Employee-Based Innovation in Organizations: Overcoming Strategic Risks from Opportunism and Governance
Strategic Entrepreneurship Journal, Forthcoming
40 Pages Posted: 7 Apr 2017
Date Written: December 15, 2016
Abstract
Employees performing everyday tasks frequently acquire valuable new ideas and knowledge. Our formal analysis studies how organizations can benefit from employee-driven innovation by using incentives to overcome strategic risk from opportunism and governance. We use a game theory framework to analyze the strategic interactions involved and identify incentives under which valuable ideas will be revealed without appropriation (in equilibrium). Our analysis considers both the short-run and the long-run where governance can be adjusted to maximize expected future innovation profits. Innovation value, frequency, governance quality, and employee contestation costs are shown to play a salient role in determining the innovation incentives and equilibrium. Overall, our analysis and results provide a number of insights on how organizations can overcome frictions from strategic innovation risks to more fully mobilize their innovation potential and knowledge-based resources.
Keywords: employee-based innovation, 'soft innovations', opportunism, governance risk, knowledge-based view, transaction cost economics
JEL Classification: L26, D23, L32
Suggested Citation: Suggested Citation