UBRARIES
DEWEY
^
\^<,
Determinants of Innovation Capability
Level:
Team
at the
Project-Team
Building, Reward, and Selection
by
C.
Annique Un
WP#4147
December 2000
C.
Annique Un, 2000
The paper is derived from my thesis at the Sloan School of Management, Massachusetts Institute of
Technology. The MIT-Japan Program Starr Foundation, the CS Holding Fellowship in International Business, and
would like to
the Massachussets Institute of Technology Doctoral Fellowship provided funding for this study.
thank the managers of the companies studied for sharing their experiences with me. The comments of participants at
am also grateful to Eleanor
the Massachusetts Institute of Technology Proseminar helped improve the paper.
I
I
Westney, Michael Beer, John Carroll, and Alvaro Cuervo-Cazurra
remain mine.
for their
comments and
suggestions. All errors
Determinants of Innovation Capability at the Project-Team Level:
Team
Building, Reward, and Selection
Abstract
This paper examines
team
level using both
how companies
develop the innovation capability
at the project
comparative case studies followed by a large sample survey of 182
innovation project teams in 38 companies. The paper proposes that not
onh
project
team
factors,
communication, cooperation, and team overlapping support this capability, but also
management practices, specifically team building, reward, and selection, facilitate
the development of this capability directly and indirectly by supporting the team processes. The
results reveal that in developing this capabilitj', the facilitators of knowledge mobilization,
particularly
project team
communication, and the facilitator of knowledge creation, through overlapping
knowledge, should be considered separately. Among the team factors, team internal and external
communication frequenc> and o\erlapping knowledge support a w ide range of outcomes of this
capabilit)': product innovation, efficiency in terms of resources used in achie\'ing the innovation,
through
speed-to-market of the innovation, and customer satisfaction with the innovation.
Among
the
team building supports a wide range of outcomes of the innovation
capability, followed by reward, and selection. Specifically, team building supports product
innovation, speed-to-market of the innovation, and customer satisfaction with the innovation.
Moreover, it indirectly supports this capability by facilitating team internal and external
communication frequency. Project team reward supports only customer satisfaction with the
innovation. Team membership selection based on tenure di\ersity better ensures overlapping
knowledge on teams than selection based on overlapping knowledge. Therefore, the key
determinant of inno\ation capability at the project-team level is team building rather than reward
project
team
practices,
as frequently proposed.
Key words: Innovation
Capability, Project
Team
Processes, and
Management
Practices.
INTRODUCTION
The innovation
how
to
develop
capability
is critical
for competitive advantage, but
we
still
do not know
This capability has been discussed as "integrative capability" (Lavvxence and
it.
Lorsch. 1967), '"core competence" (Prahalad and Hamel. 1990), "combinative capability" (Kogut
and Zander, 1992), and "dynamic capability" (Teece, Pisano, and Shuen. 1997), and these
authors considered
as
it
key
literature is the organization, the unit
to share
of analysis
knowledge and create knowledge
Takeuchi, 1995).
mobilize
knowledge
and
create
have made progress
know what
they are
.
.
.
Many
'group resources' what exactly
than another?
(p.
project
team with members coming together
it
when
innovation,
for
or the key factors and
in discussing resources in
resources are only
is it
that
known
innovation?
1995;
Nonaka and
firms' capability to
there
is
management
organizing for innovation.
still
indirectly.
makes one group of people
A
limited
practices that
As Wernerfelt (1997)
terms of their effects but
we do
good example of
better at doing
not
this is
something
XVIII)
Therefore, the overarching research question of this paper
processes and
of analysis of the capability
for innovation (Leonard-Barton,
new knowledge
firms can use to develop this capability
We
is
level
However, despite the extensive debate about the value of
understanding of "how" companies develop
states:
While the
for competition.
management
practices that facilitate
In answering this question,
I
link
is.
What
are the project
team
knowledge mobilization and creation
for
and integrate the theoretical approaches of the
resource-based theory of the firm, specifically the literature on organizational capabilities (Kogut
and Zander, 1992; Prahalad and Hamel, 1990; Leonard-Barton, 1995) and the team-level
innovation literature (Ancona and Caldwell, 1992; Clark and Wheelwright, 1992).
The empirical study
large
companies
in the
is
based on surveys of 182 cross-functional innovation teams of 38
computer, photo imaging, and automobile industries whose task was to
use market knowledge about products and services to generate innovation in response to
customer demands. In order
to avoid respondent bias, in
project
team leaders answered the surveys.
through
field observation
at the project
team
conducted
generate
to
each company, the project manager and
Prior to the surveys, extensive qualitative data
and interviews which analyze "how" companies develop
level
through processes and practices, not presented
in-depth
understanding of
this capability
in
this
how companies develop
this
study,
was
innovation
capability.
The
rest
of the paper
is
organized as follows: Section 2 discusses the theory and
hypotheses. Section 3 presents the research design. Section 4 provides the results, and section 5
presents the discussion and conclusions.
THEORY AND HYPOTHESES
This paper draws on two streams of literature in understanding factors and management
practices that facilitate the development of innovation capability at the project
team
capabilities based in the resource-based theory of the firm explain
why
literature
on
are important for competition while the innovation literature that focuses
level processes
developed,
and outcomes provide some understanding on
when organized
how
level.
The
capabilities
on the project team
this capability
might be
for innovation.
