Many analysts argue that environmental regulation is a barrier to innovation in business firms. A competing view holds that environmental regulation contributes to firm level innovation. This article attempts to partially reconcile these two views. The article argues that organizational and individual level variables moderate the effect of environmental regulation generally on the radicalness of innovation at the firm level. It proposes that four moderating variables the degree to which information analysis about environmental issues is centralized, firm size, the intensity and integration of research and development (R&D) units within the firm, and whether regulation is perceived as an opportunity change the sign of the relationship between environmental regulation and the radicalness of firm level innovation. Empirically testable propositions are presented and a regulation innovation profile is suggested. Directions for future research and implications for practicing managers are highlighted.
Get full access to this article
View all access options for this article.
References
1.
Ancona, Deborah G.
, and David F. Caldwell. 1992. "Demography and Design: Predictors of New Product Team Performance."Organization Science3:321-341.
2.
Anderson, Philip
, and Michael L. Tushman. 1990. "Technological Discontinuities and Dominant Designs: A Cyclical Model of Technological Change."Administrative Science Quarterly35:604-633.
3.
Ashford, Nicholas A.
, and George R. Heaton, Jr.1983. "Regulation and Technological Innovation in the Chemical Industry."Law and Contemporary Problems46 (3): 109-157.
Azzone, Giovanni
, and Umberto Bertele.1994. "Exploiting Green Strategies for Competitive Advantage."Long Range Planning27 (6): 69-81.
6.
Barney, Jay
. 1991. "Firm Resources and Sustained Competitive Advantage."Journal of Management17:99-120.
7.
Barrett, Scott
. 1991. "Environmental Regulation for Competitive Advantage."Business Strategy Review (Spring):1-15.
8.
Bartel, Ann P.
, and Lacy G. Thomas. 1987. "Predation Through Regulation: The Wage and Profit Effects of the Occupational Safety and Health Administration and the Environmental Protection Agency."Journal of Law and Economics30:239-259.
9.
Bimbaum, Philip H.1984. "The Choice of Strategic Alternatives under Increasing Regulation in High Technology Companies."Academy of Management Journal27:489-510.
10.
Blau, Peter M.1970. "A Formal Theory of Differentiation in Organizations."American Sociological Review35:201-218.
11.
Blau, Judith R.
, and William McKinley. 1979. "Ideas, Complexity, and Innovation."Administrative Science Quarterly24:200-219.
12.
Blau, Peter
, and Richard A. Schoenherr. 1971. The Structure of Organizations. New York: Basic Books.
13.
Bonifant, Benjamin C.
, Matthew B. Arnold, and Frederick J. Long. 1995. "Gaining Competitive Advantage Through Environmental Investments."Business Horizons38 (4): 37-47.
14.
Booz, Allen
, and Hamilton, Inc.1982. "Impact of Environmental Regulations on Small Business."Washington, DC: Booz, Allen, and Hamilton, Inc.
15.
Bozeman, Barry
, and Ellen A. Slusher. 1979. "Scarcity and Environmental Stress in Public Organizations: A Conjectural Essay."Administration and Society11:335-355.
16.
Breyer, Stephen
. 1982. Regulation and Its Reform. Cambridge, MA: Harvard University Press.
17.
Burns, Tom
, and G. M. Stalker. 1961. The Management of Innovation. London: Tavistock.
18.
Cairncross, Frances
. 1992. Costing the Earth. Boston: Harvard Business School Press.
19.
Carey, John, N.Gross, M. Maremont
, and G. McWilliams. 1992. "Moving the Lab Closer to the Marketplace."Business Week (Special issue, "Reinventing America," 23 October): 164-171.
20.
Carter, Nancy M.1990. "Small Firm Adaptation: Responses of Physicians' Organizations to Regulatory and Competitive Uncertainty."Academy of Management Journal33:307-333.
21.
Caves, Richard
. 1982. American Industry: Structure, Conduct, Performance. Englewood Cliffs, NJ: Prentice Hall.
22.
Child, John
. 1972. "Organizational Structure, Environment and Perfornance: The Role of Strategic Choice."Sociology6:1-22.
23.
Child, John
. 1984. "New Technology and Developments in Management Organizations."OMEGA12:211-223.
24.
Clark, Kim B.1987. "Investment in New Technology and Competitive Advantage." Pp.59-82 in David J. Teece (ed.), The Competitive Challenge: Strategies for Industrial Innovation and Renewal. New York: Harper and Row.
