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Thursday, September 4, 2003

Empowering employees: A route to innovation

1999

Companies that use a wide range of positive human resources practices are more likely to innovate than firms using fewer or none of these practices, according to a new report.

Not only are they more likely to innovate, they are also likely to launch an innovation that is a first in the market as opposed to an innovation that is simply new to their firm.

Using the 1999 Workplace and Employee Survey (WES), the paper investigates the relationship between human resource management (HRM) practices and innovation in Canadian firms. The study defines innovation as the introduction of a new or improved production process or product.

The study found that the probability of introducing an innovation is highest when firms use practices from three human resource management areas: training; employee involvement practices, such as information sharing, flexible job design and self-directed work groups; and compensation methods, such as individual incentives and profit sharing.

Innovation is also most frequent when many practices are used intensively, for example, when a high proportion of workers are trained.

Using more human resources management practices makes the relationship with innovation stronger. For example, a firm has a 32% probability of being a first-to-the-market innovator when it uses more than six such practices, an 11% probability when using three or fewer practices and only a 4% probability if none of these practices are adopted.

Other factors that display a positive association with innovation are international competition, at least in the manufacturing sector, and foreign ownership in the non-manufacturing sector.

The study supports evidence found in a strain of economic literature, which stresses that a firm's innovation performance results from complex and dynamic interactions between its own internal innovation capacity and external expertise. From an internal point of view, a firm must retain its key workers and keep them highly motivated to assure continuity in the knowledge accumulation process, which is critical for innovation.

To do so, a firm may use financial (compensation pay) as well as non-financial benefits (employee involvement practices and training) to provide a more stimulating environment for its workers.

Definitions, data sources and methods: survey number 2615.

The Evolving Workplace Series: Empowering employees: A route to innovation, no. 8 (71-584-MIE, free) is now available on Statistics Canada's website (). From the Our products and services page, under Browse our Internet publications, choose Free, then Labour.

The report is also available from Human Resources Development Canada on the Applied Research Branch's web page (www.hrdc-drhc.gc.ca/arb).

For more information, contact Media Relations (819-994-5559), Human Resources Development Canada. For more information on WES, or to enquire about the concepts, methods or data quality of this release, contact Nathalie Caron (613-951-4051; nathalie.caron@statcan.gc.ca), Labour Statistics Division.



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