Innovation management in the Massively Multiplayer Online game industry

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Innovation management in the Massively Multiplayer Online game industry

Master Thesis

Copenhagen Business School 2013 CM – SOL

Strategy, Organization and Leadership Hand in date: 14.10.13

STU 180.009 Pages: 85

Supervisor: Niels Bjorn Andersen Thorkell Olafur Arnason

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Abstract

The video game industry had its start in the 1970s where it began as few amateur programmers creating video games over the span of several weeks. Today this industry has revenues of billions of dollars in the United States alone and its projects are larger and create more revenue than the movie industry. The consumers are no longer boys in their teens but rather men and women in their 30s.

One part of the video game industry is a different from the rest, with games focusing on team-work and socializing in a persistent world. This is the Massively Multiplayer Online game or MMO.

Millions of people pay subscription to play these games, to access the world of the game. But as these games are ever changing the developers must continually iterate on these games and innovate in order to keep the player interested. In this industry I look for an answer to the question: “How does a Massively Multiplayer Online game company manage the innovation of a product?”. To answer this question I begin by applying Van de ven et al.’s Process Model to the innovation process of a new MMO. This new MMO is Dust 514, the latest game from CCP Games, the developers and publishers of EVE Online, an MMO that came out in 2003 and is still growing every year, with 500.000 players in 2013. I conducted interviews with some of the most important decision makers for the game and compare their stories to the findings of Van de Ven et al. (1999) and to the common practices in video game development. From the analysis I hypothesize that there are 5 Critical Success Factors in managing the innovation of an MMO: Manage Scope, Shorten Period of Ambiguity, Openness to Innovation, Balance Leadership Roles and Reduce Outside Dependence. I conclude that what is most important in managing the innovation process of an MMO is to retain the decision-making power over the entire process by minimizing outside dependence.

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1.0 Introduction

Video games are a big part of popular culture today; they are a popular past time activity that has usually been associated with children and teenagers. In recent years though, video games have become an ever larger industry that today rivals the movie industry and the numbers are staggering.

The fastest selling video game ever, Grand Theft Auto 5, had almost four times the revenue ($800 million), in its first day, than the movie Marvel’s The Avengers, which had the highest revenue opening weekend of any movie (Hinkle, 2013, 18 September; All time box office, n.d.). The

Entertainment Software Association, in 2013, records that the average age of a video game player in the US today is 30 years old with 36% of all players being older than 35, making video games clearly no longer the realm of children or teenagers (Essential facts, 2013). The sales of video games in the US reached $14.8 billion in 2012 with a $1.05 billion spent on online video game subscriptions (Essential facts, 2013; Peterson, 2013). The largest such online subscription video game is The World of Warcraft, which at its height had over 12 million subscribers (Reilly, 2010).

Although various studies have been done on video games it is online video games that have increasingly become the subject of research, and one may speculate it is due to their unique characteristics of having “populations” exceeding that of many countries. But, where a lot of research has focused on marketing related to online games (Park and Lee, 2011; Hamari and Lehdonvirta, 2010) or motivation for playing online games (Lee and Tsai, 2010; Park and Lee 2012), this paper will focus on a unique innovation project in an online video game, where a new video game was created and added into an existing online video game world, to coexist with the original video game. The importance of innovations to the success of companies has been accepted since Drucker’s influential book in 1985 (Drucker, 1985), showing that innovative organizations outperform non-innovative ones in both profit and growth (Geroski and Machin, 1992). Researchers have done extensive decades long research into the nature of innovation (Van de ven et al, 1999), underlining the importance of the topic. With the dwindling of subscribers to the iconic World of Warcraft (Karmali, 2013), one has to wonder whether innovation isn’t equally important to the MMO industry. One MMO has been growing every year since its release in 2003, with its fastest growth in the most recent years, that game is CCP games’ EVE Online. CCP was founded in Iceland in 1997 with the intention of making EVE Online, an MMORPG game set in the distant future in the world of “New Eden” where players would fly, build and battle spaceships. A novel idea as the first ever 3D MMORPG had only been released the previous year (Edwards, 2007).

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They released EVE Online in 2003 with about 20-30.000 players subscribing, in 2013 they have now 500.000 subscribers, meaning that New Eden has more than 50% more inhabitants than the company’s country of origin, Iceland (Founder). With the success of EVE Online they decided to make a second MMO called Dust 514, where players play as mercenaries on planets’ surfaces. The game will take place in New Eden as well and will allow players in EVE Online and Dust 514 not only to communicate with each other, but to interact with each other. Not only will this all happen in two different video games in real time, but on different platforms as well, with EVE Online being played on the PC and Dust 514 on the Playstation 3. Neither this linking of two interacting MMOs nor games between two platforms has been done before.

My purpose with this paper is to look at the innovation process of this new game. The problem statement I seek to answer is: “How does a Massively Multiplayer Online game company manage the innovation of a product?”. An innovation is a difficult process in itself but the continuous development nature of the MMO makes for an interesting challenge. To answer this question I will look at three sub-problems, whose answers can help me find the solution to my problem area. The first one is “What research framework can be used to analyze the innovation process?”, wherein I will search for a framework to use in the analysis of the data. The second sub-problem is

“application of the research framework”, which is the application of my research framework in the analysis of the data collected from CCP. Finally the third sub-problem is “suggestions for the design of the innovation process”, where after the analysis using the research framework I will draw from it what I have learned and create Critical Success Factors, which can be used to design an innovation process and ultimately answer the problem statement “How does a Massively Multiplayer Online game company manage the innovation of a product?”.

