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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Business Administration

No 2006:1:
Organizational Downsizing and Innovation

Anders Richtnér () and Pär Åhlström ()

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.

Keywords: Innovation; Knowledge; Knowledge creation; Organizational downsizing; (follow links to similar papers)

22 pages, January 13, 2006

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