The Impact of Leadership and Organizational Culture
Investigating the Role of Leadership and Organizational Culture in Fostering Innovation Ambidexterity
Investigating the Role of Leadership and Organizational Culture
in Fostering Innovation Ambidexterity
Hsing-Er Lin 1 and Edward F. McDonough III 2
1 *
Research associate
Maastricht School of Management
Maastricht, NL
+31-433870896
2
Professor
International Business & Strategy Group
College of Business Administration
Northeastern University
Boston, MA 02115
+1- 617 373-4726
ABSTRACT
This study investigates the impact of leadership and an organization’s culture on the organization’s ability to exhibit innovation ambidexterity, i.e., the ability to simultaneously generate multiple types of innovation. We found that adaptive leadership had a direct and significant relationship on both internal process innovation and incremental product innovation. We also found that entrepreneurial and sharing organization cultures mediated the relationship between a bounded delegation style of leadership and internal process innovation, and incremental product innovation, and radical product innovation.
Our results suggest that the way in which leadership affects innovation is complex. While prior research has suggested that transformational leadership will foster radical innovation and that transactional leadership will foster incremental and internal process innovation, our findings suggest that this is a considerable oversimplification of the relationship between leadership and innovation. Our findings suggest that culture is crucial to enable innovation ambidexterity and further, that leadership and culture work in conjunction with each other to generate innovation. Thus, failing to take into account the role of organizational culture presents a distorted picture how leadership influences an organization’s ability to generate multiple types of innovation simultaneously.
Key words: Leadership, organization culture, innovation ambidexterity, innovation, exploration, exploitation, Taiwan
INTRODUCTION
There is general agreement that innovation ambidexterity, i.e., the ability to simultaneously generate multiple types of innovation, plays a central role in sustaining a firm’s competitive success (Tushman & O’Reilly, 1996; O’Reilly & Tushman, 2004; Gibson & Birkinshaw 2004). But as Markides & Chu (2008) point out “… whereas the need for and the beneficial effects of achieving ambidexterity have been recognized, little work has been done on exactly how organizations could achieve ambidexterity.” (pp. 3-4)
To date research on ambidexterity has focused on a handful of antecedents including, structure, context and leadership (Raisch & Birkinshaw, 2008). Research on structural antecedents has focused on creating separate organization units and the use of formal and informal coordinating mechanisms to stimulate innovation ambidexterity (Duncan, 1976; Christensen 1997; Tushman and O’Reilly, 1996; Jansen, et al., 2006), while research on context has focused on creating systems, processes, and beliefs that will enable and encourage individuals to judge for themselves how to best divide their time between different types of innovative activities (Gibson & Birkinshaw, 2004). Research that has examined on leadership has focused on the role of top management teams (TMTs) in helping to create ambidexterity (Smith & Tushman, 2005). Lubatkin, et al., (2006), e.g., has investigated the impact of the behavioral integration of TMTs on ambidexterity, while other research on TMTs has examined the impact of founding teams’ prior affiliations on innovative activities (Beckman, 2006).
Another antecedent that is thought to play an important role in fostering ambidexterity is leadership style. It has been proposed, e.g., that different leadership styles are needed in order to facilitate different types of innovation (Vera & Crossan, 2004; O’Reilly & Tushman, 2004). These researchers have suggested that a participative form of leadership may be most helpful in fostering radical and discontinuous types of innovation, while an authoritative, top down style of leadership may be most helpful in fostering incremental innovation (Vera & Crossan, 2004, O’Reilly & Tushman, 2004). Interestingly, despite the importance ascribed to leadership (Vera & Crossan, 2004, O’Reilly & Tushman, 2004), we are unaware of any empirical research that has specifically focused on the role of senior leadership style and its impact on fostering innovative activities leading to different types of innovation. Thus, one of the purposes of our study is to investigate the role of senior leadership styles, in fostering innovation ambidexterity.
Researchers have also raised the question of the respective roles of leaders and organization culture in influencing innovation (Raisch and Birkinshaw, 2008). While some researchers have suggested that leadership and culture act independently to affect innovation, others suggest that leadership operates through an organization’s culture to influence innovation. Understanding how leadership and culture interact to affect innovation ambidexterity is an important question that has not been investigated (Raisch and Birkinshaw, 2008). Therefore, a second purpose of our study is to examine the interaction of leadership and an organization’s culture on the organization’s ability to foster innovation ambidexterity.
