COMPLEMENTARITIES BETWEEN ORGANISATIONAL STRATEGIES AND INNOVATION

Abstract

The purpose of this paper is to determine whether organizational strategies in various manufacturing industries are complementary with innovation. In particular, our interest is to discover which organizational strategies are complementary with major innovations (world-first and Canada-first). Knowledge of complementarity should pave the way for creating sustainable competitive advantage because the use of a complex strategy may be difficult to imitate. In other words, competitive advantage increases as the complexity of the strategy increases (i.e. because the number of strategy combinations follows a power law), which acts as a barrier to potential imitators (Rivkin, J.W. (2000) Imitation of Complex Strategies. Management Science, 46(6), 824—844.). Because of the static nature of our results (productivity and profit are for 1997), their interpretation can only be tentative. Thus, our research is really a first step along the road to understanding the (potential) importance of complementarities among firm strategies. Caveats aside, managers may want to compare their own firm’s emphasis on particular strategies against what is empirically determined to be complementary with innovation and high- performance within their industry. The frequency of complementary pairs that involve innovation range from 40 to 50% depending on whether we are talking about profit, productivity, or strategies. This result is important — as it means that innovation outcomes are statistically significant for both increased productivity and increased profit. Furthermore, innovation was found to be complementary with many organizational strategies. The complementary strategies across industries were quite different, but this was expected to occur. Keywords: Innovation; Strategy; Complementarity; Supermodular; Submodular JEL Classification: 031; L25; L60