How to Create Competitive Advantage in Project Business

JourtMl of Marketing Managemenl. 1993, 9, 105-121

Bernard Cova and Karin Holstius* European School of Management, Paris, and IRE, Lyon, France, and *Turku School of Economics and Business Administration, Finland

How to Create Competitive Advantage in Project Business The Tnarketing of projects was studied separatety from the seller's and from the buyer's points of view. The txm research approaches were then combined and e model for international project marketing was developed. First it was demonstrated how the different stages in the bui/ing process are related to the seller's project marketing cycle. Then, two separate empirical studies were conducted. In the first, three key succes factors for project business were isolated. These factors were then combined with six major action variables identified in the other study. The resulting model shows how the marketing of projects overlaps all corporate functions, and it is proposed that this model can be used for creating competitive advantage in project business.

Introduction Background

Project marketing is quite a new subject which still lacks its own theoretical corpus of original concepts validated by research. It has received little attention in marketing research, although projects have become increasingly important, particularly as an intemadonal business ojjerafion and as a strategic choice. Project business is essentially different from traditional trade with goods and services, and considering it as a strategic choice therefore requires organizational readiness and a new management approach. The big advantage of project business is that the new demands in international markets do not necessarily require the development of original new products. The ability to combine and restructure existing or expandable product and service potential can provide firms with new opportunities and relative sujjeriority in project business not only in relatively new market areas such as the oil-exporting and developing countries, but in industrialized countries as well.

T/ie Purpose of the Study and the Research Method

The purpose of this article is to establish some key success factors for creating competitive advantage in project business. The article is based on research about the seller's project marketing process and the stages in the buying process. Two empirical studies were conducted in order to identify (a) factors which influence the seller's success in project business, and (b) variables which are relevant to the project buyer. 0267-257X/93/020105+17 S08.00/0

© 1993 Academic Press Limited

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A concept analytical research approach is used in an attempt to combine the empirical findings into a project marketing model. A final conceptual synthesis is strived for in order to illustrate that project business differs from the traditional industrial inarketing concept. The angle of approach in this study is the international marketing of projects, although most of the findings also seem applicable to activities in the seller's home market.

Theoretical Background Project: Clarification of a Concept There is no universally accepted definition of a "project", and the situation is further complicated by the fact that different terms are used about this type of business. However, there is a common feeling shared by some European researchers that it does need a specific marketing approach (Bansard et al. 1990), beyond the limited approaches of competitive bidding models (Boughton 1987; Allen and Cova 1989). Of several suggested tjrpologies for differentiating projects from other goods and services, the transaction/production typology (Vasconcellos e Sa 1988), which is described in a matrix (Figure 1), seems appropriate.

Unit

Maas

Production

Highly complex

Industrial goods

f Consumer N y services J

Highly simple Marketing spreading

Figure 1. A transaction/production typology.

How to Create Competitive Advantage in Project Business

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"Projects" occur at the most spedfic and most complex point, at the other extreme from mass marketing approaches to consumer goods (Figure 1). They feature high transaction complexity (sf>ecific investments, the importance of the purchase, perceived uncertainty) and are produced in units or spedfic batches. This is the latest point reached in markefing theory, in the eighties and early ninefies (Heap and Campbell 1990; Rudelius et al. 1990), having evolved for industrial goods in the sixfies and for services in the seventies. A separate marketing theory is needed for "projects" to avoid the erroneous direct applicafion of industrial marketing concepts, just as a consumer goods marketing approach was applied to industrial goods two decades ago. From this typology arises the following proposal for a definition of a project: "a complex transacfion covering a discrete package of products, services and other acfions designed spedfically to create capital assets that produce benefits for the buyer over an extended period of time". This definition encompasses the marketing of both extensive and parfial projects, such as some subcontractors' deliveries. A suitable starfing point for constructing a model for project marketing is the sixstage project cycle used by developmentzd and financial institufions (Baum 1982): (1) (2) (3) (4) (5) (6)

idenfification; preparafion; appraisal; negofiafion; implementafion and supervision; evaluafion.

