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International Journal of Project Management 26 (2008) 87–94

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Purchasing strategies and value creation in industrial turnkey projects

a,*
Tuomas Ahola , Eino Laitinen a, Jaakko Kujala a, Kim Wikström b

a
Helsinki University of Technology, P.O. Box 5500, FI-02015 HUT, Finland
b
Åbo Akademi University, Domkyrkotorget 3, FI-20500 Åbo, Finland

Received 30 July 2007; accepted 2 August 2007

Abstract

This paper evaluates how turnkey project deliveries create value for their customers and how the purchasing strategy of the buyer
affects value creation. Literature focusing on the distinguishing characteristics of turnkey projects and the different strategies available
for purchasing them is reviewed. The concept of customer value is opened up and divided into value elements, benefits and sacrifices,
which jointly determine the extent of value realized for the customer. Value elements discussed in existing literature are categorized
and contrasted to empirical findings of a case study conducted in the Finnish marine industry. According to our findings, several
short-term and long-term value elements are emphasized in the delivery of complex and bespoke turnkey projects for industrial custom-
ers. Further, the selection of the purchasing strategy affects the creation of value for the buyer. More specifically, competitive tendering-
based strategies emphasize short-term value creation while purchasing strategies relying on a close interorganizational relationship
between the buyer and the seller emphasize long-term value creation. Our findings illustrate that if the project marketing process of
the seller and the purchasing strategy of the buyer are well aligned, value creation can be further facilitated.
Ó 2007 Elsevier Ltd and IPMA. All rights reserved.

Keywords: Turnkey projects; Purchasing of projects; Value

1. Introduction and innovative ways of providing value to their customers

During the last two decades we have witnessed a strong
trend of suppliers integrating an increasing amount of ser-
vices and product components in projects delivered to their
customers [1]. This can be partly explained by the tendency
of companies to focus their efforts on the core activities
where they can create most value and to outsource other
activities to their suppliers [1–5]. Project business has also
been influenced by other segments, e.g. the business models
in automotive industry. These models assume that to an
increasing extent, the customer concentrates on overall sys-
tem integration while, its suppliers take the responsibility
of well-defined, large parts of the system [6,7].
In order to succeed in increasingly competitive markets,
project-based organizations (PBOs) have to develop unique
*
Corresponding author. Tel.: +358 9 451 3978.
E-mail address: tuomas.ahola@hut.fi (T. Ahola).
vis-à-vis their competitors [8,9,4]. The technical specifica-
tions of projects delivered to customers are becoming
increasingly complex and PBOs are including elements pre-
viously produced internally by their customers in their
offerings [10]. Simultaneously, the value of such deliveries
is becoming increasingly complex and difficult to compre-
hend and assess by the buyer. In order to improve their
offerings, project suppliers need better models to under-
stand the logic by which their turnkey project deliveries
create value for their customers. Since there does not
appear to exist any model or framework for assessing the
value of turnkey deliveries, companies purchasing turnkey
projects are likely to have significant difficulties in evaluat-
ing the value that these projects create for them [5].
The aim of this paper is to elaborate on how turnkey pro-
ject deliveries create value for their customers and how the
purchasing strategy of the buyer affects the creation of value.
To achieve this task, we begin by discussing the key

0263-7863/$30.00 Ó 2007 Elsevier Ltd and IPMA. All rights reserved.

