Innovation Despite Reorganization: Strategic Positioning in the Formal and Informal Network

While unavoidable at times, corporate reorganization by downsizing is widely believed to hurt a firm’s innovativeness. This paper studies the changes, over time, in the innovation network at a large, multinational in the financial services industry as it endured downsizing. While reducing the absolute size of the innovation community substantially, we find, downsizing does not disrupt the overall structure of the innovation network. We find that involvement with innovation can be remarkably resilient despite the considerable slimming down of the labor force in some parts of the firm. We argue and show that this resilience stems from the position of employees in the flow of information in the formal as well as the informal network prior to downsizing. Investigating the network characteristics of the survivors of downsizing, at the individual level, we find that the information flow from one’s extended network relations, prior to downsizing, is more important than the information from one’s direct ties, in each of these two networks, to sustain one’s innovation ties. Hierarchical position stimulates innovation tie resilience, particularly in the informal network. Resilience of innovation activity in a firm will allow the firm to resume an innovative course after the immediate effects of downsizing have subsided. Our findings thus have important managerial implications.