1.1 Background
Project-based companies are continuously being exposed to a variety of uncertainties stemming from the organizational complexity, external environment and individual pro-jects (Martinsuo, Korhonen and Laine, 2014). As companies aim to reduce the negative impact and realize the positive potential of these diverse uncertainties, effective project portfolio management has become a crucial element in supporting company’s success (Cooper, Edgett and Kleinschmidt, 1997; Petit and Hobbs, 2010; Petit, 2012; Martinsuo, Korhonen and Laine, 2014; Kock and Gemünden, 2016). Hence, a dynamic business environment calls for flexible uncertainty management and continuous reconfiguration regarding the content of the project portfolio.
Project portfolios are collections of projects, programs and other work managed together to meet strategic business objectives. These portfolios facilitate centralized portfolio management, which includes identifying, prioritizing, authorizing, managing and control-ling the portfolio. (PMI, 2008, p. 138) In other words, innovation project portfolio man-agement can be defined as a dynamic decision-making process (Cooper, Edgett and Kleinschmidt, 1999), that aims to maximize the value of the portfolio, achieve the right balance and mix of projects, and link the portfolio to business strategy (Cooper, Edgett and Kleinschmidt, 1997).
The managerial activities of project portfolio management include the initial planning and selection of project proposals, the continuous reconfiguration and reprioritization of the projects in the portfolio, and the resource allocation and reallocation according to the project priority (Blichfeldt and Eskerod, 2008). Most previous studies related to project portfolio management have focused on the initial screening and selection of the right projects to the portfolio (e.g. Cooper, Edgett and Kleinschmidt, 1997, 2001; Graves, Ringuest and Case, 2000; Krishnan and Ulrich, 2001), and many publications have pro-vided various standards, frameworks and tools for practicing effective project portfolio management (e.g. Benko and McFarlan, 2003; PMI, 2008).
Although selecting the right projects to a portfolio is a fundamental phase in project port-folio management, it is insufficient for sustaining competitive advantage in a dynamic
context. Hence, regular reconfiguration of the project portfolio is vital for ensuring suc-cess in a turbulent environment. In this context, portfolio reconfiguration refers to the actions related to the alignment and realignment of projects, as well as the adjustments made to the portfolio content (Petit, 2012). Portfolio reconfiguration can also be viewed as a way to respond to various uncertainties, as portfolio managers need to add, repri-oritize, and terminate projects based on the portfolio context (Teller, Kock & Gemünden 2014). Reprioritization can also be seen as an integral part of the portfolio reconfigura-tion, and might also require resource allocation and reallocation actions between the projects within the portfolio (Blichfeldt and Eskerod, 2008; Petit, 2012).
Investments in innovative research and development project portfolios are often risky and uncertain by nature (Martinsuo, Korhonen and Laine, 2014). Hence, companies’
ability to adapt their portfolio to changing internal and external conditions is an important factor for success (Kock and Gemünden, 2016). Achieving such long-term business ob-jectives also requires responsive and agile portfolio management (Kock and Gemünden, 2016), including management of innovation project portfolio uncertainties (Petit and Hobbs, 2010; Petit, 2012).
The definitions of portfolio risks and uncertainties vary between different publications.
Portfolio risk can be defined as an uncertain event, that might have positive or negative effects on the strategic business objectives of the portfolio (PMI, 2008, p. 139). Whereas risk management is predominately proactive (Petit, 2012), organizations have to also be able to respond to unexpected events with reactive change management (Steffens, Martinsuo and Artto, 2007). Hence, in this context, portfolio uncertainties are seen to cover both foreseeable risks as well as unforeseeable threats and opportunities (Teller, 2013). Therefore, portfolio uncertainty management here includes both proactive portfo-lio risk management and reactive portfoportfo-lio change management practices.
Even though uncertainty, risk and change management have already been heavily stud-ied in the project context (e.g. Steffens, Martinsuo and Artto, 2007; Cleden, 2009;
Geraldi, Lee-Kelley and Kutsch, 2010), the understanding of current practices of uncer-tainty management on the portfolio level is still insufficient. It has also become evident that the day-to-day routines of managers often deviate from the theoretical best practices presented in previous publications (McDonough and Spital, 2003; Blichfeldt and Eskerod, 2008; Christiansen and Varnes, 2008). Especially managers acting in innova-tive and highly turbulent business contexts have to adapt to the internal and external uncertainties with flexible risk responses (Martinsuo, Korhonen and Laine, 2014), and practice individual situation-specific judgement in implementing the routines in project portfolio management (Martinsuo and Vuorinen, 2019).
