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How Strategy and Governance
Choices Influence Innovation Success
in Software Products and Services
Chewei Liu, University of Maryland
Thomas Kude, University of Mannheim
Sunil Mithas, University of Maryland
Charles Colby, Rockbridge Associates, Inc
Tony Orlando, 3Pillar Global
25 June 2016, 2:30 - 2:55 PM, Auditorium 13
(This version 16 June 2016)
Liuetal.2016Frontiers
2Liuetal.2016Frontiers
In-house Outsource
Manager’s dilemma
?? OffshoreOnshore
3Liuetal.2016Frontiers
Manager’s dilemma
??
Technical
Leader
Business
leader
4
• Diversity of knowledge
– Studies show a positive relationship between
diversity of the knowledge base and a firm’s
innovation success (Breschi et al. 2003; Garcia-
Vega 2006; Leiponen and Helfat 2010; Leiponen
and Helfat 2011)
– Creating successful innovations requires transfer of
individual and collective knowledge between
internal and external resources
• What is the effect of mixing resources internally and
externally on software innovation?
Research Question
Liuetal.2016Frontiers
5Liuetal.2016Frontiers
Within Firm
Across Institutions
Across Borders
Conceptual framework
Innovation
H1 H2H3
Cultural
Diversity
Role
Diversity
Partner
Diversity
6
Data
• 164 professionals responsible for new software
product development
• 90 % of the sample participants come from
companies with annual revenues over $50 million
• All participants have some decision-making
authority on new software development or provide
input to the process
Liuetal.2016Frontiers
7
Empirical Model
• Multicollinearity (VIF < 10)
• Common method bias (Podsakoff et al. 2003)
Liuetal.2016Frontiers
8
Descriptive statistics
Obs. Mean Median Std. Dev. Min Max
SWInnovation 164 4.74 5.00 1.36 1 7
MixOnOffshore 164 4.57 5.00 1.89 1 7
MixInOutSource 164 4.88 5.00 1.56 1 7
CareerGrowth 164 5.07 5.00 1.47 2 7
StrategyDiff 164 4.38 4.50 1.70 1 7
BLMakeTechDecision 164 0.11 0.00 0.31 0 1
AnnualRevenue 164 6.38 6.62 1.36 3.22 7.60
IndustryCompetitiveness 164 3.57 4.00 0.59 2 4
Liuetal.2016Frontiers
9
Results
OLS OLS Ordered Probit Ordered Probit
(1) (2) (3) (4)
SWInnovation SWInnovation SWInnovation SWInnovation
MixOnOffshore 0.246** 0.252** 0.250** 0.263**
MixInOutSource -0.002 -0.015 -0.016 -0.035
CareerGrowth 0.136* 0.136* 0.169** 0.172**
StrategyDiff 0.322** 0.323** 0.339** 0.345**
BLMakeTechDecision -0.257 -0.160
StrategyDiff X
BLMakeTechDecision
0.324* 0.397**
AnnualRevenue -0.067 -0.080 -0.077 -0.095
IndustryCompetitiveness 0.166 0.147 0.216 0.196
_cons 1.355* 1.540*
adj. (pseudo) R-sq 0.469 0.479 0.126 0.134
N 164 164 164 164
* p<0.05 ** p<0.01
Liuetal.2016Frontiers
10
How does choice of decision rights for technical
decisions influence innovation success?
Liuetal.2016Frontiers
11
Robustness Checks
(1) (2) (3)
QuicklyRollOut SWAsNewRevenue SWCompetitive
MixOnOffshore 0.166** 0.290** 0.207**
MixInOutSource -0.011 -0.062 -0.028
CareerGrowth 0.206** 0.084 0.110
HighPriceMargin 0.351** 0.289** 0.229**
BLMakeTechDecision 0.155 -0.139 -0.490
StrategyDiff X
BLMakeTechDecision
0.380* 0.185 0.423**
AnnualRevenue -0.191** -0.023 -0.021
IndustryCompetitiveness 0.189 0.050 0.208
Pseudo R-sq 0.178 0.154 0.117
N 164 164 164
* p<0.05 ** p<0.01
Liuetal.2016Frontiers
12
How does choice of decision rights for
technical decisions influence innovation
success?
Liuetal.2016Frontiers
13Liuetal.2016Frontiers
Within Firm
Across Institutions
Across Borders
Key Finding & Implication
Cultural
Diversity
Role
Diversity
Partner
Diversity
• Cultural diversity and role diversity are vital for software innovation.
• Implication
– Overcome geographic, temporal, and linguistic distance
– Cost advantage vs. innovation success
– The need for business leaders to have technical knowledge
and capability
14
THANK YOU!