Innovation Capability
Innovation capability
is
related
to
organizational
capability,
which deals with an
organization's ability to combine different types of resources, especially firm-specific knowledge
embodied
in their
employees, for creating
new
resources that enable firms to achieve and sustain
their competitive advantage.
(Foss, 1997; Foss and
tradable,
Organizational capability
is
viewed as a type of
Montgomery, 1995), because they
are rare, valuable, inimitable, non-
and non-substitutable (Barney, 1991). Some related concepts
1959), "organizational routines" (Nelson and Winter,
(Penrose,
strategic resource
are:
"productive services"
1982; Winter, 2000), "core
competence" (Prahalad and Hamel, 1990), "combinative capability" (Kogut and Zander. 1992).
and "dynamic capability" (Teece. Pisano and Shuen, 1997).
The
however,
organizational capability literature deals with the organization-le\eI of analysis:
its
knowledge
unit
of analysis
mobilization
is
and
clearly the project team. Project
conversion
into
organizational capability theorists suggest that the
teams are mechanisms
knowledge.
organizational
main
driver behind this capability
for
Therefore,
is
how
well
small groups of carriers of core competence or project teams can effectively mobilize and
convert their individual knowledge into organizational knowledge in the form of product and/or
process innovation (Prahalad and Hamel, 1990).
Kogut and Zander (1992) also
stress the
importance of communication or knowledge sharing among small groups of individuals
developing combinative capability.
main determinants of
create the innovation.
of analysis
is
is
the willingness of groups to share
knowledge
knowledge creation model (Nonaka and Takeuchi, 1995), the
company, however, the
new knowledge
core capability at the
Teece. Pisano, and Shuen (1997) suggest that one of the
dynamic capability
In the
clearly the
organized to create
consisting
the
company
in
unit of analysis
for innovation.
is
explicitly the project
to
level
team
Leonard-Barton (1995) also discusses the
level (business unit), but her unit of analysis
of members coming together
to
develop
new
products.
By
is
clearly a
focusing
team
on the
organization level of analysis, the literature lacks the explanation of what organizations do
when
organize for innovation. The literature on innovation that focuses on the team level of analysis
addresses this limitation of organizational capability literature, analyzing their processes and
outcomes providing us some understanding of how
project
team
this capability
may be developed
at the
level.
Team-level innovation literature
Literature
on innovation
specifically deals with
when
that
focuses on the project team-level of analysis, which
organizations organized their employees into project teams for
innovation, suggests that team-level processes such as communication frequency and the shared
sense of commitment and
mobilization.
cooperation
These team-level processes are
practices such as
Project team-level processes
are
facilitated
by a
set
are
for
critical
knowledge
of project team management
team building (Roth and Kleiner, 1996) and reward
(Wageman, 1995; Wageman and Baker,
factors
among team members
for
team performance
1997).
and innovation
capability. Four
main project team-level
presented as supporting the capability to mobilize and create knowledge for
innovation and project team performance. The factors that facilitate knowledge mobilization are:
(1)
Internal
communication frequency (Allen,
1970;
frequency (Ancona and Caldwell, 1992); and (3)
(Cannon-Bowers and
Salas, 1990).
The
Team
1977);
(2)
External
communication
shared mental model of cooperation
factor that facilitates
knowledge creation
is
project
team
overlapping knowledge (Madhaven and Grover, 1998; Nonaka and Takeuchi. 1995:77). All four
factors facilitate
knowledge mobilization and creation and,
therefore, innovation.
The following
discussion presents each variable in more detail.
Project team internal communication frequency. Communication frequency between
project
team members has a
1987; Souder. 1987).
direct effect
on innovation (Griffin and Hauser, 1992; Dougherty,
The team level-innovation
literature
views communication as knowledge
exchange. The higher the frequency, the more knowledge being exchanged, the better for
1987; Griffin and Hauser,
innovation (Dougherty.
innovation
is
more successful
if
R&D
1992; Allen.
specifically,
R&D
and marketing understand
and competitive strategy (Souder. 1987). Dougherty (1987).
for instance, suggests that projects with unsuccessful
outcomes typically had lower levels of
communication frequency, while successful projects were those
interfunctional communication.
More
and engineering understand customer needs, marketing
understands technological capabilities and constraints, and both
the implications for manufacturing
1977).
that
had a higher frequency of
Extending Dougherty's study, Griffin and Hauser (1992) also
found that project teams are more successful
at
new-product development
if
there
is
more
communication among marketing, engineering, and manufacturing team members. The study
found that project teams with more communication among core team members achieved higher
performance than those teams with
hypothesis
HI a.
less
communication frequency. These discussions lead
to the
that:
Project team internal communication frequency
outcome of the innovation
is
positively related to innovation, as an
capability.
Project team external communication frequency. Previous studies on communication and
innovation in project teams tend to blur the boundaries that divide communication between team
members and communication between team members and
their external links (e.g..
Nonaka and
Takeuchi, 1995). Ancona and Caldwell (1992) suggest that teams are embedded in the larger
context
of
the
organization
and
make
the
distinction
between
internal
and
external
communication. The authors found that communication frequency between team members and
their external links
managing
is
positively related to innovation and the efficiency and effectiveness of
that process.
The boundarj'-spanning
literature
(Tushman, 1977, 1979) also shows
positive relationships between the frequency of external communication and
in the
team performance
process of innovation. These analyses lead to the hypothesis that:
Hlb. Project team external communication frequency
outcome of the innovation
is
positively related to innovation, as
an
capability.
