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How does downsizing influence a company its
process innovation performance?
by
Olivier Stam
Student number: s1702262
Master Thesis Strategy Innovation Management Supervisor: Wilfred Dolfsma
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ABSTRACT
This study intends to find how downsizing influences process innovation. The existing literature covers how downsizing influences product innovation. Yet there remains a gap on how downsizing influences process innovation. In order to fill this gap, this study uses the change in environment for creativity during a downsizing process to measure the change in process innovativeness. Previous research on downsizing and product innovativeness found a decrease in the environment for creativity during the downsizing process. This research showcases different results. The findings of this paper suggest that when a company focuses on process innovation, downsizing can hamper the innovativeness less than in a product innovation oriented company. Previous research in a product innovation focussed company found a decrease in autonomy or freedom as a consequence of downsizing. This thesis found a similar decrease. Unlike previous research this thesis doesn’t support that a decrease in autonomy or freedom will hamper the innovativeness of the company. This can be explained by the process innovation nature of the company. This thesis shows that a company that focuses on process innovation values the environment for creativity differently than a product innovation focussed company.
Keywords: Autonomy, Creativity, Downsizing, Environment for creativity, Freedom, Process
innovation,
ACKNOWLEDGEMENTS
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TABLE OF CONTENTS
1. Introduction……….………. 5
2. Literature review………. 6
2.1 Downsizing……….. 6
2.2 Downsizing and influence on innovation………. 7
2.3 Creativity………... 8
2.31 Pressures………. 9
2.32 Resources……… 9
2.33 Encouragement of creativity……….. 9
2.34 Autonomy or freedom……….... 10
2.35 Organizational impediments to creativity……….. 10
2.4 Process innovation……… 11
2.5 Process innovation elements………. 11
2.51 Strategy……….. 11
2.52 Collaboration……….. 12
2.53 Culture……… 13
3. Methodology………..……. 14
3.1 Case description……… 15
3.2 Data collection sources and procedures………... 15
3.3 Data analysis……… 16
4. Results………. 17
4.1 Pre downsizing phase………... 17
4.11 Creativity environment DWR………. 17 4.12 Creativity environment WLB. .……….. 17 4.2 Downsizing phase……… 18 4.21 Pressures……… 18 4.22 Resources……… 19 4.23 Encouragement of creativity………. 20 4.24 Autonomy or freedom ……….. 21
4.25 Organizational impediments to creativity………... 23
5. Discussion……….….. 23
5.1 Downsizing influencing the environment for creativity and process innovation……. 23
6. Conclusion and implications ………... 27
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6.2 Managerial Implications……….….. 28
6.3 Limitations and future Research……….. 29
7. References……….. 35
8. Appendix……… 35
8.1 A1- Organization scheme Waternet………..…... 35
8.2 A2- Organization scheme DWR ………...….….. 36
8.3 A3- Organization scheme WLB………... 37
8.4 B- Interview protocol………..………. 38
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1. INTRODUCTION
Downsizing is a common tool that is being used increasingly for restructuring companies worldwide. The municipality of Amsterdam called for downsizing during the last financial crisis. Consultancy firm Berenschot calculated that the municipality of Amsterdam had the highest cost per capita for municipal officials in the year 2012. The last two decades competition on cost between municipalities intensified. This increased competition resulted in organizational restructuring: managers had to become more innovative but, at the same time they had to reduce costs by "downsizing"(Dougherty and Bouwman, 1995). Downsizing is a process that can be crucial in companies’ future performance and can take years sometimes. Downsizing is something that occurs in almost every company, what makes it a relevant and important factor to examine, especially concerning the innovativeness. Downsizing and innovation are tools that are seen by many as contradicting. Downsizing can imply cutting cost that can affect the financial slack for innovation (Love and Nohria, 2005).
However, the effects of downsizing, re-engineering or restructuring on innovation has been examined by few researchers. Previous research elaborated on this topic was focused merely on the link between downsizing and the influence on product or organizational innovativeness. This research differs from previous research by focusing on the process innovativeness during downsizing.
A process is a set of related, structured actions or tasks that create a specific service or product for a particular consumer or customers. Process innovations aim to gain efficiency gains by cost reductions and increased production volumes (Kurkkio, Frishammar, and Lichtenthaler, 2011; Lim, 2006).
The importance of downsizing has been widely addressed in the literature. Some management issues receive a disproportionate amount of academic research compared with the importance in the real world. Downsizing research cannot be categorized in this group. Reorganizing, selective shrinkage, delayering, making redundant, rightsizing, retrenching, reduction in force, restructuring, de hiring, streamlining, reengineering¸ rebalancing, out placing are just some of the definitions used to describe downsizing (Datta, Guthrie, Basuil, and Pandey, 2009; Cameron 1994). The large amount of definitions affirms the width and importance of downsizing.
The following question is addressed to get a more thorough understanding of the influence of downsizing on process innovativeness.
‘‘How does downsizing influence a company its process innovativeness’’?
The environment for creativity has been emphasized as an indicator of both the creativity and the innovativeness in a company (Amabile and Conti, 1999). This research takes a closer look at the environment for creativity and the influence of downsizing on it. In order to answer this research question, a case study is used in this paper. The municipal Water Company of Amsterdam was taken as an example to accomplish this research question. Considering this was a company that focused mainly on process innovation and was involved in a downsizing process since it decided to merge in the year 2006, this case fits well in answering the research question.
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more the firm downsizes the less its ability to innovate (Mellahi and Wilkinson, 2006). Others have argued that downsizing enhances innovation through eliminating waste, smoothing communication, and speeding up decision-making (Dougherty and Bowman, 1995). How and which factors influence process innovativeness during the downsizing process?
The comparison between the effect of downsizing on a process innovation oriented company with previous literature on a product innovation company will give a better understanding about this subject.
2. LITERATURE REVIEW
More than often downsizing is seen as an easy way to increase the performance of companies, however downsizing does not always achieve the desired outcome (Guthrie and Datta, 2010). The aim of this research is to examine how downsizing does influence a company its process innovativeness. The following paragraph explains the downsizing and its influence on innovation followed by creativity and process innovation and the linkages between these constructs.
