Market, Hierarchy, and Community as Organizing Principles in Knowledge-Intensive Work: An Empirical Analysis of New Product Development Activities in Japanese Firms

Abstract

Firms are under increasing pressures to innovate more quickly with fewer resources that arise from several factors including financialization and globalization (Epstein, 2005; Lazonick, 2009). Under these pressures, firms have increasingly adopted formal management control measures for product development such as stage-gate system and performance management. At the same time, performance monitoring and performance-based incentives have been also increasingly applied for engineers. It is not clear, however, how these formal control measures affect the behavior and capability development of engineers. For example, while Adler (2011) argued formal control measures positively affect the organizational capability to innovate, Amabile (2005) argued they are harmful for the creativity of engineers.

Based on interviews and a questionnaire survey for Japanese engineers, we examine how the formal control measures and performance-based incentives affect the behavior and capability development of engineers. The result is that, while formal, strict management control and performance-based incentives are almost negatively correlated with behavior of engineers that promote innovations, sharing organizational goals, values, and norms is positively correlated with it. If it is possible to argue that, following Polanyi (1957), Powell (1990), and Adler and Hecksher (2006), market, hierarchy and community are the three principles to organize economic activities, we can interpret the result of the analysis as "crowding-out" of community principle by market and hierarchy principles that are enhanced by the growing pressure to generate higher financial gains more quickly.

Keywords: organizing principles, formal control, performance-based incentives, new product development, Japanese firms

JEL Classification: D21, D23, M12, M54, O31