To conclude, organizations have be able to reconfigure their innovation project portfolios effectively and flexibly to meet their long-term business objectives. Hence, investigating the portfolio uncertainty management practices in innovative and project-based compa-nies would deepen the understanding on the day-to-day practices of different actors on the portfolio level. At the same time, common issues faced in uncertainty management in a dynamic context would become more apparent, and therefore provide valuable input for developing such practices in the future.
1.2 Research questions and objectives
The purpose of this thesis is to study the portfolio reconfiguration practices of different actors in the context of innovation project portfolio management. Therefore, the objective is to identify the key actors and their typical practices related to innovation project port-folio reconfiguration. The two main research questions are:
What actors participate in portfolio uncertainty management?
How do these actors reconfigure innovation project portfolios to respond to different uncertainties?
As uncertainty management has been heavily studied on single project level, the main focus of this thesis is on project portfolio level. In addition, initial project selection and the uncertainty identification practices are left outside the scope of this thesis.
1.3 Methodology
This thesis was conducted as a qualitative multiple-case study in two medium-sized and project-based companies providing innovative solutions for other businesses in a dy-namic environment. One of the case companies operates in the software industry, whereas the other competes in the heavy machinery industry. The case study method is designed for understanding the dynamics of the topic being studied within its context (Saunders, Lewis and Thornhill, 2016, p. 184), and therefore seen suitable for the pur-pose of this study. In this context, a case study refers to an in-depth inquiry into the actions of project portfolio management of an organization within a real-life setting (Saunders, Lewis and Thornhill, 2016, p. 184). A multiple-case study enables compari-son between the two case companies, and facilitates some generalization if the findings of the two cases seem to be quite similar (Saunders, Lewis and Thornhill, 2016, p. 187).
According to Yin (2009, p. 106), interviews are the single most important source of data in case studies. Hence, the empirical data was collected mainly through 8 semi-struc-tured interviews conducted at the case companies. Although the titles of the interviewees
varied, each interviewee represented middle or top management and participated ac-tively in innovation activities within the case company. The interview data was also sup-ported by utilizing the case companies’ websites as a secondary source of data, and the research results were sent to the case companies for a validity-check.
1.4 Structure of the thesis
The structure of this thesis has been divided into five main sections: literature review, research method, research results, discussion and conclusions. At first, chapter 2 pro-vides an overview of the existing literature related to the research topic. The literature review therefore provides a theoretical base for this study, covering main themes related to innovative project business, uncertainties arising from a dynamic context and man-agement of these various uncertainties including the key actors and typical portfolio re-configuration practices.
Chapter 3 focuses on the research method and presents the research design of this qualitative multiple-case study in more detail. In addition, some key characteristics of the two case companies and their innovation project portfolios are described. Chapter 3 also presents the measures utilized in data collection and analysis, where the main principals behind the semi-structured interviews as the main data collection method are presented and the predominantly inductive data analysis approach is described in more detail. After that, the research results are presented in chapter 4. This chapter presents the key find-ings arising from the empirical data in terms of the case companies’ innovation environ-ment, portfolio characteristics and stakeholders, uncertainty management and portfolio reconfiguration practices and potential challenges and development ideas. In addition to case specific results, a short cross-case analysis is provided based on the key differ-ences and similarities of the two case companies.
The two research questions are then answered in chapter 5. Here, the literature review and empirical data is utilized in presenting key insights related to the actors and recon-figuration practices in innovation project portfolio management. In addition, the discus-sion chapter includes some key findings on the identified portfolio uncertainties as well as some development ideas based on the findings of the study. Finally, chapter 6 pre-sents the main conclusions of this thesis. In this chapter, the academic contributions of the key findings are assessed, and some practical suggestions are made for managers practicing innovation project portfolio uncertainty management. In addition, the limita-tions of the research are described in more detail and a few proposals are made for the future research related to management of portfolio uncertainties.