In times of an increasingly unstable global economy, the topic of organizational decline and its effect on innovative activities becomes more and more important. This study aims at contributing to the ongoing academic discussion of whether performance decline facilitates or inhibits investments in innovation. In order to do so, the paper draws on the opposing predictions of the behavioural theory of the firm as well as the threat-rigidity theory and discusses their implications with respect to the thesis topic. More specifically, by investigating a sample of 803 Japanese manufacturing firms from 2008 to 2012, this study explores how organizational decline in terms of performance below aspirations, firm’s threat of bankruptcy, and organizational slack affect decision making about R&D search intensity.
Table of Contents
1 Introduction
1.1 Organizational Decline
1.2 Organizational Innovation
1.3 Problem Statement and Research Questions
1.4 Analysis Plan and Value Added
1.5 Structure of the Study
2 Theoretical Foundations of the Decline-Innovation Relationship
2.1 Necessity is the Mother of Rigidity
2.2 Necessity is the Mother of Invention
2.3 Necessity – Mother of Invention or Rigidity?
2.3.1 Linking Organizational Decline and Innovative Activities
2.3.2 The Moderating Effect of Threat of Bankruptcy
2.3.3 The Moderating Effect of Organizational Slack
3 Research Design and Methodology
3.1 Research Design
3.2 Sample Selection and Data Collection
3.3 Variables
3.4 Analysis Procedure
4 Results
4.1 Univariate Analysis
4.2 Bivariate Analysis
4.3 Multivariate Analysis
5 Discussion and Conclusion
5.1 Theoretical Implications
5.2 Practical Implications
5.3 Limitations and Future Research
5.4 Conclusion
Objective and Research Scope
This study investigates the relationship between organizational decline and research and development (R&D) investment behavior, specifically examining whether performance below aspirations leads firms to increase or decrease their R&D search intensity, while considering the moderating roles of bankruptcy threat and organizational slack in a sample of Japanese manufacturing firms.
- Analysis of the conflict between "Necessity is the Mother of Invention" and "Necessity is the Mother of Rigidity" theories.
- Empirical investigation of 803 Japanese manufacturing firms over the period 2008 to 2012.
- Examination of the moderating influence of financial distress (threat of bankruptcy) on innovation decisions.
- Assessment of the role of uncommitted resources (organizational slack) in buffering or inhibiting R&D investments during decline.
Excerpt from the Book
2.3.1 Linking Organizational Decline and Innovative Activities
According to the management literature on firm decline and the consequent understanding in this study (cf. introduction), organizational decision-making and hence the strategic behaviour of firms is dependent on managers’ perceived aspiration-attainment discrepancy (Greve, 2003; Shinkle, 2012). Firm executives compare their organization’s performance with historical as well as social aspiration levels and base their decisions on the level of attainment. On closer consideration of the applied aspiration levels, it becomes clear that organizational expectations have a variable rather than fixed nature (Wiseman & Bromiley, 1996). This means that aspirations are based on varying reference levels such as firms’ past performance and/or competitors’ performance, instead of fixed benchmarks such as predetermined sales or return on asset (ROA) rates. The disadvantage of variable aspiration levels is that even if their non-fulfilment signifies a state of organizational decline, it usually does not allow a statement about firms’ health and long-term survival.