1.1 Taxonomy of games

Classification of game genres is no small task since, unlike movies, the general setting of a video game has less effect on the characteristics of the game. A cowboy movie shares a lot of similarities with another cowboy movie, while two cowboy games could have absolutely no similarities in controls or objectives of the video games. A game could simply be classified as a “cowboy game”, but using this sort of classification gives no indication of how the game is played. This type of classification only describes the story or theme of the game. For that reason there are two general

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schools of thought on video game taxonomy. On one hand there are those that want to define games, much as movies, by their narratives or theme. On the other hand you have those that would like to define them by gameplay, how the game is played, called ludology”. In his description of this Clearwater (2011) notes:

“Ludologists have argued that gameplay is paramount. The role of the player and his or her decisions and actions distinguish videogames from any other medium…elements such as rules, goals and outcomes are held to be more important or more central than story character, theme or meaning”

Nonetheless genres are used for video games and one will often see them in descriptions of games or as categories on video gaming websites. A very traditional classification is mentioned by Bakie (2005) where he mentions what he considers some important genres: Adventure, Action, Action- adventure, Platformer, Fighting, First-person shooter, Real-time strategy, Turn-based strategy, RPG, MMORPG, Stealth, Survival horror, Simulation, Racing, Sports, Rhythm, Puzzle, Mini-games, Traditional, Educational and Serious. These genres can overlap where one game might be a “stealth first-person shooter” or a “rhythm puzzle game”. This author notes however that classifying all

“massively multiplayer online” games as MMORPG does not capture games like Second Life, where there is little RPG element but still an MMO element. As such I would simply use MMO as a genre and combine it with RPG where appropriate. Whalen (2004) argues that all MMO games should be classified together as “massive” no matter if they are “shooters” “roleplaying games” or

“real-time strategy” games, as their modal modifier of MMO:

“…because the fundamental sensibilities of the gaming experience are fundamentally shifted as play becomes public and failure has more (social) consequences than simple frustration and repetition.”

This is a valid point and an interesting observation, but would be closer to a narrative description then a ludology description and as such suffers from the same kinds of limitations as classifying a game as a “cowboy game”.

But these classifications can easily be combined, describing the story/setting/theme as well as the gameplay aspect of the games. In doing so, using a narrative- ludology classification we could first define Dust 514 by its gameplay which is a combination of “roleplaying game” (RPG) and “first person shooter” (FPS), making it an RPGFPS and then by its genre “sci-fi”, making it a “sci-fi RPGFPS”. RPGs being normally games where the character progresses with time and/or effort, while FPS is a shooting games from a first-person perspective. But a major aspect of the game is

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that it literally takes place in New Eden, the world of EVE Online. It interacts with, affects and is affected in real time by EVE Online, who by using our narrative-ludology classification would be described as “sci-fi massively multiplayer online space flight simulation game”. As such we would add the MMO definition to Dust 514, due to this massive multiplayer nature, making an accurate description of it with the narrative- ludology classification: “sci-fi MMORPGFPS”. Although one can drive tanks and cars as well as fly planes in the game, what might be called “simulation” games, these can simply be considered optional mini-games in Dust 514.

2.0 Methodology

The purpose of this chapter is to describe my choice of methodology, its limitations and possible alternate approaches. I will outline my choice of theory and describe the design and setting of my research as well as my method of data collection.

2.1 Research setting

My research took place at CCP China’s office in Shanghai, which is where I conducted the

interviews and participated in the in-house playtests of Dust 514. The office was opened in January 2006 with the purpose of opening a door for CCP into the Chinese video game market. In 2007 they started the development of Dust 514 and since then it has been the major development site for the game, with a few elements of the game being developed in other studios. It started out small but has been steadily growing and today employs between 140-160 people, with both local Chinese and foreigners working there.

2.2 Data gathering

As the end result of this paper is to give managerial recommendations to CCP about Critical Success Factors of innovation in the MMO industry, I chose a qualitative approach, using data collected through interviews and discussions with CCP staff members as my primary data. The approach I used was based on the idea of Grounded Theory where the problem and thereby the

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relevant theory is emerging from the situation (Lee, 1999). As such, the interviews I conducted were unstructured and I asked general questions about how the innovation process of Dust 514 had been and what had affected it and how, allowing the interviewees to talk and guide the interview as long as it was providing me with useful data, occasionally directing them back on topic or probing further on issues that seemed relevant. These interviews were explorative, unstructured, intended to generate theory as well as my primary data (Lee, 1999).

The main body of the empirical data was collected through interviews with several of the top ranking individuals at CCP Games that are involved in the development of Dust 514. On the 20 March 2013 I conducted interviews with the Global CEO of CCP Games, the COO of CCP Asia, Executive Producer of Dust 514 and Creative Director of Dust 514. In addition I had met with one of the founders of CCP Games and discussed Dust 514, EVE Online and CCP with him over coffee, dinner and taxi rides between 19-20 March. I also interviewed a Development Director on 7 May 2013. During the several months of my research and writing of the paper I would regularly attend in-house play-tests of Dust 514, at CCP’s Shanghai office, testing future content for the game.

There I would play with various CCP’s developers and staff members. During these I would participate in and overhear discussions of the game and gameplay mechanics.