BACKGROUND
Innovation
According to Garcia and Calantone (2002) and Grant (2002), innovation can be generally described as the quest for finding new ways of doing things. Tidd et al., (2001), e.g., define innovation as “change” and include the creation and commercialization of new knowledge in terms of a firm’s generic innovation strategies (Porter, 1980), while Porter and Ketels (2003) define innovation as “the successful exploitation of new ideas”. As these definitions make clear, innovation is not limited to technological change or new products even though it is frequently described in this way.
Further, as the January 2008 report of The Advisory Committee on Measuring Innovation in the 21st Century Economy admonishes, “effective innovation measurement must go beyond tracking inputs such as R&D spending; it must also track outcomes for firms, customers, regions, and nations.” (Innovation Measurement: Tracking the State of Innovation in the American Economy, 2008). Recognizing the multi facetted nature of innovation, in our study we examine three types of innovation including, 1) internal process, 2) incremental product and 3) radical product innovation.
Product innovations have been characterized as falling along a continuum ranging from incremental (or continuous) to radical (or breakthrough) product innovation. Incremental new product innovations consist of product modifications, cost reductions, and product repositionings, while radical new product innovations are ones that incorporate substantially different technology from existing products and can fulfill key customer needs better than existing products (Chandy and Tellis, 1998).
In addition to product innovation, organizations can also undertake internal (to the organization) process innovation. This type of innovation is typically intended to improve organizational processes, work flows, or ways of working together to accomplish a company’s objectives (e.g., Davenport, 1993; Bender et al., 2000). Internal process innovations are not intended for sale to other companies, but instead are intended for use internally by the organization to help it to work more effectively, generate greater efficiencies, increase speed of throughput, enhance communication flow, and the like. This type of innovation may come from any individual or department in the company.
It has been proposed that for organizations to be successful and effective their senior leaders need to engage in behaviors that promote multiple types of innovation (O’Reilly & Tushman, 2004; March 1991).
Several researchers (cf., McDonough & Leifer, 1986; Vera & Crossan, 2004; O’Reilly & Tushman, 2004) have suggested that what has been called “adaptive” leadership and “bounded delegation” leadership, may play a very important role in fostering different types of innovation. An adaptive leadership style is characterized as leadership that focuses on strategic thinking and organizational capabilities in adapting to circumstance change and aligning with business needs, while a bounded delegation leadership is characterized as the leadership coaching employees in line with organizational vision and goal but also providing support and wide latitude to inspire employees’ creativity.
Adaptive Leadership and Innovation
Leaders who exhibit an adaptive leadership style monitor the organization’s external environment, and use this information to keep the organization competitive and ensure continual organizational learning by adapting to variations in the external environments (Tushman, Anderson, & O’Reilly, 1997; Boal and Hooijberg, 2000; Vera and Crossan, 2004). These leaders absorb, understand, and integrate new information and ideas and are sensitive to the needs of very different kinds of businesses and adapt to variations in the external environments (Tushman, Anderson, & O’Reilly, 1997; Boal and Hooijberg, 2000).
Being immersed in the organization’s external environment enables these leaders to obtain customer feedback, learn of their customers’ problems and needs, and obtain market information, which they can then pass along to individuals in the organization. By facilitating this flow of information, this style of leadership helps to foster incremental, but not radical product innovation (Ulwick, 2002; Damanpour, 1991; Damanpour & Evan, 1984; Knight, 1967). Unlike incremental innovations, radical innovation typically requires deep expertise and the exchange of more knowledge about specialized and leading edge technologies. Because such deep expertise usually comes about from intensive immersion in a specialized field, it is unlikely that adaptive leaders, whose job is to manage the company, not develop radically new products, will have been able to maintain either the deep expertise or knowledge that is needed to directly impact on radical innovation.
However, because these leaders serve as conduits for information between customers and the organization, they are in a position to link customer needs and problems with product development efforts within the organization. But, innovation focused on meeting customer needs and solving customer problems is incremental in nature. Radical innovation, on the other hand, is stimulated by more basic technological and scientific investigation and is focused on generating products that do not simply satisfy current customer needs, but rather on offering new technologies to new markets.