The development of this cycle to suit the marketers of projects will first be presented as it emerged in earlier research (Holsfius 1987). Then the cyde will be elaborated from the seller's as well as from the buyer's points of view in order to create an interacfive project cycle. The Project from the Seller's Point of View In a study covering the most important Finnish project exporters (Holsfius 1987), a project marketing cycle was constructed and validated. A concept-analyfical model based on a literature survey was tested by means of interviews which concentrated on the marketing of projects and the concepts involved. The resulting project marketing cycle is presented in Figure 2. —The first phase is called the search phase. It consists mainly in scanning the environment and identifying project opportunifies. —The second phase is the preparation phase and focuses on a suitable project to exert influence not orsly on the buyer, but on all the entifies involved, in order to get informafion and to obtain tender specifications which are favourable to the company. —The third phase is the bidding phase and consists in setfing up the proposal after receipt of the invitafion to bid. —The fourth phase is the negotiation phase, which starts at the opening of the bids and finishes with the signing oiF the contract. —The fifth phase is the implementation phase, which includes supervision to

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Bernard Cova and Karin Holstius A. Search

B. Preparation

I 1

C. Bidding

D. Negotiation

I

E. Implementation

F. Transition

Figure 2.

Source: HOLSTIUS (1987). The project marketing cycle.

ensure the achievement of agreed objectives and the maintenance of a climate of cooperation between buyer and seller in the identification and solving of problems arising. —The final phase is the transition phase and involves evaluation of the project and the building up of knowledge and experience for future use. This cycle can be said to be self-renewing in much the same way as the project cycle is self-renewing from the point of view of developmental and financial institutions. Each phase of the project—the project cycle as well as the marketing cycle—leads to the next one and the last phase produce new approaches and ideas and result in the identification of new projects.

The Projectfrom the Buyer's Point of View In a study of the project buying process (Cova 1989), three different cases were investigated in Southern Europe according to the inductive approach known as Dedsion System Analysis. The combination of the diagrams resulting from the three cases led to a general model of the project buying process. The project buying cycle presented in Figure 3 is a summary of this model. This project buying cycle may be distinguished by the following. A Long-lasting, Negotiated and Interactive Process. The project buying cycle is a long-

lasting one with many phases. Negotiation is a major component of these phases. It occurs before the setting up of the bidder's list and requests for proposals.


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Need awareness

i i i 1 i i i i i i i I i i

Research on suppliers and contact for advice Specifications Bidders list

Request for proposals Exchange of information* Analysis of proposals Shortlist Negotiation

loiting , special flctancial arrangementB

• Organizational readiness for project busineBs

Action variables (and Bub-variablefi)

Financial linka^ee

' Local agents • Logistics - Norms

• Risk management

Entrepreneurial qualities ' Intrapreneuring

Price > Escalation formula * Terms of payment > Warranties Promotion Design Technology L Delivery time

Readiness to respond to counter trade demands

Industrial linkages

Marketing personnel

International sal^-force Interorganizational and interpersonal relationships

Figure 7. Coupling tbe two approaches. ingenuity and ambition in those who run the business (qualities which are translated and transmitted to the customer through communication and offering), the occurrence of intrapreneurship is dependent on a corporate culture which encourages the entrepreneurial spirit of intrapreneurs. The readiness to respond to countertrade demands can be inferred by the very existence of a separate trading department, or by the number of employees specialized in countertrade and offset agreements. The international orientation of the marketing personnel can be operationalized as their familiarity with the target-country language, culture and legislation. This is valuable not only for the sales force, but for aU employees in contact with the client: those in after-sales, design, R&D, finance and fjroduction. A further development of the conceptual synthesis is presented in Figure 8. The central element of the project transaction, the "offer", is now placed in the centre of the hypothesized "project winning triad" (Figure 8). This conceptualization shows how the marketing of projects overlaps aU corporate functions. Consequently, the whole firm and not only the marketing department partid-


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Personnel readincBS

• Delivery time • Warranties • Technology • Design Escalation formula • Terms of payment

