cooperative innovation projects: capabilities and governance mechanisms

Cooperative Innovation Projects: Capabilities and Governance

Mechanisms�

Petra M. Bosch-Sijtsema and Theo J. B. M. Postma

This paper is concerned with how firms in a project-based industry cooperate in

technological innovation projects in the construction industry. The main focus of the

paper is on the sharing of capabilities in cooperative innovation projects and how

these cooperations are governed. A knowledge-based perspective is applied, and four

cooperative innovation projects in the construction industry are compared. Based on

the case studies, a set of propositions is defined. First, a cooperation aimed at a

mutual strategic benefit in mutually gaining access to the knowledge bases of the

involved firms, while maintaining their own differentiated knowledge base, can re-

sult in more stable and long term relationships with mutual trust between the co-

operating firms. Second, in a cooperation aimed at a mutual strategic benefit in

mutually gaining access to the knowledge bases of the involved firms, partners not

only gain access to each other’s technological capabilities but also develop and share

knowledge about organizational aspects and market situations and gain knowledge

about the way of working of the partner firm. Third, in a cooperation aimed at

mutual strategic benefit in mutually gaining access to the knowledge bases of the

involved firms, noncodifiability of the capabilities is conditional to create a win–win

situation. And fourth, cooperation aimed at a mutual strategic benefit in mutually

gaining access to the knowledge bases of the involved firms is based on mutual

competence and intentional trust as its main governance mechanism, whereas con-

tracting between market parties aimed at knowledge–output transactions is repre-

sented by limited trust and arms’ length (contractual) relationships as its main

governance mechanism.

Introduction

The concern in this paper is how project-based

firms (PBFs) deal with strategic issues with

respect to sharing capabilities and the kind

of governance mechanisms PBFs apply for to gain

cooperation with other firms in technological innova-

tion projects. A PBF creates and recreates new orga-

nizational structures around the demands of each

project or each major customer. However, it lacks

the strengths of more traditional functional forms in

performing routine tasks, achieving economies of

scale, and coordinating cross-project resources

(Hobday, 2000). Examples of project-based industries

are the engineering and construction industries

(Blindenbach-Driessen and Van Den Ende, 2006;

Keegan and Turner, 2002). Within PBFs, we may dis-

tinguish between two types of projects. Business pro-

jects are projects executed by order of a specific client

(Blindenbach-Driessen and Van Den Ende, 2006),

�We would like to thank the editor Anthony Di Benedetto and twoanonymous reviewers for their constructive comments and support ontwo earlier versions of the paper. Their comments contributed to con-siderable improvements.

Address correspondence to: Petra M. Bosch-Sijtsema, HelsinkiUniversity of Technology, Faculty of Industrial Engineering and Man-agement, Laboratory of Work Psychology and Leadership, Otanie-mentie 14, 02015 TKK Espoo, Finland. Tel.:þ 358-50-9295890.E-mail: [email protected].

J PROD INNOV MANAG 2009;26:58–70r 2009 Product Development & Management Association

i:/BWUS/JPIM/334/[email protected]

whereas development (innovation) projects aim at in-

novation and take place separately from business pro-

jects. Few studies investigate innovation projects

performed in cooperation with other firms in pro-

ject-based industries (cf. Gann and Salter, 2000). Co-

operation can be organized in several different forms

(e.g., subcontracting, consortia, a strategic alliance,

joint venture, innovation network) (Tidd, Bessant,

and Pavitt, 2002). A main question concerning these

multipartner projects is how to develop new knowl-

edge or how to transfer it without running the risk of

one-sided advantages by one of the partners involved.

The aim of this paper is to study in cooperative in-

novation projects the knowledge capabilities and the

employed governance mechanisms to deal with the

aforementioned risk to arrive at a set of propositions.

Several authors have argued for the pursuit of coop-

erative strategies as a means for creating knowledge

or gaining access to knowledge and skills outside

the boundaries of the firm (Hamel, 1991; Inkpen

and Crossan, 1995; Kogut, 1988; Lane and Lubatkin,

1998; Larsson et al., 1998; Wathne, Roos, and von

Krogh, 1996). This literature refers to the relevance of

organizational and interorganizational learning and

the knowledge-based view in this context. Although

innovation can be stimulated by cooperation, several

studies mention that learning and development of

knowledge can be problematic because of, among

other reasons, organizational and cultural differences

and a competition to learn and the fear of firms to

disclose knowledge (e.g., Hamel, 1991). Cooperation

between firms has been researched extensively in the

alliance and joint venture literature in which gover-

nance between cooperating firms (Gerwin and Ferris,

2004), and learning between alliance firms (Child,

Faulkner, and Tallman, 2005) is discussed for long-

term cooperative structures. Few studies, however,

discuss learning and knowledge transfer in develop-

ment (innovation) projects in the context of PBFs,

which can have different lengths of duration. This

kind of cooperative projects will therefore be specifi-

cally the focus of this study.

