The Effects of Organizational Culture, Structure and Market Expectations on Technological Innovation: A Hypothesis

SUMMARY This paper is chiefly concerned with the causes and technological effects of ‘short‐term pressures’ on and in large firms in British manufacturing. ‘Short‐term pressures’ (STP) are defined as factors acting upon (or within) an organization which tend to cause decision‐makers (explicitly or implicitly): (a) to raise their time rate of discount; and/or (b) to foreshorten the time horizon beyond which future revenues are ignored altogether. Such pressures will tend to reduce the rate of investment (defined very broadly as present sacrifice of cash flow for future gain), and/or bias it towards ‘short‐term’ projects. In the British context such pressures upon firms arise from the nature of the relationship with shareholders. (High interest rates and low profitability have similar effects but should be analysed separately.) STP can also be generated and/or transmitted within organizations. STP acting within an organization are likely to be associated with pressures on middle and lower management to take a narrow, ‘sectional’ view, avoiding efforts and expenditures whose benefits may go largely to other parts of the firm. The first section sets out a theoretical framework within which to predict the intensity of external STP, and uses this to assess their likely incidence. After defining and discussing the concept of culture in organizations, it is argued that culture dominates structure at higher levels, and the reverse at lower levels. The second section deals with internal STP, and shows how performance pressures on managers at various levels are determined by the interaction of structural and cultural factors. Structural factors considered include organizational configurations and methods of auditing and management accounting. Internal performance pressures may at various levels be quite different from the external pressures. The third section shows how, by contrast with economic rationality, STP may affect technological progress ‐ distinguishing between process change, which under certain circumstances may actually be stimulated, and product change, which is likely to be seriously inhibited. (It is pointed out that the impact of any set of performance pressures must be evaluated by comparison with an alternative set, which may themselves not be ideal.) At each stage the analysis is differentiated to allow for the differing circumstances of the UK electronics, Pharmaceuticals and mechanical engineering industries, building up a hypothesis as to the differing incidence of STP among them. This hypothesis can account for the very different record of these UK industries in innovation.