The implications of innovation for human resource strategies

lirtures, Vol. 28, No. 2, pp. 103-119. 1996 Copyright 0 1996 Elsevier Science Ltd Printed in Great Britain. All rights reserved 0016-3287196 $15.00 + 0.00

Pergamon

0016-3287(95)00083-6

THE IMPLICATIONS OF INNOVATION FOR HUMAN RESOURCE STRATEGIES Joanne Johnson, John R Baldwin and Brent Diverty

This article examines three issues. The first is the pervasiveness of technology use and the impact of technology use on performance in the Canadian manufacturing sector. The use of advanced technologies, particularly labour-enhancing ones, is found to be widespread. A strong connection between technology adoption and superior performance is also found. The second section examines the relationship between technology adoption and training in manufacturing firms. Firms using either labour-saving or labour-enhancing technologies are found to be more likely to train. The third section expands this analysis to examine how innovation-related strategies and activities are related to training. Innovation is found to be a key driver behind training in all sectors. Copyright 0 1996 Elsevier Science Ltd

A firm’s

success depends

of inputs,

physical

products

and processes.

into new products

products

and

enhance

the

demanding

Innovation

of markets

a strong

impetus

processes.

Innovative

and

The

of their

greater

attention

the

to

on

production

knowledge-knowledge and customer

continually

competitive an ongoing costs.

tastes--into

new knowledge

affects both firms and workers.

of technological

to innovate

products

abilities,

process that transforms

activity

forces

increasingly

and transform

worker

is the general

for firms

value

to acquire

technologies,

and processes.

Globalization created

on its ability

processes,

change with

environment basis,

while

Technological

together

respect

to both

forces at the

have their

firms same

advancements

to time

have

Joanne Johnson,

John R Baldwin and Brent Diverty may be contacted at the Micro-Economic Analysis Division, Statistics Canada, Ottawa, Ontario KlA OT6, Canada (Tel: 613 951 3547; fax: 613 951 5403). This is the edited version of a paper prepared for the seminar ‘Preparing Europeans for the Information Society’, held at UNESCO, Paris, 23-25 March 1995, sponsored by the European Commission and UNESCO and first presented in the “Success, Innovation and Human Resource proceedings of that seminar. The complete paper, entitled Strategies’, may be obtained by contacting the authors.

103

Implications

of innovation

for human resource strategies: J Johnson et al

and revolutionized the production process; they have improved communications shortened the production runs necessary for fully exploiting economies of scale. The result has been to increase the intensity The introduction

the business environment. flow

within

mainframe

the firm.

business.

information

management technologies

also allow firms

of information

to maintain

to customer

information

wage paid by firms.

and

on all facets of the of the

from customers to producers. They requests.

Information

an ongoing dialogue with their suppliers

and allow firms to grow. As productivity

Personal

the task of middle

the external communications

supply shortages. Innovation and technical change, when implemented productivity

altered

of information

to replace humans.

that was previously

is inundated with

process directly

has dramatically

affect the organization

also revolutionize

firm. They permit rapid transformation also tie the production

in particular,

technologies

can be programmed

assimilate

Senior

Information

and the necessity to innovate.

technologies,

Information

Robots

computers

management.

of competition

of information

successfully,

lead to increased

increases, typically,

Changes in output and productivity

technologies

and avoid costly

so too does the

both affect the employment

of

firms. As firms adopt new technologies,

their skill

demand that workers

acquire higher skill

knowledge

in the production

involved

human resource requirements innovative

are firms,

through

requirements

change. New technologies

levels. Both the rapidity of change and the tacit process hiring

the more they will

prevent firms

new employees.

from satisfying Consequently,

need to enhance the skills

all their the more

of their employees

through training. Innovative activity extends beyond technological

change. It also involves

the quality of products and/or efficiency of production.

Successful

gains in market share and/or gains in labour productivity. innovative

activity

results

Similar

in job growth and/or wage growth.

activity, like the adoption of new technologies,

improving

innovation brings about to technology adoption, Furthermore,

innovative

requires workers to perform new tasks and

requires the training of workers. This

article

technology

examines

three

issues.

The

first

is the pervasiveness

use and the impact of that use on firm

relationship between technology adoption and training. between innovation, written broadly, and training.

performance.

The

of advanced second is the

The third area is the relationship

Impact of adoption of advanced technologies on performance Technological

change has always had an impact on the organization

of work.

However,

this impact has typically been both slow and confined to limited sectors of the economy. Previously, when new technologies were introduced, some jobs were gradually made obsolete, while others gradually appeared [The Economist (1995)]. Jeremy Rifkin’s claim [Cities (1995)]

that:

in the past, when new technologies replaced workers, a new sector always emerged to absorb those who had lost their jobs. When farm labourers were replaced by ploughs and tractors, manufacturing became a big employer. When much factory work was automated, the service sector took over.’

In contrast, the current technological revolution rapidly permeated all sectors of the economy. technologies

104

involving information technologies has The relatively low cost of information

has made it possible for most firms to join the technology revolution.

Implications

The cheap

processing

power

of microchips

labour-saving

technologies.

