J. Eng. Technol. Manage.

19 (2002) 141–165

Software firm evolution and innovation–orientation

Satish Nambisan∗
Rensselaer Polytechnic Institute, Lally School of Management, 110 8th Street, Troy, NY 12180, USA

Abstract
The software industry is experiencing dramatic growth worldwide. This paper offers a theoretical
framework to examine the growth and evolution of software firms from an innovation–orientation
perspective. While it is apparent that the attitudes and perceptions of a firm’s key stakeholders
towards innovative product development hold valuable insights on its future growth and evolution,
such a perspective has received limited theoretical attention in studies on firm evolution. In this
paper, we define a software firm growth stage model that reflects the changes in a firm’s process and
product portfolios. We offer a set of research propositions that link the innovation-related attitudes
and perceptions of a firm’s internal stakeholders to firm evolution. The research model has several
important implications for both research and practice and can be extended to other high technology
contexts. © 2002 Elsevier Science B.V. All rights reserved.
Keywords: Software industry; Firm evolution; Firm growth; Innovation

1. Introduction

The growth and evolution of high technology firms have fascinated theorists and prac-
titioners alike given the highly entrepreneurial, innovative, and dynamic environment that
pervade these firms and their industries. Several theoretical domains including strategic
management, industrial economics, organization theory, and psychology have shed light on
this area. The various studies have either identified multiple stages or phases of firm evo-
lution (Galbraith, 1982; Miller and Friesen, 1984; Kazanjian and Drazin, 1990; Hanks
et al., 1993) or examined the impact of a host of internal and external environmental
factors (e.g. organizational resources and competencies, organizational strategy and struc-
ture, product portfolio, top management team characteristics, market structure, govern-
ment regulations) on firm growth (Miller and Cote, 1987; Eisenhardt and Schoonhoven,
1990; Roure and Keeley, 1990; Shan, 1990; Bramford et al., 1996). The findings
from these studies have enriched our understanding of the choices firms make during
∗ Tel.: +1-518-276-2230; fax: +1-518-276-8661.

E-mail address: nambis@rpi.edu (S. Nambisan).

0923-4748/02/$ – see front matter © 2002 Elsevier Science B.V. All rights reserved.
PII: S 0 9 2 3 - 4 7 4 8 ( 0 2 ) 0 0 0 0 7 - 3
142 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

their evolution, and the structural, strategic, and process changes that accompany firm
growth.
It is widely acknowledged that, in most high technology industries, innovation and knowl-
edge creation form the primary fuel for continued firm growth (Nonaka and Takeuchi, 1995).
Indeed, the nature and the rate of innovation achieved by a firm often shape its evolutionary
path as well as its future growth. Prior studies have examined firm evolution from an inno-
vation perspective, and have shown that innovation-related factors like product architecture,
development process, and team structure have significant impact on a firm’s future growth
potential (Cusumano and Yoffie, 1998; Brown and Eisenhardt, 1998; Utterback, 1994). A
dominant theme in innovation studies has been the impact of the attitudes and perceptions
of key stakeholders on the innovation process and on its success. However, while it is ap-
parent that the orientation of a firm and its key stakeholders towards innovative product
development may provide valuable insights on a firm’s future growth and evolution, such
a perspective has received limited theoretical attention in studies on firm evolution.
This paper examines how the innovation-related attitudes and perceptions of a firm’s
principal internal stakeholders influence the firm’s evolution. Specifically, the paper at-
tempts to address the following research question: what is the impact of a firm’s internal
stakeholders’ innovation–orientation on its future evolution and growth? This has several
interesting implications. First, it raises the important issue of the set of proactive strategies
and organizational mechanisms that a firm may need to deploy to ensure a pro-innovation
orientation. Second, the innovation–orientation perspective may offer valuable insights on
the evolutionary choices that organizations make and the growth limitations they face that
may not be apparent from other theoretical perspectives (e.g. strategic, economic, mar-
keting). Finally, the promise of the innovation–orientation perspective may also indicate
the need to consider the impact of the attitudes and perceptions of external stakeholders
(e.g. venture capitalists, regulatory bodies, and trade groups) on firm evolution.
The context we choose to develop the theory is the software industry. The software
industry can be considered the prototypical high technology industry characterized by
innovation-driven market growth, rapidly shrinking product and technology life cycles, high
knowledge intensity, and global markets. On the other hand, the software industry can also
be considered a forerunner in the high technology domain since many of these characteristics
and the associated management challenges (e.g. outsourcing of new product development
(NPD), blurring of the boundaries between service and product sectors, technology alliance
driven firm growth) tend to appear first in the software industry before appearing elsewhere
(Hoch et al., 1999). Thus, by using the software industry as the context for our theoretical
model, we ensure the model’s generalizability to other high technology domains and also
enable deriving insights that may prove to be valuable in the other domains in the future.
This paper presents a research model that relates the innovation–orientation of a firm’s
internal stakeholders to firm evolution. We first adopt an innovation perspective and define
software firm evolution based on product and process characteristics. Next, we identify
variables that describe the orientation of two types of internal stakeholders (top manage-
ment and individual software developer) towards innovative product development. Research
propositions are offered that relate these variables to the successful transition of software
firms from one growth stage to another. The balance of this paper is organized as follows. In
Section 2, we review the literature on firm growth and evolution and examine the need for
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 143

a theoretical framework drawn from an innovation–orientation perspective. Following that,

in Section 3, we briefly discuss the key features of the software industry. Section 4 presents
the research model. Section 5 concludes the paper by identifying the important managerial
and theoretical implications.

