Novelty and new firm performance: The case of employment systems in knowledge-intensive service organizations

This paper investigates a question at the core of entrepreneurship research: how does novelty affect new venture performance? We address this question for a type of factor-market innovation deemed critical in the contemporary economy: novelty in employment systems. Our longitudinal study of new firms in a knowledge-intensive service industry shows that the relationship between employment-system novelty and organizational productivity is curvilinear and U-shaped. We also find suggestive evidence that new firms with employment systems exhibiting discrepant degrees of novelty (i.e., combinations of highly conforming and highly novel practices) are less productive than those with coherent employment systems.