25.
Clark, Kim B.
, and Takahiro Fujimoto. 1989. "Reducing the Time to Market: The Case of the World Auto Industry."Design Management Journal1 (1): 49-57.
26.
Clean Air Act Amendments of 1990. Public Law No. 101-549. 164 BUSINESS & SOCIETY / June 1997
27.
Cohen, Isaac
. 1987. "Regulation and Deregulation."California ManagementReview29 (4): 169-183.
28.
Collins, Paul D.
, Jerald Hage, and Frank M. Hull. 1988. "Organizational and Technological Predictors of Change in Automaticity."Academy of Management Journal31:512-543.
29.
Collis, David J.1991. "A Resource Based Analysis of Global Competition: The Case of the Bearings Industry."Strategic Management Journal12:49-68.
30.
Cook, Brian J.1988. Bureaucratic Politics and Regulatory Reform: The EPA and Emissions Trading. New York: Greenwood.
31.
Cooper, Arnold C.
, and Clayton G. Smith. 1992. "How Established Firms Respond to Threatening Technologies."Academy of Management Executive6 (2): 55-70.
32.
Cyert, Richard M.
, and James G. March. 1963. A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice Hall.
33.
Daft, Richard L.1992. Organization Theory and Design. St. Paul, MN: West.
34.
Daft, Richard L.
, and S. W. Becker. 1978. The Innovative Organization. New York: Elsevier.
35.
Damanpour, Fariborz
. 1991. "Organizational Innovation: A Meta Analysis of Effects of Determinants and Moderators."Academy of Management Journal34:555-590.
36.
Damanpour, Fariborz
, and William M. Evan. 1984. "Organizational Innovation and Performance: The Problem of Organizational Lag."Administrative Science Quarterly29:392-409.
37.
D'Aunno, Thomas
, and Robert I. Sutton. 1992. "The Responses of Drug Abuse Treatment Organizations to Financial Adversity: A Partial Test of the Threat Rigidity Thesis."Journal Of Management18:117-131.
38.
Davies, J. Clarence
. 1983. "The Effects of Federal Regulation on Chemical Industry Innovation."Law and Contemporary Problems,46 (3): 41-58.
39.
Davies, J. Clarence
, and Barbara S. Davies. 1975. The Politics of Pollution. Indianapolis, IN: Pegasus.
40.
Delbecq, Andre L.1994. "Innovation as a Silicon Valley Obsession."Journal ofManagement Inquiry3:266-275.
41.
Dutton, Jane E.
, and Susan E. Jackson. 1987. "Categorizing Strategic Issues: Links to Organizational Action."Academy of Management Review12:76-90.
42.
Environmental Policy Act (NEPA) of 1970. Public Law No. 91-190.
43.
Ettlie, John E.
, William P. Bridges, and Robert D. O'Keefe. 1984. "Organization Strategy and Structural Differences for Radical Versus Incremental Innovation."Management Science30:682-695.
Evans, David F.1985. The Differential Impact of EPA and OSHA Regulations across Firm and Establishment Sizes. Washington, DC: Small Business Administration.
46.
Franko, Lawrence G.1989. "Global Corporate Competition: Who's Winning, Who's Losing, and the R&D Factor as One Reason Why."Strategic Management Journal10:449-474.
47.
Gamsey, Elizabeth
, and S. M. Wright. 1990. "Technical Innovation and Organizational Opportunity."International Journal of Technology Management5:267-291.
48.
Gladstein, Deborah L.
, and Nora P. Reilly. 1985. "Group Decision Making under Threat: The Tycoon Game."Academy Of Management Journal28:613-627.
49.
Gooding, Richard Z.
, and John A. Wagner III. 1985. "A Meta Analytic Review of the Relationship Between Size and Performance: The Productivity and Efficiency of Organizations and Their Subunits."Administrative Science Quarterly30:462-481.
50.
Guttmann, John S.
, Alexander W. Sierck, and David M. Friedland. 1992. "The New Clean Air Act's Big Squeeze on America's Manufacturing Base."Business Horizons35 (2): 37-40.
51.
Hage, Jerald
. 1980. Theories of Organizations. New York: John Wiley.
52.
Hamel, Gary
. 1991. "Competition for Competence and Inter Partner Learning within International Strategic Alliances."Strategic Management Journal12:83-103.
53.
Haveman, Heather A.1993. "Organizational Size and Change: Diversification in the Savings and Loan Industry."Administrative Science Quarterly38:20-50.