2. Firm growth and evolution: theoretical background

Firm growth and evolution has been studied quite extensively in the last three or four
decades and the literature in this area include several classics, such as Chandler (1962), Cyert
and March (1963), Nelson and Winter (1982), Penrose (1959), and Williamson (1975). Four
main groups of theory of firm growth have emerged from the various studies: the industrial
economics approach, the stochastic model, the stage model or the life-cycle model, and
the strategic management approach (O’Farrell and Hitchens, 1988). Within the industrial
economics paradigm, multiple perspectives have informed on the growth and development
of firms (e.g. Penrose, 1959; Williamson, 1975). For example, the evolutionary perspective
(Penrose, 1959) depicts the firm as a bundle of resources and routines, and the availability of
managerial capabilities to utilize these resources is emphasized as the principal constraint
of firm growth through generic expansion. The transaction cost perspective (Williamson,
1975) suggests that in addition to having a staff of capable managers, a growing firm must
also overcome transaction cost problems and explains why a firm may need to expand its
boundaries (through acquisitions) to overcome the failure of the market mechanisms. The
stochastic models of firm growth (Gibrat, 1931; Gudgin, 1978; Gersick, 1994) suggest that
the size distribution of firms at a given point in time is the product of a series of random
growth patterns in the history of the market. The stochastic nature of the phenomenon thus
indicates that many factors affect growth, and therefore, there is no dominant explanation
(O’Farrell and Hitchens, 1988). The stage models of growth (e.g. Galbraith, 1982; Hanks
et al., 1993) focus primarily upon the internal dynamics of the firm and suggest that or-
ganizations evolve in a consistent and predictable manner and that as they move through
various stages of growth significantly different management challenges arise. Finally, the
strategic management approach (e.g. Sandberg and Hofer, 1982; Gibb and Scott, 1985;
Shan, 1990; Kotabe and Swan, 1995) focuses on the business strategies required to manage
the fit between the internal and external environments of the firm and to ensure sustained
firm growth. While the four theoretical groups vary in their focus and treatment, together
they imply a complex set of factors and processes that underlie firm growth and evolution.
The first two theoretical perspectives (industrial economics approach and stochastic models)
have a greater external focus (e.g. on the market, on the industry), while the last two theoret-
ical perspectives (growth stage theory, strategic management approach) have more internal
focus. Here, given the central study theme—the impact of the innovation–orientation of
internal stakeholders on firm evolution—the last two theoretical perspectives are of partic-
ular importance. Specifically, the growth stage theory enables us to map the evolutionary
path and consider the influence of various attitudinal factors on the evolutionary process.
As such, we first examine the growth stage theory in greater detail, and then draw from the
strategic management approach the various factors that may impact the transition of firms
from one stage to another.
144 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

Growth stage models or the life-cycle literature delineate the development sequence of
firms. Several general stage models have been proposed (e.g. Galbraith, 1982; Churchill and
Lewis, 1983; Miller and Friesen, 1984; Kazanjian and Drazin, 1990; Hanks et al., 1993).
Most stage models have used organization context (e.g. age, size, growth rate) and organi-
zational structure (e.g. formalization, centralization, vertical differentiation) to define and
describe the different stages. Indeed, life-cycle stage is defined as a “unique configuration
of variables related to organization context and structure” (Hanks et al., 1993, p. 7). Such a
definition is shared by other studies too (Galbraith, 1982; Miller and Friesen, 1984). The typ-
ical growth stages are start-up, expansion, maturity, and decline. While growth stage models
offer great value by providing “a road map and identifying critical organizational transitions
as well as pitfalls the organization should seek to avoid as it grows in size and complexity”
(Hanks et al., 1993, p. 25), they also have several limitations. Most models assume linear
growth, and implicit in them is the ‘growth-or-fail’ hypothesis. Further, the models are
aspatial and do not take into account the range of advantages and disadvantages in various
regional economies that may inhibit or facilitate firm growth (O’Farrell and Hitchens, 1988).
A key objective of growth stage models is to enable the identification of managerial
challenges associated with growth. Given that some of the important management challenges
are related to changes in product and process portfolios, there is a critical need for growth
stage models that are based on product and process characteristics rather than merely on
structural or contextual factors. A few studies (e.g. Miller and Friesen, 1984; Scott and
Bruce, 1987) have considered strategy variables reflecting the extent and frequency of
product innovation and product or market scope to explain the salient differences between
the various generic growth stages. However, a growth stage model derived exclusively from
an innovation perspective may enable us to derive valuable insights that such generic growth
stage models do not offer. Specifically, by mapping the growth stages in terms of changes
in the nature of product and process innovation, the role of innovation-related factors in
determining firm evolution would become more evident.
Another research stream in this area has focused on the factors that influence firm growth
and evolution. Studies have linked firm growth to founding conditions including top man-
agement team attributes, initial financial resources, initial technology strategy, and com-
petitive environment (e.g. Romanelli, 1989; Eisenhardt and Schoonhoven, 1990; Cooper
et al., 1994; Bramford et al., 1996; Cooney, 1998). Studies have also considered strategic
factors including strategic aggressiveness, product strategy, strategic group mapping, and
strategic alliances (e.g. Sandberg and Hofer, 1982; Romanelli, 1989; Shan, 1990; Kotabe
and Swan, 1995; Zahra and Bogner, 1999). A third set of studies, primarily in the eco-
nomics domain, has studied the impact of external environmental factors like availability of
venture capital, geographic location, skilled manpower resources, sources of business and
technical expertise, and government regulations and incentives on firm growth (Miller and
Cote, 1987; Goldstein and Luger, 1989, 1990; Preer, 1992; Mowery, 1996; Ryan, 1997).
Finally, studies have also examined the impact of regional culture factors (e.g. regional
networks of learning, tolerance for chaos) on firm growth (Carmel, 1997; Saxenian, 1994;
Weiss and Delbecq, 1990). Together these studies have examined the impact of a rich set of
characteristics, drawn from multiple perspectives including strategic, organizational, and
economic on firm growth and evolution. However, the innovation–orientation of a firm’s
internal stakeholders has received limited attention in the extant literature in this area.
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 145

Continued innovation and creativity are critical for firm growth—especially, for firms in
highly knowledge intensive areas, as are most high technology firms, where innovation is of-
ten the sole avenue for rapid growth. Equally well acknowledged is the critical role of internal
stakeholders in facilitating and driving innovation in organizations. However, the primary
focus of most studies, especially in the entrepreneurship and innovation literatures, has been
on the attributes and characteristics of internal stakeholders (e.g. personality traits, demo-
graphic information), rather than on their innovation–orientation. Innovation–orientation is
defined here as the set of attitudes and perceptions that favor innovative NPD. Attitudes and
perceptions are better predictors of future behavior than personal attributes or characteristics
(Ajzen, 1982; Ajzen and Fishbein, 1977), and as such, it may be insightful to examine the
impact of internal stakeholders on firm growth from an innovation–orientation perspective.
The advantages of studying attitudes and perceptions of stakeholders in entrepreneurship
and innovation studies have been highlighted before (e.g. Covin and Slevin, 1991; Robin-
son et al., 1991). Attitude can be considered a dynamic interactional way that an individual
relates to the attitude object, changing across time and from situation to situation. Further,
an attitude-based model can be highly domain-specific, thereby reducing the unexplained
variability and increasing the correlations with behavior. Indeed, a model of firm growth and
evolution that incorporates attitudes and perceptions of key stakeholders “allows for consid-
erable managerial intervention, and the entrepreneurial or intrapreneurial process (that leads
to firm growth) can be viewed as much less serendipitous, mysterious, and unknowable”
(Covin and Slevin, 1991, p. 8). An understanding of the impact of innovation-related stake-
holder perceptions on firm growth may enable firms to take proactive measures to address
potential barriers not apparent otherwise.
This brief review of the literature on firm growth and evolution indicates two impor-
tant issues that need to be addressed. First, the innovation-related strategic choices that a
firm makes in its evolutionary process can be understood better if we employ a growth
stage model that directly captures the changes in the nature of product and process inno-
vation. Second, a theoretical framework that relates the innovation–orientation of internal
stakeholders to firm growth and evolution is essential to complement other theoretical
perspectives that have informed this area. This paper attempts to address these two is-
sues by proposing an innovation–orientation-based growth stage theory. Before present-
ing the theoretical framework, however, we briefly explain its context, i.e. the software
industry.

