International Journal of Manpower

Employee resistance against innovations

Thomas Zwick
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International
Journal of Employee resistance against
Manpower
23,6
innovations
Thomas Zwick
542 Centre for European Economic Research (ZEW), Mannheim, Germany
Keywords Innovation, Training, Employee attitudes, Resistance
Received November 2001
Revised April 2002 Abstract This paper shows that employee resistance against innovations can be explained by
Accepted May 2002 the sunk costs nature of human capital investments induced by innovations. Therefore, internal
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resistance against innovations is more likely if it is uncertain that the employees can reap the
benefits of these investments. This is, for example, the case if employment in the firm is bound to
decrease or if further innovations are planned. These theoretical predictions are confirmed
empirically in a multi-variate analysis. A representative German firm data set for the service
sector is used for the estimation.

International Journal of Manpower,
Vol. 23 No. 6, 2002, pp. 542-552.
# MCB UP Limited, 0143-7720
DOI 10.1108/01437720210446397
Introduction
Employee resistance against innovations is an important barrier against
necessary innovations and a source of irritation in industrial relations. It
therefore can be of crucial importance for the competitiveness of those firms
that plan to innovate to know when they have to expect employee resistance
and how to handle it.
Empirical investigations on the occurrence of employee resistance against
innovations are rare, however (see the surveys in Hauschildt (1999) or Zwick
(2002)). Five studies that entail cross-sectional evidence on the firm level are
worth mentioning. Daniel (1987) and Daniel and Hogarth (1990) analyse the
impact of technological change on industrial relations. A total of 2,019 firms
from all sectors of the British economy participated at the interviews. The
upshot of their studies is that support of employees for changes in their firms
depends on the kind of innovation implemented. While changes in the
organisation of work that are introduced independently of investments in new
machinery are encountered by resistance, investments in new machines,
production sites, etc. are supported by employees. A study by Bemmels and
Reshef (1991) presents the answers of 206 Canadian enterprises that introduced
innovations between 1980 and 1988. While employees usually supported
innovations, labour unions and special rules in labour contracts on
technological innovations induced employee resistance. Hauschildt (1999)
describes the results of a survey of 151 German firms that successfully
introduced innovations. The survey concentrated on the character of employee
resistance. It showed that frequently resistance against innovations is
constructive and loyal. It allows the employees to participate and control
The author would like to thank Peter Jacobebbinghaus, Matthias KraÈkel, FrancËois Laisney,
Edward Lazear, seminar participants at the EALE/SOLE 2000 Conference in Milan and the
Verein fuÈr Socialpolitik 2000 Conference in Berlin as well as two anonymous referees for useful
comments.
 decisions of the management, reveal flaws and drawbacks of the project and Employee
activates the expertise of non-managerial practitioners that have additional resistance against
information. Zwick (2002) shows, on the basis of German firm-level data from innovations
the Mannheim Innovation Panel, that employee resistance increases when
firms compete mainly on costs and not on diversification, product quality and
flexibility. Firms encounter higher internal resistance if innovations are
introduced in order to increase the performance of the employees and not the 543
quality of the products and services.
We can conclude from the literature that employee resistance against
innovations is not necessarily detrimental to the firm and it depends on the
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innovation characteristics and institutional rules. In addition, it is not always a

