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ABSTRACT

Research has demonstrated how recession conditions, and other external shocks, influence businesses, presenting both opportunities for, as well as threats to, firms. The evidence suggests two broad sets of views regarding how small businesses are affected by recession - the resilience and vulnerability views - although there is little agreement regarding the contingent factors that affect which is predominant. Recessions are often periods of 'creative destruction' in which old technologies, products and industries go into terminal decline while new ones emerge.

Most studies, however, fail to theorise adequately the connections between the macroeconomic environment, business owners' objectives and perceptions of market threats and opportunities, the firms resources and other important features of the wider context. Studies tend to imply either that firms necessarily undergo performance decline and are unable to do very much about their circumstances or, alternatively, that all businesses are able to adapt inputs, practices, prices and products in identical ways at all times. A middle way might focus on the particular factors and circumstances influencing the variable levels of performance achieved by individual enterprises. Value - By broadening our understanding of how recession conditions shape small business activities and performance, the paper contributes knowledge that will be of use to business owners, researchers and policy makers. According to this research concluded that the employees in an organisation should require the innovative

business objectives and responses.g. organizations need to adopt new approaches to encourage innovative working. business models. such innovative characteristics and behaviour can be developed in individuals within organisations. Universities and Skills (DIUS) gave a prominent place to innovation and people in organisations. ‡ Assess the effect of the organisational context and culture in enabling or inhibiting innovative capability and behaviour in individuals. skills. although the crisis has been particularly keenly felt in the UK (Weale 2009) because of the degree of dependence on the hardhit financial services sector and the high level of household indebtedness (e. The study draws on primary empirical data. in all sectors.2. demographic and environmental challenges. the world economy has experienced its severest recession since the 1930s (World Bank 2009. Policymakers recognise that to remain competitive. face-to-face interview data from 26 firms. ‡ Determine whether. and how. and indeed survive. the White Paper Innovation Nation published in Spring 2008 by the Department for Innovation. This approach combines quantitative and qualitative data on perceived impacts of recession. IMF 2009a). abilities) and behaviours that contribute to innovative working. . INTRODUCTION: During the past year and a half. Most advanced economies have experienced falling output. Innovative working is now at the very heart of the UK government and corporate agenda. The overall aims of the research are to: ‡ Identify the employee characteristics (attitudes. and performance outcomes thus far. Simpson 2009). Many argue that prioritising innovation is one of the few ways of delivering higher value goods. and services. social. OECD 2009.The paper investigates the impact of the current recession on a diverse sample of UK small businesses and their responses to it. All businesses are tenants of a major industrial and commercial property provider in London. in the face of unprecedented economic. In particular. including online and mail survey responses from 200 business owners and employees.

and µambidextrous¶ strategies. management and entrepreneurship literatures in this area. investment. there has been a lack of integration of the psychology. the literature identifies three broad categories of strategy in recession conditions: retrenchment. There has been a tendency to analyse large scale. top-down innovation initiatives with little attention on the important role that employee characteristics and behaviours play in innovative working in organisations. . As a result. or to invest in new products and processes to exploit competitor weakness. the research literature often to provide direct recommendations regarding validated interventions on how to promote innovative working in organisations. In general terms. With few exceptions.Recessions present businesses with a dilemma: whether to cut costs to conserve resources.

therefore. responses and outcomes. c hanging patterns in the use of finance and financeseeking behaviour. and face-to-face interviews with 26 of those business owners conducted June-August. and were tenants of a major provider of industrial and commercial property in the capital. The interviews produced detailed qualitative data on business responses during recession. The interview sample was purposely constructed to include businesses reporting a wide range of performance outcomes during the recession period. It is worth noting that the study is of surviving businesses and does not. through to significantly decreased sales or profit margins. Our primary purpose is to use the qualitative data to identify the mechanisms through which recession conditions influence small business activity and performance. business responses. operated in business. The sample businesses varied by principal activity. The interview sample was broadly similar to the mail/online survey. employing fewer than 250 employees. turning over less than £500k in their last financial year. and performance outcomes thus far. employment and turnover.3. and actual and anticipated performance. The quantitative material provides descriptive data which to contextualise the interview findings and permits statistical tests to gauge whether differences between sub sample groups within the survey sample are significant at various levels of confidence. founding date. from significantly increased sales or profit margins. METHODS To investigate these research objectives. and not to identify typical or representative small business owner perceptions. provide comparative data from non-survivors. The majority of businesses were micro businesses. the study involved a two-stage research design: a combined online/mail survey conducted during March-August 2010 (200 responses). and were founded since 2000. The survey data was drawn upon in the interviews to prompt respondents. All businesses were independent. The online/mail survey generated quantitative data on the perceived impacts of recession. motivations for the particular responses. finance and professional services. .

