INFLUENCE OF CORPORATE CULTURE ON THE EFFICIENCY OF INNOVATION IN RUSSIAN COMPANIES

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1 International Journal of Civil Engineering and Technology (IJCIET) Volume 9, Issue 13, December 2018, pp , Article ID: IJCIET_09_13_110 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed INFLUENCE OF CORPORATE CULTURE ON THE EFFICIENCY OF INNOVATION IN RUSSIAN COMPANIES T. P. Danko Plekhanov Russian University of Economics, Stremyanny Lane, 36 Moscow, , Russian Federation M. A. Kazaryan, E. E. Pervakova, A. A. Novikov, E. V. Novikova Russian Presidential Academy of National Economy and Public Administration, Vernadskogo Avenue, 82, Moscow, , Russian Federation V. D. Sekerin Moscow Polytechnic University, Bolshaya Semenovskaya Street, 38, Moscow, , Russian Federation ABSTRACT The topic of the research is urgent since the formation of the innovative corporate culture is important for a company to maintain the development and introduction of various types of innovation. The research has set and achieved the goal of finding corporate culture factors which produce the key impact on the innovative activity of employees of Russian businesses from various sectors. The research was conducted in two stages. The first stage included several focus groups with experts and HR managers from various concerns in order to compile a preliminary list of corporate culture characteristics that influence the innovative activity of employees. The second stage included a poll conducted with the use of questionnaires among owners, managers and employees of 104 Russian companies, MBA students from the Russian Presidential Academy of National Economy and Public Administration. The research identified three most important factors such as (1) the understanding of a company s goals and mission from the viewpoint of public benefits, (2) fairness when assessing the labor of innovation-driven employees and (3) the constructive and friendly environment in a company. The priority of these factors for Russian concerns is mainly explained by the dominant stable peculiarities of the institutional environment. Key words: Corporate culture, innovative activity, innovation efficiency, intellectual capital, process capital, social capital, intangible assets, corporate reputation, employee motivation, involvement in the labor process, labor productivity, key characteristics of the innovative corporate culture, institutional peculiarities editor@iaeme.com

2 T. P. Danko, M. A. Kazaryan, E. E. Pervakova, A. A. Novikov, E. V. Novikova and V. D. Sekerin Cite this Article: T. P. Danko, M. A. Kazaryan, E. E. Pervakova, A. A. Novikov, E. V. Novikova and V. D. Sekerin, Influence of Corporate Culture on the Efficiency of Innovation in Russian Companies, International Journal of Civil Engineering and Technology, 9(13), 2018, pp INTRODUCTION One of the classical approaches aimed to examine the impact of corporate culture on a company s operating efficiency and its value is the consideration of corporate culture as a component of its intellectual capital. Corporate culture in this classical concept constitutes a company s intangible asset that increases the value of the business and needs investment [1]. In the latest works [2], corporate culture is viewed as a sub-component of the process capital sub-system that creates favorable conditions for the implementation of human capital. Corporate culture influences potential growth of a company s value in three ways (stronger labor motivation and deeper involvement of employees in labor, improvement in a company s reputation as an employer and improved ethics of communication with customers and partners) [3]. This, in turn, results in higher labor productivity, better loyalty of employees and partners, increased innovative activity and efficiency of a company s activities. So, it can be said that corporate culture influences other components of intellectual capital (innovation and partner capital, network capital). The goal of this research is to study the influence of corporate culture on innovation efficiency and innovation capital of a company. There are many factors that make a company truly innovative (an innovation strategy, leadership vision of business, deep understanding of a customer, and employee talents). However, corporate culture is more important than any of the above because it constitutes a great number of models of conduct, meanings and values that are typical for members of this organization [4]. The support of an innovation strategy by corporate culture is the most significant factor of efficiency for innovation costs, according to the data from The Global Innovation 1000 study. These data are confirmed by a survey conducted among 600 top executives from leading global innovation companies [5]. At the same time, only 47% of the polled top executives said that corporate culture of their companies corresponds to the innovation strategies pursued by senior management. This fact is a starting point of this research, the main goal of which was to identify the key factors of corporate culture in Russian companies that impact their innovation activities. 2. METHODS We conducted this research with the support of employees from the Department of National Economy of the Faculty of Economics of the Russian Presidential Academy of National Economy and Public Administration. During the first stage of the research ( ) we conducted a number of in-depth interviews and addressed focus groups with owners, executives and HR professionals to define main hurdles for the generation and execution of innovation in Russian businesses, and to identify a set of corporate culture factors that have the biggest impact on the innovative activity of a company s employees [6]. All in all, we conducted nine in-depth interviews. The objective editor@iaeme.com

