Abstract
Management innovation – the introduction of management processes, structures and practices that are new to companies, is crucial to business success. Based on the existing literature on management innovation and a rigorous theoretical approach to model design and development, a theoretical model of management innovation that is applicable to immature and underdeveloped markets was designed. Using this model, the study shows that the context in which companies operate, as well as companies’ management background (proficiency), are directly and positively related to management innovation. The main implication of the research is that the existing management innovation theory is applicable to market conditions in the Federation of Bosnia and Herzegovina with only slight adaptation. Furthermore, this research provides important insights about the factors that affect the companies’ readiness to introduce innovative management structures, processes and practices.