In my interviews I sought to elicit stories from the interviewees and to remain silent myself as much as possible. With this I wanted to have the interviewee himself tell me what were the important events and factors that related to my questions. Having the interviewee tell me what was most important to him subjectively, as it is difficult to gather what were the most important factors to the organization objectively. This however meant that I had to decide myself what I thought were the most important statements from each interviewee, again meaning that my subjective interpretations may have influenced the interpretatio n of the data. Just as they would each tell me of their

subjective experiences I needed to use my own subjective evaluation of what was an important factor for the organization. There is also always the possibility that I was not told of all of the problems that CCP faced in the innovation process, which is perhaps not surprising as I am an outsider to the company. Which begs the question if there were other difficulties not mentioned that might be relevant; one interviewee mentioned casually that the CFO had been against the idea of making Dust 514 when we were out of the meeting room, perhaps a minor issue, perhaps a major one. I also interviewed almost solely the top management at CCP Games and the interviews themselves were all arranged for me by CCP, which makes one wonder whether the programmers

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and those working further down the organizational chart would tell a different story. But all of my interviewees were a lot more open and honest than I was expecting them to be. They talked about some very sensitive subjects that I had intended to dance around before venturing into, but the CEO himself brought up the subject. They openly admitted to mistakes and oversights and talked about how they could have done and planned things better. Overall I believe the information collected to be reliable and to give a good insight into the innovation process of Dust 514 and the inner

workings of CCP, as such I believe the information I collected is valid.

While I was still working on this paper the release of Dust 514 was announced, I was not privy to any insider information about the release date however. Had I known about this the nature of this paper might have changed as it would open up the possibility of seeing how or if the development of a product in continuous innovation might change after its release. But I believe despite its limitations the chosen method of research offers a valid and valuable insight into understanding the challenges an MMO company faces in managing the innovation of a new product.

Material such as articles and books used in this paper mostly comes from the book The Innovation Journey by Van de Ven et al. (1999). The book itself was my main source and it contains references to hundreds of books and articles on similar subjects and many of those were retrieved from the internet from the EBSCO Host database to be used for this paper (www.ebscohost.com). In addition I used the book Introduction to Game Development (2005) to find data on the video game

development process, common practices and similar topics to better understand the video game industry; this is used mostly during the analysis. Several articles though, mostly on the topics of crowdsourcing and several different video game topics were found through general searches on EBSCO Host. Outside the material I found on EBSCO Host I also read articles from various video game blogs and news sites that discussed EVE Online or Dust 514 and CCP’s websites for both of the games. Additionally I used different industry or information websites to gather information about the state of video games and online video gaming nationally or internationally.

Finally, some information comes from video recordings from CCP’s annual fan festival in Iceland, Fanfest 2013. These recordings are from presentations held by CCP staff on the current state and future plans for Dust 514 and also contain some of the general game design philosophy of CCP’s games as explained by their developers (Olssam62, 2013, 26 April). To understand better CCP’s games I regularly played both EVE Online and Dust 514 during the months of writing this paper, and as mentioned previously, played at CCP Shanghai’s offices playtest of Dust 514.

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2.3 Meta-positioning

This paper adopts a social constructionism approach, believing that organizations are socially constructed. As such, reality is viewed as socially constructed by organizational actors, reality cannot be viewed as objective and discernible but at the same time there will be multiple realities as they are perceived. If an employee feels he is not being motivated, while management feels they are doing a good job of motivating him, there is a difficulty in describing the objective reality. This is more along the lines of dialogic than diagnostic organizational development as described by Bushe and Marshak (2009). As such the human element must be taken into account, people will engage in sensemaking (Weick, 20011) in order to make sense of how things have developed or to justify their actions to themselves. Because of this, answers during interviews cannot simply be viewed as the full and complete objective reality from each and every interviewee. The researcher must use his own judgment in interpreting the answers from each individual, especially when it comes to

combining the answers from all interviewees in order to create a more holistic image of how events and situations described transpired. An innovation process is a time of ambiguity, and technically radical innovations, like Dust 514, are more disorderly than others (Pelz, 1985). As such it is possible that interviewees engage in sensemaking, as Weick (2001) puts it:

“We take seriously people’s accounts of how they accomplish interpretation, mindful, however, that retrospective sensemaking involves biased reconstruction of antecedents since outcomes are known at the time reconstruction occurs.”

This means that all answers must be evaluated and this to be taken into account when it comes to interpreting answers. But by using good judgment and by viewing the answers from all interviews together as a whole it is possible to see commonalities in the stories and piece together a realistic image of how the innovation process transpired.

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2.4 Contribution

The field of video game studies is still in its infancy, we see psychological studies on effects of games but they are not really a study of games themselves. As of yet there has not been created a unifying taxonomy for games, which we might see as a fundamental building block to the study, one can only imagine film studies without genres. But then the type video game being studied in this paper does not follow the traditional standards of a video game, as it is an MMO, a field that has been gaining popularity for researchers. This paper aims to extend innovation studies into the realm of video game studies, focusing on the MMO, in an integrating effort. Applying the Process Model (Van de ven et al., 1999) supplemented with literature on video game development, to the innovation process of an MMO. Grantham and Kaplinsky (2005) hold that formalization and professionalization of innovation management is so important for the video game industry that it is a key to its survival.

Furthermore, the literature on video games seems to be more interested in the way video games are made, and project management rather than organizational design for video game companies. Video games are technically very complicated and have a strong artistic function as well, as they need a compelling story and pleasing visuals in order to make the best game. This balance is very

complicated and needs a strong leadership in order to be achieved. The industry is also differe nt to what one usually sees in product or service industries. It can be likened more to the music industry in the sense that development studios often work like musicians do, they create the product, while the publisher pays for the development, retains the rights to it and takes care of the business side by selling, promoting and advertising the product (Sloper, 2005). The effects of this management side, both the leadership within a company and the developer-publisher relationship has not been covered much in the literature, but will be in this paper.

The integration of Dust 514 into EVE Online is a first in video game history; this integration offers an insight into a new way of innovating for current MMO game companies. There have been examples of MMO companies making a second game using their game-world but only by recreating the entire game world anew for the new game. What CCP is doing however may add another

dimension that they had not thought possible before. The development of The Critical Success Factors presented in Chapter 6.0 could also be adapted to be used in the analysis of innovation processes in the video game industry or used as a building block in creating a larger, more

comprehensive model. The case study of CCP’s development of Dust 514 does not offer revelations

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not known to researchers before but hopes to add valuable information to the literature, with a positive discussion as well as a normative one.