3 Influence of Corporate Culture on the Efficiency of Innovation in Russian Companies of the in-depth interviews and focus groups was to compile a list of corporate culture factors that influence the innovative activity of employees the most. The second stage of the research ( ) included a poll of owners and executives of Russian companies, namely MBA students and people who seek second degrees at the Russian Presidential Academy of National Economy and Public Administration, about the importance of these factors of corporate culture for the promotion of innovative activity of employees and creation of an innovation climate in a company. The main objectives of the research were as follows: 1. To identify the most significant factors influencing the efficiency of innovation activities and expenses; 2. To verify hypotheses about the relation between priorities when choosing corporate culture factors and demographic characteristics of poll takers and their companies, such as the size of a company, the position held by a poll taker on the hierarchy ladder; 3. To examine possibilities of reducing the number of factors to be analyzed on the basis of stable correlation in answers given by poll takers. It should be noted that 104 representatives from companies that operate in various regions of Russia participated in the research. To reach the first objective of the research each poll taker was proposed to mark those factors of corporate culture that, in his/her opinion, indeed substantially influence the innovative activity in a company. One point was given to the indication of a factor in one questionnaire. Upon processing of all questionnaires, points for each factor were summarized. To reach the second objective of the research to examine the relationship between priorities when choosing key characteristics of the innovative corporate culture and demographic indicators of businesses and employees, several base (null) hypotheses were set forth: 1. The selection of key corporate culture factors of an innovation company does not depend on a sector in which companies operate; 2. The selection of key corporate culture factors of an innovation company does not depend on the size of a company s business; 3. The selection of key corporate culture factors of an innovation company does not depend on a position held by a respondent. To analyze the influence of a company s size on the selection of factors all companies were divided into two larger groups (major companies (44), and small and mid-sized businesses (50)). The comparison was last made with regard to the sectors in which companies of poll takers operate. All companies were divided into 2 groups. The first group consisted of manufacturers (40 businesses), while the second group comprised retailers, service providers and financial companies (75 companies). It should be noted that some respondents specified that due to business diversification their companies operate in several sectors. The hypotheses were verified by applying the statistical option in software program Statistica [7]. In the course of the research, we applied two methods (the categorical analysis to measure the Q ratio and the method aimed to compare the frequency of choosing factors in the general sampling of a poll with the frequency of choosing the same factors within a narrower sampling) editor@iaeme.com

4 T. P. Danko, M. A. Kazaryan, E. E. Pervakova, A. A. Novikov, E. V. Novikova and V. D. Sekerin The first method was applied to verify the hypotheses about the correlation between the factors by calculating Student statistics. The Q ratio is calculated for each pair of the factors separately under Formula 1: = + where A means the number of the respondents questionnaires, in which both factors under review are not substantial (not marked as influencing innovative activity); B means the number of questionnaires where the first factor is significant, and the second one is insignificant; C means the number of questionnaires where the first factor is insignificant, and the second one is significant; D means the number of questionnaires in which both factors are significant. So, A and D increase dependence between the factors, while B and C reduce it. It is important to note that when calculating the Q ratio for a specific pair of factors it is essential to verify whether it falls within a confidence interval, a sign of statistical reliability of calculations. The second method was applied to verify the basic hypothesis about the independence of the selection from the size of a company for the factor Ability to assume responsibility. The following signs were introduced for the purpose of calculations: m/n means relative frequency-of-mention of the factor in the main sampling; where m means the number of questionnaires, in which this factor was mentioned; n means the total number of questionnaires. For the Responsibility factor m=64, n=104. m0/n0 means relative frequency-of-mention of a factor in the subsampling under study In the specific case, the subsampling of small and mid-sized companies is reviewed, with n0=50, m0=23 (the number of mention for the Responsibility factor among the representatives of small and mid-sized enterprises). As the criterion to verify the basic (null) hypothesis we applied the comparison of Z (Formula 2) and the criterion value of the Laplace Transform at the 0.95 significant level. where P is set in Formula 3: = (1 ) + (1) (2) = + + (3) If Z exceeds the criterion value, the null hypothesis is rejected. The value of the Laplace Transform at the 95% confidence level is equal to Consequently, if Z exceeds the criterion value, then the main hypothesis is approved, i.e. the hypothesis about the independence between the selection of the Responsibility factor and the size of companies. The third objective of the research was to verify dependencies in the selection of separate corporate culture factors and a possible reduction in the nullity of the factor space. This task was solved by using principal component analysis, with software program Statistica [8] applied editor@iaeme.com