Nevertheless, although a negative aspiration-attainment discrepancy cannot be directly linked to a life-threatening firm condition, disregarded organizational decline leads to a downward spiral that ultimately eventuates in a lethal firm state (Hambrick & D'Aveni, 1988). For that reason, it is suggested that firms do not neglect performance shortfalls but try to make a stand against it. This is in line with Cyert and Marchs’ behaviour theory of the firm (1963), which states that managers whose firms are faced with performance below aspirations are motivated to make efforts to improve it (Wiseman & Bromiley, 1996). They are expected to have an open mind for novel strategies and to engage in problemistic search. In particular problemistic search is considered as a cure for declining organizations (Cyert & March, 1963). It is conducted in the part of an organization that is close to the perceived weakness and results in increased R&D investments when process or technology upgrades are expected to solve the performance problems. Thereby, the additional R&D expenditures are channelled to projects near completion rather than all-new activities. This offers managers a compromise between the need to solve an urgent performance problem and the long lead times common in R&D (Greve, 2003). Thus, in due consideration of the preceding argumentation, organizational decision-makers are expected to increase R&D search intensity when firms are judged to be in a decline state (in terms of aspiration attainment discrepancies). Therefore, it is hypothesized:
Summary of Chapters
1 Introduction: Provides the motivation for the study, defines organizational decline and innovation, and outlines the research gap regarding the conflicting theoretical perspectives on how firms react to poor performance.
2 Theoretical Foundations of the Decline-Innovation Relationship: Elaborates on the opposing "Necessity is the Mother of Rigidity" and "Necessity is the Mother of Invention" perspectives, establishing the theoretical framework and hypotheses.
3 Research Design and Methodology: Details the longitudinal research approach using balanced panel data from 803 Japanese manufacturing firms and defines the variables and statistical models used for hypothesis testing.
4 Results: Presents the descriptive statistics, correlation analysis, and the results of the multilevel linear regression models used to test the hypotheses regarding R&D search intensity.
5 Discussion and Conclusion: Interprets the empirical findings, discusses theoretical and practical implications, acknowledges study limitations, and suggests paths for future research.
Keywords
Organizational decline, R&D search intensity, innovation, behavioral theory of the firm, threat-rigidity theory, aspiration-attainment discrepancy, bankruptcy threat, organizational slack, Japanese manufacturing, performance downturn, strategic management, firm adaptation, longitudinal study, corporate finance, problemistic search.
Frequently Asked Questions
What is the fundamental objective of this master thesis?
The thesis aims to contribute to the academic debate on how organizations react to performance decline by investigating whether firms increase or decrease their R&D search intensity when they fall below their aspiration levels.
Which theoretical frameworks are analyzed?
The study contrasts two main schools of thought: the "Necessity is the Mother of Rigidity" perspective (grounded in threat-rigidity theory) and the "Necessity is the Mother of Invention" perspective (based on the behavioral theory of the firm).
What is the primary research question?
The research asks how organizational decline affects a firm's R&D investment in the following year and how this relationship is moderated by the firm's level of organizational slack and its threat of bankruptcy.
What scientific methodology does the author employ?
The author uses a longitudinal quantitative approach, analyzing balanced panel data from 803 Japanese manufacturing firms over the period 2008-2012, utilizing multilevel linear regression models to account for repeated firm observations.
What are the main components of the study?
The study covers the theoretical background, research design and data collection, statistical result presentation, and a detailed discussion on theoretical and practical implications for managers and policy-makers.
Which key variables characterize this research?
Key variables include the dependent variable "Change in R&D Search Intensity" and the independent variable "Organizational Decline," alongside moderators like Altman's Z-Score for bankruptcy threat and cash-to-book value for organizational slack.
Does the empirical evidence support the behavioral theory of the firm?
No, the findings reject the predictions of the behavioral theory of the firm, indicating instead that firms in the sample tended to behave rigidly and reduce innovation investments during decline.
How does the threat of bankruptcy influence the decline-innovation link?
The study suggests that the threat of bankruptcy acts as a significant moderator; when a firm is close to collapse, the negative impact of decline on R&D intensity is more pronounced, supporting the threat-rigidity theory.
What role does the Japanese context play in this research?
The focus on Japanese firms is significant because it highlights the importance of social aspiration levels, which the author suggests is likely influenced by the strong cultural preference for social comparison in Japan.
- Arbeit zitieren
- Marcel Bieg (Autor:in), 2014, Organizational Decline and its Effect on Investments in Innovation, München, GRIN Verlag, https://www.hausarbeiten.de/document/283559
