Continuous improvement and competitive pressure in the presence of discrete innovation

Arghya Ghosh, Takao Kato and Hodaka Morita ()

No 2012-17, Discussion Papers from School of Economics, The University of New South Wales

Abstract: Does competitive pressure foster innovation? Technical progress consists of numerous small improvements made upon the existing technology continuous improvement and innovative activities aiming at entirely new technology (discrete innovation). Continuous improvement is often of limited relevance to the new technology invented by successful discrete innovation. By capturing this interplay, our model predicts that, in contrast to previous theoretical findings, an increase in competitive pressure measured by product substitutability may decrease firms' incentives to conduct continuous improvement. Continuous improvement had been regarded as an important source of strength in Japanese manufacturing until the 1980s. However, several studies have found that levels of continuous improvement have recently decreased in a number of Japanese manufacturing firms. Through field research at two Japanese firms, we demonstrate the real-world relevance and usefulness of the model which offers new insights on possible mechanisms behind the declining focus on continuous improvement in Japan.

Keywords: Competitive pressure; continuous improvement; discrete innovation; field research; location model; product substitutability; small group activities; technical progress. (search for similar items in EconPapers)
JEL-codes: L10 L60 M50 O30 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-02
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