5 Influence of Corporate Culture on the Efficiency of Innovation in Russian Companies The main point of analysis was to divide factors into bigger component groups (Factor) which include factors that most often meet simultaneously. 3. RESULTS Upon results of the first stage of the research, we set forth 13 corporate culture factors that, as the participants of depth interviews think, produce the biggest impact on the innovative activity of employees. The factors are given in Table 1. Table 1 Significant factors of corporate culture # Factor Character and method of influence (displays) Transparency of goals The employee understands the mission of his/her company, i.e. the company s goal in terms of public benefits, good that his/her company does to the society. 2 Generality of values The employee knows and shares true values of senior management and shareholders, and their vision of the future. 3 Optimism The employee believes in the future of his/her company, is confident that executives have chosen the right path and are able to successfully follow this path. 4 The leader is treated with respect, but the style of his/her Democratic style of management is not overly authoritative, i.e. he/she is open for management feedback and proposals from subordinates. 5 Well-established channels of communication and level of mutual understanding with superiors The employee has the possibility of bringing his/her innovation ideas to senior executives fast and easy. 6 Favorable environment The company has a dynamic, cheerful and professionally competent environment. 7 The company has a practice of mentorship, there are possibilities to Mutual assistance, ask experienced colleagues for advice, to discuss ideas and find cooperation help to bring them to fruition. 8 Whole-team approach to implementing development tasks The company pursues a team-based approach, tends to set up teams for specific projects, team members change depending on the goals of various projects Restriction of personal The company does not create or welcome personal competition but competition encourages team rivalry. 10 The employee feels his/her significance, he/she feels that his/her Self-respect, selfrealization opinion is taken into account, he/she is listened to, and the superior shows his/her personal interest in the employee. 11 No vertical functional The company has well-developed horizontal information flows and barriers the high level of communication culture. 12 Fairness The employee who initiates innovation is confident that if his/her proposals are successfully implemented, his/her priority will not be concealed and he/she will be paid adequately. 13 Responsibility Employees get accustomed not only to participate, but also to assume responsibility editor@iaeme.com

6 T. P. Danko, M. A. Kazaryan, E. E. Pervakova, A. A. Novikov, E. V. Novikova and V. D. Sekerin These factors became the basis of a questionnaire, in which each poll taker was proposed during the second stage of the poll to mark those factors that, in his/her opinion, influence his/her innovative activity and of his/her colleagues. The number of factors to be marked was not limited. One point was given for each marked factor in the questionnaire. Accordingly, the most significant factors were transparency of goals and the employee understands the company s mission, favorable environment and fairness. The poll takers were provided with the opportunity to broaden the list of corporate culture factors that impact the efficiency of innovation activities. The following factors were additionally proposed: employees readiness to acquire new knowledge and improve individually and together with other employees; feedback when new ideas are proposed; encouragement of employees personal professional growth; the possibility to climb the career ladder within a short period of time. Senior executives give preference to such factors as the availability of the company s mission, cooperation and mutual assistance. For this category of the poll takers, the importance of fair remuneration for innovation proposals is lower, whereas the democratic style of management comes into focus. Factors related to the availability of the mission and the ability to assume responsibility turned out to be the most significant factors for large companies. The mission also had a decisive meaning for representatives from small and mid-sized companies, but such a factor as the ability to assume responsibility gives place to mutual assistance and cooperation at a company. This is so because in the segment of small businesses the degree of solidarity in a team indeed plays a decisive role in the maintenance of competitiveness in the market. When analyzing the dependence of the selection of factors that influence innovation, we divided companies into manufacturers and entities from other sectors. The factor of the mission and the ability to assume responsibility come into the foreground for manufacturers. Employees from non-manufacturing companies think that the mission and fair remuneration play a decisive role in stimulating innovation activities. The verification of statistical hypotheses that the selection of factors depends on demographic parameters of poll takers showed that there is no substantial correction between the selection of the respondents and characteristics of their activities by types of business, the size of the business and a respondent s position in the hierarchy. The relevant values of the Z ratio equaled 1.3, 0.9 and 1.5, or not higher than the criterion value of In all cases, the null hypothesis was taken to show the absence of any relation between demographic characteristics and what the respondents ticked. Accordingly, it can be safely said that the selection of priorities among corporate culture factors, which impact innovation activities, does not depend on the size of a company or the area of operations (kind of business). The hypothesis that there is the dependence in the selection on a position held was not confirmed under any single factor of corporate culture. Consequently, upon results of our pilot research, it can be said that the selection of priority factors for the innovative corporate culture does not depend on any demographic characteristics of companies and poll takers editor@iaeme.com