doi:10.1016/j.ijproman.2007.08.008
88 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94
characteristics of turnkey projects and how they are pur-
chased and marketed. We then elaborate on the concept
of value, which is often, as there does not exist a widely
accepted definition for it, misleadingly considered as a syn-
onym for short-term monetary value, or even price [11–14].
We break the concept down to its elements, the benefits and
sacrifices which jointly determine the amount of value that
is created for the customer. We also discuss how the tempo-
ral dimension of value needs to be considered as value can
be created in the short-term and in the long-term. In the
empirical part of this paper, we present the results of a case
study where we focused on the creation of value for a ship-
yard that purchases turnkey deliveries from one of its turn-
key suppliers. We then discuss the implications of our
study for PBOs purchasing and delivering turnkey projects.
In the concluding section, we link our findings to previous
studies and propose directions for further research.
2. Turnkey deliveries in project-based industries
The key distinguishing feature of turnkey projects is the
use of novel and innovative ways of combining products
and services to address the unique needs of individual cus-
tomers [4]. Turnkey projects involve a delivery of a com-
plete system and extend the timescale of the project
backwards to pre-bid activities and forwards beyond the
handover stage [10]. The first widely reported turnkey
deliveries can be considered to have taken place in the form
of large BOOT (build-own-operate-transfer) and BOT
(build-operate-transfer) deliveries [15,4], where a key con-
sideration of the, often governmental, buyer was to
increase the commitment of the contractors by forcing
them to think of themselves as owners of the project. This
consideration is easy to understand as, for example, in the
construction industry, the low commitment of the prime
contractor to projects delivered to customers is considered
a significant problem hindering the quality and effective-
ness of the deliveries [16,17]. Recently, the procurement
of turnkey projects has become increasingly common in
many industries such as construction and shipbuilding
[18,19].
Turnkey project deliveries involve a major shift of
responsibility from the customer to the supplier [20,10].
This responsibility may involve the inclusion of compo-
nents formerly produced by the customer, responsibility
for developing innovative and productive practices, and
responsibility for ensuring that the project is not just suc-
cessfully delivered to the customer according to the time,
cost, and scope objectives set, but that it is also fits the cus-
tomer’s own processes and, ultimately, creates value for the
customer. As the supplier becomes highly involved in the
early phases of the turnkey project delivery [10], the impor-
tance of a close interorganizational relationship between
the transacting organizations is emphasized [21,4] and as
the supplier is responsible for the delivery as a whole, the
dilution of responsibilities over various parties can be
reduced [22,23].
The concepts of complex products and systems (CoPS) [4]
and integrated solutions [1] are highly similar to turnkey
project deliveries. All three concepts focus our attention
towards the same phenomenon, but from slightly differing
points of view and terminology.
3. Purchasing and marketing of turnkey projects
Turnkey projects are more complex than non-turnkey
projects, such as typical subcontracting projects, implying
that they create value differently and as a result, may also
need to be purchased differently from the latter kind. A ten-
dering-based buying process is commonly used in projec-
tized industries such as construction, shipbuilding,
aerospace, aviation, etc. The primary motivation for the
use of competitive tendering is its ability to lower the cost
to the buyer by forcing suppliers to compete against each
other. Cova et al. [10] discuss five types of invitation to ten-
der from which the ‘‘invitation open to best price’’ is the
most rigid and the ‘‘closed invitation to tender’’ is the most
flexible. The more clearly the target of the tender can be
specified and the more straightforward it is for the buyer
to compare tenders, the more rigid approach should be
selected by the buyer. In the case of turnkey projects
involving a high degree of complexity, it is difficult for
the buyer to compare offers, and thus a rather flexible ten-
dering mode appears more appropriate. Shammas-Toma
et al. [24] argue that the short-term perspective inherent
in competitive tendering may result in difficulties in inte-
grating the design and execution phases of the project,
leading to sub-optimal results. Further, as specifying the
project so explicitly that the suppliers can formulate their
offers solely based on tendering documents, and comparing
a high amount of received tenders requires a lot of
resources, competitive tendering often results in high trans-
action costs for the customer [25].
The supplier may try to affect the specification of the pro-
ject by employing a constructivistic project marketing
approach where it attempts to influence the customer by
becoming more active in the business arena and shaping
the rules of the tendering ‘‘game’’ [26]. The supplier may also
utilize a consultative selling approach where the primary aim
is to thoroughly analyze the customer’s business context and
then to come up with a solution that fits to this context
[27,10]. Through these novel project marketing approaches,
project suppliers can try to overcome the inherent disconti-
nuity which characterizes relationships between suppliers
and customers in project business [28] – also termed as
‘‘sleeping relationships’’ by Hadjikhani [29].
Recent purchasing literature emphasizes the importance
of the interorganizational relationship between the buyer
and the seller [30,31]. According to these authors, the nat-
ure of the interorganizational relationship between the
buyer and seller should affect to how purchasing is orga-
nized by the buyer. A close and trust-based interorganiza-
tional relationship between the buyer and the seller may
reduce the buyer’s need and motivation to employ purchas-