The construction industry is an example of a pro-

ject-based industry (PBI), in which project manage-

ment and control are important instruments (Bresnen

and Marshall, 2000; Naoum, 2003; Prencipe and Tell,

2001; Pries and Janszen, 1995). The construction in-

dustry requires a unique combination of labor and

materials inputs, performed and coordinated on site

(Eccles, 1981, p. 137), and is based on a stable rela-

tionship between a general contractor and special

trade subcontractors. The contracting mode of the

construction industry is defined as a quasifirm (ibid.),

which is typically located in between markets and hi-

erarchies (Hennart, 1993; Williamson, 1975). Innova-

tion performance of the construction industry in

terms of productivity, quality, and product function-

ality has been relatively low in comparison with other

industries (Winch, 1998). The low level of innovation

performance is based on a number of aspects: (1) the

fragmented nature of the industry; (2) the uniqueness

of the construction as a product; (3) the division be-

tween design and construction; and (4) the role of

consultants and the procurement methods for receiv-

ing assignments (Naoum, 2003). The construction in-

dustry consists of a large number of (specialized)

small and medium-sized firms. It becomes difficult

to permeate information and knowledge about prod-

uct innovations to all these firms. Forms of collabo-

rations (especially partnering, which is a longer-term

alliance between contractors and clients in the con-

struction industry) in the construction industry have

been seen as ways of dealing with the fragmentation

and lack of integration that have influenced attempts

to improve project performance over the years (Bres-

nen and Marshall, 2000). Bresnen and Marshall

(2000) reviewed literature on partnering and stated

that this research shows that, for example, cost, time,

quality, buildability, and fitness for purpose can be

dramatically improved if participants adopt more col-

laborative ways of working. However, partnering as

discussed in literature mainly focuses on business

projects in which clients and contractors cooperate;

partnering is hardly discussed for innovation projects

with several cooperating parties. The focus of the

BIOGRAPHICAL SKETCHES

Dr. Petra M. Bosch-Sijtsema is researcher at Helsinki University of

Technology on the Faculty of Industrial Engineering and Manage-

ment in the Laboratory of Work Psychology and Leadership in

Finland and visiting scholar at Stanford University in California.

She received her licentiate from Lund University in Sweden and her

Ph.D. from the University of Groningen in The Netherlands in

management and organization. Her research focuses on innovation,

knowledge creation, and transfer in project-based environments and

virtual teams.

Dr. Theo J. B. M. Postma is associate professor of strategic man-

agement at the University of Groningen on the Faculty of Man-

agement and Organization in The Netherlands. He received his

Ph.D. in business economics from the University of Groningen in

1989. His research interests involve strategy, scenario development,

and strategic learning in and between organizations. His current

research interests include also corporate governance, innovation,

and networks.

COOPERATIVE INNOVATION PROJECTS J PROD INNOV MANAG2009;26:58–70

59

present study is on cooperative innovation projects

in which suppliers, customers, research and develop-

ment (R&D) institutes, universities and contractors

cooperate.

The often applied project control systems around

which the PBF operates serve to stifle innovation

(Keegan and Turner, 2002). A number of authors

(e.g., Seaden and Manseau, 2001; Winch, 1998) have

discussed that it is difficult to measure innovation in

this industry based on traditional measurements like

R&D activities and patents, since the construction

industry mainly focuses on organizational processes,

contracting arrangements, and assembly methods

(Seaden and Manseau, 2001). Furthermore, in the

measurements of innovation in the construction

sector, architectural and engineering firms are usually

not included (Winch, 2003), but they do, however,

score relatively high on innovation (Waalkens, 2006).

This might lead to an underestimation of innovation

potential in the construction industry. Therefore, in

this paper, a more in-depth qualitative approach is

adopted from the point of view of innovation projects.

New ideas can either (1) be adopted by firms and im-

plemented on projects (top down) or (2) result from

problem solving on projects and be learned by firms

(bottom up) (Brady and Davis, 2005; Slaughter, 1993;

Winch, 1998). Usually less attention is being paid to

specific projects designed to create a new idea or

product in cooperation with other firms and R&D

institutes and universities (i.e., innovation projects).

In the construction sector it is a relatively new phe-

nomenon to join other organizations to develop new

knowledge that can be applied by the involved firms

or even applied in the whole industry. This type of

cooperation can enhance innovative performance of

the industry.

The paper is structured as follows. First, the knowl-

edge-based view, capabilities, and governance of

cooperative projects are discussed. Then the method-

ology of the study is presented, which is followed by

descriptions of four case studies of cooperative inno-

vation projects in the Dutch construction industry.

After this, the cases are compared and propositions

are defined; the final section concludes.

Capabilities and Governance

To investigate cooperative innovation projects in the

construction industry, a knowledge-based perspective

is applied. In this perspective, knowledge is perceived

as the strategically most important resource of the

firm (Grant, 1996). Knowledge resources and capa-

bilities are developed over time through the execution

of projects. Research on alliances indicates that

alliances and joint ventures provide firms access to

the skills and capabilities of their partners (Hamel,

1991; Inkpen and Crossan, 1995; Kogut, 1988). Most

research on knowledge sharing in alliances stresses

learning (acquiring knowledge) of alliance partners.

Grant and Baden-Fuller (2004), however, focused on

knowledge application, in which firms gain access to

the stock of knowledge of its partner firms to exploit

complementarities but with the intention to maintain

their base of specialized knowledge.

Partner firms often aim at extending their set of

distinctive technological capabilities (Colombo,

2003). These capabilities can be cospecialized or com-

plementary skills for the project (Doz and Hamel,

1998; Gerwin and Ferris, 2004). However, studies

show that significant differences in a partner’s knowl-

edge base usually impede learning (Simonin, 1999). A

cooperative innovation project or an alliance can also

focus on acquiring similar technical skills (Pisano and

Teece, 1988), in which each partner has the knowledge

necessary to perform the work alone. The reason for

cooperation in this respect is to limit risks in devel-

opment or to establish a new industry wide standard

(Gerwin and Ferris, 2004). When firms have similar

capabilities, mutual learning will be easier, as firms

are better able to absorb each other’s knowledge

(Colombo, 2003). However, too many overlapping

knowledge bases promote convergence of partner’s

capabilities (Mowery, Oxley, and Silverman, 1996),

and the cooperation can cease to exist since there is no

real need for accessibility when capabilities overlap

(Grant and Baden-Fuller, 2004). Although alliance

literature on knowledge mainly focuses on longer-

term cooperation, the issue of gaining access to or

acquiring knowledge is also applicable for relatively

shorter-term cooperative innovative projects. Knowl-

edge transfer is defined as the process through which

one unit is affected by the experience of another

(Argote and Ingram, 2000). Knowledge transfer can

be perceived as explicit (codified) and tacit (deeply

rooted) knowledge (Nonaka and Takeuchi, 1995).