recessions impart downward pressure on asset prices. purchasers often adapt behaviour during recession periods. and those seeking to generate revenue through investment. how.g. switching to new suppliers on either cost grounds. Investments in staff. but also create opportunities for businesses in at least four ways. recessions motivate business owners to adapt inputs. Business owners responses under recession conditions are influenced by the nature and extent of the impacts experienced (Geroski and Gregg 1997). The period was considered sufficiently wide to encompass the start of the downturn5 and to provide an adequate period over which performance change could be measured. leaving surviving firms to compete to secure the vacant market share. with implications for business turnover. innovation and diversification (e. declining demand may lead businesses to exit the market. One. Fourth. Given that businesses might adapt to recession conditions in a variety of ways. or because they are able to access higher-quality goods and services that were previously unaffordable.Online/mail survey respondents were asked to report whether the value of sales and profit margins had increased between the first quarter of 2008 and the first quarter of 2009. Second. premises and product development that would otherwise be perceived as uneconomic might become worthwhile because inputs can be obtained at prices that facilitate profitable production and supply. do they respond? Survey . products. Researchers have distinguished between firms undertaking retrenchment activities centred on cost-cutting and asset divestment. in fact. Shama 1993. Intensified competition stimulates firms to seek innovative solutions to revenue generation and cutting costs. Michael and Robbins 1998). processes and prices in order to increase or maintain sales and profit margins and/or to cut costs and increase efficiency. Recessions constitute threats to business in so far as economic activity decreases. Examples of all of these influences are evident in the sample enterprises. which means inputs are often cheaper for firms to acquire. Third.

. for example. the businesses were surviving at lower levels of performance following significant demand shocks. this may create opportunities to secure better terms. of course. where suppliers reduce prices in response to their declining sales. At the time of interview. Business owners might. have been unaware of the influence of recession on their actions. This wording was chosen rather than asking directly about responses to recession because it was anticipated that some respondents would report that they have not been affected by recession or that they would have taken the action anyway irrespective of the recession. Such findings draw attention to the contingency of business adaptation to product market conditions during recession and its influence on performance.respondents were asked to indicate which actions from a prompt list of categories (plus an other category) they had taken since the start of 2008.

Several major findings are presented. small firms experience recession in a wide variety of ways. although the sources of this resilience may influence its sustainability and influence on longer-term business performance. therefore. impact all small businesses in the same way. Although many commentators recommend retrenchment. If small businesses are necessarily vulnerable to recession.4. While this is undoubtedly true for some. entailing cost/asset-reduction. These diverse experiences motivate particular small businesses to act in particular ways. involving a collapse of the banking system. to demonstrate resilience. the current recession represents both a threat and an opportunity for UK businesses. the two-stage research design reported on here has enabled us to provide a more nuanced view of how recessions influence small business activity and performance. Small business owners are able. while others are unaffected or continue to achieve increased sales. Commentators have suggested that small businesses have suffered badly with many forced to close. A deteriorating macroeconomic environment does not. as well as falling GDP. through their own resource acquisition and mobilisation activities they are able to exert an important influence over their own performance and survival. small firms adaptations to recession conditions are diverse. RESULTS The purpose of the paper has been to consider whether SMEs have beaten the recession. Although limited resources render small firms vulnerable to changes in the external environment. Some firms experience significantly decreased sales. First. limited impact and no perceived impact. through their own activities. the study might have been expected to find that all sample businesses have suffered substantially and struggled to survive. since not all businesses suffer lower levels of performance. Second. Vulnerability is not. however. This variety has been illustrated by distinguishing cases of severe shock. a given characteristic of small enterprises. combining both revenue-generation and cost/asset-reduction activity. Simplistic arguments that recession conditions necessarily impede small business performance must be rejected. it appears that most business owners adopt an ambidextrous approach. Business owners always have some degree of choice as to . To conclude. The 2008/9 UK recession has been reported as the worst since the 1930s.

