352 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 4, NOVEMBER 2002

The Impact of Environmental and OrganizationalFactors on Discontinuous Innovation Within

High-Technology IndustriesDawn R. DeTienne and Christine S. Koberg

Abstract—This study examines the influence of environmental,organizational, and managerial characteristics on discontinuousinnovation across three industries (aerospace, electronic compo-nents, and telecommunications) that are highly dependent uponinnovation for survival and competitive advantage. The authorsrandomly mailed survey questionnaires to 900 chief executiveofficers located across the U.S. and obtained quantitative datafrom 192 individuals. To validate these results, they conductedstructured follow-up interviews of 25 executives. The findings sug-gest that discontinuous innovation increases with environmentaldynamism and that structure and processes (intrafirm linkages,experimentation and transitioning, or sequencing from oneproduct/project/program to another) contribute to discontinuousinnovation. These results suggest that top managers are active,not passive, in influencing discontinuous innovation within theirorganizations.

Index Terms—Discontinuous innovation, environmental dy-namism, experimentation, intrafirm linkages, transitioning.

M UCH has been written about the increasing importanceof discontinuous innovations for economic growth in

the U.S. economy [20], [68]. A number of well-managed highlyinnovative U.S. companies have tried to put in place structureand systems explicitly designed to discover (or create) andexploit discontinuous innovations [56]. In order to accomplishthis, firms need to recognize that three forces—environmental,organizational (characteristics, structure, and process), andmanagerial—affect such innovation. Relatively few researchershave investigated whether these forces operate separately or incombination. In this research, we investigated the effects of thefollowing factors: environment (dynamism); organization (ageand size of the firm); structure (intrafirm structural linkages);process (improvization, experimentation, and transitioningacross projects); and managerial characteristics (chief exec-utive officer (CEO) age, and tenure with the company). Wemeasured these factors through the perceptions of CEOs inthree different industries—aerospace, electronics, and telecom-

Manuscript received February 27, 2001; revised April 23, 2002. This paperwas presented in part at the USASBE meeting in Orlando, Florida, 2001. Re-view of this manuscript was arranged by Special Issue Editors S. K. Kassicieh,B. A. Kirchhoff, and S. T. Walsh.

D. R. DeTienne was with the College of Business, University of Colorado,Boulder, Colorado 80309 USA and is now with the Department of Managementand Human Resources, Utah State University, Logan, UT 84341 USA (e-mail:dawn.detienne@usu.edu).

C. S. Koberg is with the College of Business, University of Colorado, Boulder,Colorado 80309 USA (e-mail: christine.koberg@colorado.edu).

Digital Object Identifier 10.1109/TEM.2002.806719

munications—chosen because they are highly dependent oninnovation for competitive advantage and survival.

I. DISCONTINUOUSINNOVATION

A clear distinction is not always made between discontinuousand incremental innovations. The term discontinuous innova-tion is usually reserved for major product/services and techno-logical developments based on significant innovation. Some in-novations change the entire order of things, making obsolete theold ways ([67, p. 171]). Discontinuous innovations permit entireindustries and markets to emerge, transform, or disappear. Theyare often described as technological breakthroughs that helpcompanies rewrite industry rules or create entire new industries([32, p. 2]). Discontinuous innovations are analogous to Kuhn’s[36] “paradigm shifts”; they permit entire industries and marketsto emerge, transform, or disappear, providing a firm a signifi-cant competitive advantage [20]. Examples from the electronicsindustry include self-healing computers; from the aerospace in-dustry, commercial satellites; and from the telecommunicationsindustry, the Wireless Web.

Discontinuous innovations are not necessarily a matter ofmagnitude but can comprise altered variations in technologythat over time shift the direction of an industry. Whether de-veloped in-house or generated outside the firm, discontinuousinnovation or variations in technology will augment, shift, andchange the firm’s technological processes and products/ser-vices/programs. The term incremental is reserved for thoseminor innovations or components of technology. Incrementalinnovations are minor changes more like Kuhn’s [32] “normalscience.” Examples of incremental innovation from theaerospace industry include designing parts digitally rather thanon paper; from the electronics industry, using copper-circuitryto form chips, providing video banking, and digital movies; andfrom the telecommunications industry, firewall software andstorage networks. One electronics executive we interviewedsummarized incremental innovation in this way:

“It is kind of like the evolution of the PC. The basicstructure is the same, but you change a chip here and adiode there and it gives you better performance. It is thistype of innovation.”The notion of discontinuous change (and thus innovation) is

captured in punctuated equilibrium or metamorphosis modelsof convergence and reorientation [24]. According to this model,

0018-9391/02$17.00 © 2002 IEEE

DETIENNE AND KOBERG: IMPACT OF ENVIRONMENTAL AND ORGANIZATIONAL FACTORS ON DISCONTINUOUS INNOVATION 353

organizations evolve through relatively long periods of stability,that is, most innovations simply build on what is already there,requiring modifications to existing functions and practices.These periods of stability, however, are punctuated by rela-tively short periods of fundamental change or “technologicaldiscontinuities in which new, radically superior technologiesdisplace old, inferior ones” [52]. Gersick [24] and Meyeret al.[42] also characterize organizational change and innovation asconsisting of long periods of stability (undefined) or first-orderchange that involves small or incremental changes punctu-ated by environmental jolts or relative short or revolutionaryperiods of second-order change that involves technology andsystems that are significantly transformed [24], [42]. “Once adominant design emerges, [however] technological advancereturns to incremental improvements and elaboration of thedominant technology occur. Although there is some debateabout the universality of this technology cycle, it has provenilluminating in a wide variety of industries” [42]. Tushmanet al. [65] studied four major organizations and found that theirtechnology did indeed evolve through relatively long periods ofincremental change punctuated by relatively rare innovationsthat discontinuously improved the state of the art.