Few studies apply a knowledge-based view for in-

vestigating cooperative innovation projects in project-

based industries. Due to the focus on project work

(implying result orientation) in these industries, firms

are inclined to mainly concentrate on project

management and control to increase efficiency and

60 J PROD INNOV MANAG2009;26:58–70

P. M. BOSCH-SIJTSEMA AND T. J. B. M. POSTMA

decrease costs, and innovation is limited or inhibited

in project-based firms (Gann and Salter, 2000; Keegan

and Turner, 2002; Prencipe and Tell, 2001).

Governance Mechanisms

According to Nooteboom (1999), governance in co-

operative relationships deals with controlling rela-

tional risk due to opportunism and dependency of

firms. Das and Teng (2001) characterized relational

risk as the probability and consequences of not having

a satisfactory cooperation. Both informal means of

governance (e.g., trust and reputation) and formal in-

struments of control (e.g., detailed contracts and

procedures for monitoring) can be relevant for inno-

vation and learning (Nooteboom, 2000). In market

situations, participating firms negotiate more or less

detailed contracts to protect against opportunistic be-

havior (Williamson, 1975). Following Mayer, Davis,

and Schoorman (1995, p. 712), trust is defined as ‘‘the

willingness to be vulnerable to the actions of another

party based on the expectation that the other will

perform a particular action important to the trustor,

irrespective of the ability to monitor or control that

other party.’’ The relevance of trust is that it econo-

mizes on the specification and monitoring of contracts

and that it stimulates cooperation (Nooteboom,

1999). Trust between cooperating firms means an or-

ganization having confidence in the reliability of other

organizations, regarding a given set of outcomes or

events. One trusts an organization with respect to cer-

tain behavior (Sydow, 1998). Lewicki, Tomlinson,

and Gillespie (2006) indicated that trust in this view

is regarded as a single superordinate factor, with cog-

nitive, affective, and behavioral intention subfactors.

Behavioral aspects of trust refer to the dynamics and

reciprocity of trust. The present analysis is restricted

to the well-known distinction between competence/

cognitive and intentional/affective trust (Child et al.,

2005; Lewicki et al., 2006). Competence trust relies on

trust in technical, cognitive, organizational, and com-

municative competencies, and intentional trust is

based on intentions toward a relationship, mainly in

refraining from opportunism (e.g., goodwill, affect,

and dedication; see, e.g., Klein-Woolthuis, Hillebrand,

and Nooteboom, 2005; Nooteboom, 1999, 2002).

Figure 1 presents the study’s conceptual model.

The focus of the research (Figure 1) is on investigating

knowledge transfer processes and governance mecha-

nisms employed in cooperative innovation projects in

the construction industry in which construction firms,

suppliers, customers, research institutes, and univer-

sities cooperate with the intent to develop a new

product or service. The following questions are inves-

tigated more in-depth:

1. What kind of knowledge capabilities are acquired

or gained access to by the cooperating partners,

and what are the consequences for the cooperation?

2. What kind of government mechanism is applied

within the cooperation?

Methodology

In this paper a comparative case-study analysis

(Eisenhardt, 1989) of four cases of cooperative inno-

vation projects in the Dutch construction industry is

applied. The Dutch government has taken interest in

innovation of the Dutch construction industry, in

which different partners like contractors, suppliers,

universities, and customers cooperate to develop a

new product or service. Besides the interest regarding

Dutch government, access to this industry was avail-

able, and therefore the Dutch construction industry

was chosen as this study’s field of investigation. Be-

fore investigating the case studies, six semistructured

interviews within the construction industry were held

to capture the current ideas and status of innovation

in this industry. Four case studies of technological

innovation projects that were performed in coopera-

tion with different firms (mainly contractors from the

construction industry in cooperation with suppliers or

researchers) were selected. The number of four cases is

related to Eisenhardt (1989), who stated that this

number of cases is minimally required for case

comparison. Furthermore, the availability and access

to cases of cooperative innovation projects in the Dutch

Industry

Cooperative Innovation Project:

- Kind of capabilities

- Governancemechanisms (trust, contract)

Project based industry

Knowledge transferand creation

Construction firms

Suppliers

R&D/

knowledge Institutes

Customers

Figure 1. Process View of a Cooperative Innovation Project in a

Project-Based Industry


61

construction industry is rather difficult, because rela-

tively few initiatives are known in which firms cooper-

ate for innovation. Also, access is limited since many

organizations are afraid of information disclosure.

The cases involved a technological innovation in

either products or processes in the Dutch construction

industry. The amount of semistructured in-depth in-

terviews held was 35 (from one to three hours) with

involved parties of the four case studies (case Alpha,

5 interviews; case Beta, 5 interviews; case Gamma,

9 interviews; case Delta, 5 interviews; and 11 inter-

views concerning construction context and exploitation

of the investigated innovation projects). The number of

interviews held per case differed due to the number of

firms involved in the investigated innovation projects.

Items taken into account during the interviews were as

follows: (1) characteristics of the innovation; (2) the

firms involved; and (3) governance mechanisms of the

cooperation and knowledge flows (i.e., knowledge

creation and transfer between firms cooperating in

the innovation project).