Project team shared mental model of cooperation. Project team shared mental model of
cooperation
is
also proposed to enhance
Nonaka and Takeuchi,
1990;
teamwork performance (Cannon-Bowers and
There are numerous definitions of
1995).
from "group mind," teamwork schemas
to
common
this
concept ranging
cause maps (Klimoski and
1994: 403). In this study, project team shared mental model of cooperation
is
Salas,
Mohammed,
defined as team
shared goal and commitment to accomplishing the team task (Gladstein. 1984; Katz, 1997:138),
and the understanding of knowledge structure held by team members
that enables the formation
of accurate expectations of the task and team (Cannon-Bowers, Salas, and Converse. 1993;
Nonaka and Takeuchi,
1995),
or
who
will
contribute
what from the
different
functions
represented on the team to accomplish the project (Cannon-Bowers and Salas, 1990). Project
team shared mental model of cooperation, on the one hand, motivates knowledge exchange
is
critical to innovation, as
Takeuchi, 1995).
On
that
team members share similar \ision and aspirations (Nonaka and
the other hand,
it
enables team
members
to better
understand who, on the
team, will contribute what to accomplish the task, thereby enhancing team ability to identify
which knowledge from various
task.
However, project teams
where
all
parts of the organization will contribute to accomplishing the
that
have excessively strong shared mental model of cooperation,
team members share the same goal and commitment, and understand who
contribute what
may minimize
will
the necessity of "creative abrasion" (Leonard-Barton, 1995) or
may become wrapped up
in "groupthink"' (Janis, 1972) that hinders innovation
Grover, 1998). This leads to the hypothesis
(Madhaven and
that:
Hlc. Project team shared mental model of cooperation and innovation, as an outcome of the
innovation capability, has an inverted U-shaped relationship.
Overlapping knowledge. Project team overlapping knowledge supports the innovation
by supporting the creation or conversion process of individual knowledge into
capability
organizational knowledge (Nonaka and Takeuchi. 1995;
team overlapping knowledge
is
the overlapping
Barton.
in the
1998). Project
knowledge among team members. Overlapping
knowledge among team members enables individuals
members
Madhaven and Grover.
to take the perspective
of other team
process of exchanging knowledge in order to produce innovation (Leonard-
1995). Additionally, the overlapping can be understood in terms of the absorptive
capacity that individuals have for other types of knowledge present on the team. Overlapping
knowledge
facilitates the
conversion and integration of different types of knowledge to create
and achieve innovation (Nonaka and Takeuchi, 1995; Madhaven and Grover,
underlying logic
is
that overlapping
knowledge provides team members with
resources to combine insights synergistically from multiple knowledge
1998).
The
the cognitive
sets. In the
context of
cross-functional project teams, the overlapping knowledge of team leaders play an especially
important role in maintaining a disciplinar\' vision that integrates multiple perspectives and
manages
conflicting technical trade-off
(Nonaka and Takeuchi, 1995). The cognitive
skills to
handle such integration and trade-off, gained through the process of integrating two disparate
areas, will help the
represented
team leader
craft a unifying vision that
(Madhaven and Grover,
and integration process, up
1998).
does justice to
all
the disciplines
However, while the overlapping enhances the sharing
to a point, the lack
of diversity hinders innovation as
it
decreases the
creative abrasion that
also critical for innovation
is
(Nonaka and Takeuchi. 1995; Madhaven and
Grover. 1998). These arguments lead to the hypothesis
that:
Hid. Project team overlapping knowledge and innovation, as an outcome of the innovation
have an inverted U-shaped relationship.
capability,
The
are
direct effect
ofproject team management practices on innovation
relationships
direct
Among
capability.
between project team management practices and the
the project
team management practices
There
capability.
innovation
that support this capability
found
in
the literature are: (1) project team building, (2) reward for project team performance, and (3)
project
team membership
while the third
selection.
facilitates the creation
into organizational
a
first
two practices
knowledge mobilization,
facilitate
process by supporting indi\idual knowledge conversion
knowledge.
Project team building.
taking
The
collection
Project
team building
is
related to
of indi\iduals with different needs,
team development, a process of
backgrounds,
and expertise,
transforming them into an integrated, effective work unit (Thamhain and Wilemon,
Project team building supports project team performance (Hershock et
building entails teaching team
members about
a!..
the goals of the projects
and
1987).
1994). Project
team
and the processes by
which they can be achieved. The underlying idea behind project team building
is
that
members
represent different "thought worlds," with different objectives and expertise, and individually
attempt to reduce uncertainty about their roles within the group.
environments on the project team by directing
workable level of certainty and
their activities
clarity in carrying out this
these processes enables individuals to develop their
work more
effectively.
A
critical factor
team
own
They seek
toward the establishment of a
task. Training
on how
situational perspective
behind project team building
10
to enact their
is
to
manage
and therefore
the interaction
among
key individuals
process
to
may
who
are expected to
require the
team leader
work together
to teach
to
accomplish the project. This development
members how
communicate with members from outside
better
to organize
their
work processes and how
thought worlds or organization
subcultures (Schein, 1996). These analyses lead to the hypothesis that:
H2a. Project team building
is
positively related to innovation, as
an outcome of the innovation
capability.
Project
team reward.
