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Managerial Practices, Performance and Innovativeness: Some Evidence from Finnish Manufacturing

  • Koski, Heli
  • Marengo, Luigi
  • Mäkinen, Iiro

Our study aims at shedding light on the organizational mechanisms that produce differences in the firmsŽ innovation performance. We use a survey data collected from 398 Finnish manufacturing firms for the years 2002 and 2005 to empirically explore whether and which organizational factors explain why certain firms produce larger innovative research output than others, and whether the incentives to innovate that certain organizational practices generate differ between the SME’s and large firms, and between those firms that are operating in low-tech and high-tech industries. Our study indicates that one size does not fit all when it comes to the selection of organizational practices creating a business environment that is fruitful for innovation. There are vast differences in the organizational practices leading to more innovation both between the small and large firms, and between the firms that are functioning in high- and low-tech industries. While innovation in the small firms tend to benefit from the practices that enhance employee participation in the decision-making, the large firms that have more decentralized decision-making patterns do not seem to perform better in terms of innovation than those with a more bureaucratic decision-making structure. The most efficient incentive-based compensation means encouraging innovation among the sampled companies seems to be the ownership of a firm’s stocks by the employees and/or managers. Performance based wages also relates positively to innovation, but only when it is combined with a systematic monitoring of the firmŽs performance.

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Paper provided by The Research Institute of the Finnish Economy in its series Discussion Papers with number 1176.

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Length: 26 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:rif:dpaper:1176
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  1. Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
  2. Martin J. Conyon & Richard B. Freeman, 2001. "Shared Modes of Compensation and Firm Performance: UK Evidence," NBER Working Papers 8448, National Bureau of Economic Research, Inc.
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  8. S Black & L Lynch, 1997. "How to Compete: The Impact of Workplace Practices and Information Technology on Productivity," CEP Discussion Papers dp0376, Centre for Economic Performance, LSE.
  9. Bronwyn H. Hall & Grid Thoma & Salvatore Torrisi, 2006. "The market value of patents and R&D: Evidence from European firms," KITeS Working Papers 186, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2006.
  10. Sandra E. Black & Lisa M. Lynch, 2000. "What's Driving the New Economy: The Benefits of Workplace Innovation," NBER Working Papers 7479, National Bureau of Economic Research, Inc.
  11. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
  12. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
  13. Keld Laursen & Nicolai J. Foss, 2003. "New human resource management practices, complementarities and the impact on innovation performance," Cambridge Journal of Economics, Oxford University Press, vol. 27(2), pages 243-263, March.
  14. Ester Martinez-Ros & Jose Labeaga, 2002. "The Relationship Between Firm Size and Innovation Activity: A Double Decision Approach," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(1), pages 35-50.
  15. Holmstrom, Bengt R. & Tirole, Jean, 1989. "The theory of the firm," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 2, pages 61-133 Elsevier.
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