The interviews were taped and transcribed, and

validation was received through feedback and respon-

dent validation. The qualitative data were coded and

labeled according to qualitative analysis methods

(Strauss and Corbin, 1997). For the codification,

several stages were applied iteratively throughout

the research (Locke, 2001). Incidents were sorted

into categories for comparison, and this labeling pro-

cess was to some extent influenced by the theoretical

framework on project organizations, innovation, and

the knowledge-based view. After a comparison of la-

bels and data incidents, the labels were renamed and

categorized into a number of groups: (1) aspects of the

innovation project and the involved firms; (2) capa-

bilities; and (3) governance mechanisms. Based on the

codification and categorization of individual cases,

cross-case analysis (Eisenhardt, 1989) was performed

to find patterns and differences between the cases. In

the following sections the four case studies are dis-

cussed separately.

Innovation Projects in the Dutch Construction

Industry

The four case studies are described briefly herein. Af-

ter a short description the cases are compared with

respect to the main issues of learning or accessing

knowledge capabilities and governance mechanisms

to observe and analyze the similarities and differences

between the case studies.

Cooperative Technological Innovation Projects

Case Alpha (Duration In-House Development

1–2 Years). Case Alpha started as an in-house devel-

opment project of a medium-sized contractor firm to

develop a method to pour underwater concrete. This

method improved the quality of this type of concrete

in terms of hardness and smoothness. The concept

was developed in-house. To test the developed

method, the initiating firm cooperated with diving

firms, concrete firms, and concrete pumping firms.

These partners had conflicting objectives and a win–

lose mentality. They cooperated on a short-term basis

and had price-based competition (see Hennart, 1993).

Furthermore, a number of tests were performed by

independent R&D institutes. The initiating firm (i.e.,

the contractor) received a patent for the method and

published several international papers about the

method in comparison with other existing methods.

The innovation project is now terminated.

Case Beta (Duration 1.5 Years). Case Beta is a

cooperative between the headquarters of a large con-

sortium of several contractor firms (i.e., initiating

firm) and a supplier of concrete. The project is con-

cerned with the development of new applications for

self-compacting concrete. This implies that the con-

tent of the concrete differs from others, as well as

the shuttering method for applying the concrete—

meaning that the concrete was self-compacting and

could be unshuttered securely (without any problems,

which was normally the case) the next day. The pro-

ject was terminated after the product was tested in a

real-life situation phase due to a lack of time and

financial means. The concrete supplier, however, con-

tinues exploring the possibilities to develop this appli-

cation for concrete.

Case Gamma (Duration Approximately 10 Years).

Gamma developed a floor concept (including methods

and products). The floor was designed in such a way

that installations (for water, electricity, telecommuni-

cation, ventilation, heating, and a sewer system) could

be exchanged without reconstructing the whole build-

ing. This increased the flexibility of changing the in-

terior architecture of houses and the sustainability

of buildings (in this case, residential houses). In Case

Gamma, different partners cooperated in the project



in different development stages. The initiating firm

was a consultant firm in the construction industry.

For the development of the concept, the initiating

company worked together with universities and R&D

institutes. For testing and developing prototypes, the

initiating firm cooperated with manufacturers and

with contract research institutes. For the exploitation

(i.e., market introduction) and production of the

floor, the consultancy firm collaborated with a num-

ber of suppliers that were able to develop and con-

struct (parts of) the floor principle. The product is still

being improved.

Case Delta (Duration Approximately 5 Years). The

partners in the innovation project were an architect

firm and two largely independent organizations (a sell-

ing center and a knowledge center that initiated the

development) working within a medium-sized holding

company in the construction industry. Case Delta de-

veloped a three-dimensional (3D) modeling and calcu-

lation product and process, which changes the way of

working in a building project. With this system’s help,

the whole building process can be divided into small

steps until all separate parts are negotiated between the

different parties (e.g., architects, contractors, engi-

neers, installation companies), and then all parts are

visualized in a 3D picture. After a complete 3D draw-

ing is agreed on, the building is then constructed. This

new process requires a close cooperation among all

construction parties. Currently, the partnership is im-

plementing the innovation with the subsidiaries of the

holding company, and the architect firm is exploiting

parts of the technology on the market (they exploit 3D

modeling commercially to other clients).

Capabilities in Cooperative Innovation Projects

Based on the knowledge-based perspective, the capa-

bilities that were important for the cooperation are of

interest to this research. This section provides a dis-

cussion of the knowledge development and transfer

and questions if capabilities are acquired or accessed

by and from the cooperating partners as well as the

consequences this has for the cooperation.

Alpha. In the beginning the innovation was created

and developed by one contractor firm. This firm pub-

lished the developed knowledge in the form of patents

and publications in construction magazines. The con-

tractor firm needed the capabilities of diving compa-

nies for checking the process of pouring concrete

under water and cleaning the underwater surface

and of concrete companies for creating the concrete

formulae and concrete pump companies for pouring

the concrete in the right way to execute the innova-

tion. The partner firms all had expert knowledge

about pouring underwater concrete, although they

specialized in different areas. The contractor firm,

however, was dependent on the capabilities of the

other firms to construct the underwater concrete (it

was not their core competence). Over time the partner

firms learned and internalized the procedure through

experience in real-life construction projects, and they

improved the method and the concrete formulae.

Once the patent of the contractor firm expired, the

other firms started to sell the product and method as a

full concept and took over the market. The partners

cooperated on an ad hoc and competitive basis. The

partners eventually did not share knowledge openly

with each other.

Beta. In Case Beta, two firms cooperated in the

innovation project. The concrete supplier delivered

knowledge of concrete, experience, and test material

from their laboratory about the type of concrete. The

contractor firm delivered the initial idea, the real-life

project, and experience in coordinating construction

projects. The supplier reported laboratory tests, ex-

periences about concrete, and test results of the real-

life project. The partners also shared knowledge about

the market of both the contractor firm and the con-

crete firm. Furthermore, both parties discussed be-

forehand their expectations, possible risks, and

responsibilities of the project, and they evaluated the

project (content) and the cooperation after testing the

product. The partners were open in sharing informa-

tion about the project, but little information outside

the project was discussed.