2.1 Downsizing
Building Down Compressing Consolidating Contracting
Declining De-Hiring Demassing Derecruiting
Dismantling Downshifting Funtionalizing Leaning-Up Ratcheting-Down Rationalizing Reallocating Reassigning
Rebalancing Rebuilding Redeploying Redesigning
Redirecting Reduction-in-Force Re-Engineering Renewing
Reorganizing Reshaping Resizing Restructuring
Retrencing Reevitalizing Rightsizing Slimming Slivering Streamlining
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Gandolfi (2007). Gandolfi (2007: p42) defined four downsizing attributes to distinguish downsizing from organisational decline and related concepts:
1) An intentional set of activities that implies organizational action (Cameron,1994)
2) Commonly involves a reduction in the number of employees (Cascio, 2003; Cameron 1994).
3) Concentrates on improving the efficiency of a firm to contain or decrease costs, to enhance revenues, or to increase competitiveness (Cameron et al, 1993; Gandolfi, 2006).
4) Influences work processes and leads to work redesign (Cameron and Freeman, 1994).
2.2 Downsizing and influence on innovation
As stated earlier, only a few studies examined the effects of downsizing, re-engineering or restructuring on innovation. A survey by Bennet (1991) found that only 7% of the organizations achieved their desired increase in innovation following a downsizing.
By several scholars evidence has been provided that downsizing has impact on innovation (Boomer and Jalajas, 1999; Amabile and Conti, 1995; 1999; Dougherty and Bowman, 1995; Brockner et al, 1987). The widely reckoned belief that the more the firm downsizes the less its ability to innovate, is confirmed by most researchers (Mellahi, 2006). The negative impact of downsizing has been supported by reports of motivation and commitment of remaining employees (Vahtera ,1997). Brokner, Grover, Reed, De Witt and O'Mailey (1987) found that downsizing led to a reduction in risk taking and explains that downsizing has a negative impact on the ability to innovate.
Downsizing is often linked with reducing expenditures on R&D budget, recruiting less externally ,cutting cost, providing less training for employees, (Boomer and Jalajas, 1999). Positive results of downsizing are lower overhead, less bureaucracy, faster decision making, smoother communications, greater entrepreneurship and an increase in productivity (Wayne, 1993).
Although some results show that downsizing has a negative impact on innovation and firm performance there are several examples of operations where downsizing led to increased innovation performance (Boone, 2000). During the downsizing process open communication between decision makers and staff facilitate more creative work after downsizing (Amabile
and Conti, 1999). In compliance with this Hammer (1996) argues that teamwork and an empowered multi tasked workforce encourage new ideas generation. Ross (1974) took another step and argued that elimination of positions and management layers could create an internal environment that would favour innovation. Other scholars noted that downsizing may create financial slack that can be used in the development of multi skilled teams, and that can influence organization structures in such a way that it can lead to more, not less innovations (Love and Nohria, 2005).
Creativity is considered to be an important driver of innovations and is influenced by the work environment for creativity during a downsizing process (Amabile and Conti, 1999). Amabile
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have success innovating after reorganization until the moment they experienced several events in the reorganization. It is important that firms have practiced the right application of what is learned in different circumstances.
There remains an important gap to be filled regarding the influence of downsizing on innovation.Although the numerous contributions by prior research a gap remains about what is known about the effect of downsizing on innovation. To close this gap my research examines the environment for creativity prior and after a downsizing process. In order to close this gap, qualitative research is used to get a better understanding on what factors influence a company’s innovativeness before and during a downsizing process and what factors will be recognized as being important after the downsizing. The distinction between these moments in time during the downsizing process gives a better understanding of the importance of factors that influence a company’s innovativeness during downsizing. The main difference with previous research is the focus on process innovation. This research tries to find possible linkages between the positive and negative effects of downsizing and their relation with process innovation
2.3 Creativity
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2.31 Pressures
Andrews and Farris (1972) found that in R & D environment, time pressure was generally associated with high creativity, except when the pressure reached an undesirably high level. Therefore Amabile et al. (1996) makes a distinction between positive and negative workload pressures. Amabile and Conti (1999) found that downsizing leads to a decrease in positive and an increase in negative workload pressures. The literature on process innovation doesn’t say anything about positive or negative workload pressures. It does highlight a decrease in risk taking (Brokner et al., 1987) that can be explained by exceeding the level in negative workload pressures during a downsizing process. Furthermore, empowerment is highlighted as factor that can assist the innovation process (Pearce, 2004). Empowerment can be used as a tool to stimulate positive challenge and take away negative workload pressure during a downsizing process.These arguments lead us to the following propositions.
Proposition 1a: Downsizing will lead to an increase in negative/positive workload pressures. Proposition 1b: An increase in negative/positive workload pressure will lead to an increase/ decrease in process innovation.
2.32 Resources
The allocation of funds for projects is directly related to the creativity levels of a project is suggested by a number of researchers (Cohen and Levinthal, 1990; Damanpour, 1991). The importance of resources and the allocation of them for the right innovation projects are also highlighted as important factors for process innovations (O’Hara, 1993). Firms should carefully decide which projects they want to use their resources for. Amabile and Conti (1999) and Boomer (1999) linked downsizing to a decrease in resources. These arguments lead to the following propositions.
Proposition 2a: Downsizing will lead to a decrease in resources.
Proposition 2b: A decrease/increase in resources will lead to an increase/ decrease in process innovation.
2.33 Encouragement of creativity
Encouragement of creativity includes an open flow of information and support for new ideas at all levels of the organization, from top management, via team leaders down to the work floor (Amabile et al, 1996). Scott (1997) endorses the importance of management support for process innovation. Taking a proactive attitude to strategy will support the process innovation (Skinner, 1992; Brown 2001). This is in line with creating environment for creativity that emphasizes the support for new ideas (Amabile et al, 1996). Amabile and Conti (1999) found an decrease in the encouragement of creativity as a result of downsizing.
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innovation. This combined with the literature on downsizing, innovativeness and creativity will lead us to the following propositions.
Proposition 3a: Downsizing will lead to a decrease in the encouragement of creativity.