barrier against innovation but it may retard or change the innovation plans
(Schaefer, 1998). This paper provides an additional simple and general
explanation of the occurrence of employee resistance from the perspective of
rational utility maximising employees. Employees resist innovations because
they want to avoid a redistribution of rents even if this reduces the total
amount of rents (Milgrom, 1988; Milgrom and Roberts, 1988). This paper
argues that innovations may reduce the rents of employees because they
always induce investment and adaptation costs for the employees although
they may increase total rents available in the firm. This implies that employees
hesitate to invest money or effort in order to cope with the new requirements
innovations pose when the pay-off of their investment is uncertain. Pay-off
uncertainty for the training efforts is especially relevant in the case of
innovations, because innovations frequently go hand in hand with lay-offs,
skill obsolescence, and personnel reshuffles. Finally, new skills that have to be
acquired in order to cope with an innovation frequently do not increase
employee productivity elsewhere.
In a second step, this paper provides first evidence that the application of
influence activity theory on innovations holds empirically. Empirical
investigations on general patterns of employee resistance, independent of
concrete, firm-specific measures, the specific innovation situation and the
economic environment the firm operates in, are frequently not possible due to
data problems. On the one hand, we need representative firm-level data from
preferably different economic sectors. On the other hand, the data have to be
very detailed, too, in order to give accurate information on internal resistance
and the innovation situation. In this paper, representative and detailed data are
used for the service sector of the German economy. These data allow a general
analysis of the problem that exceeds the scope of case studies. The empirical
analysis explains employee resistance on the basis of general economic
determinants and rational employee behaviour. Several variants of internal
resistance against innovations perceived by managers are included. This seems
to be the adequate perspective because usually managers decide on the
adoption of innovations and also if they should yield to internal influence
activities.
 International The next section explains the main economic determinants of internal
Journal of resistance against innovations and derives some hypotheses. These hypotheses
Manpower are then tested empirically in multi-variate regressions on the basis of German
firm-level data. The fourth section draws some conclusions from the empirical
23,6 results.

544 Theoretical determinants of employee resistance against

innovations
The theoretical literature on employee resistance against innovations is diverse
and mentions, besides monetary factors, the role of communication, norms,
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timing, firm values, human resource practices, commitment of top management

towards the innovation, and change agents (Armenakis et al., 1993; Osterman,
1994; Hauschildt, 1999; Picot et al., 1999; Kane et al., 1999; Osterman, 2000). In
this paper, we concentrate on measurable factors. This allows us to derive
testable hypotheses that form the basis for the regressions presented in the
next section.
Internal resistance against innovations reveals conflicts of motives between
employers and employees (Hauschildt, 1999). Although it may restore the
competitiveness of the firm in the long run, employees resist those changes that
threaten to leave them less well off in the short run by failing to co-operate in
planned innovations in the hope to preserve the old order (Milgrom, 1988, p. 57).
There are several reasons for employees to suffer rent losses from an
innovation. Innovations render knowledge obsolete and force employees to
undergo training in order to be able to work efficiently after the adoption of
changes. Even if the employer pays for the training, the employees have to
incur non-monetary costs like cognitive effort, flexibility and possibly leisure
time. Innovations and reorganisations therefore always entail efforts to acquire
human capital and adoption costs for the employees (Acemoglu and Pischke,
1999). Effort, time and money have to be invested before the innovation is
implemented or all consequences of the innovation are clear. Therefore, at the
time of investment, it is unclear if training efforts will have a sufficient return.
As a consequence, internal employee resistance against innovations is higher
when it is uncertain that the innovation costs are compensated after the
implementation of the innovation. Osterman (2000) argues that even the
implementation of organizational changes that are judged positively by the
employees may be endangered by employment uncertainty. There are no or
only small returns for the investments when the employees run the risk of
losing their jobs (probably caused directly by the innovation) and the new
qualifications necessary are highly firm specific. The risk of loosing a job is
higher in firms that shed employees already in the last period, because lay-offs
frequently occur in waves (Pissarides, 1992; Zwick, 1999). Schaefer (1998)
argues that the influence costs decrease when the prospects of the firm are
bleak because the potential detrimental effect on firm performance does not
play a large role any more when insolvency is probable. Therefore, we expect
that influence activities like internal resistance against innovations are mainly
 observed in firms with the prospect of organisational decline and layoffs Employee
(Meyer et al., 1992). resistance against
Innovations render previous investments in human capital obsolete by innovations
changing the organisational structure of the work process or production
techniques. In addition, further planned innovations increase the uncertainty
and reduce the expected time the training efforts for the investments about to
be implemented can pay off. These arguments are especially important when 545
the human capital required is firm specific. Here, the productivity is not only
lost at the present employer when a new innovation is introduced, but also of
little value outside the firm. Almost all innovations are tailor-made for the firm-
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specific situation (Picot et al., 1999), and this firm-specific knowledge is

