Innovation despite reorganization
Authors: Aalbers Rick , Dolfsma Wilfred 
Published: July 2014

Purpose

– The purpose of this paper is to illustrate how to nourish innovation during the course of a downsizing event. Drawing from an array of intra-organizational network studies, we show how management can use its understanding of the existing formal and informal networks to rewire connections between employees. Downsizing always leaves scars. Yet tough choices need to be made in tough times. In such times, innovation efforts are easiest to cut since their returns are uncertain and will only arrive in the future. Innovation is known to suffer. Cutting on innovation however may simply postpone the inevitable by poorly equipping a firm for future survival let alone competitive positioning.

Design/methodology/approach

– The insights presented in this article are based on research and consulting work over the past years with a number of leading companies in industries varying from financial and information technology services, to engineering, trading and professional service firms (a.o. Atos Origin, Equens, Siemens, Deloitte, ING, Academia, DSM, Friesland Campina, Shell, Philips). This work centered on understanding how to orchestrate downsizing without hampering the interpersonal network of relations that constitutes the innovative DNA of the firm. To examine this process, we used organization network analysis techniques to visualize the networks that facilitate the transfer of innovative knowledge at a variety of organizations. Through a series of interviews in combination with analysis of the innovation networks pre- and post-downsizing, deeper understanding of the characteristics of the guardians of innovation was gained. Personal innovation activity and value of inputs were measured and these were correlated with the network position prior and post-downsizing.

Findings

– Orchestration of downsizing is a delicate and crucial task for management. There is a natural tendency, when deciding who to retain, to mostly look at the knowledge and capabilities that an individual holds. Without connections to others in the firm, however, even if the knowledge someone holds is relevant, it will not be developed further. In this paper, it is argued that a crucial ingredient of downsizing is for management to use its understanding of the existing formal and informal networks so it can rewire connections between employees keeping our findings in mind.

Research limitations/implications

– Downsizing requires managerial agility. While typically of strategic nature, the consequences of downsizing may have considerable negative operational consequences, disrupting organizational routines, when management does not tread carefully. When deciding on who to retain and who to let go, value attributed to individual knowledge and capabilities commonly play a leading role in guiding these managerial decisions. The true value of these knowledge and capabilities however, will not flourish without a supportive social infrastructure to leverage them within the organization. Without connections to others in the firm even the brightest idea will not be developed further. Successfully managing a downsizing even requires management to use insight in the existing formal and informal networks present within the organization to actively rewire connections between employees bearing our findings in mind. Without attention to properly retaining some wires and rewiring other social contacts, and particularly the ones that nourish innovation, downsizing becomes self-defeating.

Practical implications

– Managers need to take an end-to-end view of their innovation efforts, spotting firm-specific strengths and weaknesses and tailoring innovation efforts in a way that is appropriate to their firm. In times of downsizing, innovation efforts are easiest to cut, as their returns are uncertain and will only arrive in the future. Innovation is known to suffer. At the same time, however, cutting on innovation may simply postpone the inevitable by poorly equipping a firm for future survival, let alone competitive positioning. In this contribution, what innovation efforts should be cut and which should be maintained have been pointed out, and how innovation efforts can be maintained at lower cost has been shown.

Social implications

– Selecting among innovation efforts is important in good times, but it becomes a life-saving exercise in times of crisis. Not only profitability but also job security and long-term employability are at stake. In these times, investing in the development of new knowledge that may only be relevant in a distant future is no longer an option. What managers need to realize is, however, that innovation thrives on employees closely cooperating in fine-grained social interactions. With this consideration in mind, a firm can make better choices to continue to nourish innovation despite downsizing.

Originality/value

– Although the explicit desire to investigate network evolution is not a recent one (Burt, 2000; McPhersonet al., 2001), it only recently has found its way toward the field of organizational network studies (Van de Buntet al., 2005). We follow up earlier research by Shah (2000), as we shed light on the network effects of downsizing, which surprisingly has remained particularly rare in this line of research to date. These findings might prove useful to start up much needed studies on tie formation strategies (Hallen and Eisenhardt, 2011) which, at the intraorganizational level, have not been carried out to date.