The Relationship between Organizational Culture and Innovation

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1 The Relationship between Organizational Culture and Innovation Dr Jakobus Smit Utrecht University of Applied Science Faculty of Economics and Management Padualaan CH, Utrecht The Netherlands Abstract This paper essentially presents an exploration of the relationship between organizational culture and innovation adoption in organizations. A brief review of the literature reveals that these concepts and the relationship between them have been studied extensively, but that outcomes of various studies are somewhat fragmented in nature. In an effort to study the relationship using a more inclusive frame of reference, the paper presents a description of two models that were used as the foundation for the design of a measurement tool to investigate the topic. The results suggest that there is indeed a relationship between organizational culture and adoption of innovations in organizations. More specifically the results show that organizations that are adaptable, that can strategize well, and that have systems and processes that are well aligned, are more likely to have a positive attitude to innovation and also believe that they have the required resources to adopt innovations.

2 The Relationship between Organizational Culture and Innovation 1. Introduction Organizations are increasingly being put under pressure to innovate. Take for instance the rise of social media and how its use seems to be permeating our personal as well as business lives leading to expectations that organizations exploit its potential (Qualman, 2010). But organizations still seem to struggle to innovate. Koetzier and Alon (2013) suggest that this may partly due to a lack of having a well-planned formal system in place for innovation. In addition Büschgens et al. (2013) suggest that a developmental organizational culture is essential for innovation success. This paper reports on a study aimed at investigating the relationship between organizational culture and innovation, and more specifically adoption of innovation. First a brief review of the literature is presented ending with an explanation of the theoretical basis for the empirical phase of the project. This is followed by a description of how the investigation was conducted. The findings are presented and the paper concludes with some suggestions for future research as well as recommendations for practice. 2. Literature review 2.1 Organizational culture There are a variety of perspectives on organizational culture and along with it also several definitions and models that aim to describe what organizational culture is. When defining organizational culture, Deshpandé and Webster (1989), for instance, refer to a pattern of shared values and beliefs. They suggest that this helps people in an organization to understand the functioning of the organization and provides norms for behavior. Van der Westhuizen et al. (2005) analyzed 15 definitions and conclude that there are two sides to organizational culture namely the tangible and intangible sides, where the intangible refers to, for instance, common values and norms whilst the tangible refers to, amongst others, behavior. The simplest and seemingly most effective definitions however still

3 seems to be: "the way things are done around here" (Bower, 1966). This is also the operational definition used in the research that is reported in this paper. Models of organizational culture also vary in their nature. Schein (1991) for instances refers to l evels of culture whilst others refer to dimensions of culture (Denison, 1990; Denison, 2000; Denison & Mishra, 1995, and Hofstede, 1980). Handy (1985 and 1995) on the other hand refe rs to types of culture. Smit et al. (2008) also refers to dimensions of culture. Their model however acknowledges and extends existing work, and was created along with research conducted in the field. The theoretical foundation of the research that is reported here is therefore the X Model. This X Model describes 5 core elements of organizational culture namely, Leadership, Strategy, Adaptability, Coordination, and Relationships. They are briefly defined below: - Leadership: Referring to how people lead in the organization ; - Strategy: Referring to how organizations strategize; - Adaptability: Referring to how organizations respond to change; - Coordination: Referring to how systems and processes are aligned (vertically and horizontally) in an organization; - Relationships: Referring to how individuals and groups in the organization deal with each other (Smit et al., 2008). These core elements contain sub-elements which provide more detail descriptions of the core dimensions. This model has been operationalized and used as the foundation for the development of an organizational culture diagnostic tool, and this tool has been validated (Forster, 2006). This tool is therefore the basis for the questionnaire that is used in the research that is reported in this paper Innovation Adoption