Many

thought

arise

the

to

from

computer-controlled

machinery.

humans

jobs

for repetitive

costly

personal

the truly

been the birth

replacement

dramatic

element

manufacturing

process,

of the ‘soft manufacturing’

abilities

of humans.

kind of dexterity labour-enhancing

operate

more

new

reliable,

safe alternative

vehicle

to

systems replace

to customer

efficiently

increased

and computer

wages.

While

to produce demand

implications.

increases

a given output,

for the firm’s

the the

than

the

replace

has been

into a robot. both

First,

labour-saving

firms

that

environment

and

are able enjoy

to

greater

greater success in the market.

greater

production

productivity,

in labour

productivity

this will

be somewhat

output

control

possess the invaluable

and the entire

achieve

has

Furthermore,

technologies

of

into their working

and consequently

networks

rather

that humans

comprised

workers,

revolution

machines.2

is to enhance

needs and subsequently

enable

technologies

be programmed

has several

technologies

necessary

by the

efficient,

labour-enhancing

revolution,

these new technologies

firms to pay higher workers

of these

that can never

technologies,

in responding the

of a host of

notes that ‘soft manufacturing’

than production

technologies

technologies

integrate

Second,

et al

in the 1980s were

and

guided

Bylinsky

on the part of managers

and judgment

information

flexibility

with

efficient

of the information

in that software

The introduction

by a recognition

effectively

gains

labour an

Automated

and are more important

purpose

The

of

provide

like spot-welding.

the development

development

of the era of ‘soft manufacturing’.

differs from traditional

stimulated

has afforded

technological Robots

for human resource strategies: / lohnson

delivery.

However,

production

of innovation

process,

to

thus permitting

reduce

the number

of

offset, ceterisparhs,

and subsequent

increased

demand

for

workers.

Advanced technology use The importance its effect. plants

of advanced

Incidence

using

a technology.

productivity,

Survey

six functional

for

six

groups

on

dangerous,

the

and

of manufacturing

of changes

technologies floor.

provides

categories:

design

information

can be divided

factory

in terms

Technology functional

systems,

manufacturing

labour-enhancing. Labour-saving workers

use

materials-handling

communications,

is measured

both in terms of its incidence of the population

in market

share,

share and wages. of Manufacturing

technology

automated

use is evident

by the percentage

Effect

employment

The 1989 advanced

technology

is measured

and

data on the incidence fabrication

engineering,

systems, and integration

and control?

These

into two types of technologies-labour-saving

consist These

of technologies technologies

that

perform

either the

of

and assembly, inspection and and

assist or

repetitive,

replace

and

often

their range of abilities,

with

tasks of workers.

Labour-enhancing

technologies

permit

workers

to expand

minimal constraints. Computer-aided design technologies permit workers to design entire products instantaneously without having to engage in the costly and time-consuming trial and error process of model building. inspection technologies continually transmit information technologies

to workers, who can resolve problems allow workers to readily access volumes

information

systems

allow

them to devote

relieve

managers

their energies

of the tedious

to problem

solving

as they arise. of information.

task of information and planning.

Communication Manufacturing collection

Similarly,

and

integration

105

Implications of innovation

for human resource strategies: ) Johnson et al

and control technologies acquisition

alleviate managers of the time-consuming

task of information

and permit them to concentrate on honing and coordinating the objectives of

the firm. Patterns of technology adoption across functional

groups are of interest because they

reveal the degree to which different technologies are being integrated. Three combinations of functional

groups, ranging from the most to the least competitive,

the nature of the complementarity The

first

fabrication systems,

combination

includes

and assembly,

and integration

automated

labour-saving

technology

the functional

technologies. use in a fully

and labour-enhancing

used

in

and communications,

and control-all

This

mix

groups.

design

and engineering,

manufacturing

information

groups with the exception of

of functional

groups

represents

integrated factory. It represents a blend of both

technologies.

excluded

because it has by far the lowest

(20.9%),

suggesting

that it involves

are used to explore

across functional

technologies

inspection

material-handling

comprehensive

of technologies

Automated material handling has been

adoption rate of the six functional

highly

specialized

technologies

which

groups are not

applicable to, or compatible with, most production processes, and should not be included in a measure of comprehensive The second combination been omitted. fully

This

technology

is similar

combination

use.

to the first, except that integration and control has

represents comprehensive

technology

use which is not

integrated. The third combination

production

processes,

the fabrication

represents the use of technologies focused on the factory floor

within

a fully

and assembly,

communications

which

control in factories),

integrated factory. These include technologies

from

automatic control devices (a subgroup of inspection

comprises

programmable

controllers

and computers

and

used for

and integration and control groups.

Taking the six individual

functional

groups and the three combinations

of functional

groups together yields a set of nine technology groups for study. The first two functional groups

comprise

labour-enhancing labour-saving combination

labour-saving technologies.

technologies, The

and labour-enhancing are used explicitly,

while

combinations

technologies.

the

latter

represent

When

a

four

consist

mixture

the terms functional

of

of both

group or

they refer only to that particular subset of the technology

groups.

Extent of technology use in Canada Use of advanced technologies

is widespread in Canadian manufacturing.