Gamma. In developing the concept of the innova-

tion of Case Gamma, technological knowledge about

the raw material of the combination of concrete and

steel and installations and experience of different

firms was discussed; partners’ capabilities were in con-

struction material, construction market, and installa-

tion systems. The firms working on the concept were

motivated to develop a new concept and shared their

knowledge openly with each other. The concept was

developed and tested by suppliers and independent

research institutes according to quality and safety reg-

ulations. These firms shared only the needed knowl-

edge for testing. The production of the floor was


63

performed by a number of suppliers who developed

longer-term relationships with the consultancy firm

(for not only innovation projects but also business

projects). These suppliers were able to develop and

produce parts of the floor product (knowledge on steel

and concrete). Furthermore, the suppliers had contact

with the final customers and knew the construction

market. The relationship between the suppliers and

the initiating firm developed into a mutual trust and

sounding board relationship. The involved partners

were very open to new knowledge and were transpar-

ent toward their partners. The firms with whom more

long-term relationships were built shared the perspec-

tive of the initiating firm to change aspects in the

construction market.

Delta. In the early phase of the innovation project

Delta, tasks were allocated between the parties, based

on the specific skills of the parties with respect to

knowledge in drawing 3D construction models, cal-

culation knowledge, and knowledge about the con-

struction industry and innovation processes. The

result of the project was a better understanding of

the activities and capabilities of each party. Knowl-

edge is exchanged about the process and how to ex-

ecute the innovation. The parties had different

perspectives, and they learned from each other’s

points of view and positions in the market. The part-

ners created and internalized knowledge about the

development of partnerships. This knowledge is not

stored but orally shared. The organizations (not only

the contact persons but also other members of the

organizations) are now fully involved in the develop-

ment and commercialization of the product and

knowledge about the system and methods has been

internalized in the partner’s firms. The relationship

between the firms was transparent and open to de-

velop new knowledge and to solve conflicts.


The focus of this paper is on two types of governance

between the firms participating in the innovation pro-

jects: (1) contractual relationships; and (2) trust-based

relationships (see Nooteboom, 2000). The four cases ap-

plied different governance mechanisms in their projects.

Alpha. The relationships between the initiating firm

and its partners were mainly contract based (supplier

–customer contracts) and short term. The contracts

were price driven and contained clear expecta-

tions, risks, and responsibilities of all involved parties.

Beta. In Case Beta, the cooperation between the

supplier and the contractor firm was based on mutual

trust (competence and intentional-based trust). Both

partners supported the specific project financially, but

this has not been formalized in a written contract

(only in minutes of a meeting). The relationship was

project specific (i.e., for this innovation project only);

however, the partners cooperated in business projects,

and the partners had professional relationships with

other organizations as well on these topics. The par-

ties explicitly discussed the risks and problems that

could occur.

Gamma. Case Gamma had different types of rela-

tionships in their cooperation. During the develop-

ment of the concept, the partner relationships were

based on personal relationships; they knew each other

from previous experiences/affiliations and shared a

mutual benefit for society, their own industry, or fu-

ture business. There was no contract, but the rela-

tionships were based on mutual (competence and

intentional) trust. Some partners dropped out and re-

gretted the fact that there was no explicit formulation

of expectations and results when the development

process toward commercialization seemed to take

too much time. When prototypes needed to be built

and tested, more formal relationships were estab-

lished, based on standard supplier–customer contracts

in which both parties agreed to participate on certain

conditions. In the exploitation phase (production and

introduction to market) the relationships between the

industrial partners and the leading firm were contract

based on a supplier–customer contract. Over time the

relationship between the parties grew into a more (in-

tentional) trust-based relationship, and they cooper-

ated on other activities as well. These other activities

were not contractually sealed. The cooperating parties

had no previous affiliation with each other, but they

had in the initial phase a similar perspective about

testing new products and ideas. The relationship de-

veloped into a (intentional) trust-based relationship

because of good experiences in working together. The

exploitation phase of the project consisted of long-

term relationships without a guaranteed workload in

both contract and trust-based forms. Most members

were motivated by intrinsic values of improving the

construction industry.



Delta. In Case Delta the partners consisted of two

firms in a holding firm in the construction industry

and an architect firm. The holding had a strategic al-

liance with the architect company, in which a number

of principles have been described. The partnership

used the contract to create understanding about how

to deal with several issues. Between the two holding

companies no contract has been made, since both or-

ganizations have a common interest. All parties con-

tributed to develop a formal agreement to register

what they wanted to achieve with this cooperation in

one or two years. The relationship in the alliance has

been build gradually. Both firms have similar perspec-

tives about how the construction industry should

work and are willing to be transparent, open, and

trustful both in terms of competence and intentional

trust. The partners have worked within the alliance

for some time now. However, they stated that they

had to solve some arguments and conflicts while de-

veloping the concepts and prototypes of the innova-

tion project; the architect firm even reorganized its

organization to develop and execute the innovation.

Over time they grew closer together and learned to

understand each other better.

Knowledge Capabilities and Governance

In this section the four cases on knowledge capa-

bilities and governance mechanisms used in the

innovation projects are compared. Table 1 presents

a summary of the case study findings.