4 When talking about an innovation authors in business research normally refer to a new idea, process, product and so forth (Yusof & Abidin 2011). And when using the term as a verb, then authors normally refer to the process of innovation which may include the activity of generation (Hansen and Birkenshaw, 2007) or development of, for instance, new ideas, products, services, processes and so forth. However it may be also useful to distinguish between the generation and adoption of innovations. Hansen and Birkinshaw (2007) actually refers to the innovation value chain which includes idea generation, conversion and finally dissemination. It is this dissemination of ideas that has enjoyed attention for some time in the literature. One of the more well know theories in this regards is most likely the diffusion of innovations theory of Rogers (2003). He suggests that the diffusion of an innovation is a process in which a new idea is communicated to members of a social system. The question remains whether an innovation will be accepted (or adopted). Rogers (2003) refers to several innovation characteristics that may play a role in adoption behavior. Another model that deals with adoption is the theory of planned behavior (TPB) (Ajzen, 2012). Extended from the theory of reasoned action ( Fishbein & Ajzen, 2010) the TPB states that people s attitudes, subjective norms and their perceived behavioral control may shape their intention and behavior. Since the first publication of the theory (Ajzen, 1985) it has be used extensively in business research. Tan & Teo (2000) argue that the TPB provides a comprehensive way to get an understanding of how attitudes, subjective norms and perceived behavioral control can influence intentions and behavior. For the purpose of the research that is reported in this paper the TPB as presented in Teo and Tan (2000) was adapted to include some elements of Attitudes, Subjective Norms and Perceived Behavioral Control as presented in Figure 1.

5 Figure 1: The TPB (Adapted from Teo & Tan, 2000) In this regard the concept Attitudes refers to the perception towards an innovation, Subjective Norms refers to the social influences (for instance expectations of customers and competitors) that may affect intention to adopt an innovation, and Perceived Behavioral Control, refers to beliefs about having the necessary resources to adopt an innovation. The three elements that are related to intention to adopt have been operationalized into questionnaire items and added to items on organizational culture as described in the previous section Organizational Culture and Innovation Adoption A variety of studies investigated the relationship between organizational culture and innovation in organizations (see for instance Caccia-Bava et al., 2006; Cakar and Ertürk, 2010; Chandler et al., 2000; Chong et al., 2009; and Twati & Gamack, 2006). Tuan & Venkatesh (2010) for instance identified four cultural dimensions that may be related to technological innovation namely Vision, Organizational Structure, Support Mechanisms, and Innovation Stimulators. Martins and Terblanche (2003) mention similar culture elements that are related to innovation such as Strategy, Structure, Support Mechanisms, Behavior that support Innovation, and Communication. In this study they focused specifically on idea generation and implementation.

6 Büschgens et al. (2013) mention that the relationship between organizational culture and innovation in general has been studied extensively and investigate this further by doing a meta-analytic review of 43 studies on the relationship between organizational culture and innovation.. They offer that there is indeed a relation between organizational culture and innovation in organizations. They also suggest that the relationship between organizational culture and innovation generation is stronger than the relation between organizational culture and innovation adoption. Their results confirms the relationship between organizational culture and both innovation generation as well as innovation adoption, albeit weaker in the case of innovation adoption. However their regression analysis does not confirm the difference they expected. It must be added that the models and theories used in these studies used measurements scales that asked for organizational culture values and perceptions regarding the work environment, in other words the more intangible elements of organizational culture. The X Model on the other hand focuses more on visible behavior in organizations that represent or may model the culture of the organization. To further explore the relationship between the more visible aspects of organizational culture and innovation adoption the X Model and the TPB were therefore used as theoretical basis and the conceptual model that guided the project is depicted in Figure 2. Figure 2: The Conceptual Model

7 As can be seen in Figure 2 the intention was to investigate the relationship between the various main elements of the models. The next section describes how this model was operationalized and applied. 3. Research method 3.2. The Questionnaire During the preparation phase the questionnaire itself was prepared. The final questionnaire consisted of 2 main sections namely organizational culture items and innovation adoption items The organizational culture section of the questionnaire consisted of 27 questions related to the 5 core elements of the X Model of Organizational Culture (Smit et al., 2008). This organization culture section of the questionnaire has previously been validated (Forster, 2006). The innovation adoption section contained either 2 or 3 items for each of the elements of the TPB resulting in a total of 7 items. All the items were of the Likert scale type, where respondents had to select to what extent they agree or disagree with statements offered in the questionnaire Sampling and Data Collection Organizations in France, Ireland and England were selected to participate in the study. From France 6 organizations participated, from Ireland 5, and from England 1 organization participated. They were identified through convenience sampling as research students, who were doing an internship in these organizations, were asked to collect the data at their place of work. The organizations ranged in size from medium to large. Of the 12 organizations, 8 were in the IT industry while the rest were respectively retail, non-profit, insurance and market research companies. A total of 247 respondents completed the questionnaire.

