Creativity and Firm Performance

The impact of creativity on firm performance depends on the riskiness of a firm’s strategy, the firm’s size, and the ability of the firm’s employees to transform creative ideas into new products and services, according to a study by Yaping Gong, Jing Zhou, & Song Chang. When a company has a risky strategy, creativity leads to decreased firm performance. On the other hand, creativity leads to increased firm performance when the size of the company is small or when a company has a high capacity to transform creative ideas into novel products and services (a.k.a., absorptive capacity).

In their study, Gong, Zhou, & Chang collected data from 148 high-technology firms in China that had 100 or more employees and operated in sectors such as telecommunications and biotechnology. In regard to indicators of creativity, sample items included “[the core knowledge employees, such as engineers] generated novel, but operable work-related ideas.” For firm performance, the firms’ CEOs rated their companies along dimensions such as profit, sales growth, and market share. As rated by the CEOs, items such as “we search for big opportunities, and favor large, bold decisions despite the uncertainty of their outcomes” served as indicators of riskiness orientation. Number of employees served as the measure of firm size, and sample items such as “our [core knowledge employees, such as engineers] can easily implement new products and services” served as indicators of realized absorptive capacity.

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