88.0% of shipments were produced in establishments

In 1989,

some

that use at least one of the advanced

manufacturing technologies. In general, the labour-enhancing technologies greatest adoption rate (Figure 7). Some 79.0% of shipments in 1989 establishments using technologies from the inspection and communications

enjoyed the came from group. The

inspection and communications group is followed by design and engineering (52.1%), manufacturing information systems (51.2%), and integration and control (39.8%). The labour-saving

technologies

have not achieved such widespread

assembly were adopted by 46.7% were adopted by just 18.4%.

of firms,

use. Fabrication

and

while automated materials handling systems

Adoption rates for the combinations of functional groups are low. Combination 1 has a shipment-weighted adoption rate of only 14.9%. Combination 2 has an adoption rate

106

Implications

only

slightly

higher-22.8%.

combinations,

Combination

but still only

The labour-enhancing 1993 as well frequently

accounts

were

These technologies

Furthermore,

for humnn

that

adoption

the most commonly also experienced

firms

strategies:

et al

/ Johnson

rate of the three

of shipments.

these labour-enhancing

as the technologies

resource

3 has the highest

for 23.3%

technologies

as in 1989.

over the period.

of innovation

were

used technologies

the greatest

technologies

planning

to adopt

growth

were

cited

(over

the

in

in use

the most 1993-95

period). The pattern turning

of technology

towards

success

of firms,

delivery

and

opportunities

enabling

still

them

achieving

solving

suggests that manufacturing Information

to tailor

their

economies

of

to workers-providing

greater ease. Workers problem

adoption

‘soft manufacturing’.

them with

is becoming products sale.

and improving

the value

while

These

increasingly

are able to pass off repetitive

to the

the speed

technologies more

products

critical

improving

or dangerous

of their

firms are increasingly

ever more

bring

information,

of

more

with

ever

tasks and concentrate

on

and services.

Performance indicators The

data

from

manufacturing conferred tracked

survey

by the

of some 4200

in the universe,

being

and therefore

technology In order

is treated represents

the

adopting

advanced advantages

technologies

are

users, the 1989 technology

survey

is

taken from the Census of Manufacturers.

as a study group

for purposes

for some 10% of the population only

whether

understand

technologies.

of technology

data back to 1980,

illustrate to

establishments

not using advanced

plants

means examining

used.

technologies,

the progress

panel

The study group accounts study group

manufacturing

are

to those

to examine

to longitudinal

This panel

of

use of these

and compared

In order linked

the

technologies

primarily

the experience

of analysis.

but 50% of total shipments

large plants.

Treating

of this large group

the panel

as a

of observations-a

so ,

1

Note: The 1993 numbers have been modified so that their calculation

Figure 1. Growth in technology

is comparable

with those Worn tne

1 YBY

SUWSY.

use, 1989-93.

107

Implications

of innovation

group which

covers the large plant population

the experience

of this group

The study group answers

cannot

is divided

to the 1989 survey.

non-users in the sample addition,

the income

into technology

The market

of production share

technology

because

more establishments share

manufacturing

and

have become

technologies

in either

the quantity

share and relative changes complexity

Technology

(3.2%), While

in relative

who

with the new technology,

Changes

labour,

do not.

brought

Fabrication

in relative

increases

groups

wages

and

the advances

have gained

productivity, of

advanced

productivity

can

by the adoption

of

in market

may be the result of or an increase

market

in the

share at the expense

is followed

of technology

growth

group

by manufacturing design

and integration

users in all functional through

technologies

a blending

and

rate of users

has a growth

information engineering

groups

non-users

of the labour-enhancing

I

Figure 2. Growth rate (%) of market share, 1982-89.

rate

(2.2%),

(0.2%).

14

and

systems

and control over

of

have

for users of fabrication

functional

(2.9%),

systems (2.0%),

the greatest gains are realized

It is highest

individual

communications

manufacturing

16 ,

108

has and

or from increases

about

in productivity,

advanced

positive.

No other

and assembly

handling

use

processes.

but is everywhere (10.0%).

effect

labour

for

non-users,

labour

the

The size of the market-share

materials

substantial,

than

those

inspection

automated

technology

using

technologies

half as large.

which rapidly

2). Establishments

across groups,

assembly

to

in relative

In

are calculated

share are the net result of changes

productivity.

or production

users and

years back to 1980.

per worker

demonstrate

of capital-per-worker

in employment

users in all functional

(figure

supplanting

varies

associated

for skilled

of products

non-users been

labour

in the demand

rates

on the basis of their

more

on the input mix. Changes

or quality

Changes

extent grow

users. Changes

wage

stem from higher skill requirements new technology.

the users

Consequently,

shares for technology

and productivity

reveal

relative

users and non-users

for each of the intervening

workers

increased-both

fashion.

to the population.

and employment

are calculated

because

in a comprehensive

be extrapolated

each of these two groups. Changes in market

employment

et al

for human resource strategies: /Johnson

are and

Implications

oi’ innovation

for human resource strategies: J Johnson et al

1.9

I

17 1.6 b: y

1.5

Qc

14

g

13

B a

1.2

6 .g

1.1

z

1 0.9 0.9

Figure 3. Relative productivity,1981-89

labour-saving market-share

technologies.

All three combinations

growth than any of the functional

users in combination

1 grew at a rate of 10.7%

shows a slightly

higher growth rate of 12.3%.

for combination

3.