Previous
affects
Katz and Allen. 1985; Gladstein. 1984).
While
suggest
knowledge mobilization
for innovation (e.g.,
some
Katz and Allen. 1985) suggest
researchers
(e.g.,
team
reward
studies
that
that
project
job assignments and promotion
impact the process of innovation, other researchers suggest both monetary and non-monetary
When
rewards have an impact on innovation (Roberts and Fusfeld, 1982).
their contributions
perform
a
in
way
on project teams
that
to achieving project goals are rewarded, they are likely to
enhances project team performance (Milgrom and Roberts.
Empirically, reward for team performance has a positive impact on
al.,
1997;
Wageman and
reward for
their project
individuals believe
Baker, 1997;
Wageman,
team performance are
its
1992).
outcome (Ichniowski
et
1995). Therefore, project teams that receive
likely to
perform better than those
that
do not
receive any reward. These discussions lead to the hypothesis that:
H2b. Project team reward
is
positively related to innovation, as an
outcome of the innovation
capability.
Project team membership selection.
effect
Project team
membership
selection also has a direct
on project team performance (Thamhain and Wilemon, 1987). Careful screening and
selection of
1997:137).
team members, who match the demands of the
On
tasks,
enhance performance (Katz,
the one hand, since project teams consists of individuals from different thought
11
worlds with different knowledge
sets, project
team membership selection based,
overlapping knowledge facilitates knowledge mobilization and
On
innovation.
the other hand, project team
knowledge and expertise
innovation
requires
that
membership
the task also
fit
1997:133). These arguments lead to the hypothesis
on deep
team performance, since
(Thamhain and Wilemon.
sets
that:
Project team membership selection based on cross-functional overlapping knowledge
H2c.
positively related to innovation, as
The
indirect effect
Project team
level
project
facilitates
management
(2) project
an outcome of the innovation
is
capability.
of project team management practices on innovation
capability.
practices also indirectly affect the innovation capability at the project
by affecting the factors
that facilitate
on
creation for
selection based, in part,
combination of these knowledge
the
new knowledge
in part,
that facilitate
knowledge mobilization
knowledge mobilization and
are; (1) project
team
team external communication frequency, and
internal
(3) project
creation.
The
factors
communication frequency,
team shared mental model of
cooperation. (4) Project team overlapping knowledge facilitates knowledge creation.
Project team rewards
performance
also
has
members and
impact
an
communication frequency.
and project team communication frequency. The reward
Employees working on teams
employees
1988).
in
US
in
team
on knowledge mobilization by affecting project team
In order to motivate
their external links,
for
knowledge exchange on team and between team
team rewards are necessary for project team performance.
Japanese firms are more willing to share knowledge than
organizations, in part, because they are rewarded for these behaviors (Aoki,
Wageman and Baker
(1997) studying the relationships between team reward and team
outcomes, found that team reward has a positive effect on observed cooperation.
Menon
et al.
(1997), studying cross-functional product development teams, found that a reward for project
12
team performance increases interdepartmental
performance are
a reward
for
knowledge
in order to
for their
that
their
interaction.
communicate more frequently
to
liicei)
Therefore, project teams that receive
enhance task performance. Moreover, project teams
performance are more likely
to
communicate outside the team
enhance task performance. These discussions lead
to the
H3a. Project team reward for a particular project team task
hypotheses
to
exchange
reward
that receive a
to search for resources
that:
team
is
positively related to project
is
positively related to project team
internal communication frequency.
H3h. Project team reward for a particular project team task
external communication frequency.
Project team building and project team shared mental model of cooperation. Project
model
team building builds project team shared mental
Mohammed,
to
model of cooperation
is
are taught
how
to
accomplishing the projects.
consultants
to
teach
coordinating tasks, and
organization
project
project
Project team
teams
how
is
team
to
is
work processes by
to train
manage
to
and
may
their
facilitate
also
the
These
a process
team leader
various project teams
occur by hiring external
work processes, dividing and
to
accomplish the project.
The purpose of
"alignment" that builds a shared experience
performance.
is
different thought worlds or subcultures of the
exchange knowledge
to achieve
their
building
how team members from
work together
team building
facilitates
and
formal and informal training on
1994). Project team building
manage
and/or corporate trainer, whose daily responsibility
project
built using
work on teams (Klimoski and Mohammed,
whereby team members
in
(Klimoski
1994; Roth and Kleiner. 1996) that facilitate knowledge mobilization on a team.
Project team shared mental
how
of cooperation
development
processes
not
that, in turn,
only
provide
understanding of the knowledge structure of team members (Nonaka and Takeuchi. 1995). but
13
also facilitate social integration, build trust, and replace individual goal differences with a
collecti\e goal (Roth and Kleiner, 1996).
H3c.
Project team building
is
These discussions lead
to the
hypotheses
that:
model of
positively related to project team shared mental
cooperation.
H3d. Project team building
is
positively related to project internal
communication frequency.
H3e. Project team building
is
positively related to project external
communication frequency.
and project team overlapping knowledge.
Project team membership selection
Project
team membership selection influences the project team knowledge creation process (Madhaven
and Grover. 1998). The underlying logic
is
human
automatically on project teams, as the pool of
knowledge
different
knowledge on team
sets, as
is
sets
(Leonard-Barton.