3. The software industry

The software industry is experiencing dramatic growth worldwide with PC becoming

a global standard and the Internet technology mushrooming a wide range of innovative
applications for both industry and end-consumers. In 1997, the global annual revenue from
software products and services totaled approximately 450 billion dollars. The industry has
given birth to perhaps the largest number of firms in the shortest period of time in business
history. However, such a rapid growth rate has also raised a host of interesting manage-
ment issues related to firm growth and evolution—issues that have validity well beyond the
boundaries of the software industry.
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The software industry, often called the “heart of the information society”, is the quintessen-
tial high technology industry. It is characterized by a high rate of product and process
innovation, high knowledge intensity, rapidly shrinking product and technology life
cycles, global market, intense competition, and highly dispersed value chains. As such,
the software industry presents a valuable context to explore issues related to firm growth
and evolution and derive learnings that may find application in a variety of high technology
domains. Indeed, several of the growth-related management challenges faced by software
firms need to be addressed by other high technology firms too. For example, in the software
industry, product life can often be measured in months and weeks. The short product life
cycles (and the fact that several firms are single product firms) result in equally short firm
life cycles.
This is true for other high technology sectors like semiconductors (e.g. microchips, of-
ten, have a product life of a few months) and telecommunications. Further, revolutionary
product and process strategies (e.g. product development in an Internet-supported extended
enterprise, usage-based product pricing) enable young high technology firms with limited
infrastructure to grow at astounding rates overnight. The issues associated with such rapid
growth are true whether it is a software company like i2 Technologies or a telecommunica-
tions company like Sycamore Networks.
Further, as noted previously, the software industry may also be viewed as a frontrunner
in the high technology domain. In the software industry the boundary between the service
and the product sectors has become much fainter with more and more firms successfully
straddling the two sectors (Hoch et al., 1999). Such a trend is beginning to appear in a variety
of high technology environments too. For example, in the semiconductor industry, service
firms (which primarily offer design and production services for customized specialty chips)
are branching out to the design and production of general-purpose chips. Similarly, in the
communications industry, service providers who traditionally have focused on designing and
implementing customized networking products, have increased their offerings to packaged
networking solutions that cater to the general needs of an entire industry, say the banking
industry. The gradual merging of the service and product sectors has significant impact on
the potential evolutionary paths for firms within the industry.
Furthermore, two other management issues are market globalization and dispersed value
chains. While many high technology industries (e.g. computers, telecommunications) have
started facing the challenges due to market globalization and dispersed value chains,
the software industry is perhaps at the forefront on both these issues. Software firms have
significant experience in adopting innovative practices for designing and developing prod-
ucts for global customers. Likewise, software firms have perhaps the most dispersed value
chains compared to other high technology firms. The value chains of software firms often
cross-national boundaries with conceptualization, design, development, and marketing of
a product being conducted in different countries. For example, firms like Microsoft, IBM,
Oracle, and Novell conduct a significant portion of their product development in countries
like India and Israel.
In summary, the software industry is an appropriate context to devise and validate our
research model, as it is the prototypical high technology industry and at the same time
exhibits characteristics that are yet to surface fully in other high technology domains. Next,
we describe the research model.
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 147

4. Research model

4.1. Software firm evolution

Given our focus on the impact of the innovation–orientation of internal stakeholders on

firm growth, we need to interpret firm evolution from an innovation perspective. Here, we
define software firm evolution based on two dimensions: (a) the nature of the software
product and (b) the range of NPD tasks carried out by the firm (Fig. 1). The first dimension
relates to the change in the firm’s product portfolio and the second dimension relates to the
change in the firm’s process portfolio. The two dimensions together enable us to map firm
evolution directly in terms of the nature and process of innovation without consideration of
the changes in size, age, or other structural and contextual factors.

4.1.1. Nature of the software product

Software products can be broadly classified into two categories based on product scope
and degree of innovativeness. Minor software products involve incremental innovation and
carry out minor tasks or complement larger established software products. They include the
numerous software utilities and tools (e.g. ZipAdvisor from SCV Systems that analyses free
space on hard drives; DataImport, a file translation utility from Spalding Software), and the
‘add-ons’ for popular packages like MS-Excel and MS-Word. Such add-ons may extend
existing features of a product (e.g. graphics) or provide specialized services (e.g. mathemat-
ical functions, format conversion). A typical example is Wordware’97, an MS-Word add-on
from AMF Inc. On the other hand, major software products involve radical innovations,
are comprehensive in scope (serve a multitude of tasks), and are often stand-alone. Exam-
ples include word-processing software, Internet browsers, and enterprise resource planning
(ERP) solutions.