Technology

non-users

over the ten-year period. Combination

2

occurs

users have not only gained market share through offering higher-quality

output per production The

by higher rates of

The highest rate of growth (15.3%)

products, they have also become increasingly 1989.

are characterized

groups. The market share of technology

labour

worker

more efficient.

for technology

productivity

of technology

Figure 3 depicts the ratio of

users relative to non-users users

is generally

for 1981

and

greater than that of

in both 1981 and 1989.

All the labour-enhancing advantage over non-users in all functional productivity

technology

categories,

except design and engineering,

relative to their non-using

The productivity

users enjoyed a significant

throughout the entire period. Furthermore,

performance

counterparts

attained gains in labour

over the period under study.

of users of labour-saving

Firms using automated materials-handling

labour productivity the technology users

technologies

is less even.

systems attained greater productivity

levels and

gains than firms not using these technologies. However, firms using fabrication and assembly technologies started the period behind other firms, and finished only about even. Part of this can be explained by the fact that firms propelling the rapid technology adoption of fabrication and assembly technologies have neither the flexibility,

in the 1980s

nor the foresight

neglected to recognize that robots

necessary for dealing with anomalies

in the

production process. Bylinsky, in his study of technologically advanced manufacturers, notes that ‘years of costly efforts to install flexible manufacturing systems taught them a bitter lesson . Robots have been relegated to simple jobs at which they excel, like spot-welding;

humans,

with

their

unmatched

dexterity

assembly jobs where the robots floundered’.4 Firms combining technologies across functional productivity

advantages. Adopting a comprehensive

and judgment,

groups realized

are back in

significant

strategy is particularly

labour

important for

Implications

of innovation

for human resource strategies: Jlohnson

et al

users of fabrication and assembly technologies. Used alone, fabrication and assembly technologies are not associated with a productivity advantage; but combining them with automatic control devices and integration technologies (combination 3) results in a significant labour productivity advantage. Establishments whose technology use is characterized by combination 3 have the highest relative productivity growth rate (21%). They also achieve the highest market-share growth rate of any technology group. This suggests that the greatest benefits, in terms of market share and productivity growth, accrue to establishments managing to solve the puzzle of exploiting the skills of workers through the use of labour-enhancing technologies, while freeing up valuable human resources from repetitive tasks. On average, technology-using establishments have gained market share at the expense of non-users, and have a significant labour productivity advantage. How this affects their relative employment share is not immediately clear. Relative labour productivity and market share have offsetting effects on the relative employment share. Ceteris paribus, increases in market share will increase output, the demand for workers, and employment; whereas, increases in labour productivity will decrease the demand for workers and employment at the current level of output. The net impact of these two forces is revealed by changes in the share of production workers employed by technology users relative to non-users. The percentage point change in the employment and market share of technology users over the period 1982-89 is presented in Figure 4. On average, the change in employment share is lower than the change in market share because of gains in relative labour productivity.5 The effects of technology adoption on the relative wage rates paid by technology-using establishments is presented in Figure 5. The ratio of the average wage of workers in technology-using establishments exceeds that of workers in non-using establishments in most categories, in both 1981 and 1989. Furthermore, the disparity in wages grew over the period.

Figure 4. Changes

110

(percentage

point) in market share and employment

share, 1982-89.

Implications

of innovation

for human

resource

strategies:

I Johnson

et A

I

0.9

Figure 5. Relative wages, 1981-89.

The difference in the differences both

at

the

in wages paid by technology in wages are particularly

functional

group

level

technologies.

As the capabilities

technologies,

workers

do particularly

in firms

utilizing

Workers

their

are replaced

efficiency.

and

of workers

non-using

wages.

It is important

growth

in the differences

again,

combination

counterparts. with

other

through

users,

labour-saving

labour-enhancing

however,

become that

also garner

higher

wages

and

In firms using these technologies,

machines more

neither

for users of labour-saving

for users of labour-enhancing

technology

with

are augmented technologies

as workers

to note,

users and the growth

well.

by or supplemented

Once

in

labour-saving

larger gains in wages over their workers

and non-technology

strong for labour-enhancing

for the purpose efficient,

they

the difference

technologies

of improving receive

in levels,

higher nor the

is as high as that observed

technologies.

Technology adoption and training The preceding discussion demonstrated productivity and, consequently, wage affects change.

the

nature

Workers

of work. require

As firms a different

that technology and job growth. adopt

new

set of

use affects market share, labour However, technology use also

technologies,

skills

in order

their to

skill

work

requirements with

the

new

technologies. Numerous

authors

have debated

whether

the introduction

of new technologies

raises

or lowers the skills required from workers. New information on this is available from Statistics Canada’s Survey of Innovation and Technology.‘j Firms using technologies from each of the functional groups-fabrication and assembly, automated materials handling, design and introduction

engineering, and inspection and communications-were asked of that technology resulted in increased or reduced skill requirements

I). The results were

unambiguous:

the introduction

of the technology

increased

if the (Table the skill

111

Implications

for human resource strategies: J Johnson et al

of innovation

requirements reducing

in the majority

them

in only

very

of cases (ranging limited

from 47.2%

instances

(5.0%

to 58.8%

to 15.8%

of the time),

while

of the time).