1995).
not automatic, since not
all
such sets are not developed the same way
to ensure
some overlapping knowledge on
this factor
(Nonaka and Takeuchi, 1995:
at
resources
Even
human
in
in the
organization contains
Japanese
firms,
resources have the
any given point
project teams,
77).
knowledge does not occur
that this overlapping
members
in time.
overlapping
same knowledge
Therefore, in order
are selected based, in part,
These discussions lead to the hypothesis
on
that:
H3f. Project team membership selection based on cross-functional overlapping knowledge
is
positively related to project team-level overlapping knowledge.
In
summary, the study proposes
team processes -project team
that the innovation capability
internal
communication
frequency,
is
facilitated
project
by project
team
external
communication frequency, project team shared-mental model of cooperation, and project team
overlapping knowledge- that influence the capability to mobilize and create knowledge for
innovation.
Moreover, project team management practices -team building, reward, and
14
membership selection- not only
affect this capability directly, but also indirectly
by affecting the
project team-level processes.
RESEARCH DESIGN
Data were gathered through surveys of 182 cross-functional innovation teams of 38 large
US
and Japanese multinational firms
that
have operations
in the
in the
computer, photo imaging, and automobile industries
United States.
Selection Criteria
The
were selected because they face different innovation cycles -short
industries
computer industry, medium-sized
in the
photo imaging industry, and long
in the
in the
automobile
industry- that affect the time pressure on gathering and processing different types of knowledge
for innovation
(Lawrence and Lorsch. 1967).
The companies were
selected based on
two
factors. First, they
respective industries based on revenue as reported in the Hoover's
were the
largest in their
HandBook of World Business
(1999). Second, they had customer service centers in the United States and Japan dealing with
similar products. This requirement
compares sources of
was necessary because
this capability
US
of
this
study
is
part
of a larger study that
and Japanese multinational enterprises
in
both the
United States and Japan.
For each company, the largest customer service center
the United States
was
Affiliations (1998).
selected.
1992).
The customer
service organization
demands and
service
terms of employees located
in
These centers were identified using the Directory of Corporate
The customer
linking firm's external
in
internal design
centers
selected
15
had
was
selected because
it
is
the gatekeeper
and manufacturing capabilities (Quinn.
at
least
three
functions
represented:
R&D
sales/marketing, customer service, and engineering linking to the
and manufacturing
organizations.
In each
customer service center, a
selected. Project
set
of cross-fiinctional project teams was randomly
teams were selected based on three
represented: customer service, engineering
criteria. First, at least three
R&D
(i.e.
functions were
or manufacturing) and sales/marketing or
manufacturing. Second, the main objective of the team was to transform specific external
customer feedback obtained from the firm's worldwide operations about
their products into
an
innovation.
Data Collection
There were three steps
to the data collection process.
First, in
depth field interviews,
observations and phone interviews were conducted to ensure a deep understanding of the
phenomenon. Second, a
pilot study
was conducted
to test the \ariables
and measures and survey
instruments. Finally, the surveys were conducted.
In order to avoid single respondent bias,
I
collected data from the project team leaders
and the project managers. For each company the project manager was asked
projects
leaders
and
and the team leaders
were asked
their
that supervised them.
Based on
to take a survey. Prior to this, surveys
this
.05),
list
of
randomly selected team
were conducted on three companies
teams to examine the consistency between answers provided b> the team leaders and
core team members. Results from the correlation analysis suggest
>
list,
to provide a
and therefore,
frequency, team
I
some consistency
(r
> 0.40, p
focus on the team leaders in collecting data on team-level communication
management
practices,
and performance. However,
in order to
minimize team
response bias, project managers were also asked to evaluate the outcomes of these projects using
the
same metrics used
in the questionnaire for the
team leaders (Ancona and Caldwell, 1992).
The
correlation coefficients between the
of
=
r
project
in this
two
ratings range
from
r
=
0.41 to
r
= 0.60 with
a
mean
0.50 and were statistically significant. This analysis suggested agreement between the
managers and team leaders on project team outcomes. The empirical analysis presented
study
is
based on the project managers" rating since project managers are probably
less
biased about team performance than the team leaders, as they were not directly involved in the
project.
However, team
leaders' ratings
analysis, not presented in this paper,
managers'
were also analyzed
for comparison.
were consistent with the
results
The
results
of these
based on the project
rating.
Variables and measures
There are three
and
sets
of variables: (1) the dependent variable, (2) the independent variables,
(3) the control variables.
Dependent variables. The capability construct
is
represented by
(Prahalad and Hamel, 1990; Kogut and Zander, 1992; Teece
intangible that
is
not measurable directly but only through
Product innovation
feedback led to
(PRODNOV)
is
its
measured by the extent
new product development
et al.,
and/or modification (a
outcome, innovation
1997), since capability
effects
to
its
(Godfrey and
is
an
Hill, 1995).
which projects using customer
=
0.87). In
some
cases, project
teams dissolve before coming up with any type of innovations. In terms of effectiveness, speedto-market (Clark and UTieelwright. 1992) and customer satisfaction with the innovation are
analyzed (Ancona and Caldwell, 1992). Efficiency (EFFIC) was measured by the deviation from
the
amount of
management
staff hours
at the
market (SPEED)
is
and financial resources used (excluding staff hours) as expected by
beginning of the project
measured by the extent
in
completing the project (a = 0.70). Speed-to-
to
which the innovation was delivered quickly
17
enough
to
customers to satisfy them. Customer satisfaction with the innovation
measured by the extent
to
which the innovation generated by the team
Independent variables.
