Managerial Practices, Performance and Innovativeness: Some Evidence from Finnish Manufacturing

Our study aims at shedding light on the organizational mechanisms that produce differences in the firmsŽ innovation performance. We use a survey data collected from 398 Finnish manufacturing firms for the years 2002 and 2005 to empirically explore whether and which organizational factors explain why certain firms produce larger innovative research output than others, and whether the incentives to innovate that certain organizational practices generate differ between the SMEs and large firms, and between those firms that are operating in low-tech and high-tech industries. Our study indicates that one size does not fit all when it comes to the selection of organizational practices creating a business environment that is fruitful for innovation. There are vast differences in the organizational practices leading to more innovation both between the small and large firms, and between the firms that are functioning in high- and low-tech industries. While innovation in the small firms tend to benefit from the practices that enhance employee participation in the decision-making, the large firms that have more decentralized decision-making patterns do not seem to perform better in terms of innovation than those with a more bureaucratic decision-making structure. The most efficient incentive-based compensation means encouraging innovation among the sampled companies seems to be the ownership of a firms stocks by the employees and/or managers. Performance based wages also relates positively to innovation, but only when it is combined with a systematic monitoring of the firmŽs performance.