American University 11/14/05 Kalle Lyytinen Iris S. Wolstein Professor

How do software development firms innovate?- the case of Internet

computing Tales from a Research Program

American University11/14/05

Kalle LyytinenIris S. Wolstein Professor

Department of Information System

©Lyytinen

Agenda

1. Motivation and background2. Internet computing and research questions3. A Trinity model of Disruptive IS innovation4. Validating / extending the trinity model:

case studies and surveys5. Hyper-learning and how SW organizations

change their innovation capabilities over time

6. What makes SW organizations innovate radically

7. Concluding remarks

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Internet Computing: a new “technological frame” (Bijker 1987):

“Internet computing will drastically change IS services, their delivery and their associated organizational processes” (Lyytinen, et al., 1998, p. 242)

Motivation and background

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Internet computing defined

“Internet computing denotes a broad and evolving set of distributed computing models and solutions that rely on open, heterogeneous, and ubiquitous network services and associated protocols and distributed computing architectures”

An aggregate of concepts and techniques for identifying and solving “IS problems”

Established with the convergence of multiple technologies (Multimedia, OO programming, Reflexive programming/ Metamodels, open network architectures) and associated standards in the late 90s

Breaks radically from Client-server, PC, and Mainframe computing

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Research questions

1. Can we theoretically analyze when a change in computing capability is substantial as to create a wake of discontinuous IS innovation?

2. Is Internet computing par excellence an example of disruptive IS Innovation

3. What are the impacts of such discontinuous change on software development organizations?

4. Does Internet computing demonstrate impacts of such change?

5. How do software development organizations innovate during discontinuous technological change?

6. What makes some organizations more innovative

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Research questions

1. Question 1& Question 2: Articulation of a trinity model of disruptive IS innovation

2. Question 3: A longitudinal field study and a survey of Internet computing adoption and impact

3. Question 4 and Question 5: A model of hyper-learning and how organizations change their capabilities over time

4. Question 6: Application of radical innovation theory to predict innovativeness of SW firms

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A Trinity Model of Disruptive

IS innovation

Past IS innovation research abstracts from the kinds of innovations

Focuses on drivers / barriers that explain the extent of innovative activity and adoption rates and patterns

Localized models for specific areas (e.g. software innovation adoption, adoption gaps), or specific phases (early v.s. late)

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Trinity Model of Disruptive IS Innovation

“An Information Technology (IT) innovation can be defined as an innovation in the creation and application of digital and communications technologies (Swanson 1994)”

IT innovation covers a broad range of activities: (a) the creation of new information and communication technology capability; (b) creation of new products or services, and/or transferring them to organizations; (c) creation of new ways to develop products and services and transferring them to organizations; or (d) creation and transfer of new organizational forms to manage and deliver technological artifacts and services.

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Trinity Model of Disruptive IS Innovation

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Trinity Model of Disruptive

IS innovation Innovation in the nature of IS as a result of change in the

technological capability: type 0 innovation connects to other innovations in processes (type I) and services (Type II)

The extent and tightness of such connections can be used to distinguish disruptive IS innovations from “incremental IS innovations in that in all types innovations are radical: Unique with regard to contemporary innovations Novel with regard to prior innovations Transformative with regard to future innovations

A disruptive IS innovation is a major architectural IT innovation (Type 0) which impacts pervasively (both type I/type II) and radically consequent IS innovation.

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Trinity Model of Disruptive IS innovation

Radical: lead to significant departure in existing ways of doing things (originality, unlearning, predictability)

Pervasive: has to influence nearly all spheres of IS activity: processes and services

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Trinity Model of Disruptive

IS innovation

RadicalProcess

Innovations(type I)

Radical IT Base

Innovations(type 0)

RadicalService

Innovations(type II)

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H1. During disruptive IS innovation base, process and service IS innovations occur exhaustively together (in packs), though not necessarily at the same time.

H2. During disruptive IS innovation SW organizations perceive all three sets of IS innovations to be radical.

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4Internet computing as disruptive IS Innovation?

