The firm. 
Techno-organizational changes, industrial relations and performances.
An enquiry on Reggio Emilia local industrial system
Creators: name: Antonioli, Davide <1977>
Publisher: name: Alma Mater Studiorum - Università di Bologna
Year: 2008
Subjects: SECS-P/01 Economia politica

description: It is not unknown that the evolution of firm theories has been developed along a path paved
by an increasing awareness of the organizational structure importance. From the early
“neoclassical” conceptualizations that intended the firm as a rational actor whose aim is to produce
that amount of output, given the inputs at its disposal and in accordance to technological or
environmental constraints, which maximizes the revenue (see Boulding, 1942 for a past mid century
state of the art discussion) to the knowledge based theory of the firm (Nonaka &amp; Takeuchi, 1995;
Nonaka &amp; Toyama, 2005), which recognizes in the firm a knnowledge creating entity, with specific
organizational capabilities (Teece, 1996; Teece &amp; Pisano, 1998) that allow to sustaine competitive
advantages.
Tracing back a map of the theory of the firm evolution, taking into account the several
perspectives adopted in the history of thought, would take the length of many books. Because of
that a more fruitful strategy is circumscribing the focus of the description of the literature evolution
to one flow connected to a crucial question about the nature of firm’s behaviour and about the
determinants of competitive advantages. In so doing I adopt a perspective that allows me to
consider the organizational structure of the firm as an element according to which the different
theories can be discriminated.
The approach adopted starts by considering the drawbacks of the standard neoclassical
theory of the firm. Discussing the most influential theoretical approaches I end up with a close
examination of the knowledge based perspective of the firm.
Within this perspective the firm is considered as a knowledge creating entity that produce
and mange knowledge (Nonaka, Toyama, &amp; Nagata, 2000; Nonaka &amp; Toyama, 2005). In a
knowledge intensive organization, knowledge is clearly embedded for the most part in the human
capital of the individuals that compose such an organization. In a knowledge based organization, the
management, in order to cope with knowledge intensive productions, ought to develop and
accumulate capabilities that shape the organizational forms in a way that relies on “cross-functional
processes, extensive delayering and empowerment” (Foss 2005, p.12). This mechanism contributes
to determine the absorptive capacity of the firm towards specific technologies and, in so doing, it
also shape the technological trajectories along which the firm moves.
After having recognized the growing importance of the firm’s organizational structure in the
theoretical literature concerning the firm theory, the subsequent point of the analysis is that of
providing an overview of the changes that have been occurred at micro level to the firm’s
organization of production. The economic actors have to deal with challenges posed by processes of
internationalisation and globalization, increased and increasing competitive pressure of less
developed countries on low value added production activities, changes in technologies and
increased environmental turbulence and volatility. As a consequence, it has been widely recognized
that the main organizational models of production that fitted well in the 20th century are now
partially inadequate and processes aiming to reorganize production activities have been widespread
across several economies in recent years. Recently, the emergence of a “new” form of production
organization has been proposed both by scholars, practitioners and institutions: the most prominent
characteristic of such a model is its recognition of the importance of employees commitment and
involvement. As a consequence it is characterized by a strong accent on the human resource
management and on those practices that aim to widen the autonomy and responsibility of the
workers as well as increasing their commitment to the organization (Osterman, 1994; 2000; Lynch,
2007). This “model” of production organization is by many defined as High Performance Work
System (HPWS). Despite the increasing diffusion of workplace practices that may be inscribed
within the concept of HPWS in western countries’ companies, it is an hazard, to some extent, to
speak about the emergence of a “new organizational paradigm”.
The discussion about organizational changes and the diffusion of HPWP the focus cannot abstract
from a discussion about the industrial relations systems, with a particular accent on the employment
relationships, because of their relevance, in the same way as production organization, in
determining two major outcomes of the firm: innovation and economic performances. The
argument is treated starting from the issue of the Social Dialogue at macro level, both in an
European perspective and Italian perspective. The model of interaction between the social parties
has repercussions, at micro level, on the employment relationships, that is to say on the relations
between union delegates and management or workers and management. Finding economic and
social policies capable of sustaining growth and employment within a knowledge based scenario is
likely to constitute the major challenge for the next generation of social pacts, which are the main
social dialogue outcomes. As Acocella and Leoni (2007) put forward the social pacts may constitute
an instrument to trade wage moderation for high intensity in ICT, organizational and human capital
investments. Empirical evidence, especially focused on the micro level, about the positive relation
between economic growth and new organizational designs coupled with ICT adoption and non
adversarial industrial relations is growing. Partnership among social parties may become an
instrument to enhance firm competitiveness.
The outcome of the discussion is the integration of organizational changes and industrial relations
elements within a unified framework: the HPWS. Such a choice may help in disentangling the
potential existence of complementarities between these two aspects of the firm internal structure on
economic and innovative performance.
With the third chapter starts the more original part of the thesis. The data utilized in order to
disentangle the relations between HPWS practices, innovation and economic performance refer to
the manufacturing firms of the Reggio Emilia province with more than 50 employees. The data
have been collected through face to face interviews both to management (199 respondents) and to
union representatives (181 respondents). Coupled with the cross section datasets a further data
source is constituted by longitudinal balance sheets (1994-2004). Collecting reliable data that in
turn provide reliable results needs always a great effort to which are connected uncertain results.