 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94
ing strategies relying solely on competitive tendering.
Instead, the buyer may be able to utilize more negotia-
tion-based purchasing strategies, where the customer and
supplier consider each other more as business partners than
as a master and a servant. According to Lamming and Cox
[32], the use of purchasing methods that rely on a close
relationship between the buyer and the supplier may result
in the following benefits:
 The buyer may avoid the high costs of competitive
tendering.
 The buyer needs to deal with fewer suppliers reducing
the costs required for managing its supplier base.
 Long-term contracts, benefiting both the buyer and the
seller are possible.
 Sharing of risks and rewards between the buyer and the
seller is possible, which may result to creative and bene-
ficial outcomes for both transacting parties.
Purchasing strategies based on a close interorganiza-
tional relationship between the buyer and the seller have
also received strong critique. Buyers may obtain dissatis-
factory results by blindly utilizing these ‘‘novel’’ strategies
without understanding the essential features and dynamics
of their business environments, and favouring certain sup-
pliers over others may hinder innovation and increase
prices as competition between suppliers is reduced
[33,34]. According to Bensaou [30], a purchasing strategy
relying on a close interorganizational relationship between
the buyer and the seller is appropriate when the transferred
asset is characterized by a high degree of customization,
adaptation is required from both the buyer and the seller,
the asset is characterized by high technical complexity, fre-
quent design changes during its realization are required,
strong engineering expertise is needed to realize the asset,
and large capital investments are required. All of these
characteristics tend to apply to turnkey project deliveries,
which is likely to emphasize the importance of the interor-
ganizational relationships between the buyers and the sell-
ers of turnkey projects.
4. Customer value in turnkey project deliveries
To remain competitive and continuously improve their
offerings, PBOs delivering turnkey projects and organiza-
tions that are considering doing so in the future need to
understand how their offerings create value for their cus-
tomers. This is a problematic task, since a typical turnkey
delivery includes a complex combination of tangible and
intangible components which need to be integrated by the
supplier as a complete and functional offering. The offering
creates the customer some benefits which make the cus-
tomer willing to procure it and, in addition, forces the cus-
tomer to make some sacrifices in order to receive these
benefits. The most obvious sacrifice is the price the cus-
tomer pays for the offering. The concept of customer value
relates to these benefits and sacrifices but is somewhat
89
ambiguous as there exists no widely accepted definition
for it [11,35,36,14]. In this paper, in accordance to de Cher-
natony et al. [11] and Flint and Woodruff [37] we consider
customer value as the difference between benefits received
and sacrifices made by the customer, and thus value can
be increased by either increasing the benefits received by
the customer or by reducing the sacrifices the customer
has to make to receive them. A key problem related to
understanding and assessing customer value is that many
of the benefits and sacrifices are often inherently difficult
to measure objectively, and in many cases, even difficult
to identify [38].
Several studies [39–41,36,38] conducted in a business to
business context, discuss benefits and sacrifices affecting
customer value. Further, Ravald and Grönroos [39], Lapi-
erre [40], and Möller and Törrönen [38] argue that some
benefits and sacrifices are not always immediate but may
take a longer period of time to realize. Thus, customer
value is time-dependent, and to avoid short-term optimiza-
tion, buyers should consider both short-term and long-
term benefits and sacrifices to be able to understand how
value is realized over time.
From the literature discussed earlier, we identified a
rather extensive list of benefits and sacrifices and combined
them into categories of similar elements. Short-term bene-
fits formed five clearly distinguishable categories. Product
related benefits (5) are elements that are tied to how the
asset being purchased creates value in the customer’s busi-
ness processes. Delivery efficiency benefits (5) are realized
when the supplier is able to provide the transferred asset
in an efficient manner to the customer. Additional support
services (4) contains elements that help the customer to uti-
lize the transferred asset in a more efficient manner than
can typically be expected. For example, training programs
can improve the customer’s personnel’s skills to utilize the
transferred asset. Access to resources (4) contains elements
which provide the customer access to some valuable
resources it would not have access to without purchasing
the asset from the supplier. Innovation (1) refers to short-
term improvements that the supplier’s offering can create
to the customer’s business processes. Short-term sacrifices
were grouped into three distinct categories. Direct cost (1)
refers to the price paid by the customer to receive the asset.
It is the most obvious and commonly discussed sacrifice in
economic exchange. Indirect cost of poor performance (2)
refers to costs that are indirectly caused by the turnkey
delivery. For example, delayed deliveries may unexpectedly
disrupt the customer’s business processes and result to sig-
nificant financial losses. Operational transaction costs (16)
contains sacrifices relating to the administrative practices,
monitoring, and governance that the customer has to deal
with in order to acquire the transferred asset.1
1
We have adopted the concepts of ‘‘operational transaction costs’’ and
‘‘strategic transaction costs’’ from Möller and Törrönen [38]. The former
refers to the costs of establishing the supplier buyer relationship and
running it, while the latter refers to more long-term implications of
transactions between the two parties.
90 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94