2.5 Limitations

This paper looks at the challenges an MMO company faces in managing the innovation of a new product. The cornerstone of this research is embedded in the neat categorization of the multi-year innovation process (Van de ven et al., 1999); such categorization is difficult to genuinely accept as a fact. This categorization is what I believe to the best one available at this time and as such the best way of dividing the long innovation process, for easier studying.

Whether the best way to examine problems encountered during an innovation process is to conduct interviews when the product is 2 months from release is doubtful. The best way to examine this would naturally have been to be there from the beginning and to visit and do interviews regularly over the several years of the innovation process. But this naturally was not possible for this paper, I did however attend regularly the weekly in-house play-tests at CCP Shanghai in order to see how Dust 514 was progressing and to see if they had changed anything that users on their online forums were discussing or complaining about. But with the short timeframe available to me I was unable to notice major changes. I did however manage to get some insights from these visits and believe they did offer some insights into the processes of CCP that complement the interviews. But a possible problem with using interviews as a main source of data is the possibility of action rationality, where the interviewee will rationalize his choice as the best choice, rather than the best choice according to the information available at the time of the decision. But as noted above, CCP was very honest and admitted openly to making mistakes.

3.0 Theory

3.1 Theoretical basis

My intention is to research the innovation process of a new product within the video game industry.

The book The Innovation Journey by Van de Ven et al. (1999) looks into the nature of the

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innovation process and the various parts and elements of it such as the roles of leaders, the nature of learning during innovation and mapping of the journey itself. The book is based on 17 years of research, by the Minnesota Innovation Research Project, on 14 different innovation projects. This extensive research is the theoretical cornerstone of this paper, I also draw on several other books and articles that Van de Ven et al. (1999) use. Various other authors have written about different topic related to innovation, such as Jelinek and Schoonhoven (1990) on innovatio n in high

technology firms, Song, Song and Benedetto’s (2009) staged service innovation model and Tschang (2005) on video games’ development as experiential products. Any of those could have made for a good theoretical basis for my research, but none were extensive enough to cover or combine as many topics as I wished to discuss. The topics explored in Van de Ven et al. (1999) related best to my research and allowed for a fuller exploration of the innovation process than for me trying to unify disparate elements from different authors. Using various elements from different authors may offer different ways of exploring this topic, but for the sake of a more developed theoretical

approach I chose Van de Ven et al.’s (1999) Process Model as my main guide for analysis.

3.2 Literature review

The topic of innovation is not a new one and there have been many books and papers written on the topic, today it is viewed as an important part of business, especially so in the technology sector. It is hard to discuss innovation without mentioning one of the most principal theorists on modern

innovation: Joseph Schumpeter. What is probably his most famous contribution is the term Creative Destruction, although he did not invent the term himself, where he tells of how growth in capitalist markets is governed by internal destruction of the old way of doing things with the introduction of new and improved ways (Schumpeter, 1942). He describes this by saying that the fundamental impulse that drives the economy is the introduction of new goods, production methods,

transportation, markets and industrial organizations. These internal effects revolutionize the economic structure by creating a new and a better way, in doing so it destroys the old ways, being thus a Creative Destruction, he says:

“…capitalist economy is not and cannot be stationary. Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise, i.e., by the intrusion of new

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commodities or new methods of production or new commercial opportunities into the industrial structure as it exists at any moment.” (Schumpeter, 1942)

In Schumpeter’s opinion economic change is achieved through this process, as opposed to Adam Smith’s invisible hand. He believes that real competition comes not from competing at the margins, but in the creation of the new, he puts it this way:

“…it is not that kind of competition that counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization…competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. ” (Schumpeter, 1942)

His ideas still remain with us today, what he called Creative Destruction is very similar to what we call Disruptive Technology or Disruptive Innovation today, coined by Bower and Christensen (1995). Disruptive Technology is technology targeted at a new group of customers that changes the way of doing or thinking about a certain aspect of technology. It was described by Christensen as:

“Generally, disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream”. (Christensen, 1997)

This creates a paradigm shift where the new innovation creates a novelty in the market not seen before. In his book The Innovator’s Dilemma (1997) Christensen looks at companies that failed because they were unable to react to the disruptive innovation. He focuses on the disk drive industry which saw a shrink in the size of computer disk drives going from 14 inches and with time all the way down to 1.8 inches (Christensen, 1997). Being too slow to react and commit themselves to the new market, former market leaders in the larger disk drives they fell behind and eventually failed to keep up with the changes. This is at its core what Joseph Schumpeter had called the Creative

Destruction, the new product of 8 inch disk drives destroys the companies that make 14 inch and don’t respond to the changes in the market place. But innovation does not change and before we know it there are 5,25 inch disk drives that have the same effect on those that continue to only make the 8 inch drives. Where there is a market there will be innovation, with innovation can come unexpected innovation, a Disruptive Innovation, when companies do not respond they will die with

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the old market and the new market will continue till the next Disruptive Innovation, this is the Creative Destruction.

But innovation is not about destroying but about building, it is those that are unable to change or innovate that get left behind. Those that innovate are at the forefront of the race, at least that is what Peter F. Drucker tells us in his influential book Innovation and Entrepreneurship (1985). Kaplan and Johnson’s (1987) book Relevance Lost, also discuss the importance of innovation tying it directly to an organizations value and being a key factor in the. Innovation has been discussed in the context of who works on it, with the topics of crowdsourcing (Busarovs, 2011) and co-creation (Cheng,

Marsden and Zhang, 2012). As well as who implements it, with topics on adopting innovation in a large organization (Burgelman, 1983; Kanter, 1983; Nord and Tucker, 1987) and how to help people accept the changes (Marks, 2003).