Because of the adaptive nature of this leadership, with its focus on continual innovation, we also argue that adaptive leadership will impact on the organization’s ability to generate internal process innovations. The information that adaptive leaders bring into the organization from the external environment serves as a platform for innovation. It can inform the organization regarding the need to update the ways of doing things better and stimulate thinking about what new processes, workflows, and structures might look like. .
Thus, we propose that:
H1a: There will be a positive relationship between adaptive leadership and incremental product innovation.
H1b: There will be a positive relationship between adaptive leadership and internal process innovation.
Bounded Delegation Leadership and Innovation
While adaptive leaders may have a direct influence on innovation, we argue that leaders who exhibit what has been called a “bounded delegation” style of leadership (McDonough & Leifer, 1986) have an indirect effect on innovation by working through an organization’s culture. Leaders with a bounded delegation style articulate goals for subordinates, but allow the subordinates to identify the path they wish to take to achieve those goals (McDonough & Leifer, 1986). Leaders who use such a style are closely connected to subordinates and provide coaching to ensure subordinates’ success, but refrain from specifying specific paths that subordinates should take to achieve their goals (McDonough & Leifer, 1986).[1]
Research on bounded delegation leadership suggests that these leaders foster innovation by providing a clear goal and support for creativity (McDonough & Leifer, 1986, Amabile et al., 1996, Mumford et al., 2002). An articulated goal provides an indication to followers of the importance of innovation and can increase their understanding of the goal’s importance. Such behaviors are likely to foster creativity, search, and sharing (McDonough & Leifer, 1986; Amabile et al., 1996; McDonough & Griffin, 2000).
While innovation requires a leader to allow followers considerable freedom and tolerance to try new ideas and approaches, on the one hand, it also requires exerting a certain amount of control in order to ensure that ideas and approaches actually result in innovations, on the other (McDonough & Leifer, 1986). Successfully leading innovation demands that the leader bridge both ideation and business needs, and that they provide clear goals, while at the same time allowing wide latitude to achieve those goals. The wide latitude to achieve the goals involves providing support, as well as time and freedom for thinking and interacting with others (Amar, 1998; McDonough & Griffin, 2000; West et al., 2003; Sosik et al., 2005; Jung et al., 2008).
Thus, by providing employees wide latitude in achieving the organization’s innovation goals and not constraining individuals regarding the paths they may take to achieve these goals, bounded delegation leadership helps to create an innovation enabling organization culture that will facilitate innovation, rather than impacting directly on innovation.
Organizational culture
Organizational culture has been defined as the basic beliefs commonly-held and learned by a group, that govern the group members’ perceptions, thoughts, feelings and actions, and that are typical for the group as a whole (Sackmann, 2003). It represents a complex pattern of beliefs, expectations, ideas, values, attitudes, and behaviors shared by the members of an organization that evolve over time (Trice & Beyer, 1984).
The Mediating Role of Organization Culture
Both theoretical discussion and empirical investigations suggest that the promotion of an innovation enabling culture requires senior leaders’ support and involvement (Drucker, 1985; Ireland & Hitt, 1999; Jassawalla & Sashittal, 2000; Elenkov et al., 2005; Sosik et al., 2005; Uhl-Bien et al., 2007; Vera & Crossan, 2004). Farson & Keyes (2002), e.g., suggest that fostering failure tolerance is an important means of promoting an innovation enabling culture. And to foster failure tolerance requires that leaders are engaged, show interest in people’s work by asking pertinent questions, express support and give feedback, and are collaborative rather than controlling (Farson & Keyes, 2002).
This line of research (cf., Amabile, 1997; Farson & Keyes, 2002) suggests that leadership plays an instrumental role in fostering innovation by affecting the organization’s culture, within which individual behavior is manifested. Amabile’s research (1997), e.g., suggests that leadership is crucial to provide the inclination for innovation in an organization. Leaders play an important role in developing an innovation-oriented company by supporting creativity through providing resources, e.g., sufficient time, training, coaching, and money. Leaders also play an important role in encouraging new idea generation by providing individuals with the freedom to try new things and with challenging work. In this sense, creativity is the seed of innovation that requires watering by leaders. When a leader stimulates followers’ efforts to approach old situations in new ways, the leader entrepreneurial culture among followers that values creative thoughts, risk-taking approaches, and innovative work approaches (Jung et al., 2003; Jung et al., 2008).