Proposition 3b:A decrease in the encouragement of creativity will decrease process innovation
2.34 Autonomy or freedom
Autonomy or freedom is important in the daily course of work, for the sense of individual ownership over your own work and your own ideas (Amabile et al, 1996). People produce more creative work if they have a choice in how to deal with the completion of the task they are given (e.g., Amabile and Gitomer, 1984). Furthermore, autonomy or freedom is important for a company structure that fosters process innovation. Process innovation generally profits from a more exploitative company structure. Exploitative innovation benefits from a centralized organization that narrows down communication channels (Cardinal, 2001). Complementary with this is the degree of formalization that fosters exploitative innovation (Jansen, 2006). This leads to a decrease amount of autonomy or Freedom. Striving for process innovation benefits from an organization with not too much autonomy or freedom. Amabile
and Conti, 1999 show that downsizing will lead to a decrease in autonomy or freedom. These arguments together suggest:
Proposition 4a: Downsizing will lead to a decrease in autonomy or freedom.
Proposition 4b: A decrease in Autonomy or freedom will foster increase process innovation .
2.35 Organizational impediments to creativity
Conservatism, formal management structures and internal strife in an organization impede creativity (Kimberley and Evanisko, 1981). Employees perceive these factors as control, which can lead to allow individuals to increased extrinsic motivation and corresponding decrease in the necessary intrinsic motivation needed for creativity (Amabile, 1988; Deci and Ryan. 1985). Although the literature on process innovation did not pay attention to this construct, I assume that organizational impediments can lead to a decrease in process innovativeness. In compliance with the previous literature on downsizing and the environment for creativity I argue that downsizing will increase organizational impediments to creativity (Amabile and Conti, 1999). These arguments lead us to the following propositions.
Proposition 5a: Downsizing will lead to an increase in organizational impediments to creativity.
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2.4 Process innovation
A process can be defined as a structured, measured and related set of actions that produce a particular service or product for a specific group of customers or market (Becker, Kugeler, and Rosemann, 2003). The design of a process should be there to add value for the customer and not include activities that don’t add any value. Combining process with innovation, it is the executing of an action in a radically new way and implies the transformation of business processes and use of specific change tools (Davenport 1993). It can be explained as the adoption of technologically new or significantly improved production methods. Previous literature states that process innovation focuses on creating efficiency gains. These efficiency gains are created by cost reductions and increased production volumes and shorter development time (Kurkkio et al, 2011; Lim et al, 2006; Pisano, 1994; Pisano, 1996). Another outcome of process innovation is an increased effectiveness leading to an increased product quality and reliability (Gopalakrishnan, Bierly and Kessler 1999). Furthermore, process innovation may lead to a more sustainable environment through environmental friendly production (Pisano, 1997) and increased worker safety (Lager, 2010).
2.5 Process innovation elements
To understand the outcomes realized by process innovation, it is important to understand the elements that lead to process innovation. Frishammer, Kurkkio, Abrahamsson and Lichtenthaler (2012) proposed a framework that outlined the elements that create the firms potential process innovation capabilities. These potential process innovation capabilities lead to the process innovation outcomes described in the literature such as efficiency, effectiveness and sustainability. The following paragraph will identify and explain the three most important elements from this framework that lead to process innovation; Strategy, Collaboration and
Culture.
2.51 Strategy
The attitude of a firm towards process innovation can support a firm’s strategy when a company takes proactive attitude towards it (Skinner, 1992; Brown 2001). The firm’s strategic decision making is important to come to successful process innovation (Reichstein and Salter, 2006). The overall strategy of a firm plays a decisive role in firm’s capabilities for process innovation. The stage of development is seen as an indicator important for the strategy being pursued (Utterback and Abernathy, 1975). Previous literature has shown that when an industry matures, innovative activity shifts from product to process innovation (Utterback and Abernathy, 1975).
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Acquiring external knowledge is often seen as an easy and convenient way to learn and expand current strategies. Firms often lack the skills to do this the right way. This makes acquiring external knowledge and capabilities a costly process. Previous experience with external partners is therefore important for investments and portfolio balancing into new process technology (Gopalakrishnan et al, 1994; Ettlie, 1990; Chai, Gregory, and Shi, 2004). These arguments lead us to the following propositions.
Proposition 6a: Downsizing will harm the followed innovation strategy. Proposition 6b: A decrease in resources will harm process innovation
2.52 Collaboration
Collaboration among internal and external units is important for managing process innovation. Entrepreneurial networking is an important factor for successful collaboration. Dougherty and Bowman (1995) found how downsizing breaks the entrepreneurial networking in a company that focuses on product innovation. I expect to see a similar decrease in a company that focuses on process innovation.
The importance for internal collaboration lies in ensuring that the expertise of the relevant departments is integrated in the process innovation activities (Gopalakrishnan et al, 1999; Ettlie and Penner-Hahn, 1994; Athaide, Meyers and Wilemon, 1996). A shared vision among team members, job rotation and interpersonal flow are some of the factors that are important in cross-functional teams. Collaboration among different departments can lead to the right mix of skills and competencies to develop process innovation. Cross functional teams seem to be a logical outcome of bringing different departments together. The novelty and the type of uncertainty play a big role in determine whether a cross functional team is suitable (Tyre and Hauptmann, 1992). Tyre and Hauptmann (1992) showed that the higher the level of technical novelty involved, the less useful was overlap between engineering and manufacturing functions.
Sawy (2001) suggests that an organizational environment encourages process innovation projects through knowledge sharing and creation. The interactions between managers’ explanations for poor organizational performance and the physical structure of the workplace are critical determinants in the effort to learn and improve cooperation, team-based organizations, integration of work tasks and competences are outlined by the literature as organizational structures and systems that stimulate and support internal organizational collaboration (Pisano, 1994; Macher and Mowery, 2003 Ettlie and Penner-Hahn, 1994). If a company wants to boost its latent process innovation capacity, the process of generating and developing ideas by employees should be facilitated and fostered by the organization. For a successful implementation of this initiative, the flow of ideas and information should be treated as joint effort between the internal departments of a company.