Tushman and Anderson [64] found that discontinuousinnovations occurred only eight times in the 190 total yearsthey observed. Although these scholars have expressed con-cern about researching the relatively small number of actual“discontinuous innovations” within an industry, “researchfollowing the history of industries over generations has shownthat there are always sharp discontinuities, often occasioned bynew technologies ([39])”. In addition, there is a multiplicityof definitions of “discontinuous.” For purposes of this studywe define “discontinuous innovations” as major changes orinnovations in basic products or services or programs offeredor markets served, or the creation of new major product/serviceprograms leading to new or expansion of current markets.This definition is consistent with work by Herbig [28] whorefers to radical or discontinuous innovations as “higher orderinnovations” that create new industries, products, or markets(for example, lasers). Herbig [28] found that the conditions thatfavored high-order or discontinuous innovations (for example,the very first computers) differed from those that favored incre-mental innovation (for example, updated computer software).Our definition includes those innovations that are major inscope, breadth, and cost, and as involving strategic innovationsor the creation of new technologies, products, services, or mar-kets. Other researchers distinguish between administrative andtechnical, product and process, technological and architectural,and incremental and radical (discontinuous) innovation [9].

Schumpeter [55] states that entrepreneurs, the drivers ofeconomic change, “creatively destroy” existing markets. Hestresses that the scale of innovation is important—incrementalinnovations are those which efficient markets seize whereas en-trepreneurial opportunities creatively destroy whole industries.Schumpeter [55] provides several examples of entrepreneurialopportunities (discontinuous innovations) to underscore hispoint: 1) the introduction of a new product or service; 2) theintroduction of a distinctive improvement in the level or quality

of a product or service; 3) the introduction of a new methodof production or distribution; 4) the opening of a new market;5) the capture of a new source of supply; and 6) new formsof organization within an industry [22], [56]. Our definitionis consistent with that provided by Schumpeter in that ourdefinition includes not only new products 1) and distinctiveimprovements 2) but also new markets 4).

Our definition is also consistent with the work of Tushmanand Anderson ([64, p. 441]) who state “Product discontinuitiesare reflected in the emergence ofnew product classes…inproduct substitution…or in fundamental product improve-ments.” Discontinuous innovation was summarized by oneexecutive we interviewed as:

“Fiber optic is going to be a paradigm change. It is goingto add another level of technology to our industry. It won’tcompletely replace everything, but it will over time changethe leading edge technology of the industry. Fiber opticinterconnect capability will route data 1000 times fasterthan we do today.”By assessing factors contributing to discontinuous innova-

tions or alterations in technology, we hope to provide utilityor information for other firms that are dependent upon innova-tion. Innovation can be carried out in a number of different waysand can develop along many different routes [67]. The environ-mental, organizational, and managerial factors we studied (forexample, dynamism) are thought by scholars to affect and stim-ulate discontinuous innovation. Though seldom investigated, wechose to investigate these forces because of their potential forthe long-term economic sustainability of firms in industries thatare dependent upon innovation for comparative advantage andlong-term survival.

In this study, we use CEO perceptions to measure discon-tinuous innovation. Although some scholars have expressedconcern about using self-report measures of innovation, others[30], [31] have found a strong correlation between perceptualmeasures and objective measures of innovation. In addition,the approach of using one informant per organization has beensupported when survey instruments were well designed andexecuted [29], [54], [60].

II. THEORETICAL OVERVIEW

Complexity theory, which argues that organizations importenergy from the outside and that they are capable of main-taining themselves on the basis of input from the environment,[1], [40], [57] is the orienting framework for this research.Strategic managers are connected and interdependent with theirenvironment, with new ideas imbedded both inside and outsidethe organization. Given their perceptions of the environment,agents (strategists) with schema, that is, cognitive structures,determine what actions to pursue at a given time. Uncertaintyand continually shifting environmental pressures drive orga-nizational agents (strategic managers) to make organizationalchanges and innovate. In addition, according to complexitytheory, organizations embody conflicts between stability andinstability, certainty and uncertainty, and between internal andexternal pressures.

354 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 4, NOVEMBER 2002

III. RELATING ENVIRONMENTAL CHARACTERISTICS TO

DISCONTINUOUSINNOVATION

Complexity theory argues that the environment creates aset context or a set of conditions within which innovativeideas are fostered and developed. Perceived environmentaldynamism (unpredictable change) is considered an importantenvironmental variable leading to externally induced changeswithin organizations. This suggests that the more rapid tech-nological and market changes foster an environment favorableto innovation. An examination of dynamism flows from aninterpretive or information-processing view of organizations,which holds that managerial cognitions and perceptions of theenvironment are useful for predicting innovation responses[14]. An environment that is perceived as increasingly dynamicmay serve to reduce organizational and managerial inertia,thereby enabling top managers to choose among a range ofinnovative options. One reason that unpredictable change isassociated with successful multiple innovations is that a rapidlychanging environment gives top managers more options forinnovation [4]. In a study of a group of highly diversifiedCanadian firms, Miller & Friesen [44] found that when theenvironment is viewed as dynamic, successful firms employ anumber of different innovative responses.

One aerospace executive we interviewed explained, “Our in-dustry changed in response to other industries. The primaryproduct we make are parts for jet engines, so you have to askhow fast is the need for change in the industry you are serving.”The more dynamic and unpredictable top managers perceive theexternal environment to be, the more favorable they perceive itto be to innovation. One executive from the electronics industrywe interviewed remarked, “It’s usually outside influences thatdrive us to change.” Another commented, “If you look at thehistory of innovations, most major things happen outside the in-dustry that they made their money in. I think that a lot of times,the idea comes from outside an industry, and then the industrydevelops around the idea. A lot of history will show that.” Brownand Eisenhardt [4], [5] found that firms in the computer industrythat were successful innovators or who were able to innovate onmore or less a regular basis operated in industries with rapidlychanging technology characterized by short product cycles. Anuncertain and rapidly changing environment reduces structuralrigidity and organizational inertia, thereby opening up opportu-nities to innovate. Accordingly, we give the following.

H1: In the perceptions and reports of top managers, envi-ronmental dynamism will be positively related to discon-tinuous innovation.

IV. RELATING ORGANIZATIONAL AND STRUCTURAL

CHARACTERISTICS TODISCONTINUOUSINNOVATION

A. Age of the Firm, Size of the Firm, and Intrafirm StructuralLinkages

Innovative organizational behavior is not only affected by en-vironmental forces, but is facilitated or hindered by forces in theorganization, including the age and size of the firm. As firmsage and become larger, structural rigidity and inertial forces in-crease, potentially constraining the ability of top managers to

innovate. Top managers can exercise a greater discretion whenthere are fewer constraints imposed by an organization’s con-text [26]. Older organizations often are less able to innovatebecause they have formalized procedures, centralized authority,and standardized routines [33]. The older and larger organiza-tions become, “the more likely there are to have a large reper-toire of structures and systems that discourage innovation [66].