A model of training The

need

for

programmes. workers

more The

with general

technology

adoption

Multivariate

analysis

activity,

skilled

latter

while

addition

can

be met

when

skill

skills are not adequate. and the incidence allows

controlling

to variables categories,

are also included.

other

of training,

hiring

variables

that might

the relationship (probit)

of certain

corporation,

of the plant,

growth

of technologies

analysis

in

each of the

or not a firm engages

the diversification, over

is used.

Therefore,

from

are: the innovativeness

in output

that

between

factors on a particular

also affect whether

These other variables

or training

are so firm-specific

multivariate

the influence

the use or non-use

and the parent

or domestic)

external

for other factors that might also affect that activity.

representing

in training

the size of the plant

through

requirements

In order to examine

one to examine

functional

(foreign

workers

are required

of the industry,

age, and ownership

the 198Os, and the region

of

operation. The results of the multivariate important

determinant

technologies-fabrication and engineering, Other innovative

characteristics

and independent,

will

train

automated

more

of the firm

are more

likely

or part of a very

likely were

or not.

materials

and communications,

and control-are

industries

suggest that the use of technology

the firm

and assembly,

inspection

and integration

analysis

of whether

Nevertheless, firms offering

the technology

of the relationship

also

related

to offer training.

training

variables

is graphed

to training.

design systems,

Firms operating that are either although

not and

In order

use and training,

were

and non-using more likely

in

small

that are more mature,

are the most important.

technology

technologies

of the

systems,

that are somewhat,

for the technology-using

Firms using each of the advanced

each

information

Establishments

large organization,

between

handling

manufacturing

is the most

using

to train.

highly, diversified, that have enjoyed moderate to rapid growth, that are foreign-owned, are the most likely to train. the strength

Firms

to illustrate

the percentage

of

groups (Figure 6).

to be training

than firms

not using them.

Implications of innovation for enhancing the skills of workers through training The results of the previous and

training.

However,

section all

forms

illustrate of

the connection

between

technological

activity

innovation,

not just the adoption of advanced technologies, require that employees perform new functions, and thus can be expected to stimulate training. Furthermore, innovation is critical in all sectors, not just manufacturing.

TABLE 1. IMPACT OF TECHNOLOGY

Impact on skill requirements

Fabrication assembly

Increased Reduced

56.0

112

15.8

and

ADOPTION

Automated handling 58.8

5.0

ON SKILL REQUIREMENTS

materials

(%)

Design and engineering

Inspection and communications

54.2

47.2

8.2

5.6

Implications

The relationship

between training

of innovation

for human

resource

strategies:

and the other strategies and activities

demonstrated by the responses to the Growing Small and Medium-sized (GSME),

which

characteristics

provides

information

both the goods-producing

rt al

of the firm

is

Enterprise Survey

on a broader range of strategies,

of firms than the Survey of Manufacturing

/Johnson

Technology,

activities

and

and which covers

and service sectors.’

Training in the strategic plan of the firm Most

knowledge

‘tacit’-that

that makes the difference

between success and failure

is, it is not subject to ready codification.

for a firm

is

If it were, blueprints for success could

be prepared and firms that were laggards could quickly emulate the most successful.

Tacit

knowledge is firm-specific

in the

and accumulates over time. It resides in the organization,

collective knowledge possessed by the workforce of a firm. Tacit knowledge in its various forms provides the basis for the innovation and its productive capabilities. the repository

Training

system of a firm,

its organizational

creates the human skills

in which the tacit knowledge of an organization

takes many forms.

structure,

that, taken together, are resides.

That knowledge

Most of it is learned on the job in both a structured and unstructured

format. Machinery

and equipment are the dominant form of capital in manufacturing

Innovation typically technology-based. know-how

Attention

is essential

to human

resources

here

because

technical

here is complementary

to technological

innovation.

such as in the service sector, knowledge itself is the product and human

capital is the dominant form of capital. A business knowledge

is important

for both the production process and the innovation system of a firm.

Human capital development Elsewhere,

firms.

centres on improving the machinery and equipment in the firm and is

of a specialist.

Success

service in many cases is simply

in these industries

embody the amount and type of knowledge

required

depends on a firm’s by a client.

ability

Ihe to

Innovation

involves

advancing the knowledge of, and the application of that knowledge, by workers.

Product

Figure 6. The differencein rate of training betweentechnology-usingand non-using firms.

Implications

of innovation

quality and human-capital same. Training

involves

package knowledge formation

in the

of products in these industries

form

for

clients.

Consequently,

will

In these situations,

In some manufacturing firms

strategy, rather than a complement. form an important

Since the nature of innovation traditional

services

industries

like

accommodation. utilities,

and training

Similarly,

part of the innovation

strategy. A firm-level

is

services

hypothesized

technology/input-based characteristics

services,

services, depend

innovation,

quality,

such

wholesale

as size,

on

services

education,

sector consists

to

of the firm,

ratios, retention

The traditional

personal

real estate, transportation

Training

to be emphasized.

depends on the product market,

services.

outlets,

The dynamic

be an

in some service

the relationship

is analysed separately in three sectors--manufacturing,

and dynamic

retail

capital

human resource strategies will

analysis allows differences in emphasis across both firms and industries between innovation

how to

human

are one and the same in these industries.

there are exceptions to these generalizations.

technologies

are one and the

enhancement and problem solving-learning

correct

be more important.

will

element of the innovation firms,

embodiment

both skill

and innovation

Naturally, service

et al

for human resource strategies: J Johnson

services,

and

of finance, communication

and

trade and business

three

areas

and human region,

sector encompasses

health

of

resources,

occupational

rates and changes in labour productivity.

services.

strategic

emphasis-

as well

structure,

as other investment

The variables representing the

strategic emphases require some explanation. Some 20 subjective and objective measures of innovative activity are available from the GSME

survey.

