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Organizational Downsizing and Innovation

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Abstract

Companies implementing a downsizing strategy aiming at increasing cost efficiency and operational effectiveness may face the fact that their innovative ability is hampered. In this paper, we develop a model of the mechanisms through which organizational downsizing affects innovation. We use existing theory to develop propositions regarding the details of how and why organizational downsizing affects innovation. Our model contains three components: a) the organization’s stock of knowledge, b) the individual’s creativity, and c) the knowledge creation process. These are three components which previous research on innovation management has suggested strongly affects innovation. Downsizing is also likely to affect all three components in various ways. Overall, we can expect downsizing to have a negative effect on innovation, but there are aspects of the knowledge creation process which may be positively affected by downsizing.

Suggested Citation

  • Richtnér, Anders & Åhlström, Pär, 2006. "Organizational Downsizing and Innovation," SSE/EFI Working Paper Series in Business Administration 2006:1, Stockholm School of Economics.
  • Handle: RePEc:hhb:hastba:2006_001
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    1. Ikujiro Nonaka, 1994. "A Dynamic Theory of Organizational Knowledge Creation," Organization Science, INFORMS, vol. 5(1), pages 14-37, February.
    2. Van de Ven, Andrew R., 1986. "Central Problems in the Management of Innovation," Agricultural Research Policy Seminar 139708, University of Minnesota Extension.
    3. Udo Zander & Bruce Kogut, 1995. "Knowledge and the Speed of the Transfer and Imitation of Organizational Capabilities: An Empirical Test," Organization Science, INFORMS, vol. 6(1), pages 76-92, February.
    4. Nonaka, Ikujiro & Byosiere, Philippe & Borucki, Chester C. & Konno, Noboru, 1994. "Organizational knowledge creation theory: A first comprehensive test," International Business Review, Elsevier, vol. 3(4), pages 337-351, December.
    5. L. J. Bourgeois, III & Kathleen M. Eisenhardt, 1988. "Strategic Decision Processes in High Velocity Environments: Four Cases in the Microcomputer Industry," Management Science, INFORMS, vol. 34(7), pages 816-835, July.
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    Keywords

    Innovation; Knowledge; Knowledge creation; Organizational downsizing;

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