Data at micro level are often subjected to a trade off: the wider is the geographical context to which
the population surveyed belong the lesser is the amount of information usually collected (low level
of resolution); the narrower is the focus on specific geographical context, the higher is the amount
of information usually collected (high level of resolution). For the Italian case the evidence about
the diffusion of HPWP and their effects on firm performances is still scanty and usually limited to
local level studies (Cristini, et al., 2003).
The thesis is also devoted to the deepening of an argument of particular interest: the existence of
complementarities between the HPWS practices. It has been widely shown by empirical evidence
that when HPWP are adopted in bundles they are more likely to impact on firm’s performances than
when adopted in isolation (Ichniowski, Prennushi, Shaw, 1997). Is it true also for the local
production system of Reggio Emilia?
The empirical analysis has the precise aim of providing evidence on the relations between the
HPWS dimensions and the innovative and economic performances of the firm.
As far as the first line of analysis is concerned it must to be stressed the fundamental role that
innovation plays in the economy (Geroski &amp; Machin, 1993; Stoneman &amp; Kwoon 1994, 1996;
OECD, 2005; EC, 2002). On this point the evidence goes from the traditional innovations, usually
approximated by R&amp;D investment expenditure or number of patents, to the introduction and
adoption of ICT, in the recent years (Brynjolfsson &amp; Hitt, 2000). If innovation is important then it is
critical to analyse its determinants. In this work it is hypothesised that organizational changes and
firm level industrial relations/employment relations aspects that can be put under the heading of
HPWS, influence the propensity to innovate in product, process and quality of the firm. The general
argument may goes as follow: changes in production management and work organization
reconfigure the absorptive capacity of the firm towards specific technologies and, in so doing, they
shape the technological trajectories along which the firm moves; cooperative industrial relations
may lead to smother adoption of innovations, because not contrasted by unions.
From the first empirical chapter emerges that the different types of innovations seem to respond
in different ways to the HPWS variables. The underlying processes of product, process and quality
innovations are likely to answer to different firm’s strategies and needs. Nevertheless, it is possible
to extract some general results in terms of the most influencing HPWS factors on innovative
performance. The main three aspects are training coverage, employees involvement and the
diffusion of bonuses. These variables show persistent and significant relations with all the three
innovation types. The same do the components having such variables at their inside. In sum the
aspects of the HPWS influence the propensity to innovate of the firm. At the same time, emerges a
quite neat (although not always strong) evidence of complementarities presence between HPWS
practices. In terns of the complementarity issue it can be said that some specific complementarities
exist. Training activities, when adopted and managed in bundles, are related to the propensity to
innovate. Having a sound skill base may be an element that enhances the firm’s capacity to
innovate. It may enhance both the capacity to absorbe exogenous innovation and the capacity to
endogenously develop innovations. The presence and diffusion of bonuses and the employees
involvement also spur innovative propensity. The former because of their incentive nature and the
latter because direct workers participation may increase workers commitment to the organizationa
and thus their willingness to support and suggest inovations.
The other line of analysis provides results on the relation between HPWS and economic
performances of the firm. There have been a bulk of international empirical studies on the relation
between organizational changes and economic performance (Black &amp; Lynch 2001; Zwick 2004;
Janod &amp; Saint-Martin 2004; Huselid 1995; Huselid &amp; Becker 1996; Cappelli &amp; Neumark 2001),
while the works aiming to capture the relations between economic performance and unions or
industrial relations aspects are quite scant (Addison &amp; Belfield, 2001; Pencavel, 2003; Machin &amp;
Stewart, 1990; Addison, 2005). In the empirical analysis the integration of the two main areas of the
HPWS represent a scarcely exploited approach in the panorama of both national and international
empirical studies. As remarked by Addison “although most analysis of workers representation and
employee involvement/high performance work practices have been conducted in isolation – while
sometimes including the other as controls – research is beginning to consider their interactions”
(Addison, 2005, p.407).
The analysis conducted exploiting temporal lags between dependent and covariates, possibility
given by the merger of cross section and panel data, provides evidence in favour of the existence of
HPWS practices impact on firm’s economic performance, differently measured. Although it does
not seem to emerge robust evidence on the existence of complementarities among HPWS aspects on
performances there is evidence of a general positive influence of the single practices. The results are
quite sensible to the time lags, inducing to hypothesize that time varying heterogeneity is an
important factor in determining the impact of organizational changes on economic performance.
The implications of the analysis can be of help both to management and local level policy
makers. Although the results are not simply extendible to other local production systems it may be
argued that for contexts similar to the Reggio Emilia province, characterized by the presence of
small and medium enterprises organized in districts and by a deep rooted unionism, with strong
supporting institutions, the results and the implications here obtained can also fit well. However, a
hope for future researches on the subject treated in the present work is that of collecting good
quality information over wider geographical areas, possibly at national level, and repeated in time.
Only in this way it is possible to solve the Gordian knot about the linkages between innovation,
performance, high performance work practices and industrial relations.