Long-term benefits formed three categories. Relationship
between customer and supplier (4) contains elements that
create benefits for the customer by improving its relation-
ship to the supplier. For example, through increased trust,
the two parties can come to agreements that create more
value for the customer. Innovation (5) refers to benefits that
create value for the customer by significantly improving the
transferred asset over the long-term. The supplier may, for
example, come up with radically different ways of support-
ing the customer’s business processes. After sales services
(2) are benefits that the buyer may receive from the supplier
after the traded asset is transferred. Long-term sacrifices
formed two categories. Strategic transaction costs (2) refer
to the potential long-term sacrifices caused to the buyer by
transacting with a certain supplier. For example, if the
buyer becomes more dependent on a certain supplier while
this supplier, for some reason, loses competitiveness, the
buyer may also suffer in the long-term. Customer capabili-
ties (1) refers to harmful long-term effects the transaction
may have on customer’s capability base. Table 1 presents
the identified benefits and sacrifices identified from the lit-
erature in a condensed form.
5. Turnkey deliveries in the Finnish marine industry
The marine industry is characterized by networks of
companies led by shipyards manufacturing various types
of vessels for their clients on a project basis. There is inten-
sive competition between these networks, based in different
continents and countries, and to remain competitive most
networks have specialized in a narrow segment of vessels.
Each vessel built is organized as a project led by the ship-