4.1.2. Range of NPD tasks

Typical NPD tasks in the software industry include product concept generation and
evaluation, project planning, product design, coding and testing, and commercialization
(Cusumano and Shelby, 1995). Product and process characteristics like product modular-
ity and open technological standards, that are peculiar to high technology industries (and
especially to the software industry), allow firms to outsource several of their product devel-
opment tasks and specialize in certain specific areas. At one end of the continuum are firms
that specialize in product design and coding. Their involvement in product development is
often limited to converting design specifications into code (several large software organiza-
tions like Oracle and SAP utilize the services of such firms quite extensively in their NPD).
Further along the continuum are firms that generate the product concept and develop it, but
leave product commercialization to other firms. Finally, at the other end of the continuum
are firms that carry out the entire range of tasks associated with NPD.
As noted earlier, the evolution of a software firm can be viewed in terms of the changes
in the above two dimensions. We identify four development stages: “start-up”, “utility-
developer”, “expert-coder”, and “star”. First, we describe the four stages and the transition
of firms from one stage to another, and then compare our model with generic growth stage
models.
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 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 149

(a) “Start-up” firms are those that are primarily involved in the design and/or coding of
minor software packages. They tend to be small units with limited financial resources
or product vision to develop and market their own products. Nor do they have sig-
nificant experience in large software development projects, and hence, do not attract
contract jobs from larger software firms. Instead, they focus on managing their human
resources judiciously and gaining valuable experience in product coding and testing.
Several such firms exist all over the world especially in countries where programmer
costs are relatively low (e.g. India, Russia, Philippines) which reduces the entry barrier
(Micklethwait, 1997).
(b) “Utility-developers” develop and market their own software products, however, their
products tend to be minor. While they may have considerable product development
experience, they have a narrow technology focus and no coherent product vision. Fur-
ther, given the nature of their products, they experience high competition, low margins,
and hence, constrained financial resources. Since their products enjoy few competitive
advantages, they focus on marketing the products effectively at minimal cost. For ex-
ample, products are often pushed through non-traditional channels (e.g. shareware over
the Internet) that increase the exposure, but minimize the cost. Examples of such firms
include Spalding Software, in the US and Sonata Ltd., in India.
(c) “Expert-coders” are involved in the design and coding of major software products on
contract basis. Typically, they tend to be large units with significant experience in prod-
uct coding on a wide variety of hardware and software platforms (often, practicing well
established, mature, and dependable software development processes), but with limited
financial resources or capability to source and market their own products. With time
they may assume increased responsibility for product development, including, in cer-
tain cases, product conceptualization (Micklethwait, 1997). Expert-coders emphasize
software engineering and human resource management. Their primary clients include
large software firms like IBM, Oracle, Informix, and SAP. India, Ireland, and Hungary
are countries that have a large proportion of such software firms (Anderson, 1996).
(d) “Stars” are mature software organizations with significant financial resources and ex-
perience in developing and marketing innovative software products. Their profits tend
to be high and they leverage the economies of scope and scale to dominate their respec-
tive product markets. Examples include major software producers like Microsoft, SAP,
Oracle, and Novell.

Here, we adopt the economic rationale for growth and assume that the primary objective of
firm evolution is to maximize economic gains. In order to maximize economic gains, a soft-
ware firm has to move up the value chain and become a ‘star’. Although utility-developers
hold the intellectual rights to their products and control all NPD tasks, they have marginal
competitive advantage in the market and can rarely demand premium for their products.
On the other hand, for an expert-coder the only source for maximizing economic gains is
increasing the development efficiency, as it rarely holds intellectual rights to the products it
develops. Thus, from both economic and market perspectives, software firms can maximize
their gains only if they evolve into a ‘star’.
However, very few firms start as a “star” as it is extremely difficult for a start-up to
devise and develop an innovative and comprehensive software product and at the same
150 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

time establish a large customer base (an exception is Netscape). Thus, the natural evolu-
tionary process involves software firms being born as “start-ups” and evolving into either
“utility-developers” or “expert-coders”, with some eventually becoming “stars”. We iden-
tify two alternative development paths for software firms to evolve into a ‘star’. The first path
involves moving from a start-up to an expert-coder to a star, while the second path involves
moving from a start-up to a utility-developer to a star. Software firms in countries where there
is an abundant supply of low-cost programmer talent tend to take the first path—“start-up”
to “expert-coder” to “star”. They first try to gain significant experience in the production of
major software products and in the process build reliable human resource assets. Once they
have established their reputation in the industry and attained sufficient human and financial
resources, they attempt to develop and market their own software products.
A prime example of a firm that has taken this path successfully is Tata Consultancy
Services (TCS), the largest software firm in Asia. It develops and markets its own software
products worldwide, and at the same time carries out development work for other software
firms. On the other hand, firms that are able to come up with one or two good minor software
products tend to take the second path—“start-up” to “utility-developer” to “star”. This path
tends to be riskier since failures in the initial period may turn out to be less forgiving and
fatal. Further, unless sufficient attention is given to the building of a brand image and a
coherent product strategy, such firms may find it difficult to maintain their product line and
to evolve into a “star”. An example of a firm that has successfully taken this path is VDOnet.
Started in Israel in the early 1990s, as a producer of minor Internet related utility software,
VDOnet is now the market leader and developer of Internet video broadcasting software.
How does this model compare with other growth stage models? The generic growth
stages defined in the literature are start-up, growth or expansion, maturity, and decline
(Hanks et al., 1993). The model defined here has an intentional innovation bias, and hence,
can be viewed as a special case of the generic growth model. The first stage (start-up) of our
model is comparable to that of the generic model. The expert-coder and utility-developer
stages correspond to the growth or expansion stage of the generic model as they involve
expanding the firm’s product or process portfolios. The final stage of our model (star)
corresponds to the maturity stage of the generic model, as it requires attaining maturity in
both the nature and the process of innovation undertaken by the firm.
The decline stage is not explicitly captured in our model, although given the dynamic
nature of the software industry, a ‘star’ may easily loose the radical nature of its product.
However, in most such instances, a ‘star’ will decline along the two dimensions of our model
(i.e. regress towards the “utility-developer” or the “expert-coder” stages), and again attempt
to develop a major innovative product to transform into a star. As noted previously, in the
software industry, economic gains can be maximized only if a firm evolves into a star. At any
other growth stage (e.g. utility-developer, expert-coder), even if the firm increases in size
or adopts more formal organizational structures and processes, there are limits to the return
on investments that can be achieved. The innovation-based growth model presented here
reflects the inter-relationships among innovation, profit maximization, and firm evolution,
not captured well by other generic growth models.
It should also be noted that the model defined here is a normative model: it prescribes
evolving into a ‘star’ to maximize economic gains and market advantage. Many firms may
choose to remain at the expert-coder or utility-developer stage for a variety of reasons
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 151

(e.g. fear of loss of control associated with growth). As Davidsson notes, “while most
theories of company growth take the willingness to pursue growth for granted (often because
profit-maximizing behavior is assumed), empirical works more often stress a widespread
reluctance to grow” (Davidsson, 1989, p. 212). We will expand on this further when we
discuss the limitations of the model. Next, we define the orientation towards innovative
software product development and relate it to software firm evolution.