Video games are however a much newer subject of analysis, as the industry was nonexistent before the 1970s. Usually the focus of books and articles have been on psychological effects such as violence (Dill and Dill, 1998; Griffiths, 1999), gender differences (Bryce and Rutter, 2002;

Kennedy, 2002; Yang, Chiu and Chen, 2011) addiction (Elliott, Ream, McGinsky and Dunlap, 2012) and games and learning (BECTA, 2002; Amory, Naicker, Vincent, 1999). Different business topic have also been explored related to video games, such as buying behavior (Ho and Wu, 2012; Park and Lee, 2011) and innovation (Tschang, 2007; Grantham and Kaplinsky, 2005). Topics more related to the industry itself have also been explored, whether it is general development of games (Llopis, 2005; Sloper, 2005) and the type of employees needed (Zackariasson, Styhre and Wilson, 2006).

3.3 Learning during innovation

When an innovation begins the end result usually has not been decided on, even if it has been decided there are many ways to reach that point and quite frequently goals and ambitions for an innovation will change as this process can last several years. Innovators will gradually learn during the innovation process where they want to or should take the innovation, this can be due to external factors changing their previous assumptions, such as advances in technology, or internal factors like

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changes in market strategies or aspirations. Furthermore, an innovation by its nature is the pursuit of a novel idea, the more radical an innovation the more disorderly the process (Pelz, 1985). It is not enough to imitate or to plan your process because of its uncertainty, there are no routines and future predictions are not reliable (Chakravarthy, 1984; Mintzberg, Raisinghani and Theoret, 1976).

Learning during the innovation process is divided into two phases the first one is Learning by Discovery and the second one is Learning by Trial-and-Error. During innovation an organization must first progress through the ambiguous phase of Learning by Discovery before it can begin the phase of Learning by Trial-and-Error (Harrison and March, 1984). It has often been believed to be a random process but Van de Ven et al. (1999) show that it is dynamic and nonlinear, but not a random process.

In the beginning there is a real sense of discovery and goals may be vague, actions are taken and outcomes are seen as positive or negative, then actions are changed or continued. In this process a negative outcome will give little or any value as the options and possibilities are unknown to the innovators and all it does is eliminate one possibility; they still don’t know what to do. A positive feedback however will tell them they are moving in the right direction and to continue what they are doing (Van de Ven et al., 1999). Environmental events as well as top management intervention can change the course of the innovation or its outcome. There was no learning during times of high ambiguity according to Van de Ven et al.’s (1999) discoveries, and it was not until the innovators had entered Learning by Trial-and-Error that learning started to take place. This is due to the

Figure 1: Learning model to guide the innovation journey (Van de ven et al. (1999)

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chaotic links between action and outcome, but it seems as though this period, although innovators do not learn during it, does progress the innovation process. It also sets the stage by converting tacit knowledge to explicit knowledge of actions and performances by creating a more stable setting for testing needed for the phase of Learning by Trial-and-Error (Van de Ven et al., 1999). The

innovators will lack certain basic elements needed for trial-and error in the discovery phase: they will first need to understand what other alternative courses of action are available to them, they will then need to decide on the outcomes they wish to achieve. The innovations will need resources from resource controllers, this will influence the innovation process by enabling (expanding) or

constraining (narrowing) the branching of ideas and freedom of pursuing different pathways. In the beginning they will be given more slack time to allow for the discovery period but as time

progresses top managers will increasingly demand return on their investments in the form of results (Van de Ven et al., 1999). This self-organizing process of learning what desired action-outcome possibilities to pursue and external institutional constraints will transition the innovation process to the Learning by Trial-and-Error phase (Van de Ven et al., 1999). This transition happens during the Developmental Period, when investments and efforts are required to transform vague inventive ideas into concrete reality. The source of ambiguity in the innovation process is the often the long temporal lag between the development and implementation of the product. Before implementation and feedback of the product the innovation team will have to rely on subjectively constructed

targets without knowing entirely what the customer wants from their product, having to rely only on their own evaluations of outcomes and shifting development accordingly. Once this treacherous period of Learing by Discovery, the period of Learning by Trial-and-Error can proceed and a more stable environment is created for the development of the innovation which allows innovators to learn from their actions.

3.4 Leadership during innovation

Leadership has been a subject of research for thousands of years with Sun Tzu and Plato being some of the first well known authors (Giles, n.d.; Jowett, n.d.). More recently research has been varied, from the traits of a leader (Carlyle, 1849), the behaviors of a leader (Blake and Mouton, 1964) or the exchanges with his followers (Dienesch and Liden, 1986). But in the case of

innovation the subject isn’t how one man behaves, but rather how the behaviors of all leaders work with or against each other and how the roles of leaders involved balance against each other (Van de

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Ven et al., 1999). Van de Ven et al. (1999) adapt an older model from Angle and Van de Ven (1989) to demonstrate the observed roles that they see management take during the innovation process.

The 4 roles of leadership they observed were:

Sponsor: Also known as the “champion” is an advocate of the innovation in the corporate and investor circles. He helps push the innovation idea at executive levels and procure resources to facilitate its continuance. He is the most risk-taking of the four leadership roles, advocating change.

Mentor: This role is that of counseling, coaching, supervising and advising the innovators. Usually performed by a more experienced innovator, mentors can serve as role models for the innovation team leaders. Together with the Sponsor they guide and support the innovator.

Critic: Often seen as the “devil’s advocate”, applies hard-nosed business criteria to the innovation.