8 For the analysis the data was imported to SPSS and several tests were conducted. The analysis consisted mainly of two activities namely: - A correlational analysis to investigate the relationship between the variables - A regression analysis to investigate the nature and strength of the relationships between certain variables 4. Findings and discussion In this section the findings are presented in two parts, namely a description of the correlations between the variables and then a description of the regression analysis findings. The Correlational Analysis The correlational analysis reveals the results presented in Table 3. Attitude Subjective Norms Perceived Behavioral Control Leadership.452 **.360 **.460 ** Strategy.563 **.389 **.612 ** Adaptability.598 **.423 **.632 ** Coordination.556 **.347 **.653 ** Relationships.565 **.309 **.585 ** **. Correlation is significant at the 0.01 level (2-tailed). Table 3: The Correlations The results clearly indicate moderate to strong correlations (between and 0.700) that are significant to the 0.01 level between several organizational culture and innovation adoption variables. These are highlighted in bold text in the grey cells of Table 3. Both Attitude to innovation and Perceived Behavioral Control have a moderate to strong correlation to all but one of the five organizational culture elements, which implies in general terms that there seems to be a noticeable relationship between organizational culture and innovation adoption.

9 The strongest correlations can be found between the culture variables Strategy (0.610), Adaptability (0.632), and Coordination (0.653) on the one hand, and the innovation variable Perceived Behavioral Control on the other hand. This implies that organizations who are able to strategize well, can respond well to change, and are able to align systems and processes in the organization, are also likely to make resources available for innovation. It is interesting to note that Subjective Norms, which refer to social influences that may contribute to adoption behavior, is not that strongly related to organizational culture with correlations ranging from to The latter is an exception and can also be regarded as a moderate relationship and it refers to the correlation between Adaptability and Subjective Norms. It seems that organizations who are able to respond to changes also tend to adopt innovations (or intend to do so) as a result of social influences. In order to further examine the nature and strength of the more strongly related variables (as suggested by the correlation analysis), and to investigate the relative predictive power of culture on innovation adoption a multiple regression analysis was also done. Firstly predictors of Attitude to innovation were investigated and thereafter predictors for Perceived Behavioral Control. Multiple Regression Analysis: Culture and Attitude The results regarding possible culture predictors for Attitude are presented in Tables 4, 5, and 6. In this case the dependent variable is Attitude and in the independent variables, or predictors, are the culture elements Leadership, Strategy, Adaptability, Coordination and Relationships. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate a a. Predictors: (Constant), Relationships, Strategy, Leadership, Adaptability, Coordination Table 4: Attitude Model Summary

10 The model summary in Table 4 indicates that the multiple correlation coefficient is This implies a relatively strong correlation between the combined culture elements and Attitude to innovation. The variance in Attitude can be explained by 51.8% the combined culture elements. This does imply that about half of the variance in Attitude is unexplained. ANOVA a Model Sum of Squares df Mean Square F Sig. 1 Regression b Residual Total a. Dependent Variable: Attitude b. Predictors: (Constant), Relationships, Strategy, Leadership, Adaptability, Coordination Table 5 Attitude ANOVA In Table 5 the ANOVA results are presented. The F value of and corresponding p value of reveals that the regression model is statistically significant. This means that a significant proportion of the combined culture variables explain the variance in Attitude to innovation. Coefficients a Unstandardized Coefficients Standardized Coefficients Model B Std. Error Beta t Sig. 1 (Constant) Leadership Strategy Adaptability Coordination Relationships a. Dependent Variable: Attitude Table 6: Attitude Coefficients