4.2. Innovation orientation and software firm evolution

As noted previously, several theoretical perspectives have been employed to study firm
growth and evolution. Fig. 2 depicts the important determinants of software firm growth
and evolution drawn from the extant literature in this area. In this paper, we limit our
focus to innovation–orientation of internal stakeholders as a determinant of firm evolution.
‘Orientation towards innovative software product development’ is defined as the set of
attitudes and perceptions of principal stakeholders that favor successful development and
commercialization of innovative software products. Attitude is defined as the predisposition
to respond in a generally favorable or unfavorable manner with respect to the object of the
attitude, in this case innovative software development (Ajzen, 1982). Here, we examine
the innovation orientation of two types of internal stakeholders: the software developer
(individual orientation) and the top management (organizational orientation) (Fig. 3).

4.2.1. Individual Innovation orientation

The individual software developer can have a strong and direct impact on the innovative
and entrepreneurial potential of a software firm. Indeed, the individual manager has often
been portrayed as a key component in theories and models of the entrepreneurial process
(Kirzner, 1983). This is especially so in the software industry where the brilliance and
innovativeness of individual developers could make or break a firm (Cusumano and Shelby,
1995). Many radically innovative and successful software products were conceived by
individual software developers; examples range from Lotus Notes to Java. The individual
orientation to innovative software product development is defined as the set of attitudes and
perceptions of a software developer that makes him/her inclined to innovate in software
development. Two important attitude-related factors that describe individual innovation
orientation are identified here.

4.2.1.1. Self-innovativeness and self-esteem. Self-innovativeness in software develop-

ment relates to perceiving and acting upon software development activities in new and
unique ways (Robinson et al., 1991). It incorporates the individual’s attitude towards seek-
ing out and adopting innovative techniques and approaches regarding the product content as
well as the development process. It takes the conceptual lead from the work of Kirton (1976,
1978). Software developers are often described as influenced by the hacker ethos—the cre-
ative, experimental individuals who depend on their intuition and wizardry to solve prob-
lems, rather than disciplined methodology-based approaches (Carmel, 1997). Self-esteem
in innovative software development pertains to the self-confidence and perceived compe-
tency of an individual in conjunction with his or her software development activities. It has
been found that innovative contributions are made by software developers who have high
152 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165
S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 153
154 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

regards for their own ability to solve complex design and coding problems even when deal-
ing with new design architectures or programming languages (Constantine, 1995; Carmel,
1997). The significance of such self-esteem in entrepreneurial and innovation success has
been emphasized before (Crandall, 1973; Robinson et al., 1991).
High self-innovativeness and self-esteem of the individual software developer are
critical success factors of innovative software development. “Expert-coders” participate
in the development of major software products. Although, in most cases, their involvement
may be limited to design and coding, given the scope and size of the projects involved,
complex problems often arise related to architectural choices, product modularization and
integration, functional algorithms, software reuse, etc. The ingenuity and innovativeness of
the individual software developer is key to overcoming such technical hurdles (Constantine,
1995). Thus, we posit that the successful evolution of a start-up into an expert-coder is
dependent on the self-innovativeness and self-esteem of its software developers. As an
expert-coder evolves into a star, however, these two factors assume much greater importance.
First, the complexity of the technical issues is considerably more for a star compared to an
expert-coder. More importantly, software developers of a ‘star’ need to innovatively trans-
form market requirements into technical specifications, a task that expert-coders do not un-
dertake. In short, while in the case of expert-coder, software developers’ self-innovativeness
and self-esteem are important for ‘solving’ technical problems, in the case of a star, these
factors are also important for ‘defining’ the technical problems. Thus, shows the following
two propositions.

Proposition 1a. Self-innovativeness and self-esteem of the individual software developer

are positively associated with the successful evolution of a start-up to an expert-coder.

Proposition 1b. Self-innovativeness and self-esteem of the individual software developer

are positively associated with the successful evolution of an expert-coder to a star.

On the other hand, “utility-developers” develop minor software products; in most cases,
they are imitations of existing products, albeit, better in quality or features. Emphasis is
not so much on product innovativeness as on successful commercialization (e.g. product
pricing, marketing, distribution). Given that, the self-innovativeness and self-esteem of in-
dividual software developer is not as critical for firms evolving into a utility-developer from
a start-up. However, for a utility-developer to transform into a star, it has to undertake a
radical product innovation that involves significant technical complexity. And, as software
developers play a more innovative and critical role in effecting this transformation, the im-
portance of their self-innovativeness and self-esteem also increases. Hence, describes the
following proposition.

Proposition 1c. Self-innovativeness and self-esteem of the individual software developer

are positively associated with the successful evolution of a utility-developer to a star.

4.2.1.2. Perceived difference of own firm from other software firms. This factor indicates
how differently the individual software developer perceives his/her firm from other software
firms in terms of the flexibility and freedom in the decision making processes, access to
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 155

external networks (for information exchange), overall software development competence,

and the degree of access to supportive technological infrastructure. The higher an individual
software developer rates her firm compared to other firms on the above dimensions, the more
she will be inclined to partake in entrepreneurial or innovative activities (Ohe et al., 1990).1
For example, it has been noted that software developers in Microsoft perceive their firm to
hold a unique position in the industry in terms of both the “freedom to fail” and the software
development process competence, and this entails in them a positive attitude towards radical
product innovation (Cusumano and Shelby, 1995).
This factor assumes prime importance for a firm to successfully evolve into a star. Both
expert-coders and utility-developers operate in markets where individual firms are much
less differentiated from each other, especially in terms of the nature and type of innovation
pursued. Expert-coders have limited ownership of the projects they are involved in, and
in the industry their contributions to the development of innovative products do not gain
much visibility. Similarly, utility-developers primarily create “me-too” products and they
rarely possess or require any unique competencies, attributes, or image. Hence, the percep-
tions of individual software developers regarding the uniqueness of their organizations are
relatively less important. However, for both expert-coders and utility-developers to evolve
into stars, it calls for innovative contributions from individual developers that in turn orig-
inate from positive perceptions regarding the pro-innovative nature of their firm and its
unique processes and competencies in the product domain. Positive perceptions regarding
the unique nature of a firm not only instills a competitive spirit within its organization
members, but also energizes the intrapreneurial spirit within them (that is often responsible
for the development of breakthrough or radical products), and enables the firm to success-
fully evolve into a star (Ohe et al., 1990; Oden, 1997). This is shown in the following two
propositions.

Proposition 2a. Perceived difference of own firm from other software firms is positively
associated with the successful evolution of a utility-developer to a star.

