He Who Has Slack Resources and Seeks, Finds. And Innovates

A PAPER BY GABRIELE TROILO AND TWO COAUTHORS SHOWS THAT THE AVAILABILITY OF SLACK RESOURCES ALLOWS A FIRM TO SEEK INFORMATION OUTSIDE ITS CURRENT KNOWLEDGE DOMAIN, ENABLING IT TO RADICALLY INNOVATE

A new study shows that there is a positive relation between slack resources and radical innovation and that this relationship can be explained in terms of distal search activity, a type of search through which the firm looks for information outside its current knowledge domain.

Gabriele Troilo (Department of Marketing), Luigi M. De Luca (Cardiff Business School) and Kwaku Atuahene-Gima (China Europe International Business School) have published the article More Innovation with Less? A Strategic Contingency View of Slack Resources, Information Search, and Radical Innovation, in early view in Journal of Product Innovation Management (DOI: 10.1111/jpim.12094).

Radical innovation is a crucial source of competitive advantage for firms, but it involves high levels of risk and uncertainty and requires the mobilization of extra resources. To date we don’t known much about the effect on innovation of discretionary slack, i.e. those resources that are in excess of the minimum necessary to produce a given level of output. And no evidence at all existed about the relation between slack resources and radical innovation. Troilo and his co-authors, therefore, decided to investigate this issue by arguing that slack resources might prove important for a firm dealing with the uncertainty generated by radical innovation. The study was conducted on a sample of 363 high-technology firms operating in China.

The authors prove that discretionary slack has a positive effect on radical innovation, and they try to shed more light on this relationship by finding a possible mechanism: distal search. Distal search activity is a type of slack search by which the firm looks for information outside the current knowledge domain. It’s a risky activity, but firms with discretionary slack are in the best position to try it. The findings show that discretionary slack is positively related to distal search, which in turn is positively related to radical innovation. Moreover, the effect of discretionary slack on radical innovation is partially mediated by distal search. This means, the authors argue, that firms use discretionary slack, through distal search, to acquire new information in order to develop radical innovations (the so-called indirect route). But also that firms may use discretionary slack directly by endowing the radical innovation process with available resources (the direct route).

This study, however, gives us another interesting result. The authors, in fact, are able to demonstrate the moderating role played by the strategic orientation of the firm. Those firms constantly pursuing innovation activity (the prospectors) prefer the direct route to transform slack resources into radical innovation. But then the effect of slack resources on distal search is strongest among analyzers (firms pursuing innovation in stable markets), and the effect of distal search on radical innovation is strongest among firms that seldom engage in innovation activity (the defenders). To conclude, this research gives us more insights on the issue of innovation and resources and provides several guidelines to those firms interested in the process of radical innovation.

by Paola Zanella