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facilitated in a social environment (O’Hara, 1993). High quality relationships are an important element to come to technological and organizational changes both required in process innovation (Gopalakrishnan et al, 1999). The literature described empowerment and involvement in decision making as important factors to come to more involved team members (O’Hara et al, 1993).To conclude; top management can lead to a smaller amount of resistance to change and greater satisfaction among employees.
To reach beyond its internal innovation capabilities firms often initiate collaborations with external partners. The use of collaboration with external partners can be an important factor to achieve the desired level of process innovation .The best source of knowledge can be found in suppliers, if process innovation is the goal (Reichstein and Salter, 2006). Other potential partners could be both competing and non-competing firms, universities, consultants and customers. These factors are all seen as important factors when creating and implementing process innovation. Inter organizational collaboration is often used to gain knowledge from external partners for developing innovations (Tyre and Hauptmann, 1992; Sawy, Eriksson, Raven and Carlsson, 2001). In order to come to innovative ideas persons outside an organization are often seen as a way to import innovative ideas (Sawy et al, 2001). Inter organizational collaboration can therefore support a firm’s potential process innovation capability. These arguments lead us to the following propositions.
Proposition 7a: Downsizing will lead to a decrease in collaboration. Proposition 7b: A decrease in collaboration will harm process innovation
2.53 Culture
A good innovation climate is needed to stimulate the culture for process innovation work. The type of climate that enables process innovation entails experimentation, freedom, playfulness, risk taking and empowerment (Akgün, Keskin and Byrne 2009; Ekvall 1996). Team creativity, empowerment and a shared vision of the process innovation team are highlighted by Pearce and Ensley as factors that lead to idea generation and assist the innovation process (Pearce and Ensley, 2004). Risk taking is mentioned as an important element to come to more radical innovation. Bagshaw (1998) found a decrease in risk taking among downsizing survivors. A study by Baer and Frese (2004) highlighting the climate for initiative and for psychological safety, shows that a low level of these two factors and a high level of process innovativeness will result in an outcome that is inferior than if they had not innovated at all (Baer and Frese, 2004). The results of this study outlines the importance of organizational climate that fosters taking risks, openly discussed problems, proactively approach work and proposed new ideas.
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2003). This clarifies the relevance of the degree of centralization in achieving process innovation.
In line with these findings Jansen, Van Den Bosch and Volberda (2006) argue that the degree of formalization positively influences exploitative innovation. As earlier stated most process innovation have an exploitative character with its generation of less uncertainty about requisites for organizational units (Gopalakrishnan and Damanpour, 1994). This conflicts with playfulness and risk taking. These arguments lead us to the following propositions.
Proposition 8a: Downsizing will harm the companies’ innovation culture. Proposition 8b: A decrease in innovation culture will harm process innovation
3. METHODOLOGY
The research in this paper presents a single case study of a large governmental Water company. The first of January 2006 Waternet was established as a foundation on behalf of the municipality of Amsterdam. The company is a merger between Dienst Waterbeheer and Riolering and the Waterleidingbedrijf Amsterdam into the company Waternet. This method section starts with explaining the reasons for selecting a case study. This is followed by an overview of the case. This method section concludes with explaining the sources and procedures used to collect and analyze the data.
The case study is a research strategy which focuses on understanding the dynamics present within single settings (Eisenhardt, 1989). Instead of testing a few variables and their interrelationship a case study helps the researcher to understand the meaning of the specific case (Merriam, 1998, Baarda, 1997). The case study approach supports a deeper and more detailed investigation of the type that is normally necessary to answer how and why questions (Rowley, 2002). Linkages will be made from interviews and reports and what is found in the case (Lee, 1999).
This case study is an example of a theory-testing research. This can be justified by three factors. First, the existing literature stream concerning this phenomenon is quite elaborated. The conducted research is less scattered than in the case of exploratory research (Aken, Berends and van der Bij, 2012).
Second, the focus on process innovation helps to address a gap in the existing literature rather than developing a completely new theory. This research helps to close a gap in the existing literature (Aken, Berends and van der Bij, 2012).
Finally, existing literature on process innovation, creativity and downsizing has been used to identify the relevant variables in the conceptual model (Aken, Berends and van der Bij, 2012). This study adopts a single case study approach and is justified by four factors. First, “How does downsizing influence a company’s process innovation performance?” is descriptive and exploratory in nature, thereby supporting the use of a case study method (Yin, 1994).
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benefits from the previous development of theoretical propositions to guide data collection and analysis (Yin, 1994).
The justification for choosing the case of Waternet is embodied in several reasons. First, this case is about a company that actively is involved in innovations. One of the mission statements of the company is to be innovative. The fact that innovation is one of the mission statements of the company results that the research question is highly relevant in this case study for Waternet. Second, Waternet is a company that only focuses on process innovations. This makes it easy to focus on the process innovativeness within the company without having the need on focusing and distinguish different kind of innovation processes. This not only makes this case relevant for answering the research question but also helps to distinguish this case from other cases involving the influence of downsizing on innovativeness.
Lastly, I choose this case because of knowing a former employee of the company. This employee had the contacts that helped me with finding data and brought me in to contact with even more contacts that helped me gathering all the relevant data and information conducting this research. The willingness, sincerity and openness experienced examining interviews and gathering information helped me to collect high quality information.
3.1 Case Description
This study was carried out at Waternet, the water company for the City of Amsterdam and a large part of the province of Utrecht and Noord-Holland. Waternet is the only water company in the Netherlands that covers the entire water cycle, from the treatment of waste water and provision of drinking water, to cleaning and maintaining levels of surface water. Waternet does this on behalf of the Regional Public Water Authority of Amstel, Gooi and Vecht and the City of Amsterdam. Waternet was officially launched on January 1, 2006 after a merger of Amsterdam Water Supply “WLB” (Water Leiding Bedrijf) and the Water and Sewerage Department “DWR” (Dienst Water en Rioleringen). Both companies were founded in the middle of the 19th century and were the first in this branch in the Netherlands. Waternet focuses on the entire water cycle; this chain starts with the extraction and treatment of water from ground and surface water, the treated water is transported to the consumer. The wastewater is transported to treatment plants and transported back to the surface water; the where the entire process starts again. Waternet produces an average of 260.000 m³ of drinking water per day by means of two production plants, through approximately 2,700 kilometers of pipeline. Sewage is transported through a sewer system of up to 4,000 kilometers to 12 waste treatment plants. The Environment and Transport Inspectorate (ILT) has been appointed as supervisor of compliance with the rules for drinking water “Drinking water law” in the Netherlands. Drinking water quality is constantly monitored, as is prescribed in this drinking water law, which describes the maximum permissible concentration of substances that may be present in drinking water. The process of production and treatment has been refined throughout the years, in this process Waternet emphasizes on 5 values: durability, customer focus, safety, leading in technology and being innovative.
