What is the optimum amount of organizational slack? : A study of the relationship between slack and innovation in multinational firms

The relationship between organizational slack and innovation has remained an unanswered empirical question for decades and theorists continue to argue over the basic issue of whether slack facilitates or inhibits innovation. Opponents of slack claim that slack relaxes incentives to innovate and encourages wasteful investment in R&D activities, while its proponents counter that slack resources allow individuals and departments to experiment with projects that might lead to important innovations. In this article, Nitin Nohria and Ranjay Gulati attempt to reconcile the theoretical debate by postulating that slack is neither inherently destructive to an organization, nor is it a fail-safe cure. By discouraging any form of experimentation whose success is uncertain, too little slack inhibits innovation. Similarly, an abundance of slack inhibits innovation by fostering complacency and lax controls. These two extremes suggest the notion that an intermediate level of slack is optimal for innovation in any organizational setting. Multivariate analyses of survey data from 264 functional departments of two multinational corporations support the authors' proposition that both too much and too little slack are detrimental for innovation. Thus, the authors argue that rather than focusing on whether slack has a uniformly positive or negative effect on innovation, theorists and managers should instead ask the question, 'What is the optimal amount of slack?'