consequently devalued.
Losing the job has different effects on the monetary situation of employees.
The better qualified employees are more flexible in adopting new techniques.
Therefore, it should be easier for better qualified employees to find an adequate
job and avoid wage losses after they are set free and ``cheaper'' to engage in the
required adoption efforts than for lower qualified employees. This can also be
seen from a negative correlation between unemployment rates and
qualification levels (Acemoglu and Pischke, 1999). The stakes are, therefore,
higher for lower qualified employees when innovations threaten to destroy jobs
or when training is necessary while the pay-offs are uncertain. We therefore
expect a stronger influence of the employment perspectives in the firm on
resistance against innovations for the lower qualified than for the better
qualified employees (Milgrom, 1988).
The following testable hypotheses can therefore be derived from the
theoretical considerations above:
H1. Employee resistance is higher in firms that face negative business
prospects, which may reduce the employment certainty for the current
employees.
H2. The impact of expected employment reductions on internal resistance
against innovations is stronger for lower qualified employees than for
higher qualified employees, because lower educated workers suffer
from higher expected income disadvantages when they lose their jobs
and find it more costly to engage in training activities.
H3. Employee resistance is higher in firms that plan to introduce other
innovations or organisational changes. Additional changes planned
shortly after the first innovation reduce the period human capital
investments for the previous innovation are productive.

The data
The estimations presented in the next section are based on data from the
Mannheim Innovation Panel. This survey is answered by about 5,000
(personnel) managers in each wave. It is representative for the profit-oriented
 International part of the German economy and split into a service sector panel (since 1995)
Journal of and a manufacturing panel (since 1993). A detailed description of the panel can
Manpower be found in Janz and Licht (1999). The question on internal resistance against
innovations has not been asked in all waves, but only in 1995 for the service
23,6 sector and in 1999 for both sectors. The aggregate results of the 1999 wave can
be found in Ebling et al. (2000). In the estimation presented here, only results
546 from the 1995 wave are presented, because the results from the 1999 wave are
quite similar.
In the Mannheim Innovation Panel, innovations are defined as new or
improved services or products that are offered to the clients and include
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technical changes and not aesthetic modifications only (product innovations) or

new services and products implemented in the production process (process
innovations), including pure organisational changes. The same innovations
may have been adopted by other firms before, the products and services only
have to be innovative for the firm itself.
In 1995, 2,553 managers from service firms filled in the survey. Among them
2,301 answered the following question: ``Please judge the importance of
employee resistance against innovations on a scale from 1 (no importance) to 5
(very high importance) with respect to the extent of the innovation activities of
your enterprise in the years 1993 to 1995''. Notice that the perception of internal
resistance against innovations may depend on the function of the manager
(with managers more remote from the actual production process being less
aware of resistance than, for example, line managers or direct supervisors)[1].
The impression of the manager may, therefore, be biased. On the other hand,
frequently those managers asked actually decide on the implementation of
innovations and, therefore, we should be interested in their view of the
situation.
Successful innovators as well as firms that were not able to carry out
innovations although they were planned gave information on the consequences
of different innovation barriers. Managers that did not plan innovations or did
not face innovation barriers did not answer the question.
Together with employee opposition, a list of other potential innovation
barriers was asked in the Mannheim Innovation Panel. Descriptive statistics
reveal that worker resistance is a barrier factor with relatively small
importance in comparison to, for example, innovation costs or financing
constraints. Almost half of the firms indicate that employee opposition is not
important. The small importance of employee resistance as a barrier to
innovation may result from the time period in which the questionnaire was
filled in. Between 1993 and 1995, employment shrank and unemployment
increased in Germany: employment decreased by 1.8 per cent in 1993, 0.7 per
cent in 1994, and 0.3 per cent in 1995, while unemployment increased from 8.9
per cent in 1993 to 9.4 per cent in 1995 (IAB, 1996). The employment outlook
was also bleak in 1995. In addition, labour relations in the service sector were
relaxed in this period. The only major strike was in the retail trade sector,
leading to a single extra premium on wages.
 Table I displays the shares of answers indicating the distribution of the Employee
relative importance of barriers to innovations. resistance against
Internal resistance not only may lead to the abolishment of innovations, but innovations
also to delays or the cancellation of innovation already in the planning phase.
The descriptive analysis of employee resistance against innovations in the
manufacturing and mining sector from wave 1999 in Germany gives the same
impression. Internal resistance is a relatively unimportant barrier factor in 547
comparison, for example, to economic risks, innovation costs or organisational
problems (although the economic climate was much better here than in 1995).
When the firm indicated that there had been barriers against innovations, the
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consequences of the barriers were asked in the categories ``project seriously

