paper were generated in order to understand and explain
the problems that arose in the inter-firm relationship between ABB and National Electric. From ABB’s point of view, although including some difficult technical problems,
the type of project was not unique, representing more or less normal business. For the
client, however, the project had long-term effects, which made it necessary for them
to acquire knowledge that could be used for managing the project after it was completed
by the contractor. In a short-term relationship, the client needed to apply a long-term
perspective, while, on the other hand, the contractor’s involvement was focused on the
execution phase. We maintain that this situation is not uncommon. Furthermore, we
argue that these characteristics are a major source of the problems of pacing observed
in the case.
Understanding project contexts, such as the one described, requires consideration of
both structure and process dimensions. When analyzing the structure dimension, the
problem seems to be to find a configuration that allows for a certain degree of coupling
and joint decision-making in an otherwise fragmented organizational context. An
additional requirement is that the configuration should include mechanisms for conflict
resolution. In the process dimension, the problem is to find a well-functioning interplay
between the parties, e.g. to solve problems with different time frames between client
and contractor. The concept of pacing might be applied in order to understand the
compatibility between speed and intensity of work efforts among the interacting organizations. The connotation is that in a well-functioning relationship between firms, the
overall pace of each organization is synchronized, signifying a continuous and mutual
adaptation process.
J. Dahlgren, J. Söderlund / International Business Review 10 (2001) 305–322
319
As with process and structure, pacing and matching hierarchies are two sides of the
same coin. In order to solve the problems where interdependent actors are located in
different time and intensity frames, a structural configuration is called for to provide the
arenas necessary for mutual adjustment. On the other hand, the structural arrangement
presupposes a driving mechanism whereby the different organizational levels are connected. Connecting lateral layers is one way to establish pacing between two otherwise
separate organizations. The need for pacing interdependent activities works as a driving
force for establishing these links. It does seem, however, that there is a great risk that
this principle will be violated, creating a triadic relationship, when the client employs
consultants to whom the power to represent is transferred. This is particularly the case
in technically dominated construction or development projects where the client is likely
to lack the necessary competence to be able to match the contractor. The present trend
of outsourcing competence provides further ground for triadic relations. The result is
increased fragmentation and, in Stinchcombe’s (1985) words, a situation of ‘excessive bureaucracy’.
Our case study shows that when management becomes involved in day-to-day conflicts at project management level, this precludes referring vital problems to informal
conflict resolution on a management-to-management basis. Using lawyers for resolving
conflicts is likely to aggravate the situation and to lead to increased tension and greater
division in a situation where both parties can gain from united action. Ring and Van
de Ven (1994) claim, for instance, that ‘endogenous safeguards’ are critical to interfirm relationships for two reasons. First, the greater the transaction-specific investments
made under conditions of uncertainty, the more the parties involved stand to benefit
from preserving the relations. Second, social–psychological processes are assumed to
create a separate set of pressures to preserve the relationship.
Another important reason for choosing endogenous solutions might simply be the
cost involved. According to the statistics reported by Hartman (1994) as much as 20%
of the cost of construction in the 1980s was attributable to the impact of litigation, and
there was as much as an 11-fold increase in the number of lawyers practicing construction law between 1980 and 1990.
Inter-firm projects present certain empirical characteristics, which need to be explored
in-depth. We have tried to draw attention to and analyze the execution phase of such
projects. The execution phase has for several reasons been neglected by previous
research on projects in an inter-firm setting, either because focus has been on the selling
and marketing activities of project-based firms, or because the execution phase is
viewed as a relatively ‘simple’ managerial issue (Hellgren & Stjernberg, 1995). The
work by Stinchcombe (1985) is here an exception. We have elaborated further on his
studies and findings by providing additional explanations to the excessive bureaucracy
observed in these empirical settings.
As initially argued, when interdependent activities are organizationally decoupled,
some mechanism for sufficient coupling must be found. In order to understand how
this coupling can be accomplished, pacing and matching hierarchies can be utilized. In
our conception, the pacing concept illuminates how coupling is established between
organizations, how organizations agree on a temporal order and how they synchronize
their respective activities. The concept of matching hierarchies, on the other hand, cen-
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ters on the structure of the relationship between organizations and their hierarchical layers.
Acknowledgements
We are grateful for the help with the empirical work by Fredrik Tell. The comments
from Hans Andersson, Professor Lars Lindkvist, Professor Ove Brandes and the anonymous reviewers considerably improved the quality of the paper. The research was
funded by the Foundation for Strategic Research, IMIE, PMEX and the Jan Wallander
and Tom Hedelius Foundation for Social Science Research. We acknowledge their trust
and support.
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Jörgen Dahlgren, PhD, is a Senior Lecturer of Business Administration at the School of Management, Linköping
University, Sweden. He has been the dean for the School during the recent six years and is currently the leader
for several on-going research projects. His research and teaching interests cover management control and project management.
Jonas Söderlund, PhD, is an Assistant Professor of Business Administration in the School of Management,
Linköping University, Sweden. His most recent publications have appeared in Organization Studies and Project
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Management Journal. His research and teaching interests focus on project management, project marketing and
temporary organizing. Söderlund is currently the coordinator of the Swedish national research initiative on project
management — Project Sweden.