Project
knowledge among members.
is
internal
satisfied customers.
communication frequency,
Internal
communication frequency
(NCOM)
(Griffin
communication frequency
(XCOM) (Ancona
meetings, phone conversations, and electronic mail (a
cooperation
(MODEL)
commitment
contribute
1992a)
and Caldwell,
is
=
0.83). E.xternal
measured by how
team members communicated with people outside the team using face-to-face
frequently
=
0.77).
(3)
(Cannon-Bowers, Salas and Converse. 1993)
in
Shared mental model of
is
measured by perceived
accomplishing the project and shared understanding of
which knowledge from
0\erlapping knowledge
total
and Hauser.
measured by the frequency of communication among team members using face-to-face
meetings, phone conversations, and electronic mail, formally and informally (a
shared
is
communication frequency, shared mental model of cooperation, and overlapping
external
1992)
team processes are
(CUSTSAT)
their
functions to accomplish the task (a
(OVERLAP), which
facilitates
knowledge
creation,
is
=
who
0.87).
management
Project team building
specifically for
their
work experience.
Project team-level
selection.
(4)
measured by the
amount of overlapping knowledge among core engineering team members, based on
past and current
will
working on
practices are project
(BUILD)
this project.
is
measured by whether project team received training
Project team reward
of project team performance on team members'
job assignment (a = 0.78).
knowledge creation and
is
(3)
team building, reward, and membership
(RWRD)
salar\' increase,
Project team
membership
is
measured by the impact
bonus payment, promotion, and
selection
(SELECT)
measured by the selection of team members based on
facilitates
their expertise
and cross-functional job experiences (a =
related to the project, cross-functional knowledge,
0.76).
Control variables. There are controls
company
C-COMP
level,
is
a
company dummy
project team-level, the control variables are
two
at
levels,
prior experience
(C-SUPORT). Tenure
diversity
is
project team.
At the
company
(fixed effect).
At
variable for each
team
size
(C-SIZE) (Smith
Caldwell. 1992a; Bantel and Jackson. 1989), tenure diversity
(C-NUMDIS). shared
company and
et al..
(C-TENURE).
functional diversity
working on team (C-SRDEXP). and management support
Functional diversity (Ancona and Caldwell,
measured by the number of functions represented on team (Bantel and Jackson,
work on
receives
this type
of issue.
Ancona and
1994;
measured by team tenure standard deviation divided
average (Bantel and Jackson. 1989).
shared experience working on team
the
is
measured by whether
Management support
enough resources from management
to
is
this project
team
measured by the extent
is
1
its
1992)
989).
is
Prior
designated to
which the team
to
accomplish the project.
Methods of analysis
The Tobit method
is
constrained to an interval.
innovation
capability
Hypotheses HI a
to
Hid
used to analyze the data, since the dependent variables were
The models use
(innovation,
alternative
speed-to-market,
efficiency,
+ P,n
'
Ps
•
OVERLAP +
C-NUMDIS +
and customer
satisfaction).
are tested using the following model:
Outcomes of the innovation capability = a + Pt
MODEL- +
measures of the outcomes of the
p,,
'
Po
-
OVERLAP' +
>
/?;
NCOM
•
C-SIZE + Ps
C-SUPORT + pK C-COMP +
•
+ P:
'
XCOM
*
C-TENURE +
+ P^
.
MODEL
Po
-
+
/?v
•
C-SRDEXP
e
For testing the direct effect of project team management practices on the innovation
capability (H2a-H2c), the following specifications are used:
19
Outcomes of the innovation capability = a + p,
SIZE + Ps
.
C -TENURE
+
P(,
C-SRDEXP +
.
/?;
BUILD +
'
p:
•
C-NUMDIS +
.
RWRD
^5
•
+ P3 • SELECT + p4 • C-
C-SUPORT + pK C-COMP
•
+£
For testing the effect of project team management practices on project team-level
processes (H3a-H3d), the following models are used:
For H3a:
NCOM
TENURE +
For
//i6;
A
.
= a + p,
C-SRDEXP +
XCOM
.
MODEL =a
+
Pi
TENURE + Pe C-SRDEXP +
•
For
/?,- .
//ic^.-
OVERLAP = a
C-NUMDIS +
BUILD +
/?-
•
p:
p6
'
p-
-
-
.
.
•
C-SUPORT +
yff/^-
.
.
Ps
•
RWRD
C-NUMDIS +
SELECT +
y9s
RWRD
C-NUMDIS +
BUILD +P2
/?-
+ p,
-
RWRD
.
C-NUMDIS +
= a + Pr BUILD + p:
TENURE + Po C-SRDEXP +
For H3c:
-
y5.
•
ySs
.
+ Pj
C-SUPORT +
+
y9i
•
y^^- •
p,
.
C-SIZE + p,- C-
C-COMP
SELECT +
P4
-
+ ^
C-SIZE + Ps
-
C-
.
C-
C-SUPORT + Pk C-COMP +£
•
+ Ps
-
SELECT +
C-SUPORT +
C-5/ZF +
C-COMP
SELECT +
-
/?j
.
/?^- .
P4
•
C-SIZE + ps
C-COMP +
C-TENURE +
y^,
.
f
C-SRDEXP +
+ ^
ANALYSIS AND RESULTS
Table
1
presents the descriptive statistics and correlation analysis.