Table 1
Customer benefits and sacrifices identified in literature
Benefits Sacrifices
Short-term Product related Direct cost
+Product performance [36] –Price [36,40,39]
+Product reliability [36] Indirect cost of poor performance
+Product consistency [36] –Delayed deliveries [39]
+Product quality [40] –Repair and maintenance [39]
+Product customization[40]
Delivery efficiency Operational transaction costs
+On-time delivery [36] –Inventory management [36]
+Delivery flexibility [36,38] –Order-handling [36,39]
+Accuracy of delivery [36] –Incoming inspections [36]
+Efficient delivery [38] –Manufacturing [36,41]
+Problem solving [36] –Time/effort/energy [40]
Additional support services –Conflicts [40]
+Product-related services [36] –Information collection about suppliers [38]
+Training programs [39] –Negotiations [38]
+Service flexibility [38] –Drawing up the contact [38]
+Product testing and validation [36] –Establishing delivery procedures [38]
Access to resources –Logistics [39]
+Customer information [36] –Installation [39]
+Outsourcing of activities [36] –Ordering costs [41]
+Communication (business critical information) [36] –Monitoring supplier performance [41]
Innovation –Coordinating and communicating with supplier
+Support for customer in early project definition phase to create optimal [41]
outcome [26] –Internal coordination [41]
+Incremental innovation enhancing efficiency [38]
Long-term Relationship between customer and supplier Strategic transaction costs
+Image [40] –Risk that the supplier will lose its competitiveness
+Trust [40] [38]
+Solidarity [40] –Risk that the supplier will behave opportunisti-
+Mutual goals [36] cally [38]
Innovation Customer capabilities
+Prototype development [36] –Customer’s R&D function may suffer [41]
+Innovations and new solutions supporting customer’s business [38]
+Radical innovations opening up new business opportunities [38]
+Design tasks [36]
+Alternative solutions [40]
After sales services
+Warranties [39]
+After-purchase services [39]
Academics discuss short-term and long-term benefits and sacrifices with somewhat differing terminology. For example, Ravald and Grönroos [39] discuss
episode benefits and relational benefits, from which the former can be considered more short-term than the latter. To present the findings in the format
presented above, the benefits and sacrifices have been categorized as either short-term or long-term by the authors.
 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94
yard which is ultimately responsible for delivering the fin-
ished vessel in time and according to specifications to its
client.
5.1. Case study
The empirical data for this paper was collected during a
joint research project between two Universities and five
partner organizations from the Finnish marine industry.
More specifically, we collected empirical data from a ship-
yard and one of its first-tier cabin areas turnkey suppliers.
We decided to employ a case study strategy, which accord-
ing to Yin [42,23] is ‘‘an empirical inquiry that investigates
a contemporary phenomenon within its real-life context
when the boundaries between phenomenon and context
are not clearly evident and in which multiple sources of evi-
dence are used’’. As earlier argued, the concept of value is
ambiguous and the elements of value, i.e. benefits and sac-
rifices are poorly understood, especially in the context of
turnkey project deliveries. A total of 14 semi-structured
interviews lasting 1–2 h were conducted. The semi-struc-
tured interviews focused on the following topics: turnkey
project purchasing and marketing practices, benefits and
sacrifices related to turnkey deliveries, supplier selection
criteria, risks and responsibilities of parties in turnkey pro-
jects, relationship between the companies and experiences
from past turnkey delivery projects. The interviews were
recorded and transcribed to increase the reliability of data
collection and to facilitate its analysis. We processed the
empirical data into two entities. First, we constructed pro-
cess descriptions of how turnkey projects are bought by the
shipyard and marketed by the supplier and how the value
of the delivery is considered in these processes. Second,
we categorized the customer benefits and sacrifices identi-
fied during the interviews into a similar format as presented
earlier in Table 1 to facilitate the comparison of our empir-
ical findings to existing literature.
5.2. Results
The shipyard purchases turnkey projects on an area
basis so that each turnkey supplier is responsible for a spec-
ified interior area of a ship (e.g. passenger cabin area). A
turnkey supplier starts its project from a raw steel hull
and completes its area to commissioning of that area to
the client. More accurately, a turnkey project typically
includes: detailed area design, procurement of materials
and pre-fabricates needed in that area, installation and
assembly, inspections needed, commissioning of the area
to the client and a warranty period. The significance of
turnkey deliveries is growing as the key actors of the Finn-
ish shipbuilding industry have created a shared strategy
which aims for increasing the amount of turnkey deliveries
in the production of sea vessels by more than 50% within a
period of less than five years [43].
The purchasing process of the yard is rather formalized
and cross-functional, including representatives from all
91
major functions. After a shipbuilding project has been ini-
tiated, the turnkey entities to be procured are first defined.
After that, turnkey suppliers are selected with the following
process:
 Deciding which suppliers have sufficient potential and
capabilities.
 Preparing requests for quotation.
 Comparison of quotations.
 Negotiations.
 Final decision.
The shipyard utilizes a competitive tendering process in
the procurement of turnkey deliveries. The aim of the yard
is to include at least three potential suppliers for each deliv-
ery to reduce costs and to facilitate the development of the
specific turnkey area by forcing the suppliers to compete
against each other. When selecting the supplier, price is
the most important criterion, but in addition the following
are considered:
 Experience from previous projects.
 Investments in product development by the turnkey
supplier.
 People involved from the turnkey supplier.
 Sub-suppliers used by the turnkey supplier.
 Financial situation of the turnkey supplier.