delayed'', ``project abolished'' or ``project not even started''. Again an extensive
list of other potential barrier factors was given. Table II displays the
distribution of the consequences of the different barrier factors.

Empirical evidence
This section demonstrates that the hypotheses derived in the theoretical
section are valid empirically. In order to prove this, only those variables that
are detected as being relevant in the theoretical section and selected control
variables are included in the regression.
The employment prospects are known for different qualification groups. We
can, therefore, assess the reactions on innovations when the employment
prospects of highly qualified employees with university or polytechnic degrees
in science or in humanities and those of lower qualified employees with a

Barriers to innovation Unimportant Neutral important

Feasibility is risky 0.507 0.276 0.217

Excessive perceived economic risks 0.479 0.253 0.268
Costs are risky 0.441 0.266 0.293
Innovation costs are too high 0.293 0.231 0.476
Amortisation rate is too low 0.348 0.264 0.388
Innovation is easy to copy 0.479 0.182 0.339
Shortage in own capital 0.491 0.168 0.341
Shortage in foreign capital 0.619 0.154 0.227
Lack of qualified personnel 0.455 0.264 0.281
Lack of information on technology 0.626 0.231 0.143
Technology is obsolete 0.557 0.275 0.168
Internal resistance 0.685 0.187 0.128
Long administrative or licensing procedures 0.654 0.131 0.215
Legislation, regulations, standards 0.584 0.168 0.248
Note: The relative importance of the barriers to innovations is measured on an ordinal scale
between 1 (not important at all) and 5 (very important). In this table measures 1 and 2 are Table I.
combined to the category unimportant, 3 is called neutral and 4 and 5 are combined to the Relative importance of
category important barriers to innovations,
German service
Source: Mannheim Innovation Panel ± Service Sector, wave 1995, own calculations sector (1995)
 International Innovation Innovation
Journal of seriously Innovation not even
Innovation barriers delayed abolished started
Manpower
23,6 Excessive perceived economic risks 0.202 0.212 0.314
Innovation costs are too high 0.224 0.180 0.348
Lack of appropriate financial sources 0.134 0.059 0.203
548 Organisational rigidities 0.403 0.057 0.079
Internal resistance 0.161 0.048 0.071
Lack of qualified personnel 0.323 0.040 0.116
Lack of information on technology 0.198 0.033 0.072
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Lack of information on markets 0.142 0.065 0.096

Lack of customer responsiveness 0.124 0.170 0.102
Long administrative or licensing procedures 0.201 0.038 0.067
Table II. Legislation, regulations, standards 0.189 0.060 0.097
Effects of factors Note: Only shares of those firms that encountered barriers to innovations
hampering innovation,
German manufacturing Source: Mannheim Innovation Panel ± Manufacturing and Mining, wave 1999, own
sector (1999) calculations

