Performance gap theories of innovation

Although performance gaps have long been assumed to stimulate innovative organizations, the theory has rarely been tested. In a secondary data analysis of 147 food processing firms, it was found that performance gaps are significantly correlated with objective measures of environmental uncertainty but not with innovation among firms in this sample. It was hypothesized that since performance gaps might impinge upon the availability of slack resources to the firm, small firms would be discouraged from innovating after experiencing a performance gap and large firms would be encouraged to innovate in response to a performance gap. Modest support for this proposition was obtained. Three other propositions were strongly supported by these data. Perceived rather than objective measures of environmental uncertainty are significantly correlated with radical innovation in firms that have successfully avoided severe performance gaps, most probably because they are significantly more likely to have formulated and implemented an aggressive technology policy. It appears that environmental change and turbulence that cause performance gaps can promote innovation for an organization if they can be anticipated, but will discourage especially radical innovation once they have led to a severe performance gap.