Innovativeness in the Face of Decline: Performance Implications

The recent global recession has focused efforts towards better understanding of both firm response and the outcome of that response to recession, or decline. Past research suggests that firms either respond by being conservative, reducing costs, etc., or, they proactively try to innovate out of the decline. This work examines the various responses to decline with respect to firm innovativeness. Using data from US manufacturing firms, it is shown that innovativeness has important performance implications even in dire economic times. However, increasing innovativeness levels during decline is not shown to be superior to maintaining innovativeness. Findings provide limited evidence that decreasing innovativeness is not a desirable downturn strategy. Potential, practical, and theoretical implications of the findings are presented.