Examination of hypotheses both byLongitudinal replicated multi-site case

study (1999-2004)A survey (2005)

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Multi-site case study

5 year study for 8 software firms adopting Internet computing platform (type 0 innovation)

Industry leaders, development for Web, n-tier, thin clients Covered time between 1997-2004

Period 1: 1997-2000, Period 2: 2001-2002, Period 3: 2002-2004 Examined extent and scope of adopting Internet

computing and its impact on processes, products and markets

In particular extent, scope, depth and speed of change in software development in light of the research models (theory generating/validating multi-site case, replication logic)

Interviews (700 pages), archival data, company documents

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Multi-site case study

General changes:1. Business,

Timeline for development is drastically shorter Reported timelines reduced by >75% Partially caused by IPOs in late 1990s

2. Technological, Diverse, fast and complex technological change

3. Learning Scope, depth and speed of learning changed dramatically

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Radical changes in Processes (type I)

Changes in skills sets “having specialists in each of these areas, “we prefer to have them. But we cannot

currently employ them full time on just one project [at a time]. So they basically travel between project and guide each project.”

“don't have enough people yet to say that we have very good expertise on every technology we employ.”

Traditional ways did not work “I did out of shear panic. I spent two days [at a customer site] trying to get

[deliverables from using the old methodology] that worked and failed miserably.It was embarrassing” (Architect, Firm 1)

The old solution frames did not work“Where a lot of people in what I call the new economy went wrong was they

were looking for a methodologist silver bullet methodology to apply to the problem and actually they are different environments. Even in what you call an Internet software development, there are different environments and there are different approaches to the problem or methodologies that [might] work”

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The speed of technological change unprecedented

“Our firm traditionally had extremely good knowledge sharing practices in place…[now we] have just not been able to keep up with technology and the way that technology has been spreading rapidly and diversifying into different subgroups.”

Shorter ISD timelines But it is a different process. We found that the processes we used in

Client/Server are no longer applicable. In the Client/Server space, the project life cycle expectation is nearly six or nine months. In e-Business it's six to nine weeks. And that's a huge back and forth change, and that's a totally different process.”

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Shorter timelines lead to SW development as assembly Five not reusing internal code- either not allowed by

clients or don’t have time to build for reuse, but were either: • using more purchased components, middleware, We are “focusing on buying more components and using them as

opposed to building them.”• Existing application packages (such as ERP)• Outsourcing coding“Let me say that in the new world I think your gonna have three

kinds of programmers. You’re gonna have people who build the infrastructure; the virtual machine that’s gonna run things. You’re gonna have another set of people who build the reusable components to fit into that world. Then you’re gonna have a third set of people who go out and assemble solutions”.

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Radical IS services(Type II)

Novel IS service features observed among studied companies

Unique types of applications as services

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Radical Swanson Innovation Type

Radical Innovation Created

Type IIIntranet (non-strategic): Web-based enterprise reporting tool - System is used to track items such as human resource information (turnover, sick time, etc.) across organization independent of client location, access point, or platform.

Type III-aIntranet (strategic): Web-based “balanced scorecard” system. Tracks “key performance indicators” that are considered core to business line of service firm. System based on a EJB architecture utilizing Java Server pages as a front end. One of the advantages of the EJB architecture is that it enables the system to run on most database systems, including but not limited to SQL Server 7 and Oracle 7.x +. Utilizing the Java server pages as a front end enables the application to be completely browser transparent.

Type III-bB2C Internet computing applications (strategic): e-Government applications. Services of government were expanded to allow tens of thousands of citizens to concurrently submit documents and request public services over the Internet independent of client platform (including mobile service) or the time of day.

Type III-cB2B Extranet applications (strategic): B2B “digital marketplace” application for e-procurement in newspaper industry. Application aggregates purchases of such items as newsprint and ink across the entire newspaper industry in order to lower transaction fees and prices. System is available 24 hours a day and is location, client, and platform independent.

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Radical IS services(Type II)

Mass marketsReaches new customers

“The web interface [has to be] more forgiving than your, you know, normal client/server application. And the thing that makes it a challenge is to make the user interface so easy to use and so fast that they really don't have to ask [for] help; they really don't have to push the help button…cause it might be your grandmother is using it”.