Proposition 2b. Perceived difference of own firm from other software firms is positively
associated with the successful evolution of an expert-coder to a star.

4.2.2. Organizational innovation orientation

The organizational orientation towards innovative software product development relates
to the attitudes and perceptions of the top management with regard to the development
and commercialization of innovative software products. The attitudes and perceptions of
top management shape the firm’s innovative posture and is reflected in the firm’s inclina-
tion to assume technological risks and leadership, its approach towards knowledge sharing
and collaboration with industry partners, as well as its propensity to engage in aggressive
and proactive innovation-based competition with industry rivals. As such, it closely resem-
bles the entrepreneurial orientation construct developed in the entrepreneurship literature
(e.g. Covin and Slevin, 1991; Miles and Arnold, 1991), although unlike entrepreneurial

1 Such a comparative framework, however, does not, in any way, diminish the significance of a minimum

threshold level for the above set of factors that is necessary for a firm to succeed in innovation.
156 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

orientation, this construct has a much narrower innovation focus. We identify three factors
that describe the organizational innovation orientation.

4.2.2.1. Attitude towards technology leadership. Given the presence of positive network
externalities in the software industry (Brynjolfsson and Kemerer, 1996), technology lead-
ership is essential to create and capture new markets and to grow, and as such it is a
critical success factor. A positive attitude towards technology leadership is evidenced in
the propensity to take calculated risks on emerging technologies and standards, to highlight
the importance of being perceived as an industry/technology leader, and to take proactive
measures in terms of technological alliances and collaborations (Morris and Paul, 1987;
Miles and Arnold, 1991). It is reflected in the development of a clear and coherent product
or technology vision (that defines the firm’s technology focus and its technology leader-
ship role) as well as in the investments made in cumulative knowledge building practices.
Such choices reflect the values of the top management and convey important messages to
software developers regarding the importance of technology pioneering for the growth of
the firm (Donaldson and Siegel, 1997).
For example, consider the case of i2 Technologies, a leading developer of supply chain
solutions. As a young firm with limited resources and capabilities in the late 1980s, this
firm embarked on a risky strategy of focusing only on supply chain solutions and creating
new and costly technologies, at a time when the business world was yet to discover the sig-
nificance of supply chain management and the dominance of enterprise solution providers,
such as SAP, QAD, and Baan, was absolute. However, a consistent and coherent technol-
ogy vision devised by its top management enabled i2 Technologies to not only create a new
product market, but also establish technology standards that even larger firms (such as SAP)
had to follow (Hoch et al., 1999).
An expert-coder is, by definition, not required to define a technology vision or focus
given the ad hoc nature of its software development work (Hoch et al., 1999). Thus, to
evolve into a star, often, the first prerequisite is for the top management to adopt a posi-
tive attitude towards pursuing technology leadership, and to exhibit that by envisioning a
clear technology development path for the firm and by emphasizing cumulative knowledge
building, technology risks, and technology alliances and collaboration. For example, a clear
definition of the technology focus is necessary for an expert-coder to effectively channel the
domain and process knowledge acquired from varied projects and to build a strong foun-
dation that would sustain continued and rapid product innovation (Heeks, 1996; Torrisi,
1998).
Further, a positive attitude towards technology leadership is also critical for expert-coders
to break out from the safe and low-risk world of ‘out-sourced software projects’ and to
pursue high-risk radical innovation product development. Similarly, expert-coders have
limited experience in technology alliances, and a strong desire for technology leader-
ship among the top management is essential to realize the potential value of interfirm
technology partnerships and to assume the associated risks. Thus, we posit the following
proposition.

Proposition 3a. Positive attitude towards technological leadership is associated with the
successful evolution of an expert-coder to a star.
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 157

Positive attitude towards technology leadership is also critical for a utility-developer to

successfully evolve into a star. Indeed, the key factor that often keeps a utility-developer
from moving up the innovation value chain and evolving into a star, is its lack of aspiration
for technology leadership. Even after developing varied products and acquiring consider-
able software development and marketing skills, utility-developers fail to develop radically
innovative products because they lack coherency in their product development. A positive
attitude towards technology leadership is necessary to fuel efforts to find synergy across
products and to invest in building domain expertise.
For example, SAP, the leading enterprise software developer, has been one of the few
stars that have emerged from the German software industry. While most German software
firms have remained as utility-developers, the success of SAP is largely due to the positive
attitude of its top management towards technology leadership and the significant long-term
investments it made in building domain knowledge in the 1980s (at a time when the future
of the firm itself was in doubt) (Hoch et al., 1999). Without a strong desire for technology
pioneering, utility-developers are unlikely to invest in practices, that enable such cumulative
knowledge building (e.g. post-project briefings, shared knowledge repositories, process
metrics) but, that may, in the short-term, retard existing development projects. This can be
seen in the following proposition.

Proposition 3b. Positive attitude towards technological leadership is associated with the
successful evolution of a utility-developer to a star.

4.2.2.2. Attitude towards external networks. Software firms enhance their market flex-
ibility and innovative capability through participation in external information networks
(Saxenian, 1994; Hoch et al., 1999). External networks are of two types: compulsory
and voluntary (Curran et al., 1993). Compulsory networks are those to which an
organization must belong to for operational purposes, while voluntary networks are non-
essential support networks. Participation in such voluntary networks enable software firms
to imbibe information on new technology trends that can be incorporated into innova-
tive new products in a timely manner (Saxenian, 1994; Cusumano and Yoffie, 1998).
It also allows them to learn from the experiences of other firms to solve unique
design and development problems. However, for organization members to exploit such
opportunities, top management needs to adopt appropriate attitudes (Curran et al., 1993).
Such attitudes are reflected in the type of organizational mechanisms deployed as
well as the incentives given to organization members for establishing and utilizing external
networks.
For a start-up to evolve into a utility-developer, it has to invest in compulsory networks
(e.g. product distributors), and to a limited extent, in voluntary networks too (e.g. peer
firms, customers). For example, utility-developers face highly competitive markets, and a
positive attitude towards external networks is necessary to extend the market reach of their
product through the establishment of new relationships (e.g. co-marketing alliances with
complementary product vendors). However, for a start-up to evolve into an expert-coder,
external networks play a much more limited role. Relationships with clients and other
external entities tend to be ad hoc and project-driven. Projects are awarded based on de-
velopment cost and development expertise, and hence, expert-coders often make limited
158 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

investments in building long-term relationships with their clients. Thus, we posit the
following proposition.

