Innovation in megaprojects Andrew Davies* PhD Course Part 1: Innovation in Projects BI Norwegian Business School May 2015 *Professor Management of Projects, The Bartlett Faculty of the Built Environment School of Construction and Project Management Adjunct Professor, Department of Leadership and Organizational Behaviour, BI

Megaprojects Megaprojects: complex and uncertain Group work: innovation in megaprojects

What are megaprojects? Large-scale infrastructure is designed and delivered as megaprojects of $1bn or more (Flyvbjerg et al, 2003) –“Productivity paradox”: despite growth in number and opportunities to learn, projects often fail Megaproject organisation: –Large temporary coalition of suppliers –Led by large client, prime contractor or joint venture –Process tailored to the requirements of the project Opportunity to find new ways to improve performance –Success depends on new and innovative ways to manage uncertainty and complexity

Megaprojects: poor performers RAND study of 52 major projects: average cost overrun 88%, only 50% performing as expected Channel Tunnel –Construction completed in 1994, £4.9bn, 80% over budget Boston “Big Dig” –Scheduled for completion in 1998 at $2.8bn –Opened in 2007 at a cost of over $14.6bn Denver’s $5bn international airport –Nearly 200% cost overrun

Megaprojects – poorly understood phenomenon Infrastructure delivery, operation and finance is becoming a “business” –Private sector involvement UK privatisation of utilities, airports, ports and railways since 1979 –Private Finance Initiative (PFI) Public Private Partnerships (PPP) –Contracting out and outsourcing of public sector tasks “Surprisingly, however, infrastructure has still received limited attention in management studies” (Gil & Beckman CMR 2009)

Megaprojects Megaprojects: complex and uncertain Group work: innovation in megaprojects

Using Shenhar and Dvir’s (2007) model to understand megaprojects Megaproject is a case of a complex and uncertain project Contingency theory: critique of “one size fits all thinking” 1 dimension –Shenhar (1993) 4 types of technological uncertainty 2 dimensions –Shenhar (1996, 2001) tech uncertainty and 3 levels of complexity 4 dimensional construct –Shenhar and Dvir (2007)

Complex project (e.g. Apollo Moon landing; Challenger Space Shuttle) Simple project (e.g. implement existing radio base station; IT system) Technology Novelty Pace Complexity ArraySystemAssembly Derivative Platform Breakthrough Super-high-tech Medium-tech High-tech Low-tech Regular Blitz Fast/competiti ve Time-critical

3 levels of complexity Array project ‘System of systems’ systems with independent functions, but each with common goal Airport Channel Tunnel New nationwide mobile communications system System project single system - a common goal platform with subsystems Aircraft Air traffic control system Building Assembly project self-contained component perform a function in a larger system Modular components and subassemblies Computer stations

Complexity and organisation Assembly projects Single organisation (often one functional group), with the help from other functions Small team working in one location System projects Main contractor responsible for deliver of product Tasks divided among several subcontractors, in-house or external Array projects Central umbrella organisation – often separate entity or company and formally coordinates programme and subprojects Deals with financial, logistical, legal and political issues Projects often spread over wide geographical area

Systems integration Systems integrator Parts suppliers Subsystem suppliers Operator and users Component suppliers Design and integrate hardware, software and services into functioning system

Systems integrator Organisation with the capabilities to coordinate the design, integration of components and subsystems –Client – involved in several projects –Prime contractor –Joint venture Creates a process to coordinate a large network of suppliers

Uncertainty and contractual approach Cost-plus contract Risk and opportunity shared by client & contractor Client bears the cost of development and seeks to avoid less than optimal solutions Contractor has an incentive to produce best result and maintain profits HighLow Fixed-price contract Contractor takes on all the risk Does not work well for high-tech uncertainty – creates risk for client & contractor Contractor loses money due to unexpected events Client gets inadequate product when contractor stays within the price range Relative uncertainty

Megaprojects Megaprojects: complex and uncertain Group work: innovation in megaprojects

Each group examines the three cases: Heathrow Terminal 5, London Olympics and Crossrail Each group answers the following questions: 1.Describe the main characteristics of the megaproject (e.g. systems integrator, organisation, etc) 2.What are the main innovation challenges? 3.What are the main similarities and differences across the projects? Literature: –2.2 Project-based production: complex products and systems –3.3 Megaprojects –5.1. Systems integration

Heathrow Terminal 5 London OlympicsCrossrail 1.What are the main characteristics of the megaproject? 2. What are the main innovation challenges?