My background is grad CS and Physics so I have to remind myself that not everyone has a depth of training in software development. One of the classic books in the field is The Mythical Man-Month, by Fred Brooks.
You can read an excellent summary at Wikipedia.
One approach to encouraging innovation is Google's "20% personal project" idea.
I had looked around for information on this and basically all I could find was that they took one day a week for personal projects (they don't smear it throughout the workweek). I was glad therefore to find a bit more information in a Slashdot posting: Google 20% Time from Software Development Practices At Google /.
Reading through the Slashdot thread leads to a report on a talk by Fred Brooks at GDC2003 (Game Developers Conference).
You can watch the video and see the slides at Gamasutra - GDC 2003 Video:
Fred Brooks' "Little to Big: What Changes?"
If you encounter a Gamasutra login, I suggest you use BugMeNot, as Gamasutra's signup form is ridiculously long and detailed.
Just to save some time here is a direct link to the slides (PowerPoint).
If you do watch the video, you probably want to skip the introduction, the talk starts at 4:24. Unfortunately the video and audio quality is only moderate at best (seemed better on the Mac than on Windows).
He talks about the challenge of putting in process and control for software development without stifling creativity.
You may be wondering, Why a game development conference?
Well, computer games are a huge industry. Bigger than movies.
Keys to success are delivering an innovative product on time.
That is a huge software engineering challenge.
You can check out the conference site: Game Developers Conference.
They have archives of presentations going back to 2000.
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