Access to Technological Knowledge

The PBI often focuses on ad hoc strategies for pro-

jects. Research has shown that project-based working

can act as a major limiting factor for learning and in-

novative potential (Dubois and Gadde, 2002; Gann

and Salter, 2000; Keegan and Turner, 2002; Prencipe

and Tell, 2001; Winch, 1998). From the knowledge-

based view and alliance literature it is known that

learning competencies from partnerships are impor-

tant to develop competitive capabilities (Hamel,

1991). These studies focus on organizational learning

and absorptive capacity (Lane and Lubatkin, 1998;

Mowery et al., 1996). Grant and Baden-Fuller (2004),

however, stated that the primary advantage of alli-

ances is in gaining access to knowledge rather than in

acquiring knowledge. Firms have access to their part-

ner’s stock of knowledge to exploit complementari-

ties, but with the intention of maintaining its distinc-

tive base of specialized knowledge. The authors men-

tion that when firms focus on acquiring (learning)

knowledge from each other the outcome may become

a competition for learning (Hamel, 1991).

Although literature about capabilities mostly dis-

cusses long-term relationships between firms, part of

this literature can also be applied to shorter-term co-

operations. The firms involved in Case Alpha gained

access to the knowledge base of the initiating firm,

and they exploited this knowledge while they also

maintained their own distinctive specialized knowl-

edge. However, the initiator of Case Alpha (i.e., the

contractor firm) did not have access to or learn from

the capabilities of its partner firms. The initiator firm

did not view the innovation as a core competence, and

no strategic intent was placed in gaining access to the

knowledge base of the other firms. The partner firms

learned, from the initiating firm, the important ele-

ments of the innovation of underwater concrete and

reproduced their own version of a method and prod-

uct in this field. Over time the partner firms were able

to execute the full process of constructing underwater

concrete. Through knowledge leakage the partner

firms acquired the knowledge from the initiating

firm and broadened their knowledge base, and a com-

petition for learning arose in which there was a win–

lose result. This finding is confirmed in Hamel (1991),

who stated that partners with more similar capabili-

ties (in this case, capabilities in underwater concrete)

can end up in a competition to learn.

The other case studies were mainly based on gain-

ing access to complementary capabilities in which

partners perceived a win–win situation. Partners

were selected based on their specific expertise in a

field that was important to develop the intended in-

novation. Cases Beta, Gamma, and Delta were not

aiming at learning each other’s capabilities, but part-

ners were mainly interested in having access to and

combining each other’s technological capabilities. In

case Delta, the partners stated clearly that they did

not share technological knowledge with each other

but that they applied their specific competence in the

project. All partners in both Case Gamma and Case

Delta kept their own competence base and did not

broaden their competence with the technological

knowledge of the other partner. The firms in these

two case studies maintained differentiated knowledge

bases, which according to Grant and Baden-Fuller

(2004) can develop in a stable and long-term relation-

ship. Especially in Case Gamma (some relationships)


65

and Case Delta these cooperative relationships devel-

oped mutual competence and intentional trust and

built a long-term commitment (this commitment was

extended to other business projects as well). Hamel

(1991) explained this by stating that firms converge

into long-term relationships as a consequence of

their strategic intent to do so. Also, the cooperation

develops over time because firms mutually generate

competence and intentional trust through openness

and transparency of knowledge transfer. Sydow

(1998) stated that when trust is once established

in an interorganizational relationship, it stabilizes

exchange relationships, which in turn increase

chances to enhance trust. Furthermore, trust could

constitute trustworthiness and, in the end, competitive

advantage.

Proposition 1: Cooperation aimed at a mutual strategic

benefit in mutually gaining access to the knowledge

bases of the involved firms while maintaining their own

differentiated knowledge base can result in a more

stable and longer-term relationship with mutual trust

between the cooperating firms.

Organizational and Market Knowledge

As mentioned already, a large part of the literature on

alliances and partnerships focuses on learning and

knowledge transfer. From the cases it became clear

that partners especially gained access to their cooper-

ating partner’s technological knowledge. However,

the cases show that besides technological knowledge

(which implies expert knowledge about the content of

the innovation), other types of knowledge were im-

portant in the cooperative projects. These kinds of

knowledge were either transferred between the part-

ners or were developed within the cooperation. From

the case studies we learn that organizational and mar-

ket knowledge were transferred or developed. In the

early phases of the innovation projects (development

of concepts) the focus of the partners was mainly on

specifying each other’s knowledge base (technological

capabilities) in such a way that tasks could be allo-

cated according to the specific knowledge base.

In the early phase of an innovation project, mem-

bers discussed mutual expectations, risks, financial

aspects, division of tasks (based on each others’

Table 1. Summary of Case-Study Comparison

Case Alpha Case Beta Case Gamma Case Delta

Partners Contractor firm (initiator)Suppliers (concrete,diving and concrete pumps)R&D institutes (testingprototypes and method)

Large contractorfirm (initiator)Large concretedevelopment firm

Consultant firm inconstruction (initiator)UniversitiesR&D institutesSuppliers (steel, concrete,installations)Contractor

Architect firmHolding firm:-knowledge center(initiator)- selling center

KnowledgeCapabilities

Transfer of knowledgethrough patents,publications.Transfer throughexperience. Learning ofmethod and product byproject partners

Access to each other’scapabilities inconstruction, processesand concrete. Learningmarket knowledge

Access to each other’scapabilities in technologicalknowledge about concrete,steel and installations.Acquiring and developingknowledge in organizationalissues and market knowledge

Access to each other’scapabilities in technologicalknowledge about 3Dmodeling, innovationprocesses and calculationtechniques. Learning ofimplementation ofinnovations and processof innovation project.

Governancemechanisms

Contract and price-based relationship

Pure mutual-trustbased relationship

Trust relationships withstandard contract

Trust relationships withstandard contract

Openness andtransparency

Competitive.Closed and notransparence in sharingknowledge

Open and transparentfor the project

Openness and transparencyhigh in conceptual andexploitation phase.

Openness and transparencyhigh throughout wholeproject.