These

each index representing

measures are combined into four indexes of innovation, a particular

innovation

prototype.’

‘grouping’ similar variables by attaching like weights to like variables. The first index is the General Innovator. It represents the that emphasize innovation-technological capability as a factor R&D-innovation

capability,

new technologies, materials,

R&D

spending relative to competitors,

the use of others’ technology,

just-in-time

inventory

control,

from a number of sources-marketing, The

second

index

is

the

with

The indexes are created by many strategies behind growth,

the development of

reducing energy costs, the use of new

process control,

and obtaining innovative ideas

management, the R&D unit, and patents.

Passive

Adapter.

This

component

primarily

weights

innovation that comes from management, marketing, Canadian patents, foreign patents and government contracts. However, most of the R&D activity, technological, input and management strategies innovation

receive negative weights.

like patents suggests that the firms

The

emphasis

on outside sources of

represented by this component passively

adapt ideas from others. The third index, the R&D-driven

Innovator,

consists

almost entirely

of R&D-based

factors. More specifically, investment in R&D for product and process innovation, the importance of R&D for growth, a firm’s competitive position with regards to R&D spending, the R&D unit as a source of innovation, heavily in this index. The fourth

index, the Outward-oriented

variables as the third component

and developing new technology figure

R&D

but also includes

Innovator,

consists

of the same R&D

dependence on the marketing

unit,

management, customers and competitors as sources of innovation. It represents situations where innovation in technology, inputs and organization receive negative weights. Innovation is limited here to areas that involve the ingestion of ideas from outsiders. The decision to train is also hypothesized to depend on the value that the firm

114

Implications

attributes skills

to quality.

that

generally training. rating

permit

If firms treat investment high

quality

of their

product

quality,

The second

total

management

quality While

reflect

innovation

from

to

variables to these

resource

indexes

a progressive represents

to their given

to

improving

quality,

this

previously

defined.

The innovation

R&D

on

products

any additional

strategies-by needs.

is that

their

firms

human

that

which

resources,

adopt will

strategy.

and

correlated

with

to differences quality

service

or offering

should

in

in ways

not

greater

have an effect on

variables. a human-capital-based

be more

likely

The first index

The

of

innovation

to train.

represents

Comprehensive

Three

human

a firm practising

Human-Resource

Firm

management and employee compensalion : ‘actor in growth, and that possess a programmes, that value labour skills 2; b;i ; i r competitors. The second index, the superior skill set and labour climate I E E 1 i ve compensation packages highly but Wage Innovator, represents firms that ii4 iii ; do not rate the labour Intensive

have

aspect

processes,

explanation

improving

from the survey.

human-resource

and

are highly

In this case, quality

from the effect of the innovation

are generated

firms

on

firms may also strive to improve

innovation

hypothesis

and value

relative

is the importance

that these variables

not contribute

to customer

that is separate

strategy,

quality

will also emphasize The first is the firm’s

of products

of quality

to develop

that emphasize

programmes are utilized.

variables

technologies,

However,

in responding

The third

those

et al

/ lohnson

as an opportunity

then

and range

centres

To the extent

will

of training.

related

flexibility

often

the innovation

attention

quality

strategies:

practices.

in the use of inputs.

the incidence

service

resource

capital

of the importance

strategy

is distinct

variables

training

in human to be met,

customer

measure

innovation

innovation

directly

standards

for human

and adherence to quality management Two measures of the importance of quality

competitors.

quality,

of innovation

ipi iid j firms that pl “FL E8,,i,,

contributing

to growth,

the firm, firm’s

by the technology/input-based there

may be a separate,

emphasis

on human

R&D or technology resource

not embodied

Empirical Training

variable

is included

in the innovation

towards

is endogenously

strategies

its innovation

Thus,

like

a dimension

skills

packages,

adopted

As was previously

in the innovation

industries. to capture

resources

and quality

capture

the Skills

of labour

compensation

human

component.

may better

components

on the importance

innovative

innovation

that are emphasized

in the case of human-capital-intensive human

offer

exogenous

resources

variables

:,,lue

but neither

nor boast a superior labour climate. Although part of the attitude expressed determined

5 ghly. The third component,

skills and clima

Firm, represents

as a factor

innovative

strategy

variables,

the quality

of innovation

by

argued,

a

than the

particularly variables,

strategy

the that is

used here.

results is related

to innovation,

but the nature

of the relationship

between

training

and

innovation varies across sectors. The variables that are statistically significant in explaining the incidence of training (using probit analysis) in each of the three sectors are listed in Table 2. In manufacturing, amount

of capital

it is technology/input-based

per worker,

strategies are not statistically training. This does not imply

that stimulate

innovation, training.

as well

The quality

as increases

and human

in the

resource

significant in determining whether or not a firm engages in that the incidence of training is not strongly correlated with

115

implications

emphasis

of innovation

on quality

lack of statistical other

emphases,

resource

strategy.

