Social Innovations, Institutional Change and Economic Performance
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Social Innovations, Institutional Change and Economic Performance

Making Sense of Structural Adjustment Processes in Industrial Sectors, Regions and Societies

Edited by Timo J. Hämäläinen and Risto Heiskala

This book examines the nature of social innovation processes which determine the economic and social performance of nations, regions, industrial sectors and organizations.
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Chapter 2: Social Innovation, Structural Adjustment and Economic Performance

Timo J. Hämäläinen


Timo J. Hämäläinen The world economy is currently undergoing a major techno-economic transformation that is comparable to the first and second industrial revolutions (Freeman and Louca, 2002; Perez, 2002). The rapid advance and diffusion of information and communication technologies (ICTs), global integration of product and financial markets, increasing specialization of firms’ value-adding activities, new cooperative and skill-intensive forms of organization as well as the growing differentiation of demand patterns have challenged the old economic and social institutions of industrialized societies (Hämäläinen, 2003a). The rapid techno-economic change requires structural adjustment in socio-economic systems at all levels: in private, public and third sector organizations, industrial sectors and clusters, regional and national economies, and even in supranational institutions.1 In the turbulent environment, the economic performance of such systems is increasingly determined by their structural adjustment capacity. SYSTEMIC APPROACH TO STRUCTURAL ADJUSTMENT Major structural changes are not easy (North, 1990). There are numerous examples of once mighty firms (Hämäläinen and Laitamäki, 1993; Christensen, 1997), industries (Womack et al., 1991; Aoki, 2001), regions (Schienstock, Chapter 7 this volume; Eliasson, Chapter 8 this volume) and economies (Harrison and Huntington, 2001) that failed to change their strategies and structures to match the rapidly evolving environment. The most important barriers to change are mental: rigid cognitive frames, beliefs and assumptions, values and behavioral norms (Harrison and Huntington, 2001; Hämäläinen, 2003a). Well-established mental structures may prevent decision makers from recognizing the structural problems 11...

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