Intent ofcooperation

Win-lose strategy Slight win-win strategy(not high priority inboth firms)

Win-win strategy inconceptual andexploitation phase

Win-win strategy forall firms.



capabilities), and governance issues for the innovation

project. In later phases, knowledge transfer and cre-

ation focused more on creating experiences in real-life

situations for testing and prototyping. These experi-

ences were in organizational experiences of how to set

up such a real-life test and what to do with the tests

results of the prototypes (e.g., problems). Partner

firms mentioned that they together developed

knowledge about the process of innovation and the

organization of the innovation project (especially im-

plementation aspects were learned in Case Delta). In

the final phase of the innovation project, competen-

cies about the market and the customers became more

important. In Case Gamma, the initiating firm at-

tracted new firms that had a good overview of the

market and the requirements of its customers. In these

relationships, other knowledge besides technological

knowledge was contributed by the partner firms.

Importantly, in especially Case Gamma and Case

Delta, was that partners developed a mutual trust-

based relationship to combine technological knowl-

edge and to share and develop organizational and

market knowledge. For example, in Case Gamma it

was necessary for the partner firm to have experience

and mutual trust with the initial firm of Case Gamma

before it was willing to present market information to

the leading firm. Firms gained not only access to and

created technological knowledge but also knowledge

about the other firms (their way of working, organiz-

ing, and way of perceiving the market; see Case

Gamma and Case Delta and partly Case Beta). Learn-

ing about the other firm helped to develop a mutual

trust relationship and continuation of the relationship

(in Case Gamma and Case Delta).

Proposition 2: In a cooperation aimed at a mutual stra-

tegic benefit in mutually gaining access to the knowl-

edge bases of the involved firms, partners not only gain

access to each other’s technological capabilities but also

develop and share knowledge about organizational as-

pects and market situations and gain knowledge about

the way of working of the partner firms.

Codifiability of Knowledge

In knowledge literature, the transferability of knowl-

edge is an important issue. Knowledge that cannot be

easily observed and codified is rare, costly, and diffi-

cult to transfer (Spender, 1994). This type of knowl-

edge brings a competitive advantage to firms. In a

recent study, the interaction between codifiability of

knowledge and the governance mode of contracting

(making use of the market) was investigated (Fey and

Birkinshaw, 2005). The authors found a negative re-

lationship between situations in which knowledge is

more codifiable and leakage (spillover effects) of

knowledge toward contracting partners becoming

more evident. These results confirm the situation in

Case Alpha, in which a contracting mode of gover-

nance was used and knowledge was leaked to the con-

tracted partners of Case Alpha. The knowledge was

leaked in such a way that the partners became compet-

itors on the developed innovation. Case Beta, Case

Gamma, and Case Delta all concerned knowledge that

was more difficult to transfer and codify, and the knowl-

edge was based on expertise and experience in specialist

areas. The partner firms in these cases had specific (firm)

inimitable capabilities that they contributed to the part-

nership. This knowledge is more difficult to transfer to

competitors. In Case Gamma and Case Delta parties

did not transfer this knowledge but created new knowl-

edge in combining the different competencies.

Proposition 3: In a cooperation aimed at a mutual stra-


edge bases of the involved firms, noncodifiability of the

capabilities is conditional to create a win–win situation.


The innovation projects that were most successful in

terms of long-term cooperation (Case Gamma and

Case Delta) applied a governance structure in which

the main focus was on mutual trust (both competence

and intentional trust). However, besides trust, the co-

operation also involved a general contract that dealt

with issues like ownership, conflict situations, and fi-

nancial aspects. This is also in line with recent findings

stating that contracts and (high) trust go hand in hand

(Klein-Woolthuis et al., 2005). Some studies compare

different forms of partnerships (Fey and Birkinshaw,

2005; Thompson and Sanders, 1998) in which they

usually describe two extremes: partnering and con-

tracting. Partnering refers to developing new knowl-

edge through relationships with specific partner firms

based on mutual trust (e.g., strategic alliances, con-

sortia of suppliers and customers). Contracting refers

to acquisition of knowledge on a market basis. Firms

with an arms’ length contracting relationship focus

mainly on the output of the relationship instead of on

the development of knowledge. For coordination of

their activities, they apply a price system (see Hennart,


67

1993). In a price-based system agents are rewarded

based on their outputs; price constraints, however,

also encourage cheating.

Case Alpha refers to sole contracting, whereas Case

Gamma and Case Delta (and partly Case Beta) are

perceived as partnering relationships (partnering in

this respect is a governance mechanism and should

not be confused with partnering in the construction

industry for business projects between customers and

suppliers; see, e.g., Bresnen and Marshall, 2000).

From the case studies, it becomes clear that in a con-

tracting relationship, members are less open to shar-

ing information and there is limited trust between the

partners (see Case Alpha). Furthermore, because

there is limited trust, the cooperation is based on a

contract in which tasks, risks, responsibilities, and fi-

nancial aspects are discussed in detail. A partnering

relationship that is based on mutual trust can develop

into a long-term commitment of the involved parties

as in Case Gamma and Case Delta. Here, partners

relied on each other’s competencies and were open in

sharing knowledge and information with each other.

Industries with free-flowing information trading are

found to have lower search costs and more innovation

(von Hippel, 1988). Powell (1996) found that not all

trust-based governance operates in the same fashion.

He discussed R&D networks in which trust was based

on a common membership in a professional commu-

nity (technologic or scientific community). Especially

in Case Gamma this kind of trust governance was

found in the conceptual phase (scientific community),

whereas Case Beta shared a technological community.

In the production phase of Case Gamma, longer-term

manufacturing relationships were developed, and

trust grew over time in this relationship. In the alli-

ance of Case Delta, the partners also mentioned that

an open environment and mutual trust took time to

develop. This is confirmed by Powell, who discussed

trust governance of alliances and collaborative man-

ufacturing as emerging out of a mutual dependency

and pointed out that trust must be created in these

cooperatives. It is assumed that trust between coop-

erating firms contributes to significant reduction of

transaction costs, opens up opportunities for strategic

action, enhances system stability, yet supports orga-

nizational change (Sydow, 1998).