Proposition 4a. Positive attitude towards external networks is associated with the success-
ful evolution of a start-up to a utility-developer.

As the degree of product innovativeness increases, so does the role of the external net-
works and hence, for both utility-developers and expert-coders, successful evolution into
stars is highly dependent on the quality of their external networks. While expert-coders
lack any kind of external networks, utility-developers have limited voluntary networks (e.g.
customers, peer firms) that are crucial for innovative product development. External net-
works are critical not only for understanding market requirements and evaluating product
feasibility, but also for filling critical internal technology gaps and deploying innovative
marketing strategies.
For example, users, particularly lead users, remain a primary source of innovation and
hence, maintaining relationships with customer or user communities is a critical activity for
most leading software product developers (Cusumano and Yoffie, 1998; Hoch et al., 1999).
However, establishing and maintaining such external networks (whether customers or other
technology vendors) calls for considerable up-front investments and a willingness to share
knowledge and expertise, that may bear fruit only in the long-term. This is possible only
if the top firm’s management adopts a positive attitude towards external networks. Hence,
satisfies the following two propositions.

Proposition 4b. Positive attitude towards external networks is associated with the success-
ful evolution of a utility-developer to a star.

Proposition 4c. Positive attitude towards external networks is associated with the success-
ful evolution of an expert-coder to a star.

4.2.2.3. Attitude towards process rigor and metrics. Software firms have traditionally
lacked rigor and discipline in their development process (Donaldson and Siegel, 1997;
McCarthy, 1995). Indeed, the industry is notorious for the large number of project failures,
project delays, and cost overruns. However, starting in the 1980s, several initiatives were
undertaken to establish rigor and discipline in software development projects. For example,
process maturity models like the capability maturity model (CMM) devised by the Software
Engineering Institute has enabled software firms to enhance their development efficiency
and at the same time ensure quality.
Most start-up firms lack discipline in their product development tasks. They rarely prac-
tice repeatable development processes or utilize uniform process metrics for managing their
projects. Fortunately, given that most of their projects are relatively less complex and of lim-
ited scope, the consequences of lack of rigor are not grave. However, for a start-up to evolve
into an expert-coder, it becomes imperative to inculcate considerable process discipline as
the projects tend to be complex and highly resource-intensive. Indeed, the success of sev-
eral Indian software start-ups in evolving into expert-coders can be largely attributed to the
adoption of process maturity models like the CMM (Sukhathankar, 1997). The attitude of
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 159

the top management towards process rigor and discipline assumes importance since without
that, proper investments may not be made in implementing appropriate methodologies. In
short, a positive attitude towards process rigor and metrics is instrumental in facilitating the
evolution of a start-up into an expert-coder.

Proposition 5a. Positive attitude towards process rigor and metrics is positively associated
with the successful evolution of a start-up to an expert-coder.

The importance of process rigor and metrics is enhanced considerably when firms attempt
to evolve into a star. Utility-developers, given their primary focus on product marketing
than on product development efficiency, rarely possess or emphasize rigorous software
development capabilities. On the other hand, while expert-coders do employ process metrics,
the set of development tasks they carry out are limited compared to that of a star. To evolve
into a star, they need to carry out other development tasks (e.g. version control, domain
knowledge re-use) and hence, additional process control measures may need to be adopted.
Thus, for both utility-developers and expert-coders, successful evolution into a star calls for
investments in process discipline, although the levels of such investments may vary. Given
the long-term nature of such investments (e.g. in personnel training, in building support
infrastructure), positive attitude of the top management towards process rigor and metrics
is critical. More importantly, despite such investments, unless the top management cultivates
and exhibits a positive attitude towards such practices, software developers may not adhere
to them. Thus, explain the following two propositions.

Proposition 5b. Positive attitude towards process rigor and metrics is positively associated
with the successful evolution of a utility-developer to a star.

Proposition 5c. Positive attitude towards process rigor and metrics is positively associated
with the successful evolution of an expert-coder to a star.

5. Limitations of the research model

Before examining the implications of the above theoretical framework, we briefly dis-
cuss its limitations. Our primary objective here has been to highlight the value of the
innovation–orientation perspective in understanding firm evolution and not provide a com-
prehensive theory of firm growth. Indeed, such a perspective, while valuable, shows only
one side of the picture, and multiple perspectives (e.g. economic, strategic) need to be
deployed to analyze the growth and evolution of high technology firms. For example, sev-
eral important factors like firm resources and competencies, market demand, technology
characteristics, and regulations that may impact firm growth and evolution have not been
considered here.
Second, while we have identified several important dimensions related to the innovation–
orientation of internal stakeholders, the list is not meant to be exhaustive. Other dimen-
sions may be identified that may provide further insights on firm evolution. Third, the
innovation–orientation of the two key internal stakeholders may be interrelated, i.e. the top
160 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

management orientation may influence the individual orientation. Such interrelationships

are not examined here.
Finally, as noted earlier, this model assumes that most software firms would desire to
evolve into a “star” given the associated economic and competitive advantages. Such a
rational economic perspective may not be the only one shaping the decisions regarding
firm growth. Firms may prefer not to grow in terms of product portfolio, size, etc. de-
spite economic and other incentives and instead may chose to remain as “expert-coder”
or “utility-developer”. A host of factors have been identified that may inhibit the willing-
ness to grow including a fear of losing control and independence, a concern for the unique
atmosphere of the small firm (which is true for many small software firms), and a fear of com-
promising work quality by building a large bureaucratic organization (Davidsson, 1989).

6. Theoretical and managerial implications

In this paper, we proposed a model that considers the innovation–orientation of internal

stakeholders to explain firm evolution. The theoretical framework has several important
implications for both research and practice. We discuss a few salient issues here.