degree from the German dual apprenticeship system or with no professional

degree differ (H2). A further explanatory variable is if the turnover is expected
to increase in the next two years (H1). The last explanatory variable is if the
firm plans further organisational changes in the next two years (H3). Note that
we might incur a slight inconsistency here, because we have to use the turnover
and employment prospects of the firm according to the manager, which might
be different from those of the employees whose resistance is influenced by their
own assessment of the firm's future.
Additional control variables that have been found to be empirically relevant
for the explanation of internal resistance against innovations (Daniel, 1987;
Hauschildt, 1999; Zwick, 2002) are if the firm is large or small, if it is located in
East Germany and if it belongs to one of seven sub-sectors. The descriptive
statistics of the variables used can be found in Table III and are explained in
the Appendix.
Unfortunately, we do not have information about if the firm is co-determined,
which role unions play in the firm and if there is collective bargaining. These
institutional factors could also have a decisive impact on internal resistance
against innovations (Ulph and Ulph, 1988; Bemmels and Reshef, 1991).
We do not have a panel data set and therefore it is not possible to control for
unobserved time-invariant firm specific effects. It might, for example, be the
case that internal employee resistance and explanatory variables like
employment, turnover prospects or the fact that further organisational changes
are planned depend on unobserved third factors like industrial relations or
management quality. It is not clear, however, if an unobserved heterogeneity
bias would increase or decrease the impact of the explanatory variables.
Finally, when the planning of further organisational changes is influenced by
internal resistance, this variable would not be strictly exogeneous. In this case
 Number of Employee
Variables Average answers resistance against
innovations
Internal resistance against innovations (endogeneous variable) 2.018 2,301
Positive employment change expected for employees with an
academic degree in sciences in the following two years 0.194 2,199
Positive employment change expected for employees with an
academic degree in humanities in the following two years 0.263 2,199
549
Positive employment change expected for the employees with a
degree from the dual apprenticeship system for the
following two years 0.362 2,436
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Positive employment change expected for the employees with

no degree for the following two years 0.173 2,436
Positive change in turnover expected for the following two
years 0.577 2,468
Organisational changes planned 0.569 2,383
Large firm (more than 100 employees) 0.329 2,552
Firm is located in East Germany 0.362 2,552
Wholesale trade 0.151 2,552
Retail trade 0.121 2,552
Transport 0.144 2,552
Banking and insurance 0.152 2,552
Computer and software 0.058 2,552
Technical consulting 0.083 2,552
Other services (reference sector) 0.291 2,552
Net sample 1,709 Table III.
Descriptive statistics of
Source: Mannheim Innovation Panel ± Service Sector, wave 1995, own calculations the variables used

the influence would be biased towards zero, however, and the true impact
would be even larger.
In the Mannheim Innovation Panel for the services sector in 1995, the
intensity of internal resistance against innovations was asked on a scale with
five levels. Therefore, an ordered probit estimation seems adequate (see
Table IV).
We find that most considerations from the theoretical section can be confirmed.
The negative impact of an expected positive employment development in the next
two years is insignificant and does not differ for the qualification levels, however.
Therefore, we do not find evidence for H2, that the impact of expected
employment changes on innovation resistance is larger for lower qualified than
for higher qualified employees. One reason for this may be that the opinion on
expected employment changes differs between managers and employees affected.
According to our first hypothesis, a positive expected change in turnover
reduces the uncertainty of the employees about losing their jobs or getting no
return from the human capital investment and therefore internal resistance is lower
in these firms.
Planned organisational changes reduce the time period the recently acquired
human capital is productive. Therefore internal resistance is significantly
higher in these firms' as predicted in H3.
 International Exogeneous variables Coefficients z-value
Journal of
Manpower Positive employment change expected for employees with an
academic degree in sciences ±0.018 ±0.23
23,6 Positive employment change expected for employees with an
academic degree in humanities 0.220** 3.33
Positive employment change expected for employees with a degree
550 from the dual apprenticeship system ±0.056 ±0.95
Positive employment change expected for employees with no degree ±0.079 ±1.04
Positive change in turn over expected ±0.139* ±2.40
Further organisational changes planned 0.267** 4.62
0.306**
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Large firm 5.30