Problems in services effect their client’s satisfaction, their reputation, and increase their maintenance costs

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H1. During disruptive IS innovation base, process and service IS innovations occur exhaustively together (in packs), though not necessarily at the same time. (for Internet computing supported)

H2. During disruptive IS innovation SW organizations perceive all three sets of IS innovations to be radical. (for Internet computing supported)

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Survey Background

Jan. 2005 survey to members of a software association

Mailed to c.a. 300 organizations Used validated measures of radicalness and

pervasiveness related to Internet computing Examined the extent, forms and factors

influencing the adoption of Internet computing

CEO, CIO, CTO, President, chairman, owner, principal, senior developers, or VP of R&D

33% (88 out of 269 ISD organizations) Tested for radicalness and pervasiveness

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Research Model (I): Disruptive nature and order effects

Radical Process

Innovations(type I)

Radical BaseInnovations

(type 0)

RadicalService

Innovations(type II)

Time lag

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Research Model (II): Order Effect Moderators

SystemsDevelopment Radicalness

IT BaseRadicalnes

s

Service Radicalness

Extent of Adoption

Size

Time

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Pervasive nature and order effects

Freq. % Cum. %

Base 1 1.3 1.3

Process

1 1.3 2.6

Service 1 1.3 3.8

BP 13 16.7 20.5

PS 1 1.3 21.8

BS 2 2.6 24.4

BPS 59 75.6 100.0

Total 78 100

71% of Companies Heavy Adopters

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Test Statistics GroupChi-Square(a)

255.537

df 6

Asymp. Sig.

.000 a 0 cells (.0%) have expected frequencies less than 5. The minimum expected cell frequency is 11.7.Table 4. Chi square Statistics

Distribution of innovations towards BPS class very significant

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Heavy adopters Light adopters

N Mean N MeanBetween group difference, significant level

Base

Technological 59 3.54 15 2.60 0.01

Development 37 1.49 13 1.08 0.01

Service 48 1.83 11 1.36 0.09

Process

Administrative 55 2.20 12 1.67 0.01

Technological 55 3.16 13 2.31 0.09

Service

Administrative Process 54 2.67 2 1.00 0.04

Technological Process 32 1.34 2 1.00 0.33

Technological Service 50 1.58 2 2.00 0.48

Technological Integration 38 2.08 2 1.00 0.25

Heavy Base Adopters adopted significantly more process/Service (Admin.)Innovations than light adopters

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Order effects: 63 Companies Adopted Process Innovations

Later than Base or Service Innovations

Base Process

Service

Mean (adopting year)

1999.0 1999.9 1999.0

14 Companies Adopted Process Innovations Later than Base and Service Innovations Base Proces

s Servic

e

Mean (adopting year)

1997.6 2000.6 1998.0

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Order Effects: # of Process Innovations Adopted was Accounted for by

Number of Base/Service Innovations

# Process

Innovations

# BaseInnovations

# ServiceInnovations

.53

.20

process =.65 + .53*base + .20* service

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Dependent Variable: zProcess

Independent Variables

Unst. Est.Std. Est. t

Sig. Correlations

Collinearity

BStd. Error Beta

Zero-order

Partial

Part VIF

(Constant)0.00 0.08

0.00

1.00

Zbase0.51*** 0.09 0.51***

5.79

0.00 0.65

0.55

0.46 1.22

Zservice0.31*** 0.09 0.31***

3.49

0.00 0.53

0.37

0.28 1.22

R Square 0.70

Adjusted R Square 0.49

F 0.48**

Sig. F Change 0.00

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Radicalness

establish radicalness measures of Internet computing based on Gatignon et al

Evaluate what explains the observed level of radicalness

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Radicalness measures

Construct Ind Indicator DescriptionsBaseRadicalness

b_rad2 These technologies were based on revolutionary changes in technology.

b_rad3 These technologies were breakthrough innovations.

