Software innovations can offer organizations with competitive advantages. Research and development entities within the petroleum industry therefore seek to utilize IT capabilities to produce innovative software. Many factors may influence the success or failure of developing and implementing research-based software innovations in organizations. Of these issues the relation between software innovation and IT governance remains largely unexplored in the research literature.This study explores the effects IT governance has on the success or failure of research-based software development projects in an international petroleum company through an interpretive case study. The results of the study are twofold: 1) practical and 2) theoretical.The practical results show that the investigated petroleum company's emphasis on formalization has unfortunate side-effects on successful development and implementation of research-based software in the organization. IT governance, focused on stability of operations, is not well aligned with the corporate strategy of increased innovation. Moreover, the central IT department uses governance structures to guard the boundaries around the department.The theoretical results from the study presented that the impact of IS innovation or digital technology innovation on the research projects and how they can help the researchers to realize their ideas, remain unnoticed in the literature. Furthermore, In IS innovation literature, the organizations’ IS unit is the main responsible for IS innovation and it starts the innovation. However in the presented study R&D department had the main responsibility in innovation and it initiates innovation.