Liuetal.2016Frontiers

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How Strategy and Governance Choices Influence Innovation Success in Software Products and Services

  • 1. How Strategy and Governance Choices Influence Innovation Success in Software Products and Services Chewei Liu, University of Maryland Thomas Kude, University of Mannheim Sunil Mithas, University of Maryland Charles Colby, Rockbridge Associates, Inc Tony Orlando, 3Pillar Global 25 June 2016, 2:30 - 2:55 PM, Auditorium 13 (This version 16 June 2016) Liuetal.2016Frontiers
  • 4. 4 • Diversity of knowledge – Studies show a positive relationship between diversity of the knowledge base and a firm’s innovation success (Breschi et al. 2003; Garcia- Vega 2006; Leiponen and Helfat 2010; Leiponen and Helfat 2011) – Creating successful innovations requires transfer of individual and collective knowledge between internal and external resources • What is the effect of mixing resources internally and externally on software innovation? Research Question Liuetal.2016Frontiers
  • 5. 5Liuetal.2016Frontiers Within Firm Across Institutions Across Borders Conceptual framework Innovation H1 H2H3 Cultural Diversity Role Diversity Partner Diversity
  • 6. 6 Data • 164 professionals responsible for new software product development • 90 % of the sample participants come from companies with annual revenues over $50 million • All participants have some decision-making authority on new software development or provide input to the process Liuetal.2016Frontiers
  • 7. 7 Empirical Model • Multicollinearity (VIF < 10) • Common method bias (Podsakoff et al. 2003) Liuetal.2016Frontiers
  • 8. 8 Descriptive statistics Obs. Mean Median Std. Dev. Min Max SWInnovation 164 4.74 5.00 1.36 1 7 MixOnOffshore 164 4.57 5.00 1.89 1 7 MixInOutSource 164 4.88 5.00 1.56 1 7 CareerGrowth 164 5.07 5.00 1.47 2 7 StrategyDiff 164 4.38 4.50 1.70 1 7 BLMakeTechDecision 164 0.11 0.00 0.31 0 1 AnnualRevenue 164 6.38 6.62 1.36 3.22 7.60 IndustryCompetitiveness 164 3.57 4.00 0.59 2 4 Liuetal.2016Frontiers
  • 9. 9 Results OLS OLS Ordered Probit Ordered Probit (1) (2) (3) (4) SWInnovation SWInnovation SWInnovation SWInnovation MixOnOffshore 0.246** 0.252** 0.250** 0.263** MixInOutSource -0.002 -0.015 -0.016 -0.035 CareerGrowth 0.136* 0.136* 0.169** 0.172** StrategyDiff 0.322** 0.323** 0.339** 0.345** BLMakeTechDecision -0.257 -0.160 StrategyDiff X BLMakeTechDecision 0.324* 0.397** AnnualRevenue -0.067 -0.080 -0.077 -0.095 IndustryCompetitiveness 0.166 0.147 0.216 0.196 _cons 1.355* 1.540* adj. (pseudo) R-sq 0.469 0.479 0.126 0.134 N 164 164 164 164 * p<0.05 ** p<0.01 Liuetal.2016Frontiers
  • 10. 10 How does choice of decision rights for technical decisions influence innovation success? Liuetal.2016Frontiers
  • 11. 11 Robustness Checks (1) (2) (3) QuicklyRollOut SWAsNewRevenue SWCompetitive MixOnOffshore 0.166** 0.290** 0.207** MixInOutSource -0.011 -0.062 -0.028 CareerGrowth 0.206** 0.084 0.110 HighPriceMargin 0.351** 0.289** 0.229** BLMakeTechDecision 0.155 -0.139 -0.490 StrategyDiff X BLMakeTechDecision 0.380* 0.185 0.423** AnnualRevenue -0.191** -0.023 -0.021 IndustryCompetitiveness 0.189 0.050 0.208 Pseudo R-sq 0.178 0.154 0.117 N 164 164 164 * p<0.05 ** p<0.01 Liuetal.2016Frontiers
  • 12. 12 How does choice of decision rights for technical decisions influence innovation success? Liuetal.2016Frontiers
  • 13. 13Liuetal.2016Frontiers Within Firm Across Institutions Across Borders Key Finding & Implication Cultural Diversity Role Diversity Partner Diversity • Cultural diversity and role diversity are vital for software innovation. • Implication – Overcome geographic, temporal, and linguistic distance – Cost advantage vs. innovation success – The need for business leaders to have technical knowledge and capability