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focus, technical issues needed for service innovation such as the development of websites and call centres are outsourced.
Waternet has the highest quality drinking water in the Netherlands and scores best on sewage management. In order to achieve these goals, research and innovation is essential, close cooperation with a range of research organizations is vital. The TU Delft, the University of Amsterdam, Amsterdam University of Applied Sciences, Wageningen University and Research Centre, and KWR Watercycle Research Institute are important participants. Waternet presents itself as an innovative organization and is always looking for new solutions. For example, the sludge that remains after the water treatment is converted to green energy: natural gas. This so called green gas is used as energy source for own car fleet and buildings. Surplus gas is supplied to an energy supplier.
3.2 Data collection sources and procedures
The data collection was obtained at the headquarters of Waternet in Amsterdam as well as at the drinking water treatment plant Leiduin located in Heemstede. I gathered my information through interviews, public documents and internal reports.These reports served as an addition to support certain assertions and quotes by the interviewees. The use of these reports helped me to increase the validity of my findings. I conducted nine interviews with eight different types of managers of the company. All managers I interviewed where responsible for operating or supportive departments within the company. This led to an overview of almost all involved departments. Prior to the downsizing period, six of the interviewees where former employees of DWR and three employees of WLB. Seven interviews were held at the headquarters of Waternet in Amsterdam and two took place at the purifying plant at Leiduin, Heemstede. Two of the interviewees where directly involved in the innovation process. One was and is still manager on the R&D department of Waternet; he was head responsible for the redesign process of the two different R&D departments involved in the merger. The other employee is an advisor in the R&D department. The other interviewees are indirectly involved in the innovation processes at Waternet. One of them is head of the department of waste water. Two employees where responsible for the drinking water; one as a head of the department and another one as a team leader. Furthermore I interviewed the head of the water control department, acreage control and two employees of the strategic centre: respectively the head and an advisor of the department. An overview of how these functions correspond with each other can be found in the appendix (A1).To conduct the interview I used an interview protocol (appendix B). This protocol was designed to examine the differences in the environment for creativity prior and during the downsizing process of Waternet, how and why these factors changed and more specifically what the influence was on the innovation process within Waternet. I asked the interviewees for two different phases in the downsizing process. I examined the downsizing process before, and during the entire downsizing process. The interviews and reports where first transcribed and labelled where possible. After this process everything was analyzed and put in the result section.
3.3 Data analysis
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influenced as a part of the downsizing process. Findings will show how the innovativeness during the downsizing process is being threatened. The findings will be discussed in the discussion section.
4. RESULTS
4.1 Pre downsizing phase: Environment for creativity
When the Waternet Company started its downsizing process, Waternet consisted of two companies that were fused, with the intention to achieve synergy as soon as possible. The way how the Amsterdam Water Supply (WLB) and the Water and Sewerage Department (DWR) dealt with the innovation process is described in the next paragraph. This paragraph portrays the most important features of the innovation process, and will also describe how the environment for creativity was affected within Waternet and the way this environment evolved in the company as a result of the downsizing process.
4.11 Creativity environment Water and Sewerage Department (DWR)
DWR was mainly focused on the primary process. This consisted out of the collection of surface water, ground water management and research on dikes. There was some focus on the optimization of processes but the main focus was managing processes and ensuring a high quality level of the final product. The innovation processes were carried out within the various departments of the company (appendix A2). Each of the departments at DWR had its own specialist who worked closely with the employees that where involved in the implementation and execution of the innovation and daily processes within the department. These specialists could be deployed for working on R&D activities but also for activities that directly contributed to the daily work process or routines. These specialists where relatively free in what projects they wanted to work on, and the method of reporting was structured quite freely. The monitoring of the R&D projects was mostly done by the department managers; nevertheless the specialist had a large amount of freedom to work on their own ideas. In some cases this led to hobbyism. It was not always clear how a specialist contributed to the interest of the organization and to what extent their work was contributing to increased savings or other important organizational values. The higher management and the municipality of Amsterdam did not always know how the innovation budget was allocated and invested.
4.12 Creativity environment Amsterdam Water Supply (WLB)
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people had to work within a reporting structure that was very loosely. For this reason hobbyism was also present within WLB departments to some extent. This hobbyism could sometimes lead to innovations or solutions where a more structured organization normally had not come up with. On the other hand it was regarded as rather inefficient; the outcomes of certain projects were not always satisfactory or clear.
4.2 Downsizing phase
After the Board's decision that the two companies should merge, some uncertainty arose for many employees in both companies. One of the objectives of the downsizing process was to create an organization that was more efficient. Similar activities and functions within the two organizations could be done with fewer employees. This resulted in downsizing the organization on support level in particular. The redesign part of this downsizing process was more present on department level of the company.
4.21 Pressures
Among most of the employees within Waternet there was uncertainty about how the organization would look like in the near future. The most important doubt in the downsizing process was if they would have a position in the new organization of Waternet. Most departments within the company where directly affected by the downsizing. The R&D and R&D departments of both companies remained quite unharmed in terms of layoffs. The downsizing that flowed out of the redesign process was mostly incremental; it was executed mostly by attrition. This meant that vacancies out of retirement and resignation where filled up internally.
