Does organizational innovation moderate technical innovation directly or indirectly?

Abstract

We find a divergence in the literature regarding the treatment of how organizational innovation affects innovation and performance. One point of view suggests that organizational innovation impacts performance only, while the other suggests that it impacts technical innovation and firm performance. We use the framework of Crepon-Duguet-Mairesse (CDM) to control for endogeneity; we also use two different measures for organizational innovation. Our contributions to the literature are: the CDM framework in this context is novel; prior research either did not/could not control for endogeneity whereas the CDM framework mitigates this. To discriminate between the direct and indirect approach, we implemented AIC and BIC tests. We find that for the innovation equations in all cases and regardless of which organizational innovation variable is used the direct model is preferable. In contrast, for the productivity equations, we find that in all cases the indirect model is preferable. Thus we do not have a definitive statistical test for which model is superior. Yet, it is our contention that organizational innovation is a new routine within the firm that should impact technical innovation. Furthermore, organizational design theories deduce that organizational innovation should impact technical innovation-implying that the direct model is indeed preferable.