11 Table 6 presents a closer look at the regression model. The standardized regression coefficients reveal that not all independent variables are that strongly related to Attitude to innovation. The strongest is Adaptability at β=0.370 and this is also the only predictor that is statistically significant (Sig. 0.05). This means that the only culture element that seems to serve as a predictor for Attitude to innovation is Adaptability, whilst Leadership, Strategy, Coordination and Relationships do not serve as strong predictors for Attitude. This means that it is likely that organizations who can respond well to change, or who make an effort to be more adaptable can be predicted to also have a more positive Attitude to innovation. It seems that the regression analysis, using Attitude as dependent variable, only partly supports the findings of the correlation analysis. Predictors for Perceived Behavioral Control The results regarding possible culture predictors for Perceived Behavioral Control are presented in Tables 7, 8, and 9. In this case the dependent variable is Perceived Behavioral control and in the independent variables, or predictors, are the culture elements Leadership, Strategy, Adaptability, Coordination and Relationships. Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate a a. Predictors: (Constant), Relationships, Strategy, Leadership, Adaptability, Coordination Table 7: Perceived Behavioral Control Model Summary The model summary in Table 7 indicates that the multiple correlation coefficient is This implies a relatively strong correlation between the combined culture elements and Perceived Behavioral Control. The variance in Perceived Behavioral Control can be explained by 55.8% of the combined culture elements. This also means that only about 44% of the variance in Perceived Behavioral Control is unexplained.

12 ANOVA a Model Sum of Squares df Mean Square F Sig. 1 Regression b Residual Total a. Dependent Variable: Perceived Behavioral Control b. Predictors: (Constant), Relationships, Strategy, Leadership, Adaptability, Coordination Table 8: Perceived Behavioral Control ANOVA In Table 8 the ANOVA results are presented. The F value of and corresponding p value of reveals that the regression model is statistically significant. This means that a significant proportion of the combined culture variables explain the variance in Perceived Behavioral Control. Coefficients a Unstandardized Coefficients Standardized Coefficients Model B Std. Error Beta t Sig. 1 (Constant) Leadership Strategy Adaptability Coordination Relationships a. Dependent Variable: Perceived Behavioral Control Table 9: Perceived Behavioral Control Coefficients Table 9 presents a closer look at the regression model. The standardized regression coefficients reveal that three of the independent variables are statistically significant (Sig. 0.05) predictors for Perceived Behavioral Control. The strongest predictor is Adaptability at β=0.375, followed by Coordination (β=0.355) and finally Strategy (β=0.135).

13 This means that the culture elements Adaptability, Coordination, and Strategy serve as a predictors for Perceived Behavioral Control, whilst Leadership and Relationships do not seem to be significantly associated with Perceived Behavioral Control. The findings of the correlation analysis, which suggest moderate to strong relationships between some culture elements and Perceived Behavioral Control, are confirmed by the regression analysis. This means that it is likely that organizations who can respond well to change, whose systems and processes are well aligned and who are able to strategize well, also believe that they have the required resources for adopting innovation. 5. Concluding remarks This paper presented the results of an investigation into the relationship between organizational culture and innovation adoption in organizations. A literature review reveals that some research has been conducted on this topic but the results seem to be fragmented. Using the X model, that acknowledges existing theory as well as empirical evidence, as well as the TPB, which has been tested extensively, the research described here was aimed at extending knowledge about this subject. Data was collected from 247 respondents working in 12 European organizations in Ireland, France and England using a questionnaire that was based on the mentioned theoretical models. A correlation analysis was conducted to investigate the relationship between organizational culture and innovation adoption, followed by a multiple regression analysis in order further investigate nature and strength of this relationship. The findings indicate that there is indeed a relationship between organizational culture and innovation adoption. More specifically the analysis reveal that organizations who strategize well, who can adapt to change and whose systems and processes are well aligned are more likely to have a positive attitude towards innovation. These kinds of organizations are also more likely to believe that they have the required resources available for innovation. In terms

14 of the TPB the implication is that having a positive attitude to innovation and believing that one has the required resources leads to an intention to adopt innovation and subsequently actual adoption. Some limitations of this study was the fact that it consisted of a heterogeneous sample that was selected using convenience sampling. In addition the potential for spurious relationships or intervening and/or moderating variables can also not be excluded. It would be advisable for future research to use larger samples as well as a more homogeneous population. In addition it would be most useful to use the findings of a correlational analysis as the basis for hypotheses to study the relationships between these constructs. The findings of this study should be interesting to vendors who wish to see their innovative services and products adopted by their target clients. Knowledge of the culture of an organization, and more specifically its adaptability, strategy, and coordination characteristics, may help these vendors to predict the chances that their services and products are adopted by an organization. But internal units of an organization who wish to implement some form of innovation in their organization may also be able to predict success of their projects through awareness of cultural issues that may impede or facilitate innovation adoption.