“While resources (both capital and human) are necessary toinnovate on a consistent basis, there do not appear to be sub-stantial economies of scale in the discovery of new ideas. Thussmall firms may well innovate where larger firms often fail”([46, p. 302]). Indeed, with increasing size and age come bureau-cratic procedures that often “constrain innovation unless specialsystems are put in place to motivate and enable innovative be-havior” ([67, p. 201]). As one electronics executive remarked,“We’re very small and we face formidable foes—the likes ofSony, Hitachi, and Sharp. What we do innovate on what I willcall multiple technologies, but we don’t just use polysilicant asthe technology of choice…we use DLP, a distilled light pro-cessing, a technology from Texas Instruments.” As firms ageand become larger, they may become less entrepreneurial, al-though a desire to “invent and make” may still remain [21]. Onthe basis of the above, we have the following.

H2a: In the perceptions and reports of top managers, ageof the firm will be negatively related to discontinuous in-novation.H2b: In the perceptions and reports of top managers, thesize of the firm will be negatively related to discontinuousinnovation.

According to complexity theory, organizations are comprisedof self-organizing networks, sustained by importing energyfrom the outside. This implies those ideas for innovatorscome from inside as well as outside the organization and thatinnovation is a network building process [1], [66]. Networktheory suggests that organizations can best be understood as thestructure and patterning of relationships within an organization[63]. In addition, complexity theory argues that the work oforganizations is carried out by agents [individuals] who are“partially connected to one another, so that the behavior of aparticular agent depends on the behavior (or state) or somesubset or all the agents in the system” ([1, p. 219]). “When anindividual is ’switched on’ by some issue, that individual linksup with others in his or her network, potentially, ’switchingthem on’ too” ([57, p. 488]).

The cross flow of information and the collective efforts ofa wide variety of people, concurrently working on different as-pects of a project, is needed to develop a work environment con-ducive to innovation [59]. Bringing a product to market requiresthat managers “form linkages, upstream and downstream, lat-eral and horizontal” ([34, p. 1166, 1171]). Intrafirm linkages en-sure collaboration among organizational subunits and individ-uals. Tight vertical relations together with poor lateral relationsoffer no possibilities for cross fertilization of ideas within an or-ganization. Brown and Eisenhardt [4] in a study of nine SBU’sacross nine computer firms found that firms that had multiplesuccessful innovations had sharply defined project priorities,frequent cross-project communication, teams consisting of amix of old and new team members, and a core team that carried a

DETIENNE AND KOBERG: IMPACT OF ENVIRONMENTAL AND ORGANIZATIONAL FACTORS ON DISCONTINUOUS INNOVATION 355

project from concept to development. A study of top-level mar-keting managers from firms in the motorcycle industry showedthat innovation could be stimulated by interfunctional groupsand business program managers who coordinated the innova-tion process [45].

Of course, all innovation does not occur through collectiveaction. However, many successful innovators bridge conceptu-ally and analytically different contributions by individuals or-ganized by a specialty of research ideas. Although this mayprove difficult, particularly in the case of a large number ofindividuals, ideally, an effort should be made to integrate thevarious members of the team; a lack of interplay among ideascan be an important impediment to innovation. Commenting onteams within his organization, one electronics executive we in-terviewed remarked:

“When we form teams, we group ’em together so there’sa project manager and there is an engineering team. Withall of the disciplines and the disciplines are pretty variedhere that from electrical to mechanical to product designto the optics to the thermal part, it’s a big issue. So we putthe disciplines together in team areas and work with themthere.”

Kolodny et al. [35] studied the introduction of innovativeflexible technologies in 12 companies in Sweden, France,and Canada and found that successful companies movedtoward flatter organizational structures with more horizontalcommunication. We predict the following.

H3: In the perceptions and reports of top managers, in-trafirm structural linkages will be positively related to dis-continuous innovation.

V. RELATING ORGANIZATIONAL PROCESSES TO

DISCONTINUOUSINNOVATION

A. Experimentation Improvization and Transitioning AcrossProjects

Organizational innovation is not only affected by environ-mental, organizational, and structural factors, but is facilitatedor inhibited by processes implemented by top managers. Brownand Eisenhardt [5] in their study of firms in the computer in-dustry found that successful innovators were able to encourageexperimentation, improvization, and to choreograph of transi-tions from one project or product to another. Complexity theoryargues that innovation cannot be planned but must evolve;it requires experimentation, openness, and improvization([40, p. 215]).

Both experimentation and improvization characterize inno-vation, and are separate but not entirely mutually exclusiveconstructs. Both imply “making it up as you go along” and“trial and error learning” and an innovation process that isopportunistic, tumultuous, and nonlinear [4], [25]. The extentto which top managers promote experimentation within theorganization affects the ability of engineers and scientiststo experiment and “prototype efficiently and competently,”thereby creating a competitive advantage to the firm [39]. Amanager who is able toexperimentwill have an comparative

advantage over rivals because of an ability to react to today’smoves by rivals without losing the flexibility to react to thefuture and proactively pursue new opportunities that do unfold([5, p. 131]). As one executive remarked “We’re operating inareas we’ve never been before so you don’t know what you’regoing to get. So there are a lot of stops and starts and a lot ofblind alleys.” Ideally, managers gather information necessaryto envision the future while simultaneously maintaining anability to see unexpected opportunities in the present and tomove quickly and shift strategies in response to unforeseenmarket, competitive, technological, and regulatory changes.

A manager who is able toimprovisebalances “the structurethat is vital to meet budgets and schedules with flexibility thatensures the creation of innovative products and services thatmeet the needs of changing markets” ([5, p. 28]). Clearly somecoordination is required and crucial to innovation, but too muchor tight coordination impedes an organization’s capacity for in-novation, given how uncertain and technically complex inno-vative work is. Innovation by a project team generally by nomanner of means occurs in a systematic way nor thrives understructured systems. Describing how improvization worked in hisfirm, one electronics executive commented:

If someone has an idea, they can come up to this teamand say here’s my idea. I need $10 000 to $20 000 to do it.If the team decides, they don’t even have to fill out a pieceof paper other than write a memo to the comptroller. Thoseare what we call our ’wild-hair’ projects. That is just whatit is for. To let people have a way of trying things withouthaving to deal with the bureaucracy.

