A multidimensional examination of slack and its impact on innovation.

Abstract

The concepts of organizational slack and innovation are central elements in strategic management literature. Innovation in particular has received a great deal of attention in recent past (Hitt et al., 1996; Hitt et al, 1997; Stuart, 2000). The focus of researchers on innovation has stemmed from its importance in creating competitive advantage through organizational adaptation and product development (Hitt et al., 1996; Sorenson, 2000). The concept of organizational slack has also recently received attention (Cheng and Kesner, 1997; Greenley and Oktemgil, 1998; Palmer and Wiseman, 1999) because of its ability to buffer firms from shortages of funds as well as its potential to foster innovation (Bourgeois, 1981; Cyert and March, 1963). It has also been argued, however, that organizational slack is wasteful, inefficient, and accumulates due to self-serving interests of managers (Jensen and Meckling, 1976; Nohria and Gulati, 1996; Simon, 1957). These arguments were synthesized by Nohria and Gulati (1996), who argue that extent of slack within firm impacts firm's level of innovation. In their study it was hypothesized that an inverted U-shaped relationship exists between slack and innovation. In other words, they suggested that as slack increases, innovation increases as well. However, at some point excess slack will actually reduce innovation because it allows for undisciplined investment in RD Bromiley, 1991; Cheng and Kesner, 1997; Palmer and Wiseman, 1999). It is expected that results of this study will serve to complement findings of Nohria and Gulati (1996), while providing for a more fine-grained insight into relationship between slack and innovation. In paragraphs that follow definitions of organizational slack and innovation will first be presented. Secondly, literature involving slack and innovation will be addressed, followed by development of hypotheses of interest. Next, methodological procedures used to test hypotheses will be described. Finally, results of analyses will be presented and implications and limitations of findings will be discussed. Slack and Innovation Slack has been defined in literature in many ways. For example, Cyert and March defined slack as the disparity between resources available to organization and payments required to maintain coalition (1963: 36). Similarly, Dimmick and Murray defined slack as those resources which an organization has acquired which are not committed to a necessary expenditure. …

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