High-risk projects strengthen consultancies

A research project between Imperial College Business School in London and Aarhus University, Business and Social Sciences is currently identifying how big and risky pioneer projects lead to breakthrough innovation within the consultancies that work at a high level of knowledge.

2011.11.13

By Daniel Jørgensen

The consulting profession and professional service businesses usually work with well-proven and safe concepts and models in their projects. Due to their customer driven and project-organised nature, they generally find it difficult to create time for and focus on the research and development of new business models.

But now new international research shows that if the companies in the consultant business want to be innovative in a way that could save their future, they should invest and engage themselves in prestigious and often expensive pioneer projects. The problem, however, is that more than often, these projects do not yield any financial return:

- In short, the companies should take a risk if they want to be innovative, says Lars Frederiksen from Aarhus University, Business and Social Sciences.

Together with Andrew Davies and William Wu from the Imperial College Business School in London, he has conducted research into how project-organised companies can create innovation and learning in spite of the special way they are organised, as well as the structure of the markets in which they operate.

- The measuring of learning is the most important aspect of innovation: What did the organisation learn from this project? How, how much and how fast? How do we measure the learning impact of innovation in the best possible way? And how can this learning bring value to new and established business areas, says Lars Frederiksen.

Money in spin-offs

Lars Frederiksen mentions Terminal 5 at Heathrow Airport in London, as well as The Channel Tunnel Rail Link between France and England and Denmark’s own Great Belt link between Zealand and Funen as examples of pioneer projects.

He points out that the value of the high-risk projects per se is not a financial return, but on the contrary, the entrepreneurial activity that follows the production of new knowledge.

- It is the knowledge that arises when taking on a challenging problem, which firstly must be defined rather than merely being solved, that brings an extra marginal of value. This knowledge secures the company unique competencies as well as market positioning through the development and supply of mega-projects with a large degree of complexity and many involved parties – but also a high risk of errors and failure.

Lars Frederiksen believes that companies such as consulting engineers and management consultants should focus on developing and supplying high-risk projects on a regular basis.

- By responding to this entrepreneurial challenge, they are forced to develop new concepts, redefine familiar solutions and specialise in other competencies.

Three types of innovation

During the researchers’ many interviews with managing directors and project managers, they discovered that high-risk projects typically produce positive spin-off with regard to innovation of the organisational, technological and social character of the companies involved.

- We found examples showing that companies discovered and developed entirely new ways to organise the work, new management structures when it came to decision-making in a project, or they were pressured to create new software programmes in connection with the pioneer project, says Lars Frederiksen.

The software could be re-used in connection with subsequent projects and in some cases be sold on separately on a commercial market after its use.

Typically, pioneer projects create brand new social relations across the traditional silo-division between employee groups.

- Throughout the pioneer project, we observed that untraditional patterns of information occurred thus creating new ideas and original solutions to problems. Opportunities that in some cases were not even imaginable before, says Lars Frederiksen.

Promote the pioneer spirit

According to Lars Frederiksen, the company should make sure of three things in order to gain something from the commitment and investments made in pioneer projects:

First and foremost, the project should be driven by meaning. Consultant businesses should not just solve a problem for a random client. They should, to a greater extent, search for specific clients who they can help by defining significant problems. A problem which through its solution could help a lot of people – this could include issues such as the design of better, sustainable homes and neighbourhoods.

- We discovered that the participation of companies in larger and more meaningful projects has a positive influence on the employees’ motivation for innovation. Large projects typically ensure that employees can find a meaning in their job and in their company. It creates a branding value per se and can also contribute to an increased identity creation among the employees, says Lars Frederiksen.

- At the same time, management consultants and consulting engineers, for instance, must be willing to approach things from new, different angles. They should dare let an architect, sociologist or a biologist be a project manager or share the responsibility across various academic areas between an engineer, an economist and maybe a philosopher. Diversity is important and the integration of knowledge is possibly the most important competence, Lars Frederiksen points out.

The final thing companies should know and appreciate is that it is not always the end result that gives a project financial value, but rather the learning process itself. It is through the repeated tasks regarding client adaptations that the consultant industry generates its long-term competitive advantage.

Researched in Chinese future city

The research is based on a global, British consultant firm’s work with a large urban pioneer project in Shanghai, China.

Lars Frederiksen has followed this consultant firm’s “innovation journey” through the last four years and studied the British – Chinese co-operation in carrying out a pioneer project: the world’s first eco-city – a green future city, which is designed to be self-sufficient with food, energy, places of work, social services etc. with a pulsating business community and a carbon footprint of zero.

The actual project is so comprehensive, complex and ahead of its time that it possibly may never be carried out. Nevertheless, the consultant firm has sold similar, smaller projects to at least thirty other cities across the world, and the knowledge they gained by working on the eco-city project has now been sold on to a large number of smaller projects such as retrofit solutions.

It is a mega-prototype project created to see if an alternative, urban design could be developed and eventually be realised: a holistic, sustainable and integrated design which in 2040 should accommodate 500,000 people on an island in the middle of the Yangze river less than an hour from the metropolis that is Shanghai.

The project is driven by substantial pressure on the environment and maintenance of the financial development from an ascending degree of urbanisation in China. Prognoses predict that approximately 600 million Chinese – more or less twice as many as the entire population of USA – will leave the rural areas and head to the urban areas over the next forty years.

The first eco-city project is designed as a closed system, by means of which the interaction of data between many technical, social and ecological parameters and sensors can be collected and analysed.


Further information:

Lars Frederiksen, Visiting Research Fellow
Aarhus University, Business and Social Sciences
Department of Business Administration

E-mail: larsf@asb.dk
Tel.: +45 89 48 89 21

 

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