Innovation Performance Measure Tension and Absorptive Capacity

Abstract

In pursuit of innovation, most firms rely on a diverse set of performance measures. While this helps them manage their various innovation efforts, the inherent tension between very distinct measures may also come at a cost. In this study, we argue that a strong tension between radical and incremental innovation performance measures undermines employees’ ability to effectively search and integrate knowledge from outside the organization’s boundaries, thus reducing a firm’s absorptive capacity. Firms may, however, overcome this problem through cultural controls. More specifically, we argue that encouraging paradoxical thinking among employees helps them cope with the contradictory nature of performance measure tension, thereby improving both their search and integration strategies for new knowledge. We test our hypotheses using survey data from 131 companies in innovation-dependent industries and find support for our predictions. A supplementary analysis provides evidence that the mechanisms we present also have significant performance implications for firms.