Sustained Innovation: Career Engineers, Stock Markets, and the Theory of the Innovative Enterprise

The aim of this paper is to document the role that career engineers played in the investment strategies and eventual survival of an organization producing large high technology capital goods. Using the theory of innovative enterprise developed by Lazonick and O'Sullivan (2000), we analyze the locus of strategic control and its interactions with the cognitive and behavioral dimensions of Rolls-Royce, nowadays a successful industrial firm. The company has been analyzed during an intense period of radical changes in the ownership structure of the company that followed the firm's misdemeanors. Analysis of the role of engineers is paralleled with an analysis of what influence the firm's exposure to the stock market had on its innovative activities. The case analyzed shows that there was a clear lead by the engineering-related functions, while other functions had little say in important investment decisions. Company decisions were driven by the creed of engineering excellence transmitted from generation to generation of engineers via the recruitment and apprentice systems that were at the basis of the company's internal training policy.