15 6. References Ajzen, I. (1985). From intentions to actions: A theory of planned behavior. In Action-control: From cognition to behavior, Edited by J. Kuhl & J. Beckman. Heidelberg: Springer. Ajzen, I (2012) The Theory of Planned Behavior. In Handbook of Theories of Social Psychology: Volume 1, Edited by P. A. M. Van Lange, A. W. Kruglanski, and E. T. Higgins. London: Sage Bower, M. (1966) The Will to Manage: Corporate Success through Programmed Management. New York: McGraw- Hill. Büschgens, T., Bausch, A. & Balkin, D. B. (2013), Organizational Culture and Innovation: A Meta-Analytic Review. Journal of Product Innovation Management, 30(4). pp Caccia-Bava, M. C., Guimaraes, T. & Harrington, S. J. (2006) Hospital organization culture, capacity to innovate and success in technology adoption. Journal of Health Organization and Management, 20 (3), pp Cakar, N. D., & Ertürk, A. (2010) Comparing innovation capability of small and medium -sized enterprises: Examining the effects of organizational culture and empowerment. Journal of Small Business Studies, 48 (3), pp Chandler, G. N., Keller, C. & Lyon D. W. (2000). Unraveling the determinants and consequences of an innovationsupportive organizational culture. Entrepreneurship Theory and Practice (Fall), pp Chong, A. Y., Ooi, K., Lin, B. & Raman. M. (2009) Factors affecting the adoption level of c -commerce: An empirical study. Journal of Computer Information Systems (Winter), pp Fishbein, M and Ajzen, I. (2010). Predicting and changing behavior: The reasoned action approach, New York, NY: Psychology Press Forster, S. (2006) Understanding Organisational Culture: Validating an Organisational Culture Assessment Tool. Unpublsihed Master's Thesis. Cape Town: University of the Western Cape. Hansen, M. T. en J. Birkinshaw (2007) The Innovation Value Chain. Harvard Business Review. June 2007.

16 Hefu L., Weiling K., Kwok K., Wei, J.G., and Huaping C. (2009) The role of institutional pressures and organizational culture in the firm's intention to adopt internet-enabled supply chain management systems. Journal of Operations Management, 28(5), pp Martins, E.C. & Terblanche, F, (2003). Building organisational culture that stimulates creativity and innovation, European Journal of Innovation Management, 6(1). pp Martinsons, M.G., Davison, R.M., and Martinsons, V. (2009) How Culture Influences IT-enabled Organizational Change and Information Systems. Communications of the ACM, 52(4), pp Perez-Luno, A., Wiklund, J., & Cabrera, R.V. (2011) The Dual Nature of Innovative Activity: How Entrepreneurial Orientation Influences Innovation Generation and Adoption. Journal of Business Venturing, 26(5), pp Qualman, E. (2012) Socialnomics: How social media transforms the way we live and do business. Hoboken, New Jersy: John Wiley & Sons Inc. Rogers, E. M. (2003) Diffusion of Innovations, Fifth Edition. New York: Free Press Smit, J., Ludik, J., Forster, S., (2008) Organisational Culture in the South African Context: The X Model. The International Journal of Knowledge, Culture and Change Management, 7(10), pp Tan, M & Teo, T.S.H. (2000) Factors Influencing the Adoption of Internet Banking. Journal of the Association for Information Systems, 1(5), Article 5. Online. Accessed 28 October Available at: Tuan, L.T. & Venkatesh, S. (2010), Organisational Culture and Technological Innovation Adoption in Private Hospitals, International Business Research, 3(3). pp Twati, J.M. and Gamack, J.G. (2006) The impact of organizational culture innovation on the adoption of IS/IT: the case of Libya. Journal of Enterprise Information Management. 19(2), pp Van der Westhuizen, P. C., Mosoge, M. J., Swanepoel, L. H., & Coetsee, L. C. (2005). Organizational culture and academic achievement in secondary schools. Education and Urban Society. 38(1). pp Yusof, N. & Abidin, N.Z. (2011) Does Organizational Culture Influence the Innovativeness of Public-Listed Housing Developers? American Journal of Applied Sciences, 8(7). pp

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