Process Radicalness

p_rad1 These techniques / methods / approaches were major improvements over previous development practices.

p_rad4 These techniques / methods/ approaches have led to development outcomes that were difficult to replace or substitute using older methods / techniques / approaches.

Service Radicalness

s_rad3 These applications were breakthrough innovations.

s_rad4 These applications have led to products that were difficult to replace or substitute using older technologies.

s_rad5 These applications represented major technological advance(s) within the local contexts in which they were applied.

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Measurement model for radicalness (standardized)

Chi = 12.594df = 11rmsea =.049PClose=.448nfi = .946cfi =.993pcfi =.520pnfi =.496

Base

Process Service

.79 b_rad2

e1

.89

.78b_rad3

e2

.88

.80

p_rad4

e3

.90

.42

p_rad1

e4

.65

.55

s_rad4

e5

.74

.85

s_rad3

e6

.92

.74

s_rad2

e7

.86

.74.33

.30

)

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Radical nature

Light Adopter Heavy Adopter All

N MeanStd. Dev. N

Mean

Std. Dev. N

Mean

Std. Dev.

b_rad2 18 3.83 0.86 61 3.25 1.03 79 3.38 1.02

b_rad3 18 3.56 0.70 61 3.43 0.94 79 3.46 0.89

p_rad1 17 4.12 0.78 61 3.80 0.81 78 3.87 0.81

p_rad4 17 3.53 1.01 61 3.79 0.90 78 3.73 0.92

s_rad2 4 3.25 0.96 61 3.41 0.99 65 3.40 0.98

s_rad3 4 3.50 1.00 61 3.43 1.01 65 3.43 1.00

s_rad4 4 3.25 0.96 61 3.87 0.92 65 3.83 0.93

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Chi = 11.852df = 11rmsea =.037PClose=.501nfi = .947cfi =.996pcfi =.522pnfi =.496

Base

.12Process .56 Service

.75

D1 D2

.06

.79zb_rad2

e1

.89

.78zb_rad3

e2

.88

.80

zp_rad4

e3

.89

.41

zp_rad1

e4

.64

.55

zs_rad4

e5

.74

.84

zs_rad3

e6

.92

.74

zs_rad2

e7

.86

.34

Perceived radicalness effects

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Chi = 30.368df = 31rmsea =.000pClose=.698nfi = .910cfi =1.000pcfi =.564pnfi =.513

Base

.47Process .64 Service

.66

D1 D2

zbYear

-.11

zSize

Base*Size

-.25

-.12-.08

-.01

-.45

.55

-.10

.76zb_rad2

e1

.87.80zb_rad3

e2

.90

.72

zp_rad4

e3

.85

.47

zp_rad1

e4

.68

.56

zs_rad4

e5

.75

.84

zs_rad3

e6

.91

.75

zs_rad2

e7

.86

-.12

-.16

.45

zsYear

.31

.74

.10

-.04-.23

The full model of moderators for strong order

effects of radicalness

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H1. During disruptive IS innovation base, process and service IS innovations occur exhaustively together (in packs), though not necessarily at the same time. (for Internet computing supported)

H2. During disruptive IS innovation SW organizations perceive all three sets of IS innovations to be radical. (for Internet computing supported)

H3 Strong Order Effects :During disruptive IS innovation, perceived radicalness of base innovations is positively associated with the perceived radicalness of process/service innovations. (supported)

H4 Strong Order Effects: During disruptive IS innovation the adoption of process innovations is driven by the adoption of base (push) and service innovations (pull) and the adoption of process innovations lags behind the adoption of both base and service innovations. (supported)

Strong Order Moderation Effects H5a During disruptive IS innovation company size will moderate the effect of

perceived radicalness of base innovations on perceived radicalness of process and service innovations. (supported)

H5b During disruptive IS innovation the time of adopting base innovations moderates the effect of perceived radicalness of base innovations on perceived radicalness of process and service innovations. (partially supported)

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SW innovation as Organizational Learning

Exploration: new opportunities Search, discovery, experimentation, risk taking Loose couplings, improvisation, chaos Returns distant, high variance, uncertain

