Novel product innovation in project-based firms: explaining innovation where interdependent firms deliver complex system-level outcomes

Abstract

Project-based firms (PBFs) are an increasingly important firm type in today’s project-driven world. Over the next two decades, PBFs will transform nearly $60 trillion into complex product systems (CoPS) that comprise the communication, energy, and transportation infrastructure of our modern global economy. In the process, they will participate in a collective technological development process that is iterative, intensely inter-organisational, and dominated by their participation in large industry projects. In this environment, PBFs will deliver components, subsystems, and CoPS, some being novel products that are new to the world. These are called CoPS-related novel products. However, the current understanding of how PBFs introduce CoPS-related novel products is lacking. In general, the existing innovation literature does not provide an adequate inter-organisational perspective, which is necessary to explain the development of new technologies by PBFs in CoPS settings. For instance, the new product development literature remains firm-centric and focused on manufacturing industries. The open innovation literature, although more focused on external relationships, is narrow is its consideration of the potential uses of open innovation, and is also focused on individual firm performance in manufacturing settings. Little is known about its role in networked settings like those in CoPS industries. The CoPS innovation literature itself remains too focused on the role of large system integrators, and not on the broader network of firms that support innovation. This leaves unscrutinised rest of the ‘project-based productive network’ of firms delivering products (components, technologies, and subsystems) into the higher-level CoPS. Taken together, the current literature inadequately addresses many factors that are important to novel product innovation in PBFs. Therefore, the central research question this thesis aims to answer is: What factors facilitate PBFs’ ability to introduce novel product innovations in environments where interdependent firms deliver complex system-level outcomes? Three specific challenges are imperative to understanding novel product introduction in PBFs. The first relates to the project-based nature of organising, which means that PBFs have contingent opportunities for novel product innovation, depending upon the circumstances of the projects they conduct. This is called the contingent opportunities problem. The second challenge is that PBFs have to ensure that their innovations are compatible with our technologies in their environment. This is called the technological interdependencies problem. The third challenge is that PBFs have enduring inter-organisational commitments that extend across the projects they conduct. This is called the enduring relationships problem. Three research studies were designed and conducted to address the three specific challenges. The research is based on survey data collected from PBFs in the Australian upstream oil and gas industry. Study 1 investigates capabilities that PBFs use to overcome the contingent opportunities problems. This study finds that firms use an adaptive problem-solving capability to recognise opportunities within projects, and are reliant on networking capabilities to bring about novel product innovations. Study 2 investigates how PBFs use both inbound and outbound non-pecuniary open innovation practices to resolve technological interdependencies. This study finds that to introduce novel products, PBFs exhibit a narrow focus on their inbound knowledge flows. In the outbound, they reveal details to network partners about innovations. This is part of a stepwise process to gather feedback that is subsequently fed into R&D processes which, in turn, support novel product introductions. Study 3 investigates enduring relationships through a structural embeddedness lens focused on suppliers and customers. This study finds that supplier embeddedness supports novel products up to a point before it starts to detract, and that customer embeddedness only serves to diminish the positive influence of supplier embeddedness. When the findings of these studies are synthesised, it reveals a new theoretical perspective on novel product innovation for PBFs in three themes. The first theme is that novel product innovations are most strongly supported by firm-level mechanisms operating at the intersection of projects, networks, and the PBF. This is because PBFs heavily leverage network partners in the development of innovations, they readily reveal details of innovations to network partners to improve them and ensure that they meet industry needs, and they narrowly search for innovation information—an indication of focus on the specific problem sets that the industry network partners/projects have currently identified. The second theme is that excessive commitment levels detract from novel product innovation. This is because excessive embeddedness may prevent PBFs from manoeuvring in novel ways, because they are so heavily embedded into reliable (incremental) technological role positions in the network. As part of this theme, searching broadly takes scarce resources away from solving current collective challenges, and represents a much less efficient approach to information gathering. The third theme is that information for novel product innovation is brought into the firm in a formal and structured manner. This is based on the import of moderate levels of supplier embeddedness and narrow search strategies. Together, these themes provide a compelling and nuanced answer to the central research question.