Administrative effectiveness

Figure 8. Tbe project winning triad: key success factors and marketing variables and sub-variables. pates in the "project scanning system" (for the concept "Project scanning system", see Boughton 1987, and Seurat/Rougeaux 19W). The same is true for the implementation of the "Relations" variable, which affects all departments and goes beyond the traditional boundaries of the firm. Conclusion Two different research approaches to defining key success elements for project business were developed on the basis of a central concept in the marketing of projects. This concept is the project marketing cycle with its six phases: search/ preparation/bidding/negotiation/implementation/transition. The first empirical study made it possible to isolate three key success factors for a firm engaging in project business: personnel readiness, administrative effectiveness and entrepreneurial culture. The second study resulted in the identification of six major action variables for the marketing of projects: promotion, relations, sales force, corporate linkages, price and offer. A conceptual combination of these two sets of factors resulted in a hypothetical project-winning model. This model, like other propositions, now needs to be validated. The results presented in this study highlight two major characteristics of project marketing: —the buyer/seller interaction at each of the six phases of the process; —the overlapping of all corporate functions in the marketing process.

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These two characteristic features, together with the details of the phases in the project marketing cycle, support the idea of specificity in project marketing compared vnth the traditional marketing of industrial goods and legitimate the creation of the "European network on project marketing and systems selling" that groups the researchers implicated in this field. References Allen, T. and Cova, B. (1989), "New vistas in competitive bidding strategies", European Management Journal, 7, 4.

Bansard, D., Cova, B. and Salle, R. (1990), "Project marketing: Clarification of a concept and basis for theory building". Proceedings of the 6th IMP Conference, Milan, pp. 43-73. Baum, Warren C. (1982), The Project Cycle, Washington, The World Bank. Boughton, P. (1987), "The competitive bidding process: beyond probability models". Industrial Marketing Management, 16, pp. 87-94. Capon, N. and Huibert, j . (1975), "Dedsion system analysis in industrial marketing". Industrial Marketing Management, 4, pp. 143-160. Cova, B., Strategies de soumission aux appels d'offres intemationaux de projets industriels. Unpublished PhD thesis, Dauphine University, Paris, 1989. Duroure, R. and Fraisse, H. (1981), "Le marketing des affaires". Revue Francaise de Marketing, numero special, Adetem. HSkansson, H. (Ed.) (1982), International Marketing and Purchasing of Industrial Goods, John WDey, New York. HAkansson, H. (Ed.) (1987), Industrial Technological Development. A Network Approach, London, Croom Helm. Heap, A. and Campbell, N. (1990) "Winning large international projects in China: a network approach". Proceedings of the 6th IMP Conference, Milan, pp. 1089-1121. Holstius, K. (1987), Project Export. Research Report 1, Lappeenranta University of Technology. Holstius, K. (1989), Project Business as a Strategic Choice. A Theoretical and Empirical

Study of Project Marketing. Research Papers 12, Lappeenranta University of Technology. Jansson, H. (1989), "Marketing to projects in Southeast Asia". In: Advances in International Marketing Vol. 3. (Eds) Hallen, L. and Johansson, I., Jai Press, pp. 259-276. Kosonen, Heikki M. (1990), Systems Sales as an International Business Strategy for Industrial Companies—A Theoretical Approach, Helsinki School of Economics Publications, B-97. Moller, K. (1986), "Buying Behaviour of Industrial Components: Inductive Approach for Descriptive Model Building", pp. 79-132. In: (Eds) Tumbull, P. and Paliwoda, S. Research in Intematiortal Marketing, London, Croom Helm. Penrose, Edith (1959), The Theory of the Growth of the Firm, Oxford, Basil BlackweU. Roman, Daniel D. (1986), Managing Projects: A Systems Approach, New York, Elsevier Science Publishing Co., Inc. Rudelius, W., Hartley, S. M. and Willis, R. E. (1990), "A Sales Forecasting Model for Firms Selling ftojects to Order". In: Advances in Business Marketing. Vol. 4. (Ed.) Woodside, A. G., Jai Press, pp. 167-176.


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