1.

BACKGROUND

In rapidly changing environments, organizations need to adapt to changes because they are
affected by internal and external pressure (Hannan & Freeman, 1977; Tallon & Pinsonneault,
2011). Organizations also need to choose appropriate strategies to shape their organizational
outcomes (Child, 1972). To implement strategy effectively, organizations require discretion at
all levels as well as effective communication (O’Reilly et al., 2010; Wanrow et al., 2014).
Managerial discretion is considered as a way to bridge the polar view concering the rple of
strategic choice in determining organizational outcomes (Hambrick & Helfat, 1987). Hambrick
and Finkelstein (1987) introduced the original concept of managerial discretion as the latitude
of a manager’s actions. Scholars have long been interested in this concept as manager discretion
plays a significant role in the implementation of strategy for organizational outcomes, such as
organizational performance (Wanrow et al., 2014). It stresses the constraints on which
discretion acts within the zone of acceptance of the more controlling parties, especially those
who control critical resources and contingencies managed by others who may influence the
success of strategy implementation. According to the original concept, managerial discretion
is derived from task environment, organization, and individual source.

Finkelstein and Peteraf (2007) further developed the managerial discretion concept by adding
another factor called “managerial activity” as one of the source of managerial discretion. They
defined such activity as a discrete managerial function or task involving a course of action that
could be configured in a variety of ways. Managerial activity is characterized by the degree of
complexity, the degree of uncertainty, and the clear observability of activities. These
characteristics cause constraints or create opportunities for managers.

Previous scholars have studied and conducted panel ratings to determine the effect of
managerial discretion in various industries. The petroleum/natural gas production industry ws
found to have low managerial discretion (Abraham & Hambrick, 1995); Finkelstein &
Hambrick, 1990) whereas upstream oil and gas projects within the petroleum industry have the
characteristics of high, complex situations, and uncertain environments. In contrast, Finkelstein
and Peteraf’s (2007) research produced different results for these characteristics. They argue
that managerial discretion increases with the greater degree complexity of an activity, more
uncertain activities, and greater activity observability.
By considering the original concept of managerial discretion (Hambrick & Finkelstein, 1987)
and following the development of the dynamic view of managerial discretion (Finkelstein &
Peteraf, 2007), this study aims to investigate the influence of managerial discretion on the
upstream oil and gas project environment, thereby complementing established research on
perceived managerial discretion, by focusing on the project manager and teams as the driving
forces of discretion and devising ideas for the development of a dynamic view of managerial
discretion. This paper will also examine whether the project manager’s and team’s perceived
managerial discretion are also affected by four antecedents – namely, organizational agility,
task environment, dynamic managerial capability, and manager’s activity – that affect project
success. Understanding how these factors affect a manager’s allocation of attention over time
is imperative for understanding the dynamics of managerial discretion. The paper begins by
elaborating the relevant literature and presenting the research method. We conclude by
considering implication and suggestion for future research.

2. LITERATUR REVIEW

Perceived Managerial Discretion

The concept of managerial discretion as the main focus in this study is originally elaborated by
Hambrick and Finkelstein in 1987. It is defined as “latitude of managerial action” that effects
on organizational outcomes including performance (Kuvaas, 2008). Therefore, managerial
discretion is the flexibility that managers must manage in the most appropriate way (Caza,
2012; Hambrick&Finkelstein, 1987). Managerial discretion is influenced by three forces
namely; the organization, task environment, and managerial characteristic. The organization
may have characteristics that limit the discretion. These could be the factors that generally
inhibit the organization’s ability to consider change or variety. They include but not limited
inertial forces (size, age, culture, capital intensity), resource availability, and powerful inside
factors. The task environment, a dynamic and independent identity, includes product
differentiability, market growth, industry structure, demand instability, quasi-legal constraints
and powerful outside forces. Managerial characteristics include aspiration level, commitment,
tolerance for ambiguity, cognitive complexity, internal locus of control, power base, and
political acumen. Based on discretion analysis within organization, Caza (2012) identifies eight
discretions domains. They are effort, goals, technical (method, scheduling, material), staffing,
support (general, supervisory), civic virtue, and buffering. However, this domain has not been
empirically tested. The managerial discretion to be examined in this study is staffing, technical,
support, goal, and buffering.

Stakeholder Management

Environmental influences on organizations and managers have been well documented in the
industrial organization (Scherer, 1970). One factor in the task environment is powerful outside
(Hambrick & Finkelstein, 1987). A managers’s discretionary options may be limited by other
external forces. Powerful competitors, suppliers, and buyers all may constrain the organization
through direct and indirect methods (Thompson, 1967; Pfeffer & Salancik, 1978). Freeman
(1984) introduces the concept of stakeholder. It is individuals or any group who can be affected
and affect by the accomplishment of the firm objective and is considered as vital aspect to the
survival of the company. Stakeholders can be classified into internal stakeholders and external
stakeholders. This study focuses on external stakeholder such central government, local
government, suppliers/contractors, community and customers (Karlsen, 2002). Stakeholders
have the influence to the activities of organization so that understanding of stakeholder
management is part of a critical success factor in managing a project (Nokes & Kelly, 2007).
Failure to address the needs of stakeholder can cause a dangerous effect on resulting activities
(Di Maddaloni & Davis, 2017). This is the reason why stakeholder must be managed
effectively.

The management of stakeholder is random since there are no well-functioning strategies, plans,
method or processes. In most situation, the relationship with stakeholder is taken by project
manager. Consequently, the results are dependent on the project manager’s experience,
relationship and capability (Karlsen, 2002). The stakeholder management is a process which
includes identification, analysis planning, execution, and monitoring stakeholders’ needs
(Archer, 2003). Thera are several reasons for performing a stakeholder management process.
First, to become acquainted with project stakeholder; second, it is important for ensuring the
balance between contribution and reward; it is a basis for managing the stakeholder; fourth, it
is a basis for deciding who should be involved in determining the project goals and how success
should be measured.

Dynamic Managerial Capability.

Dynamic managerial capabilities are defined as the capabilities to build, integrate and
reconfigure organizational resources and competences to achieve congruence to changing
environmental conditions (adner&helfat, 2003; sermon&hit, 2008; Teece, 2007). It consists of
three underlining concepts; managerial cognition, which explain the beliefs and mental models,
managerial human capital which explains specific and generic skills and expertise, and
managerial social capital which explains intra - and inter organizational ties (Adner & Helfat,
2003).

The managerial cognition focuses on the process of decision making where managers
emphasize their mental model and belief systems. Managerial human capital is the range of
skill and knowledge of managers based on their education, personal characteristics, and
experience (Becker, 1963). Finally, managerial social capital explains the ability of manager
to access resources through connections and relationships (Adler&Kwon, 2002). Manager
often take and advantage of their informal and formal network to acquire an important resource
to support their decision-making process.

Organizational agility

Hambrick and Finkelstein (1987) argue that the increasing inertia of organization, in turn
reduce discretion. Current situation in 21-st century, many organization face rapidly changing
the environmental condition. Organizational agility refers to the capability of a company to
rapidly change or adapt in response to change (Tallon&Pinsonneault, 2011). Organizational
agility refers to the continuous close coordination among business, stakeholders, and other
environmental factors allowing the organization to respond effectively to constantly changing
situations. Organizational agility enables organization to respond timely, effectively, and
sustainably as environmental condition change. The terms of organization agility are almost a
synonym for flexibility. It is dynamic capability that can be seen the potential opportunities,
threat, solved problems and change the resource base owned by the company (Teece et al,
2016). There are four regular activities related to the agility of the organization; ability to
strategize in dynamic ways, accurately perceive changes in their external environment, test
possible responses, and implement changes (Williams, 2013). Organizational agility has a
positive effect on performance (Tallon&Pinsonneault, 2011). The concept of agility emerged
to address how companies can operate and grow in environmental characterized by turbulence.
Turbulence sources are classes as external or internal. External sources of turbulence include
stem from irregular changes to social, technological, economic, environmental, legal, and
political factors that impact on business (Ismail & Sharifii, 2011). Identification and assessing
the turbulence effects on the business.

Project Success

The context of this research is oil and gas project. To determine the specific of project success
is different, depend on the research field. Traditionally, project measurement is based on Iron
triangle model; budget, schedule and scope also known as unidimensional (Adnan et al, 2013).
However, project success is multidimensional, reliant on stakeholder and lack consensus on its
definition (Ika, 2009). Clearly, project success is tied to effectively communication and
managing relationships with the various stakeholders of the projects. Project exits because of
internal and external customers; therefore, project success must include meeting customer
requirements and customer use of the project services. Project success is related to the goals
and benefits that are provided in a project for its organization as a whole, dealing with the
effectiveness, objectives, and benefits that provided by the project (De Witt, 1988).

One of the multidimensional approaches is given by Shenhar and Dvir (2007). The approach
is composed of five independent dimensions, namely; project efficiency (schedule, budget and
scope), impact on customer, impact on team (project team satisfaction, overall loyalty to the
organization), business and direct success (contribution to the final result of organization), and
preparation for the future (it creates new opportunities for the organization).