Firms with multiple projects will require varying degreesof coordination. Rather than leave transitions to chance, topmanagers of successful firms “create an almost seamless switchfrom one project to the next” [4]. To ensure a smooth transitionfrom one project to another, successful managers of innova-tive firms introduce new products or services at predictableintervals, follow explicit procedures for projects, synchronizeprojects with the needs of key customers and suppliers, andcreate routines for leaving old business areas. To the extent thatit becomes technologically possible, managers create processesso that projects are “broken down into small tasks and thenpassed through a structured sequence of steps from conceptspecification to preprototype and so on. As each step is com-pleted, the project is passed to the next step. The whole processis governed by specifications, procedures and checkpoints” [4].Successful innovators typically have an oversight manager orcommittee who ensures a smooth transition from one projectto another.

H4a: In the perceptions and reports of top managers ex-perimentation will be positively related to discontinuousinnovation.H4b: In the perceptions and reports of top managers,improvization will be positively related to discontinuousinnovation.H4c: In the perceptions and reports of top managers, tran-sitioning across projects will be positively related to dis-continuous innovation.

356 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 4, NOVEMBER 2002

VI. RELATING MANAGERIAL CHARACTERISTICS TO

DISCONTINUOUSINNOVATION

What role do CEOs play in influencing discontinuous innova-tion? The firm that successfully innovates may depend as muchon characteristics of management as on characteristics of theenvironment and the organization. “Complex adaptive systemsevolve over time through the entry, exit, and transformation ofagents” [1]. Upper echelon theory argues that the composition,biases, values, and perceptions of top managers are importantin creating an environment favorable to innovation. “It is ex-pected that in high-discretion situations, chief executives willtend to be relatively young” ([26, p. 396]). CEO age is linked torisky strategies that favor innovation. Younger managers typi-cally have less commitment to the status quo and adopt favorableattitudes toward a greater risk orientation that favor innovation[2]. By virtue of their personal characteristics, managers willvary in the degree to which they develop and promote differenttypes of innovation. Research shows, for example, that longtenure is associated with performance conformity [18], whileshort tenure may be a means by which an organization over-comes inertia and makes strategic change [70]. Accordingly weexpect the following.

Hypothesis 5a: In the perceptions and reports of top man-agers, age of the top manager will be negatively related todiscontinuous innovation.Hypothesis 5b: In the perceptions and reports of top man-agers, tenure of the top manager will be negatively relatedto discontinuous innovation.

VII. M ETHODS

A. Organizations and Executives

The sample frame for this study was selected from the 1998and 2000 editions ofWard’s Business Directory of U.S. Privateand Public Companies. The study was conducted in 1999 usingthe 1998 edition. However, because of undeliverable question-naires (particularly among telecommunications firms), we sur-veyed a smaller number of firms early in 2000 using the 2000edition ofWard’s Business Directory of U.S. Private and PublicCompanies. The directory contains a complete list of publiccompanies and is also a leading source of information aboutcompanies that are either not publicly traded or are subsidiariesof larger companies. The directory contains information on over132 500 companies (90% of which are private), listing CEOnames, addresses, sales information, employee figures, and fiveand six digit Standard Industry Classification (SIC) codes. Toselect the sample, we used a two-step approach. First, we se-lected three industry strata: (1) aerospace (SIC 336 411 through336415, and 336 419); (2) electronic components and supercon-ductors (SIC 334 415 through 334 419); and (3) telecommuni-cations (SIC 513321, 513322, and 51 331 through 51 333). Wethen randomly selected samples of 300, 350, and 250, respec-tively, from the three industry strata, for a total of 900 firms.Uneven sample numbers were selected to be consistent with thesample frame, which contained significantly different numbersof firms in each industry. Although these industries vary in tech-

nical development and batch processing, all are highly depen-dent on innovation for competitive advantage and survival.

B. Aerospace

While sales of planes, jets, missiles, and other space vehicleshave declined since 1991, space and defense spending hasrecently increased ([7, p. 114]), and military exports and thecivilian side of the business offer promise for growth andinnovation in this industry. Aerospace companies are activelyseeking to develop wireless telecommunications, laser com-munications, and antennas for commercial markets. Menessummarizes the aerospace and high technology industries asfollows: “The ten fastest growing manufacturing industriesare heavily dominated by high tech industries. At the top iscomputer equipment, followed by the six aerospace industries.This is a dramatic turnaround for these industries since, withthe exception of aircraft engines, they all ranked near thebottom in growth for 1995 and 1996” (1998: xxxiii).

C. Electronic Components and Chips

The electronic and superconductor industries have seen rapidtechnological progress and innovation. In the microprocessorindustry, R&D can amount to 25%–30% of firm sales [46]. Ex-amples of innovations in this industry are “handheld PC’s, dig-ital videodisk players, smart phones, digital TV’s, and set-topboxes” ([6 p. 89]).

D. Telecommunications

The Telecommunications Act of 1996 has opened up compe-tition and made possible new kinds of service for new classesof customers in this industry. Wireless, an unregulated service,continues to explode ([7 pp. 98–99]), with the “U.S. governmentlending a hand, funneling money for wireless research to univer-sities” ([8, p. 68]). Telecommunication firms want to carry dataof all sorts—voice, video, and graphics—and provide faster ac-cess to the Internet.

E. Survey Design

In accordance with the total design method (TDM) describedby Dillman [12], we mailed questionnaires, accompanied bypostpaid return envelopes and cover letters, to the chief exec-utive officers (chairman, CEO, and president) of the 900 firmsin the sample frame. The cover letters served to identify thesponsor of the study and to explain its purpose and importance.We assured executives of confidentiality and promised them areport of the aggregated findings once the study was completed.A reminder letter with a replacement survey questionnaire wasmailed three weeks after the initial mailing.

Some researchers question the validity of studies that rely on asingle informant’s perceptions [37]. However, there is little con-vincing research that either supports or contradicts the generallyaccepted belief that CEOs and top administrators can providereliable information about the basic environmental and organi-zational characteristics of their firms. Our approach of using oneinformant per organization has been supported when survey in-struments were well designed and executed [30], [54], [60].