6.1. Theoretical implications and directions for future research

The paper underscores the promise of the innovation–orientation perspective in studies of

firm growth and evolution. Such a perspective indicates several avenues for future research.
First, while here we considered the innovation–orientation of two types of internal stake-
holders (software developer, top management), future studies may provide a more rigorous
treatment to identify additional types (or a different typology) of internal stakeholders based
on the nature of innovative contribution they make or the roles they play in the innovation
process. Such an approach may also enable us to identify a more comprehensive set of
dimensions or factors that describe the innovation–orientation.
Second, given the scope of this paper, we did not explore the interrelationships between
the innovation–orientation of the two types of internal stakeholders. For example, the in-
dividual software developer’s perceived self-innovativeness may be influenced by the top
management’s positive attitude towards technology leadership or pioneering. Such inter-
relationships have important implications for the design of organizational mechanisms to
promote specific attitudes and perceptions. Thus, an important research issue for future
studies relate to the interaction effects of innovation–orientation factors, both the interac-
tions among factors within an internal stakeholder and the interactions among factors across
two types of internal stakeholders.
A third and important avenue for future research relates to the innovation–orientation
of external stakeholders, an issue we did not study here. For example, the attitudes and
perceptions of external entities like venture capitalists and regulatory bodies towards in-
novation and NPD may facilitate or inhibit firm evolution. Prior studies have examined
external influences on innovation and firm growth, specifically the influence of regional and
national innovation systems (e.g. Nelson, 1993; Cooke et al., 1997). Much of this research,
however, has considered the impact of broader level factors such as technical infrastructure
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 161

and resources, regulatory procedures, and education and training systems on innovation
and entrepreneurship (Cooke et al., 1997). A focus on the innovation-related attitudes and
perceptions of external stakeholders may complement this research stream in a meaningful
manner and help us understand the nature of firm evolution that is dominant in certain
countries or regions. More specifically, future studies may investigate the attitudes and per-
ceptions of key external stakeholders (such as venture capitalists, regulatory agencies, and
industry bodies) on various innovation-related issues including venture financing, protec-
tion of intellectual property rights, and knowledge sharing and networking. Insights gained
from such studies may prove to be valuable not only for managers and entrepreneurs but
also for policymakers.
Fourth, the value of the innovation–orientation perspective also implies the need to incor-
porate such a perspective in integrated theories of firm growth and evolution. Such integrated
models may provide valuable insights on the synergistic effects of attitudinal, economic, and
other factors on the exploitation of physical infrastructure and other support mechanisms
for innovation and firm growth. They may also provide insights on the specific contexts or
contingencies in which factors drawn from different perspectives (e.g. economic, strategic,
innovation–orientation) assume significance, as well as on the different aspects or avenues
of growth (e.g. innovation-based, acquisition-based) that each perspective emphasizes.
The innovation-based firm growth stage model proposed here presents another important
avenue for future research. Several issues can be identified for future studies that would build
on and further exploit this model. The model captures the product and process characteristics
peculiar to most high technology industries and enables the identification of critical growth
limitations or hurdles that may not be apparent from generic growth stage models. For
example, generic growth stages such as expansion, maturity, diversification (Hanks et al.,
1993) provide limited insights on the specific capabilities or resources that high technology
firms may need to develop in their evolutionary process. On the other hand, future studies
may employ the current model to examine a varied set of managerial issues including
the development of appropriate competencies at different growth stages, the structural and
cultural changes that need to accompany growth, and the product and process knowledge
management strategies appropriate at different stages.
Further, the growth stage model may also provide valuable insights on the lack of growth
initiative exhibited by several firms (Davidsson, 1989), as often the reasons are related to the
potential negative implications of changes in the scope and nature of product and process
portfolios. Thus, an interesting research question relates to the fit (or, the lack thereof)
between the characteristics of each growth stage presented here and the expectations or the
desires of the firm’s founders or senior management. Future studies may also attempt to
identify additional growth stages based on the process/product framework presented here.
Such studies may employ factors such as the divisibility of the NPD tasks, the knowledge
intensity of the product, and the degree of innovation (e.g. the extent of change in the core
product concept) as contingency factors to identify growth stages peculiar to particular in-
dustry contexts. Finally, a brief note on future empirical studies based on this model. Given
the significant impact of external factors such as technology infrastructure, access to mar-
kets, and market demand, considerable thought should be given to control for such factors.
Further, given the nature of the perceptual variables, multivariate longitudinal studies may
be more appropriate to examine and validate the concepts discussed here.
162 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165

6.2. Managerial implications

The research model also has several important managerial implications. First, the im-
portance of the innovation–orientation implies the need for firms to deploy organiza-
tional mechanisms to proactively manage the perceptions of principal stakeholders to-
wards innovation and growth. The extant literature on innovation has examined several
such mechanisms although the primary focus has not necessarily been on firm growth.
For example, organizational mechanisms like lead user groups, technology workshops,
and customer or user labs may reinforce the emphasis on radical innovations and pro-
vide forums for knowledge sharing (Nambisan et al., 1999). Managers need to devise
and deploy a portfolio of such mechanisms that address the innovation-related percep-
tions of different types of stakeholders (both internal and external). Given the cost of
implementing the different organizational mechanisms, they should be selected carefully
based on the impact they would create and the potential synergies between the various
mechanisms.
Managers also need to understand that the relative importance of the innovation–orien-
tation of different types of stakeholders may vary across geographical regions and industries.
For example, in Singapore, despite a well-developed economic and technological infras-
tructure, the “fear of failure” that is entertained by senior management of many software
firms has minimized the probability of successful development of radical software products
(Pereira, 1999). While government agencies and other external stakeholders (e.g. venture
capitalists) have tried to promote risk-taking in the software industry, it has had minimal
impact so far indicating the limitations of such policies and the need for organization-level
mechanisms.
On the other hand, in India, senior software managers as well as software developers
are known to possess highly positive innovation–orientation. However, despite favorable
innovation–orientation of the internal stakeholders, the vast talent, and the adoption of
sophisticated development processes, few Indian software firms have found success in
developing and marketing radical products. Recent reports indicate that the conservative
attitude of venture capitalists towards software venture financing has perhaps been the
primary obstacle for software firms in developing innovative products and in successfully
evolving from expert-coders to stars (Subramanyan, 1997). Thus, these examples indicate
the need for the selective adoption of strategies to enhance the innovation–orientation of
relevant stakeholders.
Finally, as noted previously, the different growth stages described here also imply the need
to modify organizational strategies, structures, and processes as firms continue to evolve.
More specifically, the product/process framework presented here enable managers to derive
insights on various product and process management issues that accompany growth. For
example, what aspects of process control and discipline should be modified as a firm evolves
from an expert-coder to star? How should the nature of external networking be modified
when a firm evolves from a utility-developer to a star? How should domain and process
knowledge management be modified as a firm evolves from an expert-coder to a star?
Thus, an important implication of this paper is that managers should view firm growth
and evolution not only in terms of firm size or structure, but also in terms of the changes in
product and process portfolios, only then will such important issues be raised and addressed.
 S. Nambisan / J. Eng. Technol. Manage. 19 (2002) 141–165 163

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