7 Influence of Corporate Culture on the Efficiency of Innovation in Russian Companies At the same time, the results of the research conducted when solving the first and second tasks show that the corporate culture of Russian companies has some specific features. The preferences identified in the selection of priority corporate culture factors and their independence from the size of companies and positions held by respondents clearly show that there is a certain generality of corporate values for the Russian business environment which can be explained by the influence of stable institutional peculiarities of the Russian economy and established models of the collective behavior of the Russian population. The third task of the research was to identify the possibility of broadening wordings of factors and reducing their number on the basis of categorical data analysis and principal component analysis. In the course of analysis using the Q ratio, its highest values were found for four pairs of factors: 1. Transparency of goals and the mission (Factor 1) and the generality of values (Factor 2). The Q ratio equaled at a confidence interval (0.32, 0.93). 2. Transparency of goals and the mission (Factor 1) and optimism (Factor 3). The Q ratio stood at at a confidence interval (0.4, 0.93). 3. The favorable environment (Factor 5) and mutual assistance and cooperation (Factor 6). The Q ratio reached at a confidence interval (0.44, 0.91). 4. Fairness (Factor 12) and mutual assistance, cooperation (Factor 6). The Q ratio was equal to at a confidence interval (0.37, 0.89). Consequently, the most dependable parameters have an average degree of relationship. Later analysis results were found using principal component analysis. The most substantiated decomposition was found for four components. The calculation of factor loadings, i.e. values of the correlation coefficients for each of the initial indicators with each component, is given in Table 2. Table 2 Decomposition of corporate culture factors using principal component analysis Factor 1 Factor 2 Factor 3 Factor Transparency of goals * Generality of values * Optimism * Democratic style of management * Well-established channel of communication Favorable environment * Mutual assistance, cooperation * Whole-team approach to implement development tasks * Restriction of personal competition * Self-respect, self-realization * No vertical functional barriers * Fairness * Responsibility editor@iaeme.com