DETIENNE AND KOBERG: IMPACT OF ENVIRONMENTAL AND ORGANIZATIONAL FACTORS ON DISCONTINUOUS INNOVATION 357

The response rate for mail surveys sent to top managerstypically is lower than for other mail surveys, because topmanagers have relatively less discretionary time to devoteto completing questionnaires sent to them by academic re-searchers. We obtained response rates of 24.3%, 23.7%, and14.8%, respectively, for the aerospace, electronic components,and telecommunications industries; these response rates areconsistent with Stimpert’s [61] report that in studies usingCEOs as addressees, response rates range from 14% to 34%.Nonresponse bias is always a concern when response is volun-tary; nonresponding firms, however, did not differ significantlyfrom responding firms in annual sales or geographic area.However, a disproportionate number of nonresponding firmswere from the telecommunications industry. This industry isexperiencing a complete overhaul and shakeout, with manysmall wireless operators going out of business because of adecline in the price of wireless minutes and an increased com-petition for capital [6]. The executives who responded included182 males and 10 females, and had a mean age of 41 to 50years. They had been in their present position a mean of 6 to 10years or more, and had been with the company a mean of 11 to15 years or more. A large number held a college oradvanced degree ; the others held an associate degree

or had a high school education .The analysis is undertaken at an organizational level. Approx-

imately 24% of the responding firms employed fewerthan 100 workers, with 19% employing over 500workers. The majority of firms had between 100and 500 employees. The mean age of the companies sampledwas 34.36 years. A small number of firms, approximately 13%

reported declining sales over the last three years.About 18% of the firms reported a stable growthrate; 24% reported a growth rate of less than 10%.A larger percentage of firms, approximately 33% ,reported a growth rate between 10% and 25% annually, and asmaller number of firms, approximately 12% , re-ported an annual growth rate over 25%.

We conducted semistructured follow-up interviews of a totalof 25 executives who volunteered to talk with us. We conductedinterviews to help generate descriptive indicators of discontin-uous innovation, to avoid misrepresentation or misinterpretationof the results from the questionnaire data, and to validate theresults of the quantitative analyses. The interviews were con-ducted on the telephone and lasted between 30 and 40 minutes.All interviews were taped and transcribed.

VIII. M EASURES

We employed scales that had been standardized and validatedby other researchers, e.g., [4], [5], [13]; we also developed otherscales specifically for this study, basing them on a review of theliterature and interviews with executives from each of the threeindustries. See Appendix 1 for a complete description of items,scale, alpha coefficients, eigen values, and loadings.

A. Discontinuous Innovation

A major drawback of any innovation research is measure-ment; there is no easy way or standardized way to measure

organizational innovation. We asked executives to indicatethe frequency of their firm’s discontinuous innovation. Wetold executives that organizational innovations refer to a broadrange of innovations, either internally developed or externallyacquired, that firms use to meet customer demand and tomaintain or improve performance. Discontinuous innovationinvolved those strategic innovations such as basic product orservice programs offered or market served or creation of newmajor product/service programs leading to expansion of currentmarkets. We asked executives to report the frequency of theseinnovations over the last three-year period.

B. Environmental Dynamism

Dynamism, the extent of unpredictable change in the externalenvironment, is considered a perceptual phenomenon, inasmuchas the uncertainty resides “in the perceptions and minds of man-agers in terms of their ability to predict future environmentalstates” ([3, p. 166]). One executive describing the unpredictablechange in the electronics industry stated “As far as the futurewe only go out two or three years because things are happeningso fast that it is impossible to predict. We would make terriblecommunists—a five-year plan would not work!” We measuredperceived dynamism using ten items developed by Duncan [13].To test the dimensionality of the scale, the ten items were factoranalyzed using principal components analysis with varimax ro-tation, yielding one identifiable factor.

C. Intrafirm Structural Linkages

We measured intrafirm structural linkages, defined as crossfunctional and coordination mechanisms, designed to increaseintegration, by eight five-point Likert items based on the worksof Brown and Eisenhardt [5] and Muffatto and Panizzolo [45].

D. Size and Age of Firm

To measure size we used the logarithm of the total numberof employees for each firm. This measure was used because themajority of these firms are privately held companies. A loga-rithmic transformation provides the most generally useful pro-cedure for effecting linearity. Although some researchers haveused different measures, such as volume of sales or income, thenumber of employees has been used as a measure of organi-zation size in many empirical studies [43]. Consistent with re-search by Powell [49], the age of each participating firm wasdetermined by the firm’s founding date.

E. Improvization and Experimentation

To measure improvization and experimentation, we em-ployed a group of paired statements developed by Brown andEisenhardt [5] from their in-depth study of firms in the com-puter industry in Asia, Europe, and North America. We askedexecutives to rate the extent to which the paired statements,separated by a five-point Likert scale, best approximated ordescribed their firm.Improvization is defined as too muchversus too little structure consisted of five paired statements.

Experimentation, defined as being able to focus on both thepresent and the future without losing the flexibility required toreact to unexpected events ([5, p. 131]), consisted of six paired

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TABLE IMEANS, STANDARD DEVIATIONS, AND ZERO ORDER CORRELATIONSAMONG THE STUDY VARIABLES

statements. The factor analysis indicated to us that the items formeasuring improvization and experimentation appear to captureaspects of the processes that were considered theoretically andpractically meaningful by Brown and Eisenhardt.

F. Transitioning Across Projects

We measured transitioning, defined as transitioning or se-quencing from one project to another, by three items developedby Brown and Eisenhardt ([4, p. 21]). Using a five-point Likertscale anchored from 1 never to 5 frequently, the executiveswere asked to rate the frequency of the actions. One identifiablefactor was obtained.

G. CEO Characteristics—Age and Tenure

We asked executives to categorize their age: 1) 30 or under;2) 31–40; 3) 41–50; 4) 51 and over. In addition, we asked exec-utives to state how long they had been with this company. CEOswere given seven choices ranging from less than 1 year to over20 years.