Challenging assumptions and making sure the innovation is a viable enterprise to undertake. He tends towards a role of monitoring and coordinating. This is the most risk-averse of the leadership roles, taking a cautious approach to the innovation.

Institutional leader: An executive, often not in the heat of things when it comes to the innovation.

His role is that of balancing the influences of all roles for the innovation as well as framing the innovation project itself and granting it legitimacy as well as breaking vicious cycles. He is a director that initiates the innovation and gives it structure; this is a very goal oriented style.

Figure 2: Leadership roles in innovation development. (Van de ven et al. (1999)

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These leadership roles work together to lead the innovation process, a lack in one of these roles during an innovation was shown to have adverse effects on the process (Van de ven et al, 1999). All roles are needed to balance against each other for the best result.

But not all roles are as influential at all times, in the beginning all roles have a similar value but this changes with the development of the innovation process. In the early stages the Critic can force the team to look at all alternatives and make the best choices, resources and momentum will accumulate towards a particular direction, making the right choices early on important. This role is less

influential with time and applying the role of the Critic in the later stages can lead to a total reevaluation of the project and terminations rather than the early stage course corrections (Van de Ven et al., 1999). The Mentor however is most useful in the later stages when his experience can be of use for the team. The Institutional Leader’s influence vanes during the Developmental Period as during this time he must rely on the innovators’ reports on matters and how they are dealing with any problems as he is rarely a floor manager. It is in the Initiation Period and

Implementation/Termination Period when he is most influential.

But although these are presented as 4 roles, it does not mean that these are performed by 4 people.

Van de Ven et al. (1999) found that these roles are performed by many different managers and any and all of them could assume any of the leadership roles. This is related back to Baveles (1960) who

Figure 3: Proposition on balance and timing of leader roles. (Van de ven et al., 1999)

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recognized leadership not as a personal quality, but rather as an organizational function.

Furthermore, he recognized that distribution of leadership can be wide, performed by many, or narrow, performed by few or if narrow enough by a single person (Baveles, 1960). Katz and Kahn (1978) similarly describe leadership as acts of influence, suggesting that any individual in an organization can act as leaders by exercising influence. These views resound well with the idea of the organization as socially constructed, showing us that leadership is not only performed by those that are defined as leaders but as anyone who acts as a leader. As previously mentioned these acts of influence can be enacted by anyone, resulting in a Pluralistic Leadership, meaning a leadership enacted by many, although they need to have the influence in the organization to be able to be effective. This type of leadership is helpful in ambiguous times like an innovation process; a Pluralistic Leadership reduces the chances of oversight as there are more people involved in the decision making processes and in directing the innovation, as well as increasing technological foresight. Katz and Kahn (1978) linked the sharing of leadership with organizational effectiveness because the sharing of leadership increases the quality of decisions and suggest that the more widely acts of influence are shared the more effective an organization will become. Pluralistic heterogeneous leadership will increase Learning by Discovery, a difficult phase during the innovation process, as it encourages the expression of different perspectives (Van de Ven et al.

1999). A unified homogenous leadership is more effective for Learning by Trial-and-Error as it is a more stable environment with incremental advances in learning. This sort of leadership may be effective for more stable environments for following an existing strategic vision, but is unsuited for the ambiguous nature of management of the innovation process (Levinthal, 1997).

3.5 The Process Model

The theoretical cornerstone of this paper is Van de ven et al.’s (1999) Process Model, a model of the process an innovation goes through over its lifetime, from a vague idea to a completed product.

I will introduce the 12 Process Characteristics of the model, as described by Van de ven et al. Since I will use this model to analyze the development of Dust 514, I will assign to each Process

Characteristic both positive and negative implications. This will make it easier to anticipate problems they might have encountered, and as such help identify whether problems encountered

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were what to be expected according to Van de ven et al. (1999), or if they encountered different ones in developing Dust 514. This will aid in the development of the Critical Success Factors and help in understanding the influence of each of the Process Characteristics.

The Process Model is separated into 3 periods, which are in chronological order: Initiation Period, Developmental Period and Implementation/Termination Period.

The Process Model is divided into 3 periods, the first is the Initiation Period; when the idea for the innovation comes to the innovator and a plan is made to make it into a reality. The second period is the Developmental Period; when the idea for the innovation is made into a reality. The third and final period is the Implementation/Termination Period; this is the end of the process when the innovation is either abandoned or implemented.

The Initiation Period

Process Characteristic 1 – Gestation

Usually an innovation will have a gestation period of several years, meaning that there is a vague idea that a person has been thinking over. Then, after seemingly coincidental events occur, such as

Figure 4: The Process Model. (Van de ven et al., 1999)

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the recognition of a technological feasibility or simply a need for change, the stage will be set for an innovation to begin. But during this period the idea remains just that, an idea.

Positive implications:

Alert people will recognize an opportunity that has not been explored yet; their idea can lead to the beginning of an innovation.

Negative implications:

This cannot be managed, an idea will either form or it will not.

Process Characteristic 2 – Shock

Shocks occur within the organization that triggers the initiation of the innovation. These shocks might be a change in leadership, product failure or a predicted loss or similar events of necessity, opportunity or dissatisfaction. These shocks can influence an organization in starting an innovation.

The idea becomes feasible and the innovator recognizes this as a point in time where this could move from being an idea into becoming a reality.

Mobilizes the organization and sets the stage for an innovation to be acted on.

In some cases these shocks are negative situations for the company such as a product failure, market share loss etc. meaning that an innovation might be necessary to enable the company’s survival.

Process Characteristic 3- Plans

The end of the Initiation Period is when plans are made for the innovation and resource controllers are lobbied for resources to launch the innovation. The innovator makes concrete plans for how his idea can become a reality. An innovation is simply an idea project until it passes this Process Characteristic and reaches the Developmental Period.