Exploitation: old certainties Refinement, implementation, efficiency, trial-

error learning Tight coupling, routinization, stability Returns short term, higher certainty, low

variance

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Dynamic capability

IS DiscoveryType II innovations

Market pull

Technology potentialType 0 innovations

Market Push

Exploration capability

Exploitation capability

InnovateIS Services

(Type II)

Absorb BaseInnovations

(Type 0)

InnovateISD Processes

(Type I)

IS innovation as exploration

& exploitation

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Hyper-learning

Exploitation

Trade-off on firm’s absorptive capacity

Inefficient zone( learning myopia, competency traps)

Inefficient zone(Execution failures)

Exploration

Structural separation of effective ambidextrous organizations

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Multiplelearningstimuli for breadth

Focus and increase flexibility ofknowledge transfer

ActiveGrafting

Simple Patterns

DistributedGatekeepi

ng

Peernetworks

Focus and increase flexibility oflearning needs

Increase speed and flexibility of exploitation

Enables fast knowledgetransfer and learning

Enable effective use

Exploration

Exploitation

Multiplelearningstimuli for depth

Hyper-learning mechanisms

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What makes SW organizations more

innovative?

P(Heavy)= 1.542+ .588* oKDiv

+ .803*oEPc -.136*oOPP

-.744* oOPP*oEPc

oOPP: Technology Opportunism (technology sensing/responding) is a pure moderator

-3.00 -2.00 -1.00 0.00 1.00 2.00 3.00

0.00

0.20

0.40

0.60

0.80

1.00

KnowledgeDiversity

EP Customer

P(Heavy)

82%

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Technology Opportunism moderates the Effect of Customer Demand Upon Heavy Adoption of

Innovations

The more a company is engaged in technology sensing/responding, the more discerning it is in adopting innovations.

The less a company is engaged in technology sensing, its adoption of innovations is purely driven by customer demand (Bandwagon)

-3.00 -2.00 -1.00 0.00 1.00 2.00 3.00

0.00

0.20

0.40

0.60

0.80

1.00 Technology Opportunism_Low

Technology Opportunism_Medium

Technology Opportunism_High

Customer Demand

P(Heavy)

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Conclusions

Radical innovation theory and organizational learning theories to understand discontinuous IS innovation

“changes in IS development can be partly attributed to preceding architectural change in computing and dynamics between various sets of IS innovation and their antecedent technological change”

Internet computing influenced significantly on IS processes and services

Software developers must mobilize a different set of skills and resources

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Conclusions

Implications How technological change and software

development interact (what drives design methods) (push-pull)?

What drives base architectural change, how can it be identified? Can there be major changes in future?

Models of organizational learning- new condition for hyper learning organizations

Radical innovation is driven both by push (enabled by knowledge diversity) and pull (enabled by customer pressure) and moderated by organizational experimentation

Conclusions

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2. Publications

List of main publications: Lyytinen K. & Rose G. (2003) Disruptive Information System Innovation:

The Case of Internet Computing, Information Systems Journal, Lyytinen K. & Rose G (2003) The Disruptive Nature of Internet

Computing : A Multi-Site Case Study of in Systems Development Organizations, MISQ

Lyytinen K., Rose G. &Yoo Y. (2005): Learning in High Gear: Hyper-learning and Abrorptive Capability in Seven Software Firms, submitted for publication ISR

Luo J., Lyytinen K., Rose G. (2005): Not all innovations are created equal- a study of disruptive nature of Internet computing, Procs of 26th ICIS, Las Vegas

Lyytinen K., Rose G. (2005): Agility as organizational learning, forthcoming EJIS

Lyytinen K., Rose G. (2005): A model of disruptive IS innovation cycles, unpublished working paper

Luo J., Lyytinen K., Rose G. (2005): A trinity model of disruptive IS innovation- validation and extension, submitted to MISQ

Luo J., Lyytinen K., Rose G. (2005): What explains radical innovation among software firms: a push-pull analysis, under preparation

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American University 11/14/05 Kalle Lyytinen Iris S. Wolstein Professor

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Transcript of American University 11/14/05 Kalle Lyytinen Iris S. Wolstein Professor