Business models and project governance Karlos Artto Karlos Artto A lecture on Jan 22, 2015, PHYS-C1380 Multi-disciplinary energy perspectives course, Spring 2015 Aalto University, Otaniemi Project Business research group at Aalto University, Finland

Business models and project governance An anatomy (elements) of a business model –Understanding business model as a driver of a single firm’s aims and action Large energy projects are multi-firm projects –Success criteria of a project –The contract organization of a project (supply chain, or value stream of ”a project”) Governance framework

1660 MW reactor The first EPR type reactor to be constructed in the world Turnkey contract 3 billion Euro Scheduled to operate in 2016/2017? Diversity of actors: Over 4000 employees and over 50 different nationalites have been working on the site at the same time Case Olkiluoto 3 project Picture: TVO

Discuss in your group: success criteria of a project? [ Consider a project. ] What are the success criteria of a project? –-> Create a list of success criteria! Use 2 mins only.

Assessing Project Success Traditional approach  Projects are successful if they meet their time, budget, and performance goals Reality  Projects are successful if they meet multiple success criteria, including achieving business results and customer satisfaction Adopted from: Shenhar & Dvir, 2007

Specific Success Measures Impact on Customer Impact on Team Business & Direct Success Project Success Meeting schedule Meeting budget Changes Yield Other efficiencies Meeting requirements and specifications Benefit to customer Extent of use Customer satisfaction & loyalty Brand name recognition Team satisfaction Team morale Skill development Team member growth Team members’ retention No burnout Sales Profits Market share ROI, ROE Cash flow Service quality Cycle-time Organizational measures Regulations approval New technology New market New product line New core competencies New organizational capabilities Preparing for Future Efficiency Adopted from: Shenhar & Dvir, 2007

Value stream for an ”integrated solution” -> A view over the life cycle of a complex system Earlier stages MSIOSSP Final Consumer Added value Raw materials, intermediate goods, primary products manufacture Manufacture (M) Design and produce components and subsystems Systems integration (SI) Design, build, integrate products and systems Operational Services (OS) Maintain and operate products and systems Service Provision (SP) Buy in maintenance and operational capacity to provide services to final consumers Consumption of service by final consumer (e.g. train passenger) Manufacturing – Service interface Upstream (products)Downstream (services) Vertical moves (Forwards)(Backwards) Davies, 2004

Business models

A business model characterization by Osterwalder

A simplified/adjusted business model characterization by Karlos Artto Network of partners and/or suppliers Core capabilities Customer Offering and/or value proposition Relationship Profit-making logic

Project governance

Governance of large projects The complexity of a large project and the diversity of actors and the differences in their ways of operating and communication require clear a governance structure with clear roles and responsibilities Governance structure guides: -> How to organize production activities? -> How to maintain control of production and other important activities? -> How to safeguard against uncertainty and opportunistic behavior?

SiemensAREVA The owner TVO Other subcontractors Civil works BOUYGUES Safety authority STUK Turnkey contract between owner and Areva-Siemens consortium Main actors in Olkiluoto 3 project Consortium between Safety authority communicates through the owner

Owner managed (with single and multiple contractors) OTechCon C SC OTechCon CCCC SC Single contractor Multiple contractors

Project Services Contractor TechCon CCCC SC O PSC Project manager Project control O PSC Eng O PSC Proc O PSC Const O PSC

Project Governance vs. Project Management Modified from Klakegg et al Project Governance less detailed but larger perspective Project management operates on more detailed level Large and complex projects cannot be managed effectively and efficiently only by project management techniques and tools – instead the development of a governance structure is required

Project governance structure consists of mechanisms and policies for coordinating and safeguarding exchanges between firms participating to a project in a manner that fulfills the shared project objectives (e.g. the construction of a power plant) Project governance structure

The tool: Designing effective governance structures for large projects _report_2013/ –Download either.docx or.pdf version of the tool.

Designing governance structures OWNER NETWORK PROJECT MARKET Roles and res- ponsibilities Contracts Supply chain management Collaboration Control and monitoring FIT Contextual factorsGovernance structure elements

Governance structure elements and their contents