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Making plans means resources are allocated and the real work on the innovation can begin.

Commonly people will take personal risks and provide inflated goals in order to influence internal or external resource suppliers, creating unattainable performance expectations for the innovation.

The Developmental Period

Process Characteristic 4 – Proliferation

An innovation rarely remains a single idea and many versions or alternatives spring out from the original idea. Many innovations are parts of larger systems so this sort of divergent progressions of ideas is to be expected as different possible ways of continuing with the innovation. This is the beginning of the divergent-convergent cycle that an innovation will go through. The four most common reasons for proliferation mentioned are:

1. Innovations are an ambiguous and an uncertain process so one does not know which innovation will yield fruit; as such different routes must be explored.

2. An innovation is seldom a single product but usually a family of products or a part of a larger system.

3. To leverage risk with diversification of the innovation. By making several versions or possible alternatives it allows to hedge against failures.

4. Different logics or mechanisms govern the proliferation. If the innovation is governed by both internal and external logics fx. R&D internally and requirements set by governmental agencies externally.

For a video game this can mean adding options or aspects to the game with more features. This can lead to over-proliferation, with too many side projects if not properly managed. An aspect of this is frequently mentioned as a problem during development which is feature creep, where a new feature

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is added to the video game during development (Tschang, 2005). This is somewhat of a paradox as proliferation is beneficial, but too much can become a hindrance.

The innovation diverges into several parallel projects in an attempt to figure out what is the best direction for the innovators to pursue. This also leverages against risk should some of the projects fail as there are still parallels to pursue.

If there is too much proliferation the project becomes exceedingly complicated and too difficult to manage. Adding features constantly as well can mean delaying the game continuously.

Process Characteristic 5 - Setbacks occur frequently

Plans will not work as intended and/or unanticipated environmental factors will affect the innovation process, whatever it may be there will be setbacks. Adjustments will be made to accommodate for this “grace” period. Although not as common as one might expect, setbacks can often occur, despite this, Van de Ven et al. (1999) reportedly did not see many cases where setbacks led to budget overruns or missed schedules or deadlines. The danger here is rather that there will be spill-over effects of failures in the first innovations into others. As innovations diverge onto several parallel paths, if a problem occurs in the original one it can spill-over into others as well, leading to problems in several innovations, this can spiral out into a vicious cycle.

Problems encountered will either be too severe to be fixed or they can be solved, this will eliminate innovation projects that are too problematic to fix. This allows innovators to focus on projects that are more viable.

Due to ambiguity, an innovation which develops a problem can have spill-over problem effects into other divergent innovations, spiraling into a vicious cycle of aggregate problems.

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Process Characteristic 6 – Shifting Innovation performance Criteria

During the innovation process, the criteria for successes and failures will often shift, and can also be different between resource controllers and innovators. Comparing the responses to outcome criteria, or goals, Van de ven et al. (1999) noted a divide between the responses of innovators and that of top management. This is most notable in the beginning and ending stages, where early on innovators have short-term goals of getting the innovation off the ground and top managers have long-term goals of future profit from the innovation. These positions switch at the ending stages where innovators will have more long-term goals where the innovations will be able to justify themselves, whereas resource controllers will be looking to gain return on their investme nts, Van de Ven et al.

(1999) call these views outcome criteria and input criteria for long-term and short-term respectively. It is during the middle period that goals converge more; there is difficulty in

establishing impartial performance measurements due to the ambiguous nature of innovations. Top management and resource controllers do not really know how things are going with the innovation on an operational level and need to rely more on innovators for updates during that period.

Innovators will assure them that any problems can be solved and that they simply need some more time. After this period of ambiguity has passed and the status of the innovation is clearer Van de Ven et al. (1999) noted that there would be a strategic shift in resource controllers to more short term goal oriented results.

This will align the strategy of the innovation to goal based on the accurate status of the innovation.

Due to ambiguity during the middle period of the innovation process top management does not know how the daily running of the innovation is going. There will be a strategic change afterwards when the top managers realize the actual status of the innovation to realign their strategies to new goals, meaning a disruption to the current course of the innovation.

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Process Characteristic 7 – Fluid Participation of innovation Personnel

Personnel participating in an innovation within an organization tend to be involved in it only part- time and to have high turn-over rates. Organizations will commonly have people working part-time on their innovation projects, having people bring technical skills to the innovation, although often being inexperienced in innovating. Van de Ven et al. (1999) found that seldom would you see many of the people that began the innovation project, still working on it at the end of the project. This can have beneficial effects such as a steady influx of new ideas to the project; however this can also result in a brain-drain effect with departing people taking away some information on the

innovations as they leave. Innovation projects were seen as less secure, than traditional permanent positions at companies, as routines are not as established. For this reason people would often let their work on the innovation suffer in order to make sure they were performing well in their permanent positions

Introduction of new personnel brings in new ideas and fresh perspectives to the innovation.

If innovation is not a priority in companies people working part-time on the innovations will not be fully committed to the innovation. People will focus on performing well in their permanent position and will allow work on the innovation to suffer as it is not as important to the company as their

“real” job.

Process Characteristic 8 – Top management involvement and roles

Many top managers will be involved in the innovation process during the Development Period and will perform contrasting roles, often shifting, which serve to create a Pluralistic Leadership for the innovation team. They will often involve themselves in the innovation and intervene in matters by breaking vicious cycles or changing the development directions. Decisions they made were not only according to plan but rather according to current conditions. Van de ven et al. (1999) divide

leadership into four different roles, any of which a leader may perform as leaders were often found to demonstrate any or all of the four roles. These roles would serve as checks and balances to each

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other creating a more heterogeneous leadership, this reduces the risk of competency traps, oversight and increases foresight (Van de ven et al., 1999). These roles are described in detail in Chapter 3.3 Leadership During Innovation, these roles are: Sponsor, Mentor, Critic and Institutional Leader. An imbalance in these roles can lead an innovation project astray. With too much championing of the innovation without properly applying real-world business criteria to it, you can end up ignoring all

“naysayers”, real or otherwise, and continuing with an impractical and ultimately a failing

innovation. On the opposite end of the spectrum, if the Critic role is allowed to dominate it may be hard to get any innovation idea into development as success cannot be guaranteed.