8 T. P. Danko, M. A. Kazaryan, E. E. Pervakova, A. A. Novikov, E. V. Novikova and V. D. Sekerin Selecting the highest number in each line of the table marked with an asterisk (*), one can find which component this factor should be referred to. The above analysis leads to the conclusion that it is possible to reduce the number of factors if a research is conducted on a larger scale. 4. DISCUSSION The concept of corporate culture has gained one of the leading positions in the scientific literature of the 20 th century owing to classical works compiled by such renowned foreign researchers as E. Denison, S. Robbins, G. Hofstede and K. Cameron. A substantial contribution to the study of the influence of corporate culture on the efficiency of business and peculiarities for the formation of the Russian corporate culture was made by famous Russian scientists M.N. Pavlova, I.D. Ladanov, T.Yu. Bazarov, T.P. Danko and V.A. Spivak [9-12]. Most attention in these works is paid to the methods of financial and psychological stimulation of employees, and to the establishment of an organizational structure for the support of innovation and the allocation of innovation budgets. The influence of corporate culture on a company s innovative activity has become a special direction in scientific studies since the 1990s. While studying this problem, some authors believe that supportive, sympathizing, democratic and cooperation-oriented styles of leadership are efficient for expansion of an innovation company and that a strong authoritative leader restrains innovation [13]. As other researchers think, [14] the strong power is conducive to the leader s reputation, the integrity of corporate culture. Within the frameworks of authoritative management, there can be competition among employees that, if managed well, will lead to innovation. The dominant practice of business conduct in Russian companies prompted many Russian authors to address such a problem as the influence of factors related to the institutional environment on the formation of corporate culture in companies, including those which determine the innovative activity of the latter. The latest research devoted to the interrelation between corporate culture and innovative activity of an enterprise considers the scope of this problem from a much wider angle, going far beyond a separate company. In this respect, the corporate culture of the business environment itself is viewed as the key factor for a company s innovation development, and within corporate culture, it is possible to build innovation forms of cooperation among industrial enterprises. Innovation forms of industrial cooperation not only improve the competitiveness of products owing to the application of innovative energy and resource-saving technologies. This, in turn, solidifies the business reputation of companies that participate in cooperation of this kind. 5. CONCLUSION We came to the conclusion that while analyzing the influence of corporate culture factors on the innovative activity of Russian companies all factors can be conditionally divided into four groups. The first group includes the most important factors which influence the innovative activity such as transparency of goals (i.e. the company s employees understand the mission and the purpose of its operations in terms of public benefits), favorable environment (the company has a dynamic, cheerful and professionally competent environment) and fairness (the employee is convinced that his/her contribution is recognized and he/she is paid adequately) editor@iaeme.com

9 Influence of Corporate Culture on the Efficiency of Innovation in Russian Companies The second group consists of fairly significant factors (the democratic style of management, well-established channels of communication with the superior and mutual assistance and cooperation, and the ability to assume responsibility). Factors of average significance can be referred to the third group (optimism, the generality of goals, whole-team approach to the solution of problems). These factors have not yet become quite significant for Russian enterprises. Finally, the fourth group comprises factors of low significance. Namely, they are the restriction of personal competition and well-established horizontal information flows. It should be noted that Western researchers mark these both factors as quite significant. Overall, having solved the first and second tasks we came to a conclusion that Russian companies priorities of corporate culture, including those that influence their innovation activities, are mainly explained by established steady peculiarities of the institutional environment that set the value system for both enterprises and population of the country as a whole. The third task of the research was an attempt to reduce the number of factors by aggregating factors, the meaning of which is similar. Four groups of factors were found after using the method of factor loadings. The first group consists of factors that influence the relationship between employees and executives, the second one comprises the mission and the vision, the third group includes relations with colleagues and the fourth group concerns the organizational structure. This leads to the assumption that it is possible to reduce the number of factors when conducting research on a broader scale. The stable relations among the strategy, culture and innovation allows the company to create an additional lever for the transformation of innovation expenses into market results and long-term financial achievements. Directions for further research can include a deeper analysis of such issues as the place of corporate culture in intangible assets in Russian companies, and the influence of corporate culture in leading Russian enterprises on the formation of the corporate culture of a business environment in the Russian economy. ACKNOWLEDGEMENTS The authors of the article thank employees from the Department of the National Economy, the Faculty of Economics of the Russian Presidential Academy of National Economy and Public Administration who took an active part in the arrangement of a poll among executives and owners of Russian enterprises. Acknowledgements: the project is financed by Grant No Design of the Convergence Technology for Intellectual Support of Managerial Decisions on the Inter- Disciplinary Basis of the Russian Foundation for Basic Research. REFERENCES [1] Danko, T. P., Podzhary, A. K., Kosov, M. A., Smelov, P. A. Marketing tools for evaluating development potential (regions, cities, companies): Monograph. Yelm: Science Book Publishing House, 2018, 268 p. [2] Feruleva, N., Ivashkovskaya, I. Assessment of intellectual capital influence on corporate value as a field for investigations in corporate finance. Journal of Corporate Finance, 15(1), 2018, pp [3] Danko, T. P., et al. Marketing management of potentials (regions, cities, companies): Textbooks for students of higher education institutions who major in Economics and Management. Moscow: Unity-Dana, 2018, 344 p editor@iaeme.com

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