The
relatively small
correlation coefficients between the independent variables suggest they are distinct from each
other;
and thus they will be treated independently
20
in this analysis.
Insert Table
1
about here
Table 2 presents the results from testing the project team-level processes, hypotheses
(Hla-Hld).
internal
The
results
show
that only
HI a, Hlb, and Hid
are supported. Project team-level
and external communication frequency, shared-mental model of cooperation, and
overlapping knowledge support different outcomes of the innovation capability. Model
that
team
internal
effect
(OVERLAP)
overlapping knowledge
(PRODNOV). Team
(NCOM), team
have a positive effect on product
indicates that
shared mental model of cooperation
knowledge (OVERLAP) have
(MODEL)
shared mental model of cooperation
on product innovation (PRODNOV). Model 2
frequency
a positive effect
shared mental model of cooperation
team
team overlapping knowledge
on efficiency (EFFIC). Model
(MODEL)
knowledge
that
communication
3
is
overlapping
shows
and team overlapping knowledge
that
team
(OVERLAP)
a decreasing return of
on speed-to-market of the innovation (SPEED).
team external communication frequency
(OVERLAP)
(CUSTSAT). Team
(OVERLAP)
internal
has a negative
(MODEL), and team
support speed-to-market of the innovation (SPEED). However, there
Model 4 shows
shows
communication frequency (NCOM). team external communication frequency
(XCOM), and team
innovation
1
(XCOM)
and team overlapping
have a positive effect on customer satisfaction with the innovation
shared mental model of cooperation
(MODEL)
has a decreasing return on
customer satisfaction with the innovation (CUSTSAT).
Insert
Table 2 about here
Table 3 presents the results from testing the project team management practices,
hypotheses (H2a-H2c).
The
results
show
that only
H2a
is
supported. Project team building and
reward support different outcomes of the innovation capability. However, project team building
21
has a positive effect on a wider range of outcomes of this capability.
building
(BUILD) has
a positive effect on product innovation
team building (BUILD) has a positive
effect
shows
Model
that
team
2 shows no
shows
3
that
on speed-to-market of innovation (SPEED), while
team membership selection (SELECT) has a negative
(BUILD) and team reward (RWRD) have
1
(PRODNOV). Model
between the predictors and efficiency (EFFIC).
significant relationships
innovation
Model
effect.
a positive effect
(CUSTSAT), and team membership
selection
Model 4 shows
on customer
(SELECT)
that
team building
satisfaction with the
has a negative effect.
Insert Table 3 about here
Table 4 presents the results from testing hypotheses (H3a-H3f).
only H3c. H3d, and
H3e
are supported.
These
affects the innovation capability directly as
results
shown
show
that
The
results
show
that
team building (BUILD) not only
in the previous tests, but also indirectly
by
supporting the project team-level shared mental model of cooperation (H3c), and internal and
external
communication frequency. These
team building are more
contribute
project
likely to
which knowledge
in
results suggest that project
teams that receive project
have shared commitment and understanding of
team building are also more
team reward
frequency.
functional
What
is
(RWRD)
will
accomplishing the project. Moreover, project teams that receive
engage
likely to
in
communication
that
external to the team, than project teams that do not receive the development.
project
whom
is
internal
and
Interestingly,
does not lead to higher internal or external communication
even more interesting
is
that
team membership selection based on cross-
knowledge and job experiences does not ensure overlapping knowledge on the team
(see Table 4).
One of the
explanations could be that project team leaders or managers
team members do not have accurate information about the knowledge
22
sets
who
select
of individuals they
select.
Model
1
shows
that
team building (BUILD) has a positive effect on team internal
(NCOM)
communication frequency
(H3c).
Model 2
support team external communication frequency
building
(BUILD)
(MODEL)
(XCOM)
that
diversity
team building (BUILD)
that
(H3d). Model 3 shows that team
team membership selection (SELECT) has no
team overlapping knowledge (OVERLAP). However, the
tenure
shows
has a positive relationship with team shared mental model of cooperation
Model 4 shows
(H3e).
also
(C-TENURE), have
a
positive
controls,
effect
team
size
effect
on
(C-SIZE) and team
on team overlapping knowledge
(OVERLAP).
Insert Table 4 about here
**********************
The
capability.
facilitates
innovation.
results
Among
show
that the different factors support different
the project
team
factors, project
product innovation and efficiency
return
internal
communication frequency
terms of resources used
in
achieving the
External communication frequency supports product irmovation and customer
satisfaction with the innovation. Project
effect
in
team
outcomes of the innovation
team shared mental model of cooperation has a negative
on product innovation but supports efficiency, speed-to-market, and has a decreasing
on process irmovation. and customer
satisfaction
suggests that creative abrasion (Leonard-Barton, 1995)
Overlapping knowledge between manufacturing and
is
R&D
with the innovation. This finding
important for product innovation.
engineering team
members has
a
decreasing return on product innovation and speed-to-market, but has a positive effect on
efficiency.
This
finding
knowledge conversion, up
also
suggests
to a point,
it
that
although
overlapping
minimizes the creative abrasion
product innovation.
23
knowledge
facilitates
that is also necessar)' for
Among
the project
team management
team building directly and indirectly
practices,
supports product innovation, speed-to-market, and customer satisfaction with the innovation.
