Adoption and Diffusion of Organizational Innovation

1 February 2008 at 12:34 am 3 comments

| Peter Klein |

Most theories of organizational form are framed in comparative-static, equilibrium terms. What organizational forms — degree of vertical integration, use of incentive pay, assignment of decision rights, and the like — are “optimal” in given circumstances (transactional attributes, industry conditions, legal or political environments)? There are lots of theoretical and empirical studies on these questions. And yet, we know relatively little about how new organizational forms emerge and how existing organizations change. Is change explained best in a comparative-statics framework — some underlying condition changed, leading firms to jump from the previously optimal, equilibrium form to a new, equilibrium form? Or is some kind of experimental, evolutionary, or institutional model required?

A new paper by Lisa Lynch, “The Adoption and Diffusion of Organizational Innovation: Evidence for the U.S. Economy,” addresses these questions empirically:

Using a unique longitudinal representative survey of both manufacturing and non-manufacturing businesses in the United States during the 1990’s, I examine the incidence and intensity of organizational innovation and the factors associated with investments in organizational innovation. Past profits tend to be positively associated with organizational innovation. Employers with a more external focus and broader networks to learn about best practices (as proxied by exports, benchmarking, and being part of a multi-establishment firm) are more likely to invest in organizational innovation. Investments in human capital, information technology, R&D, and physical capital appear to be complementary with investments in organizational innovation. In addition, non-unionized manufacturing plants are more likely to have invested more broadly and intensely in organizational innovation.

See also this paper on the evolution of contractual practices in US agriculture.

Entry filed under: - Klein -, Evolutionary Economics, Management Theory, Strategic Management, Theory of the Firm.

Erin Anderson (1955-2007) Workshop on Performativity and Finance

3 Comments Add your own

  • 1. brayden  |  1 February 2008 at 10:13 am

    I’m not sure why you think this paper is so innovative. Sociologists have studied diffusion processes for years, developing quite sophisticated statistical models. See for example this 1999 review article by David Strang and Sarah Soule.

  • 2. Peter Klein  |  1 February 2008 at 7:05 pm

    Brayden, is this a setup? Are you trying to goad me into saying “Yes, but I’m talking about serious studies (by economists).”

    Seriously, I think what Lynch is doing here is a little different from the studies you mention. Generally speaking, economists view diffusion studies by sociologists as too atheoretical (e.g., population ecology models). There has to be some kind of underlying rational-choice framework. That having been said, there are lots of good studies of the diffusion of technological innovation (Steve Klepper’s stuff, for instance), but relatively little on the diffusion of organizational practices.

    Actually, there was a breakout session at the Sundance conference co-organized by you, Brayden, in which Howard Aldrich, Art Stinchcombe, and I had exactly this same argument about “life-stages” models of the firm. Teppo tried to play referee. I thought I won, but probably no one else thought so. :-)

  • 3. brayden  |  6 February 2008 at 2:33 am

    If you want to set yourself Peter go ahead. :) No, really, I think you’re underestimating the theoretical significance of some of the sociological contributions to understanding diffusion. And some of these papers are looking at the diffusion of organizational practices. See, for instance, this ASQ paper by Guler, Guillen, and Macpherson, or this paper in AMJ by David and Strang looking at the spread of TQM.

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