Innovation in SMEs: the role of flexible work arrangements and market competition

Abstract

Employee wellbeing is vital for their job satisfaction and motivation to achieve the long-term goals of their employers. Organisations provide flexible work arrangements (FWAs) as one of the strategies for attending to employee wellbeing. Despite the motivating role of FWAs, their links with firm level innovation are rarely considered. This study examines the relationships between FWAs and innovation. It also investigates how the competitive environment in which firms operate moderates the FWA-innovation relationship. Drawing upon a rich longitudinal data of 1513 Australian SMEs, our findings suggest that provision of flexitime and flexi-leave encourage innovation as they provide the mental space and diversity needed for knowledge creation, sharing and exploitation. Moreover, high market competition has limited effect on the positive associations between flexitime and flexi-leave, as FWAs, and innovation but attenuates the relationship between job-sharing and innovation. Our findings imply that SME managers should prioritize the provisions of flexitime and flexi-leave to their employees as these FWAs have pronounced effects on firm-level innovation.

Keywords:

• Innovation
• flexible work arrangements
• market competition
• SMEs
• panel data
• Australia

Disclosure statement

No potential conflict of interest was reported by the author(s).

Disclaimer

“The results of these studies are based, in part, on Australian Business Registrar (ABR) data supplied by the Registrar to the ABS under A New Tax System (Australian Business Number) Act 1999 and tax data supplied by the ATO to the ABS under the Taxation Administration Act 1953. These require that such data is only used for the purpose of carrying out functions of the ABS. No individual information collected under the Census and Statistics Act 1905 is provided back to the Registrar or ATO for administrative or regulatory purposes. Any discussion of data limitations or weaknesses is in the context of using the data for statistical purposes, and is not related to the ability of the data to support the ABR or ATO’s core operational requirements. Legislative requirements to ensure privacy and secrecy of these data have been followed. Source data are de-identified and so data about specific individuals or firms has not been viewed in conducting this analysis. In accordance with the Census and Statistics Act 1905, results have been treated where necessary to ensure that they are not likely to enable identification of a particular person or organisation.”

Data availability statement

The data that support the findings of this study are available from the Australian Bureau of Statistics. Restrictions apply to the availability of these data, which were used under license for this study.

Notes

1 We thank the anonymous reviewer for clarifying this point.

2 We are unable to reliably estimate the interaction effects of these variables in the case of each of the 4 domains of innovation because of the small number of observations for the interaction terms.