Innovation by Operating Practices in Project Alliances – When Size Matters Ricarda B. Bouncken University Bayreuth, Prieserstr. 2, D 95440 Bayreuth, Germany Email: bouncken@uni-bayreuth.de Project alliances offer firms an opportunity to increase innovation performance through the flexible combination of specialized competencies across firms. Inspired by internal project management I classify two metrics of project alliances: formal and emergent operating practices. This study of 166 project alliances analyses the innovation performance impact of those practices. I find that emergent operating practices improve planned and serendipitous innovation regardless of a firm’s size. After a classification of two groups, small and large firms, I find that firm size moderates the effect of formal operating practices. Results show that small firms can improve their innovation performance by formal operating practices. Instead, large firms will face performance reductions on planned innovation when implementing formal operating practices. Introduction Increasingly, competition is based on whether firms can explore and exploit knowledge time and cost efficiently to develop innovations. In response to this, firms use alternatives to stable internal innovation organization: flexibility enhancing project organization (Sydow, 2006) and the alliance, which combines resources across firms’ boundaries (Cheng et al., 2004; Ireland, Hitt and Vaidyanath, 2002; Ramu, 1996; Reuer and Arino, 2007). Project alliances that combine both flex- ibility and the merge of knowledge across firms are a particularly important organizational vehicle to improve innovation (Bosch-Sijtsema, 2007). Even though project alliances as temporary inter-firm arrangements offer a goal-oriented and synergistic combination of resources, there is a lack of studies on their performance. Project organizations are formed for the per- formance of project tasks, i.e. by consultancy firms, marketing and advertising firms, the film industry, the computer games industry and the construction industry. Each project is presented as a temporary endeavour based upon specialist knowledge, which has been identified and purpo- sely combined for the project objective (Lundin and So¨ derholm, 1995). The purposeful arrange- ment of specialists and the merger of their knowl- edge encourage creativity, solve specific problems and further stretch the project participants’ knowl- edge base. Research has shown that projects require lower investments than the implementation of permanent new departments or divisions (Sydow, Lindkvist and DeFillippi, 2004). Project organizations are particularly advantageous when tasks are complex, interdependent, and have to be completed under strong time restraints (Hobday, 2000a). As such they are well suited for the quest of innovations (Schwab and Miner, 2008). Firms can expand their competencies, encou- rage specialists and improve the target-oriented focus on non-routine work by projects across organizational boundaries – project alliances. Two or more specialized firms, subcontractors and freelancers interacting with one another form a project alliance. Work is carried out on the basis of organizations moving as collaborators and subcontractors among different firms and projects (Staber, 2004). In the TV movie industry, i.e. TV channels, creative and technical pro- fessionals collaborate in a typical structure: TV channels contract executive producers on a permanent basis and project-wise engage creative British Journal of Management, Vol. 22, 586–608 (2011) DOI: 10.1111/j.1467-8551.2010.00688.x r 2010 British Academy of Management. Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA, 02148, USA.