54.
Henderson, Rebecca M.
, and Kim B. Clark. 1990. "Architectuml Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms."Administrative Science Quarterly35:9-30.
55.
Hurrell, Andrew
, and Benedict Kingsbury. 1992. The International Politics of the Environment. Oxford, UK: Clarendon.
56.
Irwin, Alan
, and Philip Vergragt. 1989. "Re-Thinking the Relationship Between Environmental Regulation and Industrial Innovation: The Social Negotiation of Technical Change."Technology Analysis and Strategic Management1:57-70.
57.
Jackson, Susan E.
, and Jane E. Dutton. 1988. "Discerning Threats and Opportunities."Administrative Science Quarterly33:370-387.
58.
Jain, Rakesh K.
, Lloyd V. Urban, Gary S. Stacey, and Harold E. Balbach. 1993. Environmental Assessment. New York: McGraw Hill.
59.
Jones, Gareth R.
, and John E. Butler. 1988. "Costs, Revenues, and Business Level Strategy."Academy ofManagement Review13:202-213.
60.
Kanter, RosabethM
. 1988. "When aThousandFlowers Bloom."Research in Organizational Behavior10:169-211.
61.
Kennedy, Kevin J.
, and J. D. Holmfeld. 1989. "A Corporate R&D Metric."International Journal of Technology Management4:665-672.
62.
Kimberly, John R.
, and Michael J. Evanisko. 1981. "Organizational, Environmental and Individual Impacts on Innovation."Academy of Management Journal24:689-713.
63.
Kwon, Tae H.
, and Robert W. Zmud. 1987. "Unifying the Fragmented Models of Information Systems Implementation." Pp. 227-251 in R. J. Boland, Jr. and R. A. Hirshheim (eds.), Critical Issues in Information Systems Research. New York: John Wiley.
64.
Lengnick-Hall, Cynthia A.1992. "Innovation and Competitive Advantage: What We Know and What We Need to Learn."Journal of Management18:399-429.
65.
Leonard, H. Jeffrey
. 1984. Are Environmental Regulations Driving U.S. Industry Overseas?Washington, DC: Conservation Foundation.
66.
Magat, Wesley A.1979. "The Effects of Environmental Regulation on Innovation."Law and Contemporary Problems43:4-23.
67.
Mandel, Michael J.
, C. Farrell, and C. Yang. 1995. "Land of the Giants."Business Week (11 September): 34-37.
68.
Marcus, Alfred A.1980. "Environmental Protection Agency." Pp. 267-303 in James Q. Wilson (ed.), The Politics of Regulation. New York: Basic Books.
69.
Marcus, Alfred A.1984. The Adversary Economy. Westport, CT: Quorum Books.
70.
Marcus, Alfred A.1987. "U.S. Firms'Responses to Regulation: Stonewalling and Opportunism."Long Range Planning20 (3): 98-104.
71.
Marcus, Alfred A.1988. "Responses to Externally Induced Innovation: TheirEffects on Organizational Perfonnance."Strategic Management Journal9:387-402.
72.
Marcus, Alfred A.
, and Robert S. Goodman. 1986. "Compliance and Performance: Toward a Contingency Theory." Pp. 193-221 in James E. Post and Lee E. Preston (eds.), Research in Corporate Social Performance and Policy, vol. 8. Greenwich, CT: JAI.
73.
Marcus, Alfred A.
, and Mark J. Weber. 1989. "Externally Induced Innovation." In A. H. Van De Ven, H. L. Angle, and M. S. Poole (eds.), Research on the Management of Innovation: The Minnesota Studies. New York: Harper and Row.
74.
McKinley, William
, Carol A. Munroe, Lars Larson, Arlyn J. Melcher, and Shekhar ChaudhuA. 1991. "Establishing Global Advantage: Organizational Characteristics thatEnhance Global Competitiveness in Business Firms." Proceedings of the SIUCNCKU Conference on Economic Competitiveness in the 21st Century, Carbondale, IL, 28-29August.
75.
McKinley, William
, Carol M. Sanchez, and Allen G. Schick. 1995. "Organizational Downsizing: Constraining, Cloning, Learning."Academy of Management Executive9 (3): 32-42.
76.
Meyer, Alan
. 1982. "Adapting to Environmental Jolts."Administrative Science Quarterly27:515-537.
77.
Meyer, Alan D.
