This paper presents the results of a Grounded Theory study of how software process and software process improvement (SPI) is applied in the practice of software development. This study described in this paper focused on what is actually happening in practice in the software industry. Using the indigenous Irish software product industry as a test-bed, we examine the approaches used to develop software by companies at various stages of growth. The study used the grounded theory methodology and the results produce a picture of software process usage, with the outcome being a theory, grounded in the field data, that explains how software processes are formed and evolve, and when and why SPI is undertaken. The grounded theory is based on two conceptual themes, Process Formation and Process Evolution, and one core theoretical category, Cost of Process. Our research found that SPI programmes are implemented reactively and that many software managers reject SPI because of the associated implementation and maintenance costs and are reluctant to implement SPI models such as ISO 9000 and CMMI.