 Client’s preferences.
 Risk carrying ability and willingness of the turnkey
supplier.
 Strategic factors (if any).
Although, the supplier selection criterion includes ele-
ments that are somewhat strategic, such as the R&D invest-
ments by the supplier, they clearly prioritize short-term
value that achieved during the time span of a single turnkey
project delivery and to some extent neglect long-term
value.
When a supplier has a possibility to affect the specifica-
tions of the project, it may in some cases be able to propose
novel and innovative solutions that create more value the
customer [26,4,5]. The interviews revealed that the supplier
we focused on does not often actively try to affect the area
specification, primarily due to intensive time pressure from
its client and because the competitive tendering process
employed by the yard reduces motivation to propose solu-
tions that the yard could later buy from the supplier’s com-
petitors. In addition to not participating actively to the
turnkey project definition, we noted that the supplier lacks
knowledge of what are the elements that the customer val-
ues and is willing to pay for.
To conclude, the interviews highlighted that the yard
focuses primarily on short-term value and in particular,
emphasizes the price of an offer over any other sacrifice
or benefit in its purchasing process, while the turnkey sup-
plier lacks understanding of what are the elements, other
than price, the customer considers. Further, it is evident
92 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94
that the competitive tendering employed by the yard signif-
icantly reduces the supplier’s motivation to make long-term
R&D investments. We have summarized all the identified
benefits and sacrifices in Table 2. These value elements will
now be discussed in detail.
In the short-term, the most important benefit resulting
from turnkey project deliveries is the functionality and
quality of the delivery to the yard’s client. Turnkey deliver-
ies are to some extent pre-fabricated on the supplier’s pre-
mises and delivered to the ship assembly site in large
modules which are easier to handle by the yard than if
the components required for the area were sourced sepa-
rately. The yard also benefits from the shorter lead time
offered by its turnkey supplier in contrast to sourcing sep-
arate components from different suppliers. As the supplier
is specialized in the delivery of a certain area, it can par-
tially standardize its production processes, increasing deliv-
ery efficiency. The yard can also benefit from the agility of
its suppliers in the negotiation phase, where the ship is
being marketed to the yard’s client. The turnkey supplier
can rapidly calculate the costs and materials requirements
for the area, providing accurate cost data to support the
yard’s own marketing process. The supplier can also partic-
ipate in the financing of the turnkey delivery, which bene-
fits the yard as a part of the capital that is tied to the
shipbuilding project is effectively obtained from the sup-
plier. Further, supporting the findings of Eriksson [5] we
noted that the turnkey supplier, which is a much smaller
company than the yard, can subcontract the work forward
to 2-tier suppliers and monitor their compliance more effi-
ciently than the yard, resulting in costs savings. The turn-
Table 2
Identified customer value elements in turnkey project deliveries
Benefits
Short-term Product related
+Functionality and quality of the results for the yard’s
customer
+Pre-fabrication
Delivery efficiency
+Short lead time
+Standardized production methods
Additional support services
+Agility in ship negotiation phase
+Financing
Access to resources
+Improved access to 2-tier supplier base formed of
smaller companies
Innovation
+Innovative solutions for yard’s client
Long-term Relationship between customer and supplier
+Commitment of supplier to future business
Innovation
+Development of the area as a whole
+Development of the production methods/ process
+Possibility to develop the network further
Other
+Flexibility for the fluctuation of market demand
key supplier has also been able to provide the yard’s
client new and innovative solutions which is a clear benefit
for the yard.
The most obvious short-term sacrifice for the yard is
the price paid to the turnkey supplier in exchange
for the turnkey delivery. According to the interviewees
at the yard, the price is clearly the primary value element
considered in purchasing decisions. If the turnkey sup-
plier’s performance is poor, the yard will receive a rela-
tively high amount of reclamations from its own
customer. These reclamations need to be sorted which is
a sacrifice to the yard, even though it often can transfer
a significant amount of these costs to the turnkey supplier.
Supporting the findings of Shammas-Toma et al. [24],
complex turnkey deliveries involving frequent design
changes and problems in production can manifest as con-
flicts between the yard and the supplier, between two turn-
key suppliers, or the turnkey supplier and the yard’s
client. Managing these conflicts creates significant opera-
tional transaction costs for the yard, which it can reduce
by favoring ‘‘conflict-free’’ turnkey suppliers. Turnkey
deliveries involve the shift of responsibility of monitoring
subcontractor compliance from the yard to the turnkey
supplier which can lead to sacrifices for the yard if the
turnkey supplier does not prove to be able to effectively
handle them. Further, even though turnkey deliveries are
to a large extent manufactured on the supplier’s premises,
in practice, the customer needs to carry some costs of
materials, facilities, energy, etc. According to the intervie-
wees, the realized amount of side costs is highly dependent
on the selection of the turnkey supplier.
Sacrifices
Direct cost
–Price
Indirect cost of poor performance
–Reclamations
Operational transaction costs
–Conflicts between turnkey supplier and other turnkey suppliers
–Conflicts between yard and the turnkey supplier
–Conflicts between turnkey supplier and yard’s client
–Risk of low performance by 2-tier suppliers
–Costs of controlling the turnkey supplier
–Side costs carried by customer (energy, materials, facilities,
equipment, etc.)
Strategic transaction costs
–Some suppliers in the network may wither, reducing the usefulness of
competitive tendering
–R&D activities controlled by outside party