By having equally strong leadership roles the top management is able to apply different and often conflicting goals to the innovation. The Sponsor helps marshal resources and communicate with top management, the Critic assures that business feasibility is taken into account, the Mentor lends his previous experience to the project while Institutional Leader intervenes when necessary, gives the project its structure and balances the influence of all roles.

Negative implications

If there is poor balance of leadership roles then viable projects might never be initiated or difficult projects might simply be cut short too early without fully exploring their possibility. Poorly planned projects may be developed or a project may simply end in a vicious cycle that is never broken and the project is cancelled.

Process Characteristic 9 – Relationships frequently altered

Organizations or innovators will often times develop relationships with outside organizations, engaging in transactions necessary to continue the innovation process. The nature of innovation is novelty and as such organizations may look outside of their own pool of resources in order to acquire the skills or resources that they need. A company or entrepreneurs will often enter into a relationship with outside entities for one of several reasons which can alter with time, leading to unintended consequences. Van de Ven et al. (1999) mention examples of resource scarcity forcing innovators to leverage sets of highly interdependent transactions, creating a fragile system of reliance. Partnerships and joint ventures can end up in stalemates due to parent companies’ strategic

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differences, and even successful close relationships where everything works well can lead to

groupthink. To make this even more difficult for innovators, collaboration, joint venture or any type of cooperation can change with time. Innovations can take years to come to fruition and during that time either internal or external factors can lead to a change in any of the participants in the

cooperation which can have detrimental effects. A former cooperator could turn into a direct competitor or a funding partner might decide to withdraw leaving the project underfunded.

Although perhaps more rare than negative changes, former competitors might form partnerships or joint ventures.

Relationships with external partners can change over time; a former partner may go into direct competition with your innovation after having learned of your methods or ideas. Partnerships can also end with the former partner taking away important resources such as people, funding or knowledge.

Process Characteristic 10 - Industry Team Playing

The industry, which an innovation is being developed in, needs to have a proper infrastructure to allow for a better implementation or commercialization of the innovation. This includes establishing institutional norms, basic scientific knowledge, financing and a pool of skilled workers. An

organization is often involved with larger outside public and/or private sector organizations and agencies in creating an infrastructure to support the development of their innovation, through a pool of human or financial resources. For a new industry however, this sort of industry macro-

infrastructure is not always available, which may lead to cooperative actions undertaken by several industry members to create such an industry infrastructure. This effort though leads to “the paradox of cooperation and competition”, where organizations that compete must work together as well in order to ensure the collective survival of the industry (Van de ven et al., 1999). Cooperating with other companies to create an industry infrastructure can help companies starting up in the industry.

It can also help current companies in expanding the size, importance and validity of the industry.

This can help in removing barriers and reducing the scarcity of resources.

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Choosing an industry with good infrastructure can help entrepreneurs in acquiring resources and support for their new ventures.

Some industries may be difficult to enter or simply may not have any infrastructure that companies can take advantage of.

The Implementation/Termination Period Process Characteristic 11 – Adoption

When an innovation, developed in-house is adopted and implemented, it is usually by integrating them into the current environment by what is called “linking the old with the new”. If this is an outside-developed innovation however, it is more likely to be reinvented to fit the organization’s situation. This however is not the end of the innovation’s development, as it may be reinvented to fit the organization. Not everyone is open to innovation however and people may resist this change as commitment has been made to the old system.

A new administrative system would be expected to confer benefits to the organization like an increase in productivity. A new product would mean new opportunities with new markets. This is not an end to the innovation as reinvention may continue.

Not everybody is ready to accept new ideas, when an administrative innovation is implemented into a company there might be a resistance to the innovation due to commitments to the old system. This is less of a problem though for product innovation but still they would need to be linked to the old system.

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An innovation is stopped when resources run out or when top management declare it either a success or failure, thus signifying the termination of the innovation process. If an innovation finished successfully then praise and merit is awarded to those that played a part in it, while blame is often assigned in cases of failed innovation.

An unsuccessful innovation would be terminated so more resources would not be wasted, or a successful innovation would be stopped as the goal of it has been reached.

If an innovation is deemed a failure there is often the assigning of blame to the person/s that were responsible for the innovation project.

4.0 Company Profile

4.1 History of CCP

In the beginning there was an idea, a massively multiplayer online game set in space where players would fight each other in spaceships, the focus would be on players fighting other players; the first line written of the games manuscript was written: “Death is a serious matter”. From this idea EVE Online would eventually develop and three friends started a company to make this game a reality.

In Iceland in 1997 Loki Margmiðlun was founded by Ívar Kristjánsson, Reynir Harðarson and Þórólfur Beck for the purpose of making EVE Online. Due to lacking the capital to start the several- year journey it would take to make EVE, they began by designing and releasing a board game known as Hættuspilið. The game was an enormous success and became a household stable at the time in Iceland, with around one of every eight homes owning the game (ÍVAR). In 1999 they changed the name of the company to Crowd Control Productions or CCP Games for short. Through an IPO in 2000 they raised more capital and the development of EVE Online began. In 2002 they signed a deal with Simon & Schuster to distribute their game in North America, during that time the

Innovation management in the Massively Multiplayer Online game industry