, and James B. (loes. 1988. "Organizational Assimilation of Innovations: A Multilevel Contextual Analysis."'Academy of Management Journal31:897-923.
78.
Miles, Raymond E.
, and Charles C. Snow. 1978. Organizational Strategy, Structure, and Process. New York: Mcgraw-Hill.
79.
Miller, Danny
. 1987. "The Structural and Environmental Correlates of Business Strategy."Strategic Management Journal8:55-76.
80.
Miller, Danny
, and Peter H. Friesen. 1984. Organizations: A Quantum View. Englewood Cliffs, NJ; Prentice Hall.
81.
Mitnick, Barry M.1981. "The Strategic Uses of Regulation-And Deregulation."Business Horizons24 (2): 71-83.
82.
Nord, Walter R.
, and Sharon Tucker. 1987. Implementing Routine and Radical Innovations. Lexington, MA: Lexington Books.
83.
Normann, Richard
. 1971. "Organizational Innovativeness: Product Variability and Reorientation."Administrative Science Quarterly16:203-215.
84.
Palmer, Karen L.
, and R. David Simpson. 1993. "Environmental Policy as Industrial Policy."Resources112:17-21.
85.
Pashigian, B. Peter
. 1984. "The Effect of Environmental Regulation on Optimal Plant Size and Factor Shares."Journal of Law and Economics27:1-28.
86.
Pfeffer, Jeffrey
, and Gerald R. Salancik. 1978. The External Control of Organizations. New York: Harper and Row.
87.
Piasecki, Bruce W.1995. Corporate Environmental Strategy: The Avalanche of Change Since Bhopal. New York: John Wiley.
88.
Porter, Michael E.1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press.
89.
Porter, Michael E.1991. "America's Green Strategy."ScientificAmerican (April): 168-168.
90.
Prahalad, C. K.
, and Gary Hamel. 1990. "The Core Competence of the Corporation."Harvard Business Review3:79-91.
91.
Price, James L.
, and Charles W. Mueller. 1986. Handbook of Organizational Measurement. Marshfield, MA: Pitman.
92.
Quirmbach, Herman
. 1982. Environmental Regulation and R&D Incentives. Santa Monica, CA: RAND.
93.
Raelin, Joseph A.
, and Betty B. Sokol. 1982. "Rethinking the Relationship Between Regulation and R&D Lag."Business Forum7:11-13.
94.
Rappaport, Ann
, and M. F. Flaherty. 1992. Corporate Responses to Environmental Challenges. Westport, CT: Quorum Books.
95.
Roberts, Marc J.
, and J. S. Bluhm. 1981. The Choices of Power: Utilities Face the Environmental Challenge. Cambridge, MA: Harvard University Press.
96.
Rogers, Everett M.1983. Diffusion of Innovations. New York: Free Press.
97.
Rosenberg, Nathan
. 1982. Inside the Black Box: Technology and Economics. Cambridge, UK: Cambridge University Press.
98.
Rosenberg, Nathan
. 1994. Exploring the Black Box: Technology, Economics and History. Cambridge, UK: Cambridge University Press.
99.
Rothwell, Roy
. 1992. "Industrial Innovation and Government Environmental Regulation: Some Lessons From the Past."Technovation12 (7): 447-458.
100.
Rubenstein, A. H.
, and John E. Ettlie. 1979. "Innovation Among Suppliers in Automobile Manufacturers: An Exploratory Study of Barriers and Facilitators."R&D Management9:65-76.
101.
Sanchez, Carol M. 1995. Environmental Regulatory Impact and Finn-Level Innovation: A Study of Electric Utilities Responses to the Clean Air Act Amendments Of 1990. Unpublished doctoral dissertation, Southern Illinois University, Carbondale, IL.
102.
Scherer, F. M.
, and David Ross. 1990. Industrial Market Structure and Economic Performance. Boston: Houghton Mifflin.
103.
Shrivastava, Paul
. 1993. "The Greening of Business." Pp. 27-39 in Denis Smith (ed.), Business and the Environment. New York: St. Martin's Press.
104.
Shrivastava, Paul
. 1995. "Environmental Technologies and Competitive Advantage."Strategic Management Journal16:183-200.
105.
Shrivastava, Paul
, and Ian Mitroff. 1983. "Frames of Reference Managers Use: A Study in Applied Sociology of Knowledge." Pp. 161-182 in Michael Lamb (ed.), Advances in Strategic Management, vol. 1. Greenwich, CT: JAI.