We acknowledge that field studies using self-reportcross-sectional data are particularly susceptible to errorsresulting from consistency, priming, and problems associatedwith common method variance [48]. Factual data of whichthe respondent possesses direct knowledge pose less seriousproblems, since such data are in principle verifiable. Some ofthe data collected in the present study (age and size of the firm)were of this type. Also, Spector [58] proposed that methodvariance might well be more of a problem with single items orpoorly designed scales and less of a problem with multi-itemand well-designed scales. Realizing the difficulties associatedwith common method bias, every attempt was made both tominimize the methodological difficulties of this bias by usingboth quantitative and qualitative data collected from our sampleorganizations. Also, on the basis of theoretical arguments madeby the researchers who developed the scales, the measures wereconceptually different. However, when interpreting findings

from survey research, some allowance should be made for thegeneral problem of common method variance. One statisticalprocedure for estimating the portion of variance attributable tomethod is through Harmon’s single-factor test [48]. This testconsiders the first unrotated factor to be a good approximationof method variance; the higher the variance that is accountedfor by the first factor, the higher the common method variance.The first unrotated factor in this study was found to accountfor a modest amount of variance (17.36%), indicating thatproblems of common method variance should therefore besomewhat attenuated.

IX. A NALYSIS OF RESULTS AND RESEARCHFINDINGS

Data on the distributional characteristics of the scaledvariables, along with the bivariate relationships (correlations)among the variables (without controlling for the effects ofother variables) are given in Table I. Predictably, the processvariables (experimentation, improvization, and transitioning),and age and size of the firm positively related to each other.Intrafirm structural linkages were positively related to size ofthe firm and to the three process variables. Age of the CEO waspositively related to tenure with the company.

X. RESULTS: RESEARCHHYPOTHESES

We used hierarchical regression, an efficient analysis alter-native that allows blocking on variables, to test our researchhypotheses that the environmental, organizational, structural,process, and managerial variables would all be related to dis-continuous innovation (see Table II). As explained by Cohen[9], hierarchical regression allows sets of independent variablesrather than single IV’s to be entered cumulatively in a hierar-chical order, and upon the addition of each new set, an-squareis determined. Although the standard deviations of the researchvariables are smaller for some variables (for example, environ-mental dynamism) than for others (for example experimenta-tion), regression coefficients are not affected by range restriction

DETIENNE AND KOBERG: IMPACT OF ENVIRONMENTAL AND ORGANIZATIONAL FACTORS ON DISCONTINUOUS INNOVATION 359

TABLE IIRESULTS OFHIERARCHICAL REGRESSION OFDISCONTINUOUSINNOVATION

when assumptions of linearity and homoscedasticity are met [9].An examination of the scattergrams showed no gross violationsof these assumptions.

We performed one-way analysis of variance (ANOVAs) todetermine whether we should control for the effects of industryin our data analysis. We found no significant differences (withone exception age of the firm [ , ,

]-the aerospace firms were significantly older than the elec-tronics/telecommunications firms) in the research variables: en-vironmental dynamism ( , , n.s.); sizeof the firm ( , , n.s.); intrafirm linkages( , , n.s.); experimentation ( ,

, n.s.); improvization ( , , n.s.);transitioning across projects ( , , n.s.); CEOage ( , , n.s.); CEO tenure ( ,

, n.s.) and innovation ( , ,n.s.). Because “the processes of innovation are fundamentallythe same across very different organizational structures and set-tings” ([67 pp. 17]), and because we found no differences in theresearch variables across industries, we aggregated data acrossthe three industries for purposes of data analysis.

Multicollinearity (which should be avoided) is present ina multiple regression equation if the independent variablesare highly correlated among themselves. The intercorrelationsamong the research variables, in particular, improvization,experimentation, and transitioning were 0.56, 0.23, and 0.31.Traditionally, a high intercorrelation is defined as one that

exceeds 0.70 [62]. “Moreover, a variable must pass bothtolerance and a minimum tolerance test to enter and remain in aregression equation. Tolerance is the proportion of a variable’svariance not accounted for by other independent variables inthe equation [62].” An examination of the collinearity statistics(tolerance) for the variables in the regression equation revealedacceptable levels of tolerance; all the research variables there-fore remained in the regression equation.

To determine the unique contribution of the environmental,organizational, process, and managerial variables to discon-tinuous innovation, we examined the change in the adjusted

-square. Table II reveals that the environmental, organi-zational, and process variables were significant predictorsof discontinuous innovation, while the managerial variableswere not.

Because theory and previous research indicates that manage-rial characteristics are significantly related to discontinuous in-novation, we examined the data further to better understand whyour findings were inconsistent with previous research. Underfurther examination we found the relationships to be more com-plex than a simple main effect. To understand the nature of thesignificant interactions, the interactions were plotted as shownin Fig. 1. Specifically, we found that CEO age moderates therelationship between age of the firm and discontinuous innova-tion (AxCEOAGE). That is, discontinuous innovation decreaseswith the age of the firm but at a slower rate for firms withyounger CEOs than firms with older CEOs. Similarly, size of

360 IEEE TRANSACTIONS ON ENGINEERING MANAGEMENT, VOL. 49, NO. 4, NOVEMBER 2002

the firm is significantly related to discontinuous innovation butdifferently for managers with higher tenure in the company (Sx-TENURE). That is, discontinuous innovation decreases with thesize of the firm but at a slower rate for firms with low tenuredCEOs than firms with high tenured CEOs. Finally, CEO agemoderates the relationship between intrafirm linkages and dis-continuous innovation (LxCEOAGE). That is, discontinuous in-novation is increased in firms with intrafirm linkages, but at afaster rate for firms with younger CEOs than firms with olderCEOs. The impact of these interactions is shown in Table II.

We used three alpha levels of significance (0.01, 0.05, and0.10), which are appropriate in studies that are consideredexploratory [17]. Hypothesis 1 related perceived environmentaldynamism to discontinuous innovation. We found it to bea significant positive predictor of discontinuous innovation.Contrary to what we predicted, age of the firm (Hypotheses2a) was not a significant predictor of discontinuous innovation.However, Hypothesis 2b, size of the firm, was a negativepredictor of discontinuous innovation. That is, as firms increasein size they are less likely to be involved in discontinuousinnovation. Hypothesis 3 related intrafirm structural linkagesto innovation, and we found them to be positive predictorsof innovation. Hypotheses 4 and 5 related the process vari-ables (improvization, experimentation, and transitioning) toinnovation. Both experimentation and transitioning positivelypredicted innovation. Lastly, Hypothesis 6 related managerialcharacteristics to innovation. Managerial characteristics werenot significant predictors of discontinuous innovation. In sum-mary, there is support for Hypotheses 1 and 3, partial supportfor Hypotheses 2 and 4, and no support for Hypotheses 5.

