Innovation in Small, Project-Based Construction Firms * Peter Barrett and Martin Sexton Research Institute for the Built and Human Environment, University of Salford, The Old Fire Station, Salford, M5 4WT, UK Corresponding author email: p.s.barrett@salford.ac.uk Relevant literature is synthesized to provide a holistic picture of our current knowledge of innovation in small, project-based firms, highlighting significant gaps in the broad areas of ‘focus and outcome’, ‘organizational capabilities’, ‘context’ and ‘process’. Research findings from fieldwork focused on the construction industry are offered to address these gaps. In particular, a consensus model is given of the organizational factors dynamically at play. It is shown that typically the innovations of small, project- based firms are closely tied to their operational activities and are pushed forward by owners who utilize very scarce resources to make progress in the interstices of normal business. This leads to an emphasis on taking up established technologies through ‘learning on the job’. Growth per se is not an important target. The motivation to act is generally to get past a survival mode of operating and to achieve stability by satisfying clients. These characteristics contrast with large organizations, especially in terms of the role of the owner, the close focus on niche markets and the lack of slack resources to innovate in parallel with normal business. It is hoped that these results will be of interest to other sectors where small, project-based firms operate. Introduction The notion of sustainable competitive advantage is increasingly interwoven with the ability of nations and firms to successfully create, manage and exploit appropriate innovation. Two key strands can be identified. First, the enhanced understanding of the impor- tant role small firms plays in industrial markets. Acs and Audretsch (1991, pp. 150–151) list four key contributions from small firms: ‘they play an important part in the process of technological change; . . . generate much of the turbulence that not only creates an additional dimension of com- petition . . . but also provide a mechanism for [market] regeneration; . . . international competi- tiveness in newly created product niches . . . [and] job generation’. Interest in the contribution of small firms to innovation-led wealth generation and job creation has been revitalised in recent years at national and international levels (DTI, 2001; European Commission, 1996; OECD, 2000). Second, firms across a variety of industries are increasingly experimenting with project-based models of organization to accommodate and exploit fundamental changes in the nature and roles of markets and technologies (Ayas, 1996; Bonaccorsi et al., 1999; DeFillippi and Arthur, 1998; Kanter, 1997, 1983). Project-based organi- zation focuses on the production and/or delivery *The research project described in this paper was funded by the EPSRC/DETR: IMI Construction – Link programme (grant number: GR/M42107/01), and this support is gratefully acknowledged. The academic team was supported by Marcela Miozzo and Alex Wharton, University of Manchester Institute of Science and Technology and Erika Leho, University of Salford. The seven collaborating firms were Bosco Construction, Christodoulou Marshall Architects, Contract Services (R&R), Parker Wilson, PLP Construction, Taylor Hutchinson & Partners and Wardle Associates. Thanks are due to all the members of staff involved. British Journal of Management, Vol. 17, 331–346 (2006) DOI: 10.1111/j.1467-8551.2005.00461.x r 2005 British Academy of Management