Innovation, Management Practices, and Productivity

Economics scholars have studied innovation as the “residual” in explaining productivity growth. Other research has examined the influence of programs like Six Sigma or ISO 9000, practices expected to directly improve efficiency and productivity within firms. Separately, management research has explored the idea that practices focused on process improvement can shift an organization’s focus toward incremental innovation, “crowding out” more radical, exploratory innovation. Thus, a full assessment of the influence of both innovation and management practices on productivity must consider how management practices—adopted specifically to improve operational efficiency—influence innovation. This chapter combines insights from three largely disparate research streams, highlighting the tensions and the potentially unintended longer-term effects of particular management practices on innovation. The chapter sheds light on the tension between improvement in firm-level productivity, innovation, and aggregate productivity growth, provides alternative explanations for results from prior research, and suggests some directions for future research.