Proposition 4: A cooperation aimed at a mutual stra-


edge bases of the involved firms is based on mutual

competence and intentional trust as its main governance

mechanism, whereas contracting between market par-

ties aimed at knowledge–output transactions is repre-

sented by limited trust and arms’ length (contractual)

relationships as its main governance mechanism.

A final note is that from our case studies one learns

that it is difficult for firms in the construction industry

to execute development projects because some firms

had little experience in performing innovation pro-

jects in cooperation with other firms outside business

projects. For Beta, Gamma, and Delta, the develop-

ment of longer-term relationships outside the scope of

business projects took time and energy. This is con-

firmed by other studies in project-based industries,

which indicate that projects are always performed in a

context and have a history (Engwall, 2003) and that

managers of innovation projects are influenced by

their experiences of managing business projects. These

managers had more difficulty with innovation pro-

jects with high uncertainty and unclear targets

(Blindenbach-Driessen and Van Den Ende, 2006).

Conclusion and Discussion

In this paper innovation projects in a PBI (construc-

tion industry) are discussed, and a knowledge-based

perspective is applied. From current literature, an im-

portant issue in project-based environments is the low

performance in innovation (Winch, 1998). Others

found that firms based on projects do not provide a

context supportive of innovation, since they prioritize

efficient management of projects (Keegan and Turner,

2002). Especially in project-based firms, most coop-

eration focuses on a contracting relationship instead

of on a trust-based relationship. In the Dutch con-

struction industry, partnering relationships are on the

one hand demotivated by governmental regulations

and on the other hand firms afraid of knowledge

leakage and competition. Following Blindenbach-

Driessen and Van Den Ende (2006) we distinguish

between business projects and development or inno-

vating projects. In this paper the latter category is

studied. The first part of our research question dealt

with the kind of capabilities acquired or gained access

to and their implications for the cooperation. From

our findings in the different case studies it is derived

that firms based on projects can create a more

innovative context when they cooperate and aim for

complementary capabilities. This implies that firms

should gain or give access to and should combine

these capabilities but should essentially keep their



own separate knowledge base instead of broadening

their knowledge base with technological capabilities of

cooperating partners. Partnerships with complemen-

tary technological capabilities and mutual trust

relationships develop and share (new) knowledge on

organizational and market issues. A strategic focus of

firms on cooperation based on giving access to and

combining each others skills, instead of acquiring, can

be positive for the innovative potential and for devel-

oping and strengthening a competitive advantage.

The second part of our research question discussed

the governance mechanism applied by the innovation

projects. It was found that firms focusing on mutually

gaining access to the knowledge bases of their part-

ners can develop a stable relationship based on

mutual trust as their main governance mechanism.

According to Gann and Salter (2000), development

projects should not be separated from the rest of the or-

ganization, since this gives undesired side effects. These

side effects can be found in the internalization of partner

firms’ capabilities or in absorbing the new knowledge

developed during the innovation project. Furthermore,

awareness of history, path dependency, and context of

project-based firms in performing business projects is

important (Blindenbach-Driessen and Van Den Ende

2006; Engwall, 2003). The way a business project is per-

formed is usually based on contracting governance

mechanisms and output-oriented transactions, whereas

an innovation project is organized and coordinated

rather differently and firms aim at gaining access to

knowledge bases of their cooperation partners.

The paper concludes with some practice-oriented

suggestions based on this study for firms in project-

based environments. Succeeding in transferring and

creating knowledge in cooperative innovative projects

is based first on the selection of partners. This selec-

tion is based on partner firms’ intentions (intentional

trust) and competencies (competence trust), their ex-

perience in cooperation and innovation, and the fa-

miliarity of the partner firm in terms of reputation,

friendship or family (Nooteboom, 1999, 2002).

Furthermore, the firms should perceive benefits in

cooperating (financial benefits, increase in skills and

market, spreading of risks and costs).

Second is the process of cooperation during the

project (Nooteboom, 1999, 2002). It is important that

ex ante articulated expectations are fulfilled and that

there is a collaborative attitude among the partner

firms in the form of transparency, open communica-

tion, and information transfer and discussions of pos-

sible conflicts and missed expectations.

Third, certain conditions are important for accom-

plishing a cooperative innovation project. One main

condition is the support (both managerial and financial)

of higher management of the participating firms. Espe-

cially managerial support increases the opportunity of

transferring knowledge and internalizing this knowledge

in the firm. Furthermore, the strategic importance of the

project legitimizes the acceptance and internalization of

new knowledge in the partner firms. When there is a low

strategic importance, there is probably a lack of mana-

gerial support for internalizing new knowledge.

Finally, the participating firms working according to

project-based principles should formulate a strategy of

how to transfer knowledge of partner firms’ capabilities

or new knowledge of the innovation project to the

business projects. The internalization of the gained

knowledge from the cooperation becomes important

for business projects as well. Besides the formulation of

a strategy, the PBF could focus on showing the benefits

and consequences of new knowledge in the form of les-

sons learned and success stories. Other possibilities are

promoting knowledge sharing over project boundaries

by boundary spanners (e.g., personal contacts across

functions and or projects, liaison roles, cross-project

teams; see Cohen and Levinthal, 1990) or an incentive

structure (e.g. based on team performance).

The findings of this study are based on a few case

studies in one country, but the cases illustrate the

propositions and the discussion on knowledge acces-

sibility and governance mechanisms in cooperative

innovative projects. Further research in this field is

needed to be able to present frameworks and guide-

lines for project-based firms on how to govern and

manage cooperative innovative projects.

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