106.
Shughart, William F. II
. 1990. The Organization of Industry. Burr Ridge, IL: Irwin.
107.
Smart, Caroline
, and Ilan Vertinsky. 1977. "Designs for Crisis Decision Units."Administrative Science Quarterly22:640-657.
108.
Staw, Barry M.
, Lance E. Sandelands, and Jane E. Dutton. 1981. "Threat-Rigidity Effects in Organizational Behavior: A Multilevel Analysis."Administrative Science Quarterly26:501-524.
109.
Stigler, George J.1971. "The Theory of Economic Regulation."Bell Journal of Economics2:3-21.
110.
Teece, David J.1987. The Competitive Challenge: Strategies for Industrial Innovation and Renewal. Cambridge, MA: Ballinger.
111.
Thomas, Lacy G.1990. "Regulation and Firm Size: FDA Impacts on Innovation."RAND Journal Of Economics21:497-516.
112.
Thompson, Victor A.1965. "Bureaucracy and Innovation."Administrative Science Quarterly10:1-20.
113.
Throop, Gary M.
, Mark Starik, and Gordon P. Rands. 1993. "Sustainable Strategy in a Greening World." Pp. 63-92 in Paul Shrivastava, Ann Huff, and Jane E. Dutton (eds.), Advances in Strategic Management, vol. 9. Greenwich, CT: JAI.
114.
Tushman, Michael
. 1977. "Communication across Organizational Boundaries: Special Boundary Roles in the Innovation Process."Administrative Science Quarterly22:587-605.
115.
Tushman, Michael L.
, and Philip Anderson. 1986. "Technological Discontinuities and Organizational Environments."Administrative Science Quarterly31:439-465.
116.
Tushman, Michael L.
, and David A. Nadler. 1978. "Information Processing as an Integrating Concept in Organizational Design."Academy Of Management Review3:613-624.
117.
U.S. Congress, Office of Technological Assessment
. 1994. Industry, Technology and the Environnent: Competitive Challenges and Business Opportunities (Report No. OTA-ITE-586). Washington, DC: U.S. Government Printing Office.
118.
U.S. Energy Information Administration
. 1994. Acid Rain Compliance Strategies for the Clean AirActAmendments Of 1990. Washington, DC: U.S. Department of Energy.
119.
U.S. Small Business Administration
. 1975. The Impact on Small Business Concerns of Govermnent Regulations That Force Technological Change. Washington, DC: Charleswater Associates.
120.
Utterback, James M.
, and William J. Abernathy. 1975. "A Dynamic Model of Process and Product Innovation."OMEGA3:639-656.
121.
Van de Ven, Andrew H.1986. "Central Problems in the Management of Innovation."Management Science32:590-607.
122.
Vogel, David
. 1981. "'The 'New' Social Regulation in Historical and Comparative Perspective." Pp. 155-186 in Thomas K. McCraw (ed.), Regulation in Perspective. Cambridge, MA: Harvard University Press.
123.
Weber, Joseph
. 1993. "Quick, Save the Ozone."Business Week (17 May): 78-79.
124.
Wernerfelt, Birger
. 1984. "A Resource-Based View of the Fin."Strategic Management Joumal5:171-180.
125.
Westman, Walter E.1985. Ecology, Impact Assessment, and Environmental Planning. New York: John Wlley.
126.
Wheelwright, Steven C.1987. "Restoring the Competitive Edge in U.S. Manufacturing." Pp. 83-100 in David J. Teece (ed.), The Competitive Challenge: Strategiesfor Industrial Innovation and Renewal. Cambridge, MA: Ballinger.
127.
Whetten, David A.1981. "Organizational Responses to Scarcity: Exploring the Obstacles to Innovative Approaches to Retrenchment in Education."Educational Administration Quarterly17 (3): 80-97.
128.
Wood, Donna J.1986. "Organizational Responses to Environmental Change: The Failure of the Causal Model in Pharmaceutical Regulation." Pp. 55-89 in James E. Post and Lee E. Preston (eds.), Research in Corporate Social Performance and Policy, vol. 8. Greenwich, CT: JAI.
129.
Woodman, Richard W.
, John E. Sawyer, and Ricky W. Griffin. 1993. "Toward a Theory of Organizational Creativity."Academy Of Management Review18:293-321.
130.
Yandle, Bruce
. 1989. The Political Limits of Environmental Regulation. Westort, CT: Quorum Books.