and human

significance

strategic

human

for human resource strategies: /Johnson

strategy. The human strategy

in the service

human

resources

strongly,

it also pursues

and human

resource

it is strongly

related.

between

firm

actively

training

pursues

quality

technology/input-based

strategies

What the and these

and

innovation

are complements

to the innovation

are part of, rather than components

to, the innovation

In the traditional

is the dominant

but not independently,

indeed

of the correlation

an active

resource

strategies

firms.

that

strategies,

in light

if a manufacturing

is that

strategies,

The quality

resource

means,

et al

service

stimulus

related

sector,

it is attention

to training.

to training;

to quality

Technological

technological

and

emphasis

emphasis

supports

is the

quality and human resource strategy. In the dynamic services sector, each of the forms of innovation, R&D/technology-based, quality-based and human resource-based elements have separate

impacts.

The multivariate

analysis

each of the sectors. results apply

While

to the incidence

innovation

in firms’ training

of training

among

In order ranked

(figure training.

innovative

that innovation

formal

and non-innovative the connection

innovative

and

The innovativeness

7). Between In contrast,

TABLE 2. FACTORS

74%

related

those

of the firm

firms

and

77%

in the

to training

INFLUENCING

THE INCIDENCE

Traditional

index,

The importance

bottom

and training,

half

related

firms

firms

are deemed

to whether

offer

either

are

to be less

or not it trains

formal

firms offer either

OF TRAINING

or informal

form of training.

AT THE SECTORAL Dynamic

PRINCIPAL

of

in the incidence

and those in the top half are

services

INNOVATION

in

similar

in each of the three sectors. innovation

is strongly

of innovative

training.

by the differences

between

less than 50% of non-innovative

Manufacturing

is strongly

and informal

is best illustrated

to their score on the first innovation

to be more

innovative.

of both

decisions

to demonstrate

according

deemed

demonstrates

Tab/e 2 only reports the results for any type of training,

LEVEL

services

COMPONENTS

Outward-oriented R&D innovator General innovator

R&D-driven innovator General innovator Passive innovator QUALITY VARIABLE Quality

Total quality management practices

HUMAN RESOURCE COMPONENTS Comprehensive

PRINCIPAL

human resource strategy

Skill intensive

OTHER FACTORS

Managers as a % of all employees

Number of employees

Number of employees

Quebec (negative effect)

Quebec (negative effect)

Quebec (negative effect)

Growth in the capital/labour ratio Ratio of investment in market development to labour

Retention rate of employees

116

Implications

of innovation

for human resource strategies: I Johnson et al

60.00

F ._ .E

e _ F

=

70.00 .

Non-innovative

60.00 50.00

E

40.00

‘E’ .b c

30.00

6

20.00

E ::

10.00

k

0.00

Manufacturing

Figure 7. Incidence of training across firm types.

Concluding remarks The globalization environment success.

A key

Information among

of markets

in which

rapid

element

of

technologies

technological

innovation

have

advancements

terms of both products is the

revolutionized

adoption

of

information

have

created

and processes-is information

flow

both

an

critical

to

technologies. within

firms

and

firms.

Technology technology labour

adoption

adoption

is closely

and

productivity

wages-is

superior

advantages,

unambiguous.

economy’. detailed

and

innovation-in

The

Labour-enhancing information

The benefits development

learning.

of new

factor explaining

basis, allowing

the repetitive

on improving

of successful

and organizational

provide

changing consumer tastes, Labour-saving technologies

by performing

them to concentrate

to success.

skills

which

adoption

among

relevant, products

tasks of workers

and enabling on individual

requires

adoption

simultaneous

is the most important

Use of eat h of the labour-enhancing

the adoption

of certain

manufacturing

sector.

Furthermore, of

‘knowledge

to adapt

have put a premium

technologies stimulates greater training. however, is related to a broader spectrum nature

new

accurate,

continually

technologies

labour-saving Training,

technologies.

the

with

quality.

Technology

in training.

between

while improving the efficacy of the complement the labour-enhancing

of technology

workers.

firms engage

typifies

them

and service of new

connection

market share, enhancing share, and paying better

workers

and dangerous

product

The adoption

The

The strong

era of soft manufacturing technologies

on an ongoing

and services to ever production process. technologies

related

performance-improving increasing employment

innovation

the

ot innovative r-elationship

varie5

across

activities holds firm

and

than just

outside

type\.

the

In

the

manufacturing sector, innovation is technology-based. However, in the services sectors, knowledge is itself the product and, consequently, innovation primarily takes the form ot advances in knowledge and the application of that knowledge by workers. The third section dynamic

of the article service

the various

examines

and traditional

elements

the nature service

of innovation

of innovation

In each

sectors and the relationship

are then examined.

Training

of the manufacturing, between is found

training

anti

to be stronglv

Implications

related

of innovation

to the nature

technology-based

services

human-resource-based Firms

incorporate

that

higher-quality

and

depressing

determining

programmes receptive

to training

technology, policies

which

technology train.

human

consideration coordinated

are

to

quality

to to

strategies;

and, in

quality-based

and

to quality-are just

be those

between

that recognizes

levels

them,

greater

levels offset

of the

environment

policies.

Firms that will

where

expertise

already

exist.