To determine the unique contribution of the environmental,organizational, process, and managerial variables to innovation,we examined the change in the adjusted-square. Total ex-plained by the complete model was 25.5%. Table II reveals the

and the change in upon the addition of each new set ofvariables. In addition, Table II gives the complete model, whichincludes the results for the full model entering all the variablessimultaneously. Table II reveals that environmental, organiza-tional, process variables and the interactions contributed signif-icantly to discontinuous innovation while the managerial vari-ables did not.

The statistical power of the tests was checked to determine thepossible effect of sample size on the findings. On the basis of aconventional medium-size effect, as indicated by a population

of 0.30 [9], we determined that the odds that a test would besignificant to be 0.90. This value exceeds the acceptable signif-icant value of 0.80 indicated by Cohen [9] and suggests that thesize of the study’s sample did not significantly bias the findings.

XI. DISCUSSION ANDCONCLUSION

Developing and fostering discontinuous innovation is criticalto the growth of economies and remains a prime way by whichfirms maintain a competitive advantage [68]. Discontinuous in-novation may require a larger investment and entail higher riskthan incremental innovation, but it can also earn higher returns.One telecommunications executive we interviewed said, “I be-lieve that the risk is great and the reward is greater when you are

Fig. 1. Graphical representation of interaction effects.

the innovator and you are there first. And yeah, you’re going tohave problems, so learn how to deal with those types of prob-lems. Be nimble. But a fast second or even a second is safer, butit’s kind of uninteresting.”

Although our findings require corroboration because theycome from only three industries—aerospace, electronics, andtelecommunications—they suggest that top managers in theseindustries undertake discontinuous innovations. Among theinnovations identified by the aerospace executives we inter-viewed were domestic or commercial satellite communicationsservices, and the expansion into mobile devices that combinedvoice and Internet access. Executives from the electronicsindustries reported developing application-specific integratedcircuits (ASIC chips), digital consumer-electronic devices (forexample, digital videodisk players and cameras), and mobile

DETIENNE AND KOBERG: IMPACT OF ENVIRONMENTAL AND ORGANIZATIONAL FACTORS ON DISCONTINUOUS INNOVATION 361

devices that combined voice and Net access. Executives fromthe telecommunications industry reported developing a tech-nology called asynchronous digital subscriber line (ADSL), IPservices, and softswitch platform services.

Our finding that discontinuous innovation increased withenvironmental dynamism is consistent with Tushmanet al.’s[65] suggestion that “effective organizations in environmentswith substantial technological and/or legal/social uncertainty”tend to undertake reorientations or quantum (discontinuous)changes. This finding is also consistent with complexity theory[1], [40], [57] and with Oster’s ([46, p. 120]) suggestion thatorganizations are “embedded in an environment in which newideas are constantly developing”. Among the environmentalchanges and uncertainties described by executives in both theaerospace and the electronics/telecommunications industrieswere global economic fluctuations and uncertainty, cyclicaldemand, the Asian crisis, increased partnering across indus-tries, double-digit growth, and the broadband revolution. Onetelecommunications executive detailed how his firm developeda “business plan of 5 years, every year we revise it, and thattakes a good look at what is happening in the next 12–18months…. We get into trends, government actions, what is theconsumer/customer is doing, etc.” Future research is necessaryto investigate whether, in accord with prospect theory, strategicmanagers typically take greater risks and make larger, morediscontinuous changes in response to threats than in responseto opportunities in the environment [15].

Structure and processes within the firm contribute todiscontinuous innovation, specifically, intrafirm linkages,experimentation, and transitioning or sequencing from oneproduct/project/program to another. Top managers can structuretheir firms and implement processes such as experimentationand transitioning in such a way as to contribute to the firm’sability to innovate. This view reinforces work by Van de Venand associates [67], who found that “management cannot en-sure innovation success, but can influence its odds.” Firms withintrafirm structural linkages were found to play a significantrole in promoting discontinuous innovation. Organizationscharacterized by considerable interdependencies require coor-dinating and integrating mechanisms for innovation to occur[21]. Intrafirm linkages provide a free-flowing exchange andcross pollination of information. In many instances, innovationdepends on team rather than individual effort, and the crossflow of information among a wide variety of people workingconcurrently on different aspects of a project helps develop anenvironment conducive to innovation [59].

Our results suggest that radical innovators experiment andmove quickly and smoothly from one project or product to an-other. The “innovation journey” is characterized by trial-and-error learning and “making it up as you go along” ([4, p. 15]),[17], [67]. Experimentation builds in flexibility (strategic re-sponsiveness); it creates a momentum for change, and improvesthe capacity of the firm to react quickly to a changing environ-ment while maintaining a focus on the present. Commentingupon the fact that innovative firms experiment, an aerospace ex-ecutive explained, “If you fire enough missiles, you’ll get one.If someone tries long enough, one of the ideas is going to work,but if you never have an idea, it’s not going to work. There is a

lot of accident in it. So you take the guys who are willing to goout on a limb; you look at them a little more favorably.”

Finally, some scholars argue that larger older firms experi-ence rigidity and inertial pressures and are therefore less likelyto produce discontinuous innovations. We are unable to verifythese assertions, although the model 5, which includes the in-teraction effects, shows that size of the firm is moderately nega-tively significant. This would be consistent with other research[26], [33] which suggests that as the size of the firm increases,the firm is less likely to be involved in discontinuous innovation.

Although others [2], [18] have found that age and tenure areassociated positively with conformity and negatively with risktaking propensity, we were unable to relate age and tenure of thetop managers to discontinuous innovation. Perhaps the reasonsfor inconsistency in the findings regarding managerial charac-teristics are as Gartner [23] in his work on entrepreneurshipsuggests, “who is the entrepreneur is the wrong question.” Hesuggests that it is the behavior of the individual that is rele-vant rather than individual personality characteristics. In behav-ioral approaches, the CEO would be seen as a set of activities.Although we did not find any significant relationship betweenmanagerial characteristics (CEO age, and tenure with the com-pany) and discontinuous innovation, the significance of the in-teractions suggests that the relationships between the organiza-tion variables and the managerial variables and discontinuousinnovation are more complex than a simple main effect. Wefound that discontinuous innovation decreases with the size ofthe firm, but at a slower rate for firms with younger CEOs thanfirms with older CEOs. This finding suggests that even thoughlarger firms are less likely to be innovative, this tendency canbe arrested by the hiring of younger CEOs. Younger CEOs tendto slow down the rate at which larger firms lose their ability toinnovate. Because this finding was significant at the 0.10 level,additional research is needed to confirm these findings.

