The Effect of Organizational Slack on Innovation Performance: An Empirical Study of High-Tech Industry in China

The Effect of Organizational Slack on Innovation Performance: An Empirical Study of High-Tech Industry in China

Qiuyue Pan (Zhejiang University, China), Jiang Wei (Zhejiang University, China) and Latif Al-Hakim (University of South Australia, Australia)
DOI: 10.4018/978-1-5225-0135-0.ch023


To compete through disruptive innovation, organisations allocate part of its resources as a buffer to support its capability of disruptiveness or to face challenges created by competitors. These resources could be in terms of human resources, technology, equipment, information and/or financial resources. Literature refers to the buffer of resources as organisational slack. This research considers high-tech industry in China and investigates the relationship between the characteristics of the organisation's governance body, organisational slack and innovation performance. Data required by our research were obtained from various national databases available in the library of Zhejiang University. Data from 233 high-tech organisations listed in Chinese stock market were analysed. The results indicate that the interaction of the organisational slack of an organisation with various characteristics of the governance body partially moderates the innovation performance.
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Disruptive Innovation

The concept of disruptive innovation goes back at least to the work by Schumpeter (1934) who emphasised in his book ‘The Theory of Economics Development’ that innovation strengthens organisations competitiveness through creating new demand in new market while destroying old market (Wu et. al 2010). Abernathy and Clark (1985) stress that new innovation may destroy the value of existing innovation. However, the theory of disruptive innovation has first been shaped by Bower and Christensen (1995) with the focus on technology and the theory of disruptive technology has been established by (Christensen, 1997) in his seminal book ‘The innovator’s Dilemma’. Overtime, Christensen widened the concept to include also products, services and business models and refers to the new concept as disruption innovation (Christensen, 2006; Christensen & Raynor, 2003; Markides, 2006). To support the new concept, Christensen and Raynor (2003) provide examples of disruption innovation, including discount department stores, mass-market products, online businesses such as bookselling and education. Markides (2006) agrees that these innovations are disruptive to incumbents, but treatment all as one and the same “has actually confused the matters considerably”.

Key Terms in this Chapter

Governance Body: The governance body of an organisation is the board of directors or top management team that and makes strategic decisions and future plans.

Potential Slack: The potential slack represents future resources that can be generated by the organisation from outside sources, such as government or community supports.

Moderator: A moderator is a qualitative or quantitative variable that affects the directions or strength of the relation between independent (predictor) variable and a dependent (outcome) variable. The moderator also specifies the conditions under which the relationship between the predictor and outcome variables is affected.

Tobin Q: Tobin Q is an indicator for measuring business performance. It represents the ratio of the organisation equity market value to its equity book value. For stock listed organisations the equity market value is usually measured as the value of number of the organisation market shares listed in the stock market multiplied by total shares’ value ( Smithers & Wright, 2000 ).

Business-Model Innovation: Business-model innovation redefines the way in which products or services are provided to the customers using a fundamentally different business model in an existing business.

High-tech: This term refer to the cutting edge and advanced technology. An organization is a high-tech firm where it uses the most advanced available technology and characterized with intensive knowledge and high added value.

Radical Product Innovation: This type of innovation tends to create products or services with radically new attributes or functions. Radical product innovation disturbs the markets in which incumbents rely on.

Sustainable Innovation: Sustainable innovation refers to the innovation that tends to continually improves the attributes of the existing technology, products or services by giving the organisation’s mainstream customers more or better values.

Disruptive Innovation: Disruptive innovation is a reference to innovation that initially targets low-end customers, (niche market segment), who neglected by mainstream organisations with ‘good enough’ quality but cheaper in price. Over the time, it attracts the attention of mainstream customers and, eventually, displace the established technology, products or services.

Organisational Slack: Organisational slack is a reference to the resources available to the firm above the resources necessary to achieve immediate business and operational requirements. It is usually assessed in terms of financial resources. Organisational slack is considered vas the important source for funding innovation.

Recoverable Slack: This term is related to the resources that has observed by the organisation but can be recovered when needed through effective and efficient use of the resources. Examples of recoverable slack are excess overhead, first-class rather than economic traveling, etc.

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