Customer capabilities
–Risk of losing own expertise and competences
–R&D function may suffer
 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94
In the long-term, turnkey deliveries can create signifi-
cant benefits for the yard. A successful delivery may
increase the commitment of the supplier towards conduct-
ing business with the yard in the future. The yard may be
able benefit from this situation if, for example, the supplier
has several customers to choose from. A benefit often men-
tioned during the interviews was that the yard can utilize
the purchasing of turnkey projects to shape its supplier
base strategically, as suppliers are in practice forced to
make investments in their R&D and production processes.
Further, the yard can influence the competitive situation
between its suppliers by favoring certain suppliers over oth-
ers. A final benefit is protection against market fluctuations
which are common in the industry [18,19]. The yard can
focus on its core value creating activities and cope with
fewer employees increasing its flexibility.
There are significant long-term sacrifices involved in
turnkey project purchasing as well. Our results indicated
that in accordance to Möller and Törrönen [38], purchas-
ing large entities from a few suppliers may harm competi-
tion as some suppliers are likely to wither. In this
situation, the yard may not be able to receive the benefits
it expects from competitive tendering. In addition, turnkey
suppliers focusing on a certain area are effectively in con-
trol for R&D for that particular area. Their development
interests may conflict with the interests of the yard. By pro-
curing turnkey deliveries, the yard faces the risk of losing
its expertise and capabilities. If the strategic shift towards
increased use of turnkey deliveries in the production of
sea vessels turns out to be a mistake, these may be very dif-
ficult for the yard to rebuild.
6. Discussion – purchasing strategies and customer value
In accordance to Lamming and Cox [32], Bensaou [30]
and Gadde and Snehota [31], our empirical study con-
firmed that the purchasing strategy selected by the buyer
can significantly affect the value created for the buyer.
Our findings show that employing a competitive tender-
ing-based purchasing strategy emphasizes short-term value
elements, while employing a strategy relying more on a
close interorganizational relationship between the buyer
and the seller emphasizes long-term value elements. As dis-
cussed previously, the yard’s strategy emphasizes competi-
tive tendering, even though some strategic, long-term
elements are taken into consideration. According to our
findings, this strategy has resulted in acceptable short-term
results, but its long-term implications remain unclear.
Especially, most innovation-related value elements we
identified in this study are characterized as long-term. This
implies that the customer may need to commit to purchas-
ing several turnkey projects from a certain supplier to be
able to fully realize them.
Our results imply that also the seller’s selection of pro-
ject marketing strategy can affect the value created for
the buyer. More specifically, if the seller is unaware of
the benefits the buyer emphasizes, which to some extent
93
was the situation in our empirical case, it is not likely to
be able to come up with offerings that create superior value
for the buyer [27,26]. This implies that the seller needs to be
aware of the purchasing strategy employed by the buyer,
and then align its marketing strategy to match the strategy
of the buyer. As discussed by Campbell [44], a mismatch
between these two strategies reduces value creation poten-
tial. Further, in accordance to previous studies [15,45] the
seller’s participation in the early definition phase of the
turnkey project is likely to lead to increased customer
value.
7. Conclusion
In this paper we focused on the creation of value in the
context of turnkey project deliveries. We opened up the
concept of value and reviewed existing literature addressing
the benefits and sacrifices that jointly determine the extent
of value created for the customer. In the empirical part we
looked at value creation in turnkey deliveries in the context
of the Finnish marine industry. We identified several bene-
fits and sacrifices emphasized in the context of turnkey pro-
ject deliveries and discovered that the purchasing strategy
of the buyer and the project marketing strategy of the seller
jointly affect customer value creation in turnkey project
deliveries. More specifically, competitive tendering-based
strategies emphasize short-term value, while strategies
based on a close relationship between the buyer and the
seller emphasize long-term value. Additional research is
required to determine the extent to which organizations
in general are aware of both the short-term and the long-
term benefits and sacrifices of turnkey project deliveries
and how these benefits and sacrifices are taken into account
in their purchasing strategies. Our findings pointed out that
the purchasing function of the buyer has a very crucial and
inadequately researched role as its actions can facilitate or
inhibit value creation.
Our primary managerial implication for organizations
purchasing turnkey projects is that it is essential to under-
stand how value is created both in the short-term and in the
long-term and to balance these appropriately in the pur-
chasing strategy. Relying solely on competitive tendering
and maximization of short-term value can destroy long-
term value that essentially requires an interorganizational
relationship characterized by continuity of exchange and
at least a minimal amount of trust between the buyer and
the seller. The benefits and sacrifices presented and dis-
cussed in this paper should help organizations in balancing
between short-term and long-term value. Suppliers of turn-
key projects, on the other hand, need to possess or develop
capabilities for assessing how their offerings create value
for their customers and how their customers, in terms of
benefits and sacrifices, evaluate and compare turnkey pro-
ject suppliers. This requires an in-depth understanding of
the processes of their customers and integration of this
understanding in the supplier’s own project marketing
process.
94 T. Ahola et al. / International Journal of Project Management 26 (2008) 87–94
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