We also found that discontinuous innovation decreases withthe size of the firm but at a slower rate for firms with low tenuredCEOs than firms with high tenured CEOs. This finding was sig-nificant at the 0.01 level providing evidence that as firms in-crease in size they are less likely to engage in discontinuousinnovation. However, firms with CEOs that have been with thefirm for a shorter period of time are more likely to engage indiscontinuous innovation than those with CEOs that have beenwith the firm for long periods of time.

Finally, we found that discontinuous innovation is increasedin firms with intrafirm linkages but at a faster rate for firms withyounger CEOs than firms with older CEOs. That is, firms thatengage in intrafirm linkages are more likely to engage in dis-continuous innovation, but those with younger CEOs are evenmore likely to engage in discontinuous innovation. This findingis significant at the 0.10 level and therefore should be verifiedby further research.

Our findings are limited by the difficulties inherent in per-forming a cross-sectional study, drawing generalizations fromthree industries, and disentangling cause and effect. With sucha wide variety of factors and relationships to be considered, anassessment of discontinuous innovation is particularly complex,and defining causal relations among component factors is diffi-cult. We need, for example, to consider the extent to which per-

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TABLE IIIMEASURES

ceived environmental dynamism contributes to innovation, andthe reverse possibility that discontinuous innovation contributesto perceptions of environmental change. Also, directionality andfeedback loops pertaining to the factors that impact innovationare not included in our study. For example, experimentation mayincrease within a firm as discontinuous innovation increases. Al-though we quantified the degree to which managers undertakediscontinuous innovation, we failed to measure the intervening

variable of choice, and we did not examine the relationship be-tween innovation and firm performance. Despite its importanceto scholars and practitioners alike, performance was difficult forus to measure because the majority of firms in our sample arenot publicly traded, and reliable performance data are difficultor impossible to obtain.

Future research is needed to investigate other environmentaland organizational determinants of discontinuous innovation,

DETIENNE AND KOBERG: IMPACT OF ENVIRONMENTAL AND ORGANIZATIONAL FACTORS ON DISCONTINUOUS INNOVATION 363

such as interorganizational linkages. In his research in the bio-pharmaceutical industry, which is known for high number ofstrategic alliances, Rothaermel [53] found that “incumbents thatfocus their network strategy on exploiting complementary as-sets outperform incumbents that focus on exploring the newtechnology.” Interesting work by Powellet al. [50] found thatfirms without ties are becoming increasingly rare and that thefield of biotechnology is becoming very tightly connected be-cause of the number of partners involved in alliances. Chisholm([10, p. 5]) states “the interorganizational network is rapidlyemerging as a key type of organization and the importance ofthe network is expected to increase throughout the 21st century.”One electronics executive explained that because his firm wasvery small he formed alliances with Texas Instruments, for ex-ample. “We work with them and they work with us. We knowhow to do things they don’t know how to do. We have a numberof alliances, but we work with everybody differently.” Thesestudies suggest that future research is needed to examine the re-lationship between interorganizational linkages and discontin-uous innovation.

Future research is indicated that examines how fast an inno-vative product or service enters the market (time-to-market fromlaunch). One electronics executive explained:

“Our business is programmable logic. A customer wouldhave a software package and that has enabled the customerto define a logic block to build a piece of digital electronicequipment (for example, PC, piece of equipment, storagedisks). The thing that separates us from the IC area—thesoftware permits a customer to personalize the product.The customer has an idea of what he want to build—dig-ital equipment—once he has the software and a piece ofhardware. In as little as an after noon, he could transfer bitof information instantly (15 seconds), physically realizingwhat he wanted to have. Time to market is the most im-portant thing. The alternative is that the customer wouldhave to do some design work and then wait anywhere from3 weeks to 6 months before he gets a sample of that part.With us, once he know what he wants he can realize it inone day.”Future research on innovation may have to take into account

how each source of uncertainty enhances and inhibits innovationwithin organizations. In our study, uncertainty was describedbroadly as the extent of unpredictable change in the externalenvironment. However, innovation involves “three at least par-tially separable sources of uncertainty” ([46, p. 290]): 1) tech-nical (can we develop it?); 2) market (what are the needs anddemands of the potential users?); and 3) competitive (who elsecan develop and sell it?). On market uncertainty, one electronicsexecutive commented:

“We have people on board who have the talent to developthe products. It’s interesting—about 75% of our people aredegreed engineers at all levels. Probably the thing we lackthe most is people who understand markets and marketing.Because of that we have developed a lot of neat products,but there was no market or we did not know how to get tothe market. Now we’ve come to the point where we haveto have at least an understanding of where we are going to

sell this thing, who the customer is, and how we are goingto get to them, which is, for an engineer, like an epiphany.”

The objective of this study was to be primarily an aide to topmanagers interested in discontinuous and other types of inno-vation. We attempted to identify the relevance of nontechnicalenvironmental and organizational factors and their possible con-sequences for discontinuous innovation. For example, we em-phasized the importance to innovation of allowing specialistsand professionals from different disciplines to be brought to-gether, although we did not specify the optimal size or time spanof a research or project team. We hope our study sheds lights onaspects of environments and organizations conducive to inno-vation. Ultimately, top managers choose the structures and pro-cesses that enable a firm to be consistently innovative.

APPENDIX

See Table III.

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Dawn R. DeTienne received the B.S. degree infinance and the M.B.A. degree with a financeemphasis. She received the Ph.D. degree in busi-ness policy and strategy with an emphasis inentrepreneurship in June of 2002 from the Universityof Colorado.

She is currently an Assistant Professor in the Man-agement and HR Department, Utah State University.For 15 years prior to pursuing her Ph.D., she foundedand co-owned a small business venture. Her currentresearch interests include strategy and entrepreneur-

ship at the individual and firm level and include opportunity recognition andfirm change through innovation.

Christine S. Koberg received the Ph.D. degree from the Graduate School ofManagement, The University of Oregon, Eugene.

She is an Associate Professor at The Leeds School of Business at the Uni-versity of Colorado, Boulder. Her research interests include innovation at boththe micro and macro organizational levels. She has published over 30 articles inscholarly journals on a variety of management related topics.