The effects of recession are partly due to firms responses and not just simply the outcome of the influence of the activities of others . There is an irreducible role for human agency. as pointed out by Lucas and Claxton these are often ³bland statements about µunlocking talent¶´. How does this evidence help corporate policymakers in understanding how to introduce. encourage and sustain innovative working in organisations? The research literature review and survey report explores several implications for working practices but with a particular focus on organisational HR interventions.for example. to define a set of objectives and to choose a course of action they believe (fallibly) will achieve those aims. Through their actions. Some businesses may treat the recession as a market opportunity and seek to expand through investment. which provide little direction for HR policy and practice. although there is no guarantee that their adaptations will improve the firm¶s fortunes. small business owner-managers are able to influence the impact of recession on their enterprises. However. innovation and diversification. the capacity of business owners to interpret their circumstances. competitors. consumers and suppliers. .how to respond to changing circumstances. These include: ‡ employee attraction ‡ employer reputation and brand ‡ organisational culture and climate surveys for innovation ‡ recruitment strategies ‡ induction programmes and early socialisation ‡ selection and assessment for innovation ‡ development and skills for innovation ‡ social networks and knowledge sharing ‡ work design ‡ motivating innovative employees The need to raise skills levels to support innovation in the UK is generally acknowledged. others will retrench and concentrate on reducing costs and assets. Access to particular resources makes certain business responses possible but it does not determine them.

DISCUSSIONS Supporting Innovative working The organisation introduced a number of initiatives to support innovative working including: ‡ Leadership development: a new training and skills development intervention for the senior management team on project leadership (not management) skills was introduced. ‡ Working practices and evaluation: New processes and methodologies for knowledge capture were introduced in the Technical Centre. visible dialogue about innovative working from the senior management team. Technical and Sales staff. The primary motive was to deliver more effective products. ‡ Reward and recognition: A key area related to the reward strategy (through innovative working being explicitly related to the bonus scheme) and a new ideas suggestion scheme with rewards was instigated. The key success factors for the company in promoting innovative working are set out below. Key Success factors for promoting innovative working in Saint-Gobain British Gypsum: The company has evaluated the success of the various initiatives over a number of years. . called µInnovative¶. and that employees were presented with stretching but realistic targets.5. Concerted efforts were made to bring together new cross functional teams to work in product development including Marketing. The Executive were committed to ensuring everyone in the business had regular feedback. The teams were brought together to accelerate the traction behind new ideas and to promote long-term sustained delivery of innovation. that excellent performance is rewarded. I-SMAT provides: ‡ Ongoing. A new staff opinion survey was launched in which innovative working was a core theme.

borne out of systemic thinking about innovative working i.QQRYDWLYH&XOWXUH Richard Batley. I think i-SMAT plays to the human need for recognition ± positive conditioning if you like. There¶s still a way to go. ‡ Reminder for employees about the company suggestion scheme. To develop a culture that supports innovative working successfully.‡ A mechanism to increase motivation and commitment towards innovative working. The reality is therefore that culture change is usually slow progress«what works in one organization doesn¶t necessarily work in another. our idea feedback for example needs to be better to sustain the commitment. then work to get the right people involved from all functions. I¶d much prefer to catch people doing something right! We took a multi-pronged attack. .. the whole intention was to catch people doing things right (not wrong) ± making it rewarding. we had to establish a shared commitment that innovation matters. so we¶re looking at ways to do this´. as a Director. With the i-SMAT approach. µthese will re-enforce this« that will detract from that¶«Several years on.e. ‡ Direct feedback based on observable behaviours and facts regarding innovative working. ‡ Reviews that are explicitly linked to the company vision and other company initiatives such as project leadership training. with a sustained effort innovation is now what people pay attention to with and we have an ongoing dialogue about innovative working. 3URPRWLQJ. and is cost efficient. UK HR Director comments on the key steps in the development of the organisation tool. not just Technical. ‡ A method that is relatively easy to implement built from previous successful interventions. ‡ Data to evaluate changes. ‡ Self review of performance towards innovative working. ³There was no off-thepeg solution so we looked at our experience in Safety where we can honestly say we have achieved real change.

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