Success belongs to the Flexible Firm: How Labor Flexibility Can Retain Firm Innovativeness in Times of Downsizing
Innovation can differ in its degree of radicalness and can take various forms
Abstract
Innovation is key – not only for highly technologically advanced firms in developed countries but also for small firms in emerging nations (Zanello et al., 2016). This insight is supported by the finding that “the build-up of innovative capacities has played a central role in the growth dynamics of successful developing countries“ (OECD, 2012, p. 4).
Innovation can differ in its degree of radicalness and can take various forms such as new products, processes, as well as marketing or organizational methods. The minimum requirement to qualify as an innovation is that it must be new (or significantly improved) to the firm, even if adopted from other firms (OECD, 2005). In this study, we focus on process innovation, which refers to the “implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.” (OECD, 2005, p. 49).
Innovation frequently suffers from downsizing (Hansson & Gandolfi, 2015), but for the below outlined three non-mutually exclusive reasons, firms nevertheless commonly engage in downsizing: First, according to the economic perspective on downsizing, firms rationalize downsizing as a means to cut cost and with that to improve a firm’s financial performance (McKinley et al., 2000). Second, as summarized in the industrial organization thesis, downsizing is often utilized in situations of low labor productivity, industry decline or a highly competitive environment (Kawai, 2015). Third, the cognitive reorientation towards perceiving downsizing as a way to be flexible and competitive increasingly validates downsizing as a suitable management practice (McKinley et al., 2000) to align strategy and resources (Agwu, Carter, & Murray, 2014).
Citation
Ritter-Hayashi, D., Knoben, J., & Vermeulen, P. A. M. (2018). Success Belongs to the Flexible Firm: How Labor Flexibility Can Retain Firm Innovativeness in Times of Downsizing. (DFID Working Paper). Nijmegen: Radboud University Nijmegen
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