However,
this practice also facilitates the
development of project team shared mental model of
cooperation, which reduces creative abrasion and thus
leam reward has no
effect
to hurt product innovation. Project
on product innovation or efficiency, but has a positive
customer satisfaction with the innovation.
literature
seem
This finding
(Wageman. 1995; Wageman and Baker,
1997).
is
effect
on
contrary to the discussion in the
This difference
may be
explained by
the fact that previous studies tend to analyze the effect of incentive in isolation from other
management
functional
practices at the project level.
knowledge and the
fit
Project team
membership
selection based
between expertise and the nature of the
innovation and a negative effect on
for this finding could be that the
all
other outcomes of this capability.
managers or team leaders
that
on cross-
project, has
no effect on
One of the
explanations
formed the teams did not have
accurate information about team members' prior job experiences, as team tenure diversity and
size explain
more of the variance
in
overlapping knowledge than selection based on this factor.
DISCUSSION AND CONCLUSIONS
This paper tested the arguments that the project team-level processes -project team
internal
communication frequency, project team external communication frequency, project team
shared mental model of cooperation, and project team overlapping knowledge- support the
innovation capability.
management
Moreover, these project team processes are supported by project team
practices, specifically,
team building, reward, and membership
In recent years, the resource-based
rents
may
selection.
view of the firm has recognized
that the sources
of
reside deeper in the organization, at the substructure level, such as project teams used
for mobilizing
and creating new resources (Wemerfelt, 1997; Prahalad and Hamel, 1990; Kogut
24
and Zander, 1992).
However, despite the discussions, empirical work
limited (Foss. 1997).
is
how
Therefore, this paper develops the resource-based theory of the firm by showing specifically
companies develop the innovation capability
the
team level-innovation
process.
It
shows
literature,
at the project team-level.
Moreover,
it
also expands
which views the processes of innovation as an input-output
that in addition to careful selection of
team members (Ancona and Caldwell.
1992a). there are other mechanisms that organizations use to develop the supporting team-level
processes that
it
argues as important
in
achieving this capability.
Specifically, organizations
generate the supporting processes as necessar>' in the process of achieving the innovation by
developing their teams.
Depending on the outcomes of
strategies (Miles
Lorsch,
1
the capability desired
and Snow. 1978) or the environment
967). different factors
seem
in
results
from
their
which they compete (Lawrence and
to lead to different outcomes.
product innovation ma\' need to focus on the factors that
and creation. The
by the firms as dictated by
facilitate
First,
firms that compete on
both knowledge mobilization
this study suggest that these factors are internal
communication
frequency (Griffin and Hauser, 1992; Dougherty, 1987), external communication frequency
(Ancona and Caldwell, 1992), and overlapping knowledge (Nonaka and Takeuchi. 1995;
Leonard-Barton, 1995).
the one hand,
At the same time, they may need
to
guard against two drawbacks.
team shared mental model of cooperation seems
to hurt
innovation, because
product innovation also requires some creative conflict or abrasion (Leonard-Barton, 1995).
the other hand, too
much of
On
oxerlapping knowledge reduces knowledge di\ersity, which
On
may
also hurt product innovation.
Second, for firms that consider efficiency
used
in
mobilizing and creating
new knowledge
25
in
terms of cost of the amount of resources
for innovation critical, the important factors
seem
to
be team internal communication frequency, team shared sense of cooperation, and
overlapping knowledge.
Third, firms that find speed-to-market of their innovation to be important (Clark and
Fujimoto, 1991; Clark and Wheelwright, 1992), they
may need
cooperation, overlapping knowledge, and development.
may
also affect this
to focus
The way
in
on team-shared sense of
which teams are formed
outcome (Hackman, 1987).
Fourth, for firms that consider customer satisfaction with their innovation to be crucial.
team external communication frequency (Ancona and Caldwell, 1992), shared mental model of
cooperation, overlapping knowledge (Nonaka and Takeuchi, 1995), team building (Thamhain
and Wilemon, 1997) and reward (Wageman, 1995;
Wageman and
Baker, 1997) appear to be
important.
Finally, for firms that find
and
if
most or
all
of these outcomes
to
be
competition,
critical for
they could choose a specific practice to develop this capability, this paper shows that team
building appears to be most promising.
It
not only affects a wider range of outcomes of this
capability directly, but also indirectly, by facilitating the project team-level processes that also
supports this capability.
This practice entails developing employees as needed
mobilizing and creating knowledge for innovation, by teaching employees
with people from outside their functions
case studies that
is
how
to
how
in the
to
process of
communicate
organize their team work processes.
not presented in this study,
accomplished by the team leader, by individuals
we
who
see that this building process
are not
members of
the
From
the
may
be
team such as
corporate trainers, or by external experts (Un, 2000).
Moreover,
R&D
this study
engineering, supports
shows
that overlapping
many outcomes of
knowledge between manufacturing and
this capability,
26
implying that personnel must be
developed
at the organization-level prior to
knowledge between these two
parts of the organization.
employees" job experiences, and
in
team participation
in the process
in order to
Organizations
have some overlapping
may
also need to track
of team formation, the team leader or managers
charge of selection should use this information.
27
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31
A
reader
in the
TABLE
1
Descriptive statistics and correlation analysis
TABLE 2
The
effect
of project team factors on innovation capability
TABLE 3
The
direct effect
of project team management practices on innovation capability
TABLE 4
The
indirect effect of project
team management practices on innovation capability
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