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Innovation is a key goal of many tertiary education and distance learning providers. This research explores how teachers and educational designers across three New Zealand tertiary institutions worked to innovatively achieve teaching goals. A longitudinal design using the Cultural Historical Activity Theory (CHAT) framework explored the influence of individual and institutional factors on innovation in online course design. Data included interviews, observations of practice, and publicly available institutional documents, which were coded using a grounded theory approach. Peer relationships and institutional technologies were significant in enabling staff to work innovatively. Constraining factors included high workload, research pressures, lack of time to experiment, and limited technological support. Contradictions between institutional policies and teachers’ goals in innovating were noted. This research has relevance to those working in a variety of educational settings due to the increasing influence of institutional and government policy on teaching practice. [ABSTRACT FROM AUTHOR]