What is the Relationship between Organizational Slack and Innovation

Innovation is generally viewed as critical to the competitive health organizations, industries, and nations. As such, how, why, when, and which organizations innovate has been a subject interest in such diverse literatures as economics, business strategy, RD March and Simon, 1958). Although, as will be discussed later, there are various definitions slack (Bourgeois, 1981), all them reflect the notion excess resources that both cushion the organization from environmental changes and represent an opportunity for discretionary allocations, such as to innovation activities. According to Rosner (1968), slack allows firms to purchase innovation, absorb failure, bear the cost developing and implementing innovations, and explore ideas in advance of an actual need. As an illustration, Lee and Grewal (2004) showed that slack was related to retailers' adoption the Internet as a communication channel. However, this cushion, which can enhance the competitive position the firm and be a source funding for innovation activities, may also be viewed as an impediment to organizational performance in general and to innovation activities in particular. At the organizational level, some have argued that slack reflects inefficiencies in organizations (e.g., Thompson, 1967; Yasai-Ardekani, 1986)--witness the emphasis on consolidation, streamlining, downsizing, and other efficiency-driven initiatives the last 20 years--and that poor internal control systems in public corporations contribute to inefficiencies in deploying such resources (Jensen, 1993). At the innovation level, it has been proposed that slack gives rise to reduced discipline in the management projects, thereby impairing innovation outcomes (Nohria and Gulati, 1996). Thus, slack has been viewed as both creating funding opportunities for innovation, and as encouraging wasteful, undisciplined spending that hurts innovation outcomes. Trying to reconcile these positions, Bourgeois (1981) postulated a curvilinear relationship between slack and organizational success in general, while Nohria and Gulati (1996) and Geiger and Cashen (2002) extended the argument to the slack-innovation relationship in particular and offered empirical evidence to support such a relationship. These researchers suggest that too little slack may inhibit experimentation leading to innovation, while too much slack may lead to diminishing returns, or accelerating diminishing returns, as a consequence undisciplined spending and improper oversight innovation projects. The purpose this study is to further explore and extend previous research on the nature the relationship between organizational slack and innovation in several important ways. First, this study addresses some the methodological limitations the oft-cited Nohria and Gulati (1996) study, thereby testing the robustness and generalizability their findings. …