East German firm ±0.443** ±7.84
Wholesale trade ±0.027 ±0.31
Retail trade ±0.080 ±0.86
Transport ±0.011 ±0.13
Banking and insurance ±0.020 ±0.24
Computer and software ±0.411** ±3.20
Technical consulting ±0.181 ±1.54
Cut 1 ±0.187
Cut 2 0.488
Cut 3 1.181
Cut 4 1.980
Number of observations 1,709
Table IV. Log likelihood ±2,233
Results of ordered 2(14) 190
probit estimation in Notes: The significance level of the coefficients are marked by asterisks:
order to explain *
means a significance level below 5 per cent and ** less than 1 per cent
internal resistance
against innovations Source: Mannheim Innovation Panel ± Services, wave 1995, own calculations

Finally, the control variables have the expected signs. In accordance with
Hauschildt (1999) and Daniel (1987), we find that internal resistance is higher in
larger firms. Also Zwick (2002) finds that employee resistance is lower in East
Germany. That part of the country underwent sweeping economic reforms
after the re-unification and, therefore, awareness that permanent changes are
necessary for economic success may be higher there. Internal resistance against
innovations also differs between sectors. Especially in the IT sector, internal
resistance is lower than in all other service sectors in Germany (for a discussion
of this phenomenon, see Zwick (2002)).

Conclusions
Internal resistance against innovations may endanger the competitiveness of
firms and the relations between management and workforce, and therefore it is
important to know beforehand when employees are prone to resist innovations
the management would like to introduce. Although every innovation requires
specific change management measures, we find patterns of internal resistance
common to firms in all economic sectors. In this paper, first some theoretical
 considerations explain employee resistance from the specific nature of adoption Employee
costs imposed by innovations. Innovations always entail costly investments in resistance against
human capital that are sunk, i.e. that do not earn a return when the investment innovations
does not lead to additional productivity. We therefore expect that internal
resistance against innovations is high when employees face a high risk of
losing their investment costs. This is especially the case when employees fear
losing their job and expect that they cannot use the newly acquired human 551
capital in another job. In addition, we expect higher resistance when the
employment of lower qualified or unqualified employees is endangered because
their lay-off costs are higher than those of higher qualified employees. Finally,
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the time period new human capital may lead to additional pay-off is reduced
when further changes are planned.
We find indeed on the basis of German firm-level data covering all service
sectors that firms expecting higher turnover experience lower internal
resistance, while firms planning additional innovations face higher resistance.
The evidence on the employment prospects for different qualification groups is
not conclusive, however.
It can be concluded that the management in firms should be aware of an
increased incidence of internal resistance against innovations when employees
see their jobs endangered or if planned innovations reduce the pay-off time of
new necessary qualifications. The paper, therefore, suggests that internal
resistance can be reduced by employment guarantees, bonus payments before
the innovation is implemented successfully or a reduction in adoption costs of
innovations (for example, by keeping the flexibility required to a minimum,
reducing the skills rendered obsolete to a minimum, and offering training during
working hours or reducing the workload during training times).
Owing to the lack of data, the analysis does not distinguish between
different innovations like product innovations and organisational innovations
and does not take into account the commitment of top management with
respect to the innovation and union behaviour. These factors might also have
an impact on employee resistance (Kane et al., 1999; Hauschildt, 1999;
Osterman, 2000). In addition, further information that might have an impact on
employee resistance like the business strategy (Zwick, 2002) was also not
considered in the empirical model in order to present a parsimonious estimation
entirely based on theoretical considerations. Future research based on richer
data sets should take these additional potential determinants of employee
resistance into account in order to paint a richer picture.
Note
1. Including information on the status of the answering manager did not have explanatory
power in the regression presented below, however.

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Appendix. Descriptive statistics and construction of variables

The endogeneous variable is measured on a five-point intensity scale (see also Table II). The
expected employment and turnover changes were asked on a scale from 2 (significant reduction)
until +2 (significant increase). In order to use these questions as explanatory variables, they were
recoded to dummy variables while the variable has the value one when the answer was 1 or 2 and
zero otherwise (±2, ±1 or 0). All other variables were asked as dummy variables that had to be
answered with yes or no.
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