Training be the most

in innovation, Consequently,

to training-innovation,

to be effective is likely

to

results in

innovation,

resource

technology

the inherent

are

from

complements

also likely

innovation,

in order

innovation

for workers.

human

the

in innovative

workers

of the firm and industry

management

at stimulating on

skill

useful for all firms.

going

and

of the connections approach

and

to be equally

policies

focusing

of their

resulting

on the demand

technology

resources

and attention

higher

sales,

point to the importance

are directed

However,

the

is related it is related

for the workforce

in the skills

the

Greater

productivity

innovation,

do not appear

to

bodes well

invest

with

wages.

effects of higher

innovation

related

into the firm and offer new products.

The results of this article in

must

Commensurate

better

is

training sector

strategies.

are innovative

jobs.

productivity

sector, services

resource-based

training

of innovation

new technologies

et al

in the dynamic

and human

sector,

importance

J Johnson

In the manufacturing

strategies;

innovation

The increasing

strategies:

of innovation.

quality-based

traditional

firms.

resource

innovation

technology-based, the

for human

in encouraging

or training

policy,

to have a lesser impact

complementarities

firms to without than a

of all to the firm.

Notes and references 1. 2. 3.

4. 5.

6.

7.

118

The Economist, ‘Technology and unemployment’, 11-l 7 February 1995, page 21. G Bylinsky, ‘The digital factory’, fortune, 14 November 1994. The Survey of Manufacturing Technology was conducted by Statistics Canada in March 1989. The survey asked establishments in the manufacturing sector to indicdte their use, planned use, or non-use of 22 separate advanced technologies. There are 4200 establishments in the sample, of which 3952, or 94%, responded. Firms’ responses were linked to longitudinal panel data back to 1980, taken from the Census of Manufacturers. The longitudinal panel data includes sales of manufactured goods, number of production workers, and the total wage bill of production workers. For a more in-depth exposition of this analysis, refer to J R Baldwin and B Diverty, ‘Technology use and industrial transformation: empirical perspectives’, in Tom Courchene (editor), Be// Canada Papers 111: Technology, Information and Public Policy (Kingston, John Deutsch Institute for the Study of Economic Policy, Queen’s University, 1995). Bylinsky, op tit, reference 2, page 93. These results say nothing about the effects of relative market share and productivity on overall levels of employment. Employment rates cannot be inferred from the rate of change of employment share, since even where the share of employment is decreasing over time, overall employment may be increasing in an industry or economy which is growing. The Innovation and Technology Survey was conducted in 1993 using manufacturing firms. Three types of units were sampled: large plants whose head office is located elsewhere, the corresponding head offices of the plants, and small firms that have both their management and plant located in the same spot. There were 1595 head offices, 1954 large plants and 2180 small firms for a total of 5729 units sampled. The response rate, for the survey as a whole, was 85.5% and ranged from 92.9% in small firms down to 77.7% in the large plants. The same technology use questions from the 1989 Survey of Manufacturing Technology were used in this survey. The GSME survey was conducted in 1992, using firms that grew over the last half of the 1980s. Small and medium-sized firms were defined as having less than 500 employees and less than $100 million in assets in 1984. The sample was drawn from all major sectors, with the exception of public administration. The survey of 2157 firms had a response rate of 69%. The CSME survey was destined to give a broad description of activities, characteristics and strategies followed by a set of generally successful small and medium-sized firms. For a detailed analysis of the survey, please refer to J R Baldwin, W Le C Chandler and T Papailiadis, Strategies for Success, Catalogue No 61-523E (Ottawa, Statistics Canada, 1994). For a more detailed analysis of the relation between innovation and training, please see notes 9, 10 and 11,

Implications

8.

9. 10. 11.

of innovation

for human

resource

strategies:

I Johnson

et al

It has been suggested that when various subjective responses are centred on a particular theme, those responses, when combined using principal component analysis, can reasonably be expected to represent that theme. Principal component analysis creates new variables as weighted averages of the old. These new variables are similar to indexes, like the Consumer Price Index ((‘PI). The CPI measured general price changes by weighting the price changes of the individual commodities. Innovation principal components are indexes of innovation. They combine responses to individual survey questions. A number oi components, or indexes, are calculated for the set of innovation variables. The alternate weighting schemes that are applied to the individual innovation questions-the size and sign attached to each of the variables-in each of the components, identifies different prototypes of the theme, in this case innovation. See A Anderson, A Basilevsky and D Hum, ‘Measurement: theory and techniques’, in P Rossi, JWright and A Anderson (editors), Handbook of Survey Research (New York, A(-ademic Press, 198.3). j R Baldwin and Joanne Johnson, ‘Human capital development and innovation: the case of training in small and medium-sized enterprises’, Research Paper Series No 74 (Ottawa, Statistics Canada, 1 YY5a). J R Baldwin and JJohnson ‘Business strategies in innovative and non-rnnovatrve firms in Canada’, Research Paper Series No 73 (Ottawa, Statistics Canada, 1995b). J R Baldwin, B Diverty and J Johnson, ‘Success, innovation, technology, and human resource strategies’ (Ottawa, Statistics Canada). Prepared for a conference on ‘The Effects of Technology and Innovation on Firm Performance and Employment’, Washington, 1-L May 1995.

11Y