“One of the objectives within the downsizing process was a reduction in workforce, the downsizing had to be done via the attrition route. This proved to be a complex objective, for instance: person X with a lot of experience had to retire because of his age. This gap had to be filled up by someone that was superfluous in another part of the organization. In a profit-making company you start with the redesign and downsizing objective: which employees fit your functions and processes and what people don’t fit your functions and processes. In the following period you look around how you want to arrange your organization. At Waternet this was done the other way round. First the organization was designed and arranged in the ideal way and the next step was to fit these positions with surplus employees. These employees sometimes didn’t quite fit in this new created position” (operating department A, interview, Amsterdam, 21 Jan 2014).
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minded departments and specialist of the companies had both a different focus. DWR focused more on the primary process and managing, while WLB focused more on the innovation processes.
“During the downsizing process we started to look for what for company we wanted to become? Do we want to be a Research Department focused on the daily management or do we want to be a highly innovative department? This question rose immediately during the downsizing process. What helped making this decision was looking for the core values of the company. What does the management think about this idea? What is the mission of the company? One of these values was that we want to be a leading company. This was for us the indication that we had to aim on innovation” (operating department B, interview, Amsterdam, 10 Jan 2014)
The change in focus and company structure led to some internal conflicts. Some managers who couldn’t get used to the new structure or didn’t want to adapt where replaced or even fired. However, these forced layoffs represented just a small proportion of the incremental downsizing process. Waternet actively used a bottom up approach to encourage employees thinking about the new formed organization. This meant that the company empowered operating personnel in making decisions about the new formed organization. Empowerment is important for process innovation (Pearce and Ensley, 2004).
4.22 Resources
The management supported the innovation process in multiple ways. One of the reasons for the downsizing where the advantages that collaborating on a single R&D department would bring in terms of resources. Resources that are important for process innovation (O’Hara, Evans and Hayden, 1993) and directly related to the project creativity levels (Coben and Levinthal, 1990; Damanpour, 1991) To stimulate this idea and the possible advantages Waternet decided that it would be beneficial to give an additional one million euro a year boost for the innovation budget. This result is a contrast with Boomer and Jalajas (1999) who argues that downsizing leads to less expenditure on R&D.
“One of the reasons for this redesign was to become a Water cycle company. We would be the first water company in the Netherlands involved in the entire water cycle. To realize this we felt that there needed to be a team of specialists within the R&D department which focused on the complete water cycle. For this reason the Waternet management decided that we had to strengthen our mission and vision by boosting this goal with an additional of one million Euro in budget” (strategic center, interview, Amsterdam, 14 Jan 2014)
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Initially everything was focused on quality improvements, process optimization, image, security of supply.
In the years that followed the focus shifted towards cost efficiency. Waternet started using the expected return on investments to select his process innovation projects. The expected return on investment is a way to evaluate and measure projects (O’Hara, Evans and Hayden, 1993). For this reason Waternet set up a report how innovations within the company actually result in cost efficiency. This report shows that the investments and efforts in innovations lead to a plural of cost savings for the company. The results from the downsizing were not directly visible. The innovation projects led to annual savings of over 10 million euros between 2008 and 2011. (P. Weesendorp, R. Kruize, Value of research, report, 1 Jan 2012).
The company did not only achieve progress in terms of financial benefit also in terms of resources. As a result of the downsizing process both companies could share their knowledge more directly as well as other resources. All the available resources for innovation where put together on a single department. All the specialists could join forces together with the possibility of using each other’s resources and knowledge.
4.23 Encouragement of creativity
The downsizing process was initiated as a result of the merger of two companies. In the period prior to the downsizing the management tried to identify what innovativeness was within Waternet and why it was important within the company. The support of management is important to come to process innovation (Scott, 1997).
A questionnaire back in 2002 among the managers of DWR was used to identify important values to encourage innovativeness (Korte, K , Innovation questionnaire, DWR Memo, 1 July 2002) . These values were supporting the importance of innovation prior, but especially during the downsizing process. The initiated strategy supported in this way process innovation through taking a proactive attitude towards it (Skinner, 1992; Brown 2001). One of the missions of the newly formed company was that it had to be innovative and leading;
To stay competitive and survive in the market. For a better image on the labour market. Customers want renewal or improvements.
Although no employees of the R & D department during the downsizing process were dismissed uncertainty began to emerge. Friction between colleagues was a result of the redesign of the organization within the new formed department. A few employees were having disagreements about the newly formed structure. As a result of this friction two team leaders had to be replaced inside the R&D department. Because of the tension that was created, employees were temporarily more focused on the scheme of the organization plan and their (new) task, this tension led to a temporary decrease in creativity. To encourage creativity and stay focused on innovation Waternet tried to create more unity among the employees with multiple initiatives focused on creativity.
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sessions but especially focused on learning creative techniques to let people distinguish ideas in a different way. We wanted to lure people out of there standard thinking pattern to create new ideas. This technique gave an enormous positive cohesion within the R&D department. The idea of looking at ideas differently gave a boost to the R&D department.” (R&D department, interview, Amsterdam, 16 Dec 2013)
Creativity training is a good example of the value of encouraging creativity during downsizing. The stimulation of the encouragement of creativity by key leaders is an example of how management acts its relationship with operating personnel to manage process innovation (Repenning and Sterman, 2002). As a direct result of the redesign, Waternet became the only company in the Netherlands focused on the entire water cycle; Waternet entered a new challenge. As a result of becoming the first company in the Netherlands focusing on the entire water cycle, the forming of alliances became important for Waternet. Waternet expanded its linkages with partners. These partners consisted out of a network of Universities, knowledge centres, branch organizations and consultancy firms. Collaboration with partners is seen as a way to gain knowledge for developing process innovations (Tyre and Hauptmann, 1992; Sawy et al., 2001). Alliances with universities and other companies not only improved and encouraged the innovation process, it also leads to more efficiency and increased savings. Alliances not only with other companies but with Universities in particular gave the image of Waternet a great boost.
4.24 Autonomy or freedom
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describe this structure horizontal. However, the shift from the specialist of the various departments to one central R&D group changed a couple of things.
“Two different groups were formed: The R&D (projects, engineering department) very good in thinking about solutions and putting them onto paper. However, if this R&D department needs to make the switch to actually doing or implementing their new solution or invention they need the operational department as customer. The fact that these specialists don’t work anymore on our department leads to a greater distance and involvement which wasn’t present in the old situation. The specialist that used to work in our department now works in the more centralized R&D department. On the other hand in the old situation I constantly had to tell the specialist on my department that he had to cooperate with the R&D specialist of the other departments. Because there wasn’t enough cooperation in the old situation the management preferred this approach” (operating department A, interview, Amsterdam, 21 Jan 2014).
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4.25 Organizational impediments to creativity.
Both companies DWR and WLB had their own culture. Although most people did not have any problem with each other’s cultures, a few had. In the new structure both companies had to cooperate with each other:
“When you put these two companies together, it’s like mixing two blood groups. It needs some time to get used to each other. Both companies had their own culture; WLB was a company that consisted mostly out of employees from and around the city of Amsterdam and had a fairly strict view of their work. DWR employees were more provincials and more easy-going, something that seems almost absent in the WLB culture. DWR employees have a sense of pride. This pride was derived more than 100 years ago: The Waterschappen (the body of surveyors of the dikes) are responsible for the dikes and surface water to keep the country dry and safe for floods. Some of these people didn’t have affinity with the WLB culture and resigned from their job” (operating department C, interview, Amsterdam, 30 Dec 2013) .
However, most specialists of the various departments did enter the downsizing process. The fusion was cold. This meant that all employees responsible for innovation kept their initial task and were put in the same department. In the following years the various departments where integrated into each other and started realizing the advantages of working together. To streamline this process there was put a lot of value on the ideas of the employees involved in the downsizing process. Support for ideas encourages environment for creativity (Amabile et al, 1996) and helped in this example overcoming an organizational impediment to creativity. This empowerment of operating employees (Pearce and Ensley, 2004) was especially beneficial for turning the more critical faces in the right direction. The Empowerment assists process innovation (Pearce and Ensley, 2004). In the following years the cooperation amongst the specialist of the various departments started to mature.
5. DISCUSSION
This case study provides significant understanding of the influence of downsizing on process innovation. With regard to the theory, this study critically evaluates the relevance of using the environment for creativity to measure process innovation. In the next section the results will be clarified through the propositions.
5.1 Downsizing influencing the environment for creativity and process innovation Proposition 1a: Downsizing will lead to an increase in negative/positive workload pressures.
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Proposition 1b: An increase in negative/positive workload pressure will lead to an increase/
decrease in process innovation
The new redesigned organization offered new opportunities. However, amongst personnel uncertainty arose about how the new formed organization would look like. This uncertainty lead to a temporal decrease in risk taking, this is in compliance with the literature that found a decrease in risk taking as a consequence of the downsizing process (Brokner et al., 1987). In addition Waternet empowered operating personnel (Pearce, 2004).This helped relieving negative workload pressures. The empowerment helped also for overcoming impediments to creativity such as company culture. These findings show that downsizing creates workload pressures being similar as described in the literature. The downsizing process of Waternet resulted in merely positive workload pressures.
Proposition 2a: Downsizing will lead to a decrease in resources.
As a consequence of the downsizing process the available resources changed as well. Amabile
and Conti (1999) and Boomer and Jalajas (1999) found a decrease in resources as a result of downsizing. The importance of funds and resources is emphasized by several authors as important factor for process innovation (Cohen & Levinthal, 1990; Damanpour, 1991; O’Hara, 1993). This study found an increase in resources as a consequence of the downsizing process. The redesign led to a new work group focusing on the water cycle and a financial boost for the R&Ddepartment. This increase in resources can be explained by the fact that the downsizing within the R&D department was only by attrition and Waternet is a municipal company that is financially backed by Amsterdam .
Proposition 2b: A decrease/increase in resources will lead to an increase/ decrease in process
innovation.
The layoffs within the downsizing process only took place in the operating and supporting departments and not in the R&D department itself. The availability of resources during this downsizings process differs from Amabile and Conti (1999) in their case. There were no forced layoffs and the financial position of the company fostered the availability of resources for innovation. Ultimately, the downsizing process leads to an increase in available resources for the innovation departments in terms of knowledge and financial power. This increase in available resources can be indirectly linked with the increase in process innovation performance (P. Weesendorp, R. Kruize, Value of research, report, 1 Jan 2012).
Proposition 3a: Downsizing will lead to a decrease in the encouragement of creativity.
The encouragement of creativity is important as an element to foster the environment for creativity. The current literature on the environment for creativity founds a decrease in the encouragement of creativity during downsizing (Amabile and Conti, 1999). The support of management is of great importance for process innovation (Scott, 1997). Management should work on the relationship with operating personnel to manage process innovation (Repenning and Sterman, 2002). Waternet encouraged creativity actively by organizing workshops for the management in the organization. These people were trained to train their own staff which stimulated working ina good relationship between management and operating personnel.
Proposition 3b: A decrease in the encouragement of creativity will decrease process
innovation
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encouragement of creativity can be explained by the stance Waternet took to encourage creativity. This stance in encouraging creativity helped to overcome a possible decrease in encouragement of creativity. This case study shows that downsizing has not necessarily to be linked with a decline in encouragement of creativity. The increase in encouragement of creativity can be indirectly linked with the increase in process innovation performance (P. Weesendorp, R. Kruize, Value of research, report, 1 Jan 2012).
Proposition 4a: Downsizing will lead to a decrease in autonomy or freedom.
Amabile and Conti (1999) found a decrease in the autonomy or freedom during a downsizing process. In compliance with this research this case shows a similar decrease in autonomy or freedom. In particular for the DWR specialist the structure switched from a decentralized to a more centralized structure. The newly formed centralized structure narrowed down the communication channels (Cardinal, 2001) and brought more focus to specific innovations.
Proposition 4b: A decrease in Autonomy or freedom will foster increase process innovation
Because of this focus innovation projects achieved better return on investments and reached more of their goals in contrast with the literature that states that centralization decreases the quality of ideas (Nord and Tucker, 1987). The newly formed mission of the company aimed at being more efficient and innovative. The incremental and exploitative centralized innovation structure fitted the mission being suited for process innovation. This is supported by the literature that states that incremental innovations are exploitative (Benner and Tushman 2003) and most process innovations are incremental and aim at higher quality or lower cost or both (Tushman, 1986). Due the centralization of specialists the distance among specialists became smaller. The distance between the specialist and the operative departments became bigger. Waternet recognized the importance of creating a structure that is team based and stimulates cooperation (Pisano, 1994; Macher and Mowery, 2003 Ettlie and Penner-Hahn, 1994). The downside of this shift in structure was that work tasks were less integrated in the process innovation process. A similar decrease in freedom and autonomy took place in the reporting structure of the company. A more formalized reporting structure came in place for the loosely structure that led to more innovative ideas but also brought hobbyism. Waternet decided that this more formalized reporting structure was needed to ultimately achieve better results in terms of profits or savings from their process innovation projects. This is in line with Jansen et al. (2006) who argues that a degree of formalization positively influences exploitative innovation. This case finds a similar decrease in autonomy or freedom as a result of downsizing. In contrast with Amabile and Conti (1999) this case found positive relation between a decrease in autonomy and freedom and (process) innovation. This case shows that autonomy or freedom is valued differently for a company that focuses on process innovation. A decrease in autonomy or freedom doesn’t have to lead to a decrease in innovativeness.
Proposition 5a: Downsizing will lead to an increase in organizational impediments to
creativity.
Amabile and Conti (1999) found an increase in organizational impediments to creativity as a result of downsizing. In compliance with Amabile and Conti (1999) this research found a similar increase in organizational impediments to creativity. Two different cultures had to adapt to each other and the newly redesigned organization.
Proposition 5b: An increase in organizational impediments to creativity will lead to a
decrease in process innovation.
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operating employees helped in overcoming organizational impediments to creativity (Pearce and Ensley, 2004). The downsizing process therefore did not only lead to an increase in organizational impediments to creativity and a decrease in process innovations but also led to empowerment and therefore indirectly contributed to process innovation
Proposition 6a: Downsizing will harm the followed innovation strategy.
The literature states that the attitude of a firm towards process innovation can be important to come to successful process innovation (Skinner, 1992; Brown 2001). The downsizing process led to structure that was more centralised. This centralised structure led to a structure that fitted the process innovation character of the company. Therefore Waternet its strategy benefited from the downsizing process
Proposition 6b: A decrease in resources will harm process innovation
The availability of resources is important for the strategies being followed. Therefore, the resource availability has a big impact on the followed strategy of a company. The downsizing process within Waternet led to an increase in resources. Increased knowledge and financial power could explain the increase in process innovation performance within Waternet (P. Weesendorp, R. Kruize, Value of research, report, 1 Jan 2012).
Proposition 7a: Downsizing will lead to a decrease in collaboration.
The literature on downsizing explains how downsizing breaks entrepreneurial networking in a company (Dougherty and Bowman, 1995). Within Waternet the downsizing process led to an increased collaboration among innovation specialist but an decrease in collaboration between innovation specialist and operating personal. Altogether, the downsizing process lead to an improved collaboration for innovation processes.
Proposition 7b: A decrease in collaboration will harm process innovation
As mentioned above, the downsizing process led to a decrease in collaboration between innovation specialist and operating personal. From this decrease in collaboration followed an increase in collaboration among specialist. To conclude, collaboration among employees is important at any level to aim for process innovation within Waternet.
Proposition 8a: Downsizing will harm the companies’ innovation culture.
To enable process innovation a climate is wanted that entails experimentation, freedom, playfulness, risk taking and empowerment (Akgün, Keskin and Byrne 2009; Ekvall 1996). A decrease in risk taking was present within Waternet, especially in the first two years after the downsizing had started. Brokner et al., (1987) found a similar decrease in risk taking during downsizing. However, the downsizing process led to empowerment to stimulate employees thinking about the new organization.Although, an internal report(P. Weesendorp, R. Kruize, Value of research, report, 1 Jan 2012) shows the increased savings as a consequence of process innovation, it is hard to determine the exact influence on the innovation culture of the company.
Proposition 8b: A decrease in innovation culture will harm process innovation
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6. CONCLUSION AND IMPLICATIONS 6.1 Conclusion
This study intends to find how downsizing influences process innovation. The environment for creativity has been used to measure the process innovativeness. Prior literature (Amabile
and Conti, 1999) showed a significant decrease in the environment for creativity during downsizing.
This case study acknowledges the presence of negative pressures and organizational impediments to creativity during downsizing as described by Amabile and Conti (1999). In contrast with Amabile and Conti (1999) this study observes an increase in the encouragement of creativity and the available resources. This positive change could be explained by a situation that differs from commercial companies. First, Waternet is a company owned by the municipality of Amsterdam; financial resources were available to streamline the downsizing process. Second, the R&D department was only affected by the redesign part of the downsizing process and not by forced layoffs. Finally, all downsizing was implemented through attrition.
In compliance with the literature the autonomy or freedom within the R&D department decreased as a result of the downsizing process. In contrast with the same literature the effect of a decrease in freedom was positive for the process innovativeness of the company. The existing literature covers innovativeness as a single construct.
This study contributes to the existing literature on the influence of downsizing on innovation (Amabile and Conti, 1999) .In contrast with Amabile and Conti (1999) and other downsizing studies, this study focuses on an process innovation company instead of a product innovation company or a company focusing on both. This study suggests that when a company focuses solely on process innovation, freedom or autonomy is less important than is described in the literature about the environment for creativity. The environment for creativity is therefore not completely applicable to measure process innovation.
6.2 Managerial Implications
This study provides insights to companies that are preparing for downsizing, on how their process innovativeness could be affected. It is important to be aware of the preferred company structure when a company plans to downsize. By understanding the type of innovation processes in the different departments, a company is able to decide what structure will suit best. Potential redesign plans can be checked on their fit with the preferred type of innovation projects. The effects of downsizing differ between process innovation and other innovation projects. This should be taken into account. Furthermore companies should be aware of the possible steps they could take to minimize the negative effects and maximize the positive effects of the downsizing process.
6.3 Limitations and future Research
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