Core Competