Project management of radical innovation: the case of small Canadian software firms

Virginia Bodolica
Assistant Professor, University of Quebec in Outaouais

Abstract

Although radical innovation projects are considered to be a key innovation strategy in fast-moving and complex business environments, little research has been done so far to understand how companies manage those projects. The purpose of this exploratory study is to investigate the management patterns of radical innovation projects depicted in four small Canadian software firms. Our multi-case analysis aims at shedding light on: (a) the inherent particularities of radical innovation projects as opposed to incremental ones, (b) the way small software firms organize to undertake radical innovation projects, (c) the key factors for successfully implementing these projects in small software firms. Since radical innovation projects are characterized by higher levels and diverse types of uncertainties, we argue that they need to be managed differently from incremental innovation projects.

Introduction

Business environment continues to be driven by technological revolution (Hamel, 2000), globalization, hyper-competition, extreme emphasis on price, quality, and customer satisfaction (Hitt, Keats, & De Marie, 1998). Therefore, innovation appears to be critical for assuring firms' survival in contexts of increasing global complexity and competitive dynamics. Most firms' innovation projects are based on extensions and enhancement of existing technologies and capabilities. However, there is a moment when companies reach the point of diminishing returns in their incremental improvement programs and when engaging in radical innovation projects becomes the only way to combat hyper-competition (Hamel, 2000). Tushman and Anderson (1986) affirm that technological change is a “bit-by-bit process” until it is punctuated by a substantial advance so significant that no increase in scale, efficiency or design can make other technologies competitive with the new technology.

A common agreement exists among innovation scholars and software industry experts on the extent to which radical innovation projects constitute an imperative competitive strategy that allows securing a firm's long-term sustainable advantage (Bower and Christensen, 1995; Colarelli O'Connor, 1998; Christensen, 2004). Despite of the fact that radical innovation projects are considered to be a key innovation strategy in turbulent and unstable business environments, there is little that has been done to understand how companies manage those projects in dynamic contexts.

The Canadian software industry represents an extremely rich field of investigation since: (1) it is the fastest growing, but also an unexplored, industry due to its ever changing nature; (2) its accessibility is very limited as small firms, the prevalent company type in this industrial sector, tend to overprotect their core knowledge and innovation “secrets”; and (3) its innovation processes are extremely short and specific project management practices have to be designed. Even though the knowledge-based industries such as software, are considered as being the most important ones for national economic development (OECD, 2004), the empirical research in this field is still embryonic. Moreover, the few exiting studies had rarely taken a project management perspective and the data samples had included large rather than small firms. The investigations of small companies operating in Canadian software industry are particularly scarce. Small firms' importance as a wealth generation engine and a critical source of job creation, innovation, and regional competitiveness is therefore underestimated.

In this exploratory multi-case study we analyze and discuss the three following issues: (a) the inherent particularities of radical innovation projects as compared to incremental ones, (b) the way small software firms organize to undertake radical innovation projects, (c) the key factors for successfully implementing these projects in small software firms (SSFs). We believe there is a tremendous theoretical and practical value in understanding the specificities of radical, as opposed to incremental, innovation projects. This understanding would allow project managers to better apply suitable management practices depending on the nature of the innovation project.

The remainder of this paper is organized as follows. The next section provides a brief explanation of the research methodology. We continue by defining incremental and radical innovation projects. The way SSFs organize for radical innovation is further discussed. Then, we describe the key factors for successful implementation of radical innovation projects. Finally, the last section presents the concluding remarks of this paper.

Research Methodology

This empirical and exploratory research is constituted by four case studies, each of them being represented by a small Canadian software firm which is considered by experts from the industry as a “radical innovator”. A case study allows the comprehension of complex social phenomena because it takes into consideration the contextual conditions that remain extremely pertinent to the phenomenon under investigation (Creswell, 1998; Stake, 1995). The four cases were chosen in a purposeful fashion (Creswell, 2003) and for some theoretical reasons (Eisenhardt, 1989). The research design is of the type “multiple-case study, with a holistic-one-unit of analysis” - management practices of radical innovation projects in SSFs (Yin, 2003). Multiple-case studies' outcomes are considered to be more compelling and our overall research is therefore conceived as being more robust than a single case study.

Our analysis draws upon four sources of data: (a) in-depth interviews, (b) public documentation, (c) archival records, and (4) direct observation. In each SSF we gathered information on the perspectives of two levels of the management hierarchy. The key informants included among others the CEO (Chief Executive Officer), CTO (Chief Technology Officer), marketing VP (Vice-President), product development VP, sales manager, project manager, and software programmers and developers. A total of sixteen interviews had been conducted and subsequently transcribed and coded using the program ENVIVO 07. Interviews typically lasted 90 minutes, although two of them ran as long as two hours. The sample SSFs' and their technologies' names are camouflaged in this paper in order to meet the confidentiality requirements. The main characteristics of the four SSFs under investigation are provided in Exhibit 1.

Description of Sample SSFs

Exhibit 1 – Description of Sample SSFs

Defining Radical Innovation Projects

Previous studies define radical innovation as a breakthrough (Basalla, 1988), discontinuous or disruptive innovation (Christensen, 1997) which produces a substantial competitive edge. Radical innovation projects, as compared to incremental ones, are characterized by higher levels of uncertainty, diverse types of discontinuities, and different life cycles. Breakthrough innovation projects challenge existing technological conventions and disrupt regulatory frameworks, implying a reconfiguration of relations between consumers and producers (Jolivet, Laredo, & Shove 2003). According to Christensen (2004), when a radical innovation emerges, new lines of business are developed, new for the firm and new for the market.

In order to formulate our own definition of radical innovation projects we made an extensive literature review and consulted nine key informants from the Canadian software industry. In this paper we define a radical innovation project as one that is based on fundamentally different technologies and approaches and which allows either: (1) providing an entirely new set of performance features that were previously not possible, (2) offering at least a fivefold improvement in existing performance features, or (3) reducing significantly the product's cost by at least 30%. Building on our in-depth interviewees' analyses and existing literature in our field of interest, we identified several parameters that permit differentiating incremental from radical innovation projects (Exhibit 2).

Comparison between Incremental and Radical Innovation Projects

Exhibit 2 – Comparison between Incremental and Radical Innovation Projects

Organizing for Radical Innovation

Based on our field observations, discussions with nine experts from the industry, and cross-case analyses, we identified four common patterns related to the way SSFs organize themselves in order to manage radical innovation projects. These patterns are: flexible structure, cross-functional collaboration, balance between process formalization and chaos, and exploration-exploitation mix.

Flexible Structure

All four companies under investigation have an organic flat structure which is basically composed of two layers of hierarchy: the management team (CEO, VPs, and managers) and the staff (programmers, developers, designers, quality assurance and research and development (R&D) people). According to the CEOs of all sample SSFs, their “firm size is optimal for innovation, allowing fast decision making, rapid and frequent communication throughout radical innovation projects “. SSFs' structures are described by most interviewees as being “flexible, adaptable, fluid, and essentially decentralized “. “We are trying not to create any rigid hierarchies organizationally. We don't want it to be perceived that there are layers and if you are over here you can do only that. We try to be very open and keep a flat structure in order to cultivate innovative ideas from as many sources as possible “, explains Beta's marketing VP. In all companies there is little direct supervision, people empowerment is emphasized and the employees are constantly encouraged to report directly to their project manager or the CEO. Hence, in terms of the coordination mechanisms, employees tend to auto-regulate themselves “because it is part of everyone's game to be accountable to whatever is going on “.

The importance of flexible structure for radical innovation generation has already been documented in existing literature. Dogson and Rothwell (1991) argue that small and medium-sized high-technology firms' innovation activity is often informal and unstructured. Contrary to large firms which possess a formal well-defined hierarchy, small firms have a flexible and flat structure which favors rapid communication and prompts innovation by speeding up decision-making. Nooteboom (1994) goes in the same direction finding that small firms have fewer managerial layers that permit to avoid bureaucracy while increasing organizational flexibility and the rapidity of information flow. The ability to adapt continuously to ever changing environment is not only a core capability of SSFs but is also inherent to their innovation culture.

Cross-Functional Collaboration

Another common pattern observed in our sample refers to the importance of cross-functional collaboration when managing radical innovation projects. The data suggest that in all four SSFs departments collaborate in a transversal manner by pooling and exchanging resources and know-how. Employees' skills and expertises tend to be complementary in cross-functional collaboration contexts favouring the creation of knowledge synergies. According to Beta's marketing VP, “Working relationships between the various functional groups are as open as possible to make sure that there is ongoing dialogue and information exchange “. Since people prefer to communicate informally and collaborate constantly to solve problems or tackle diverse emerging issues, the formation of communities of practice in these firms is a common phenomenon. Wenger (1998) defines communities of practices as spontaneous boundless emergent groups, belonging to different functions, which are united in action and handle a common goal. SSFs' management teams agree on the fact that “Cross-functional collaboration enables employees from different areas to learn and internalize new knowledge and experiences “. Brown and Duguid (1991) develop a view of learning as a social construction, putting knowledge back into the context in which it has meaning, as in the case of communities of practice. From this perspective, learning is seen as a process where employees' understanding is developed and achieved via cross-functional collaboration, histories sharing and informal social networks within the organization. In essence, this radical innovation project management approach consists of overlapping and pooling together employees' complementary resources regardless of their function “in order to cross-fertilize knowledge and expertise “.

Project managers think that cross-functional collaboration paves the way to the successful implementation of radical innovation projects due to the significant individual and organizational learning achieved through “group experimentation “. According to Alpha's project manager, “aproject team that is working on a given product will pool whatever functionality it needs from those platforms to actually do what it is supposed to do in its own vertical “. In all these SSFs there is a standardization of core knowledge that creates the knowledge framework needed for the main tasks to be performed. As explained by a Beta's project manager, radical innovation project teams capitalize on that core knowledge and specialize in developing specificities for the particular product on which they are working. Project team collaboration and pool of resources “have a multiplier effect” on the products with which the specific team is dealing. From the perspective of Gamma's project manager, the products are “much more solid and much more functionally rich “ when they are developed through “knowledge synergies “ and team collaboration rather than in an individual manner. In other words, radical innovation development process in our sample firms is an iterative rather than a linear and sequential technology-push driven process since there are continuous feedbacks between stages, functions, and customers. Iterative here means social, in the sense that programmers, vendors, marketing personnel, designers and end-users are all likely to be involved throughout radical innovation projects (Cooke & Wills, 1999).

Balance Between Process Formalization and Chaos

All SSFs' management teams agree on the extent to which a small innovative firm has to tolerate a high amount of uncertainties and disorder in order to stimulate a creative environment, but not to the point of overwhelming it by having an excessive internal turbulence. Beta's CTO explains, “I think that the balance is in between putting up too much process, systems, and layers of infrastructure and having a chaotic organization. The balance is in between putting in too much, and you gonna kill your organization, and too little, and it will become chaotic “. Alpha's CEO also confirms this statement suggesting that, “In radical innovation projects, you do not put so much [processes] in the early stages but as the project tries to grow. The best way is to find an appropriate trade-off between being small, flexible and athletic to respond to external challenges and yet mature, stable and process oriented enough that you don't trip yourself up or shoot yourself in the foot “. What comes out from our interviews is that, in order to be successful, project managers have to accept a high degree of incertitude when dealing with uncharted technologies and processes. However, it becomes apparent that having too much uncertainty tends to discourage knowledge-workers from focusing and mobilizing their efforts. A clear technological direction and a certain degree of process formalization and organizational structure are therefore needed to enhance and manage freedom simultaneously.

Interestingly enough, the importance of keeping a balance between process formalisation and chaos in order to achieve successful radical innovation projects is under-explored in prior research. To our knowledge, the only investigation that provides empirical evidence in this sense is that of Brown and Eisenhardt (1997). In an inductive study of multiple-product innovation in six firms in the computer industry these authors discover that successful product innovators, as opposed to the unsuccessful ones, blend limited structures around responsibilities and priorities within extensive communication and design freedom to create improvisation within projects. Similarly to our findings, Brown and Eisenhardt (1997) conclude that this combination is neither so structured as to wipe out employees' creativity and stop the innovation nor so unstructured that chaos ensues and the innovation project becomes uncontrollable. The whole question of balance is however worthy of further exploration and understanding.

Exploration-Exploitation Mix

Although all four sample firms are defined in our study as being radical innovators, our analysis shows that they never abandon incremental innovation projects. These SSFs organize in such a way that allows finding the right and appropriate for organisational needs mix of exploration and exploitation. Several researchers establish and describe the distinction between exploration and exploitation in a context of organizational learning. Exploration includes behaviours such as research, discovery, experimentation, or incurring into new courses of action (Morone, 1993) and is tightly related to radical innovation projects. Exploitation activities refer to the refinement or expansion of existing products, services or processes (Betz, 1993; Hamel & Prahalad, 1989) and are rather associated with incremental innovation projects.

According to Delta's sales manager, “Incremental innovation is what pays our bills. But in the meantime we are building on a sophisticated technological platform that will fulfill our radical vision. We are actually very money focused, so there is always a challenge to trade. People always want to trade off the radical for the practical”. As for Alpha, its technological mainstream is basically related to the development of software, aiming at solving a specific problem or responding to specific demands from its customer rather than focusing solely on research. Alpha's CEO explains, “What we do here is very driven by immediate needs. The R&D that we do is much more development than research. In fact, we can not do just research since we need to have some revenues in the short-run”. However, when the company deals with radical ideas that are placed beyond the technological mainstream boundaries, it “tends to create a new team and work in the corner of the office somewhere out of the mainstream “.

It seems that finding the right mix of exploration and exploitation becomes a challenge to be faced consciously by SSFs. This result drawn from our study is consistent with previous empirical evidence. For instance, Abernathy (1985) suggests that firms face the task of managing different types of innovations at the same time, while Tushman and Reilly (1996) emphasize the need for “ambidextrous organizations” able to manage both evolutionary (incremental) and revolutionary (radical) technological change. Analyzing the tradeoffs between exploration and exploitation, March (1991) concludes that maintaining an optimal balance between both activities becomes critical for organizational learning and survival. On the one hand, if a SSF allocates most of its limited resources and time to exploring new technologies to the exclusion of exploitation of existing ones, it is likely to find that it has not developed any particular competitive advantage. On the other hand, if a SSF deploys all its energy on exploiting existing technologies to the exclusion of exploring new curses of action, it is likely to result in gaining short-term sales but, fatalistically, becoming self-destructive in the long run.

Key Factors for Successful Radical Innovation Projects

Our analysis of sample SSFs allowed us to identify the following four key factors that lead radical innovation projects to success: smart people, open culture, feedback from customers and partners, and radical vision.

Smart People

People are clearly considered as being the most important asset for radical innovation projects in our sample firms. “At the risk of sounding boring, you have to have smart people as they usually are at the very origin of radical innovation”, affirms Delta's marketing VP. All interviewed project managers believe that “radical innovation will never be achieved without the right people”. According to Gamma's CEO, “In terms of resources, we have a lot of smart people here who are willing to talk about things and bounce ideas around. You need to have people that can read between the lines and understand what the customer wants”. In these companies, knowledge-workers pool together their innovative complementary resources in order to conceive and pursue radical innovation projects. As Beta's CTO suggests, “Hire smart people and let them solve a given problem, and see what they come up with. They ‘ve got some idea they want to explore, let them have time to explore it. Let them experiment, simply like that!” In all four sample SSFs we found motivated and highly experienced people that were willing to take risks and learn new things. Smart people provide three types of specific knowledge that allows achieving successful radical innovation: (1) technical knowledge, which is basically provided by engineers and programmers; (2) market knowledge, which is held by sales representatives who are in constant dialogue with markets and clients; and (3) project management knowledge, which is assured by senior project managers that orient the innovation funnel in the company. We provide empirical evidence confirming people-related hypotheses advanced in existing works. Several years ago Nonaka (1994) suggested that people's knowledge has become the most important input for innovation activities, while Torrisi (1998) concluded that software industry is a knowledge-based people-intensive industry.

Open Culture

SSFs' management teams believe organizational culture is extremely important for successful innovation. “Well, culture trumps everything. It is embedded in every innovation action undertaken in our company “, states Beta's CTO. In fact, culture affects profoundly the way people think, conceive, treat, and execute new ideas throughout the lifecycle of radical innovation projects. From Gamma's CEO point of view, ‘You just need the culture, as it plays a vital role all along the radical innovation process “. The management team, which is responsible for shaping the organisational culture, has to be receptive and open to any new ideas that might emerge from the staff. For Delta's CTO “the ability of the upper management to listen to ideas, to respond appropriately and not to dismiss anything when it pops up is fundamental. Because the guys at work may have very good innovative ideas, you have to rely on them and believe them; those are really related to the field, no doubts about that “.

Openness, transparency, peer collaboration, and knowledge sharing are values that were found to shape the organizational culture in all four sample SSFs. As reported by Delta's marketing VP, “from the day one we have established a culture of openness in the company “. This means that all internal information has been transparently shared and communicated to employees from the very beginning, including sheet balances, new clients and contracts and strategic decisions. Alpha's CTO goes in the same sense suggesting that “culture has to be very open and very transparent, so that everyone is able to contribute and people can see and recognize their ideas”. In a very recent work Rizova (2006) argues that organizational culture has a tremendous impact on the innovation rate of a firm. The author identifies critical cultural values the firm needs to have for accomplishing successful innovation, including the support from corporate management, open and direct communication channels and team collaboration.

Feedback from customers and partners

In a classical work on the sources of innovation in the electronic industry, Von Hippel (1988) suggests that customers' and partners' feedbacks represent critical sources of new ideas and innovation. The results of our study confirm this statement. “You may have a very innovative way of building something, but if no one is buying it, no one will see it and no one will ever know about it. If your business is not growing and thriving, so what's the point? “, affirms Alpha's CTO. The management teams of all four SSFs argue that is fundamental to get customers' and partners' feedback, especially when the radical innovation team is dealing with uncharted technologies. The marketing VP shares Gamma's experience: “The biggest mistake we ‘ve ever made is not getting enough customer feedback; we had no idea what the market really needed, where it should be positioned, what should be developed on top of it to make it easier for people to understand [the radical innovation], or we just didn't put it in front of anybody”. Beta's management team has also learnt the importance of interacting with customers or network partners and getting the outside feedback when developing a radical concept or product. “When we were developing a product per se, we developed that product in isolation and didn't get a lot offeedback from partners and customers. And what we have learned since then is that now when we talk about a radical idea, we go out to get feedback and see what the customer thinks about it. That is one thing that we would never do again: take this lab model and keep it inside”.

All CEOs agree on the extent to which a “lead customer “ might become a tremendous source of inspiration for radical innovation generation. For instance, Delta develops tight relationships with customers throughout the software development process. Lead customers can manifest new uncharted product needs that might trigger new technology trajectories for radical innovators. And here is where smart people at Delta play a critical role.

“Innovation is finding the pain your customer has, understanding your customer and transforming that pain into a technology that the user can use to not have this pain anymore”. SSFs' management teams believe that exchanging ideas throughout radical innovation projects is essential for the achievement of successful results. “The key things for radical innovation are an ongoing communication, dialogue and exchange among the different groups: clients, partners and networks”.

Radical Vision

The last key factor for successful radical innovation projects is the commitment of the management team towards systemic thinking and radical vision. “You have to have the radical vision, a vision that is credible. It helps you to understand internally what you are building, then you can align your team and go out to change the market perception and the dynamics of the industry”. Beta's marketing VP shares his experience: “For the first two years people thought that the network operating system was just a vision. I met with an analyst once and he said, ‘you'll never be successful, people have tried that and failed'. The key thing is to believe and hold onto that principle when everyone else says ‘no, you can't do it'. And if other people don't have the vision to see it, that's fine, you just bring them along when they are ready “. The management team believes that when a firm is passing through highly uncertain technological paths, sticking to the vision remains an imperative factor to assure organizational survival.

The radical vision is considered to be critical for bringing the strategic alignment of the whole organization's resources towards the achievement of successful radical innovation projects. Alpha's project manager explains the role the executive team plays in selling the radical vision to the rest of the company: “Our CEO basically had these ideas and got the company launched. He has the passion and the energy to see it through. Then, the people get the idea that this is revolutionary, and they realize it may be very difficult, but that's why it is very unique and that's why you actually want to tackle it. We all played roles of convincing our people. We have to be the ones who get the rest of the firm on board”. It seems fundamental to have a core team that believes in radical vision, continually contribute to it with new ideas and align all employees towards the accomplishment of that vision. Delta's CTO explains, “In my team I have about 60 people doing R&D and getting all of them aligned to that revolutionary vision was my role. Radical innovation is a concept and the concept is at the heart of the revolutionary vision “. Although exercising a strong leadership for achieving innovation success in SSFs has already been highlighted by Dogson and Rothwell (1991), the importance of having and adhering to the radical vision is still not documented in the existing literature.

Conclusion

Radical innovation projects are critical to long-term organizational success and sustainable competitive advantage. Small firms aiming at pursuing these projects need to adopt a particular management framework that provides a suitable environment for experimentation and improvisation. Due to their higher degree of uncertainty, radical innovation projects require specific management approaches, both at the firm and project levels. In this paper we identified four common patterns related to the way SSFs organize for managing radical innovation projects, including flexible structure, cross-functional collaboration, balance between process formalization and chaos, and exploration-exploitation mix. We have also underlined four key imperatives for successfully implementing radical innovation projects in SSFs, which are having smart people, developing an open culture, getting frequent feedback from customers, and sticking to the radical vision. In light of our study results and given the limitations of the existing empirical evidence in this field of inquiry, the roads open to future research are multiple. For instance, scholars might simply address our research questions in a broader empirical context or explore the strategies SSFs use to manage their knowledge throughout radical innovation projects.

References

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This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2006, Martin Spraggon and Virginia Bodolica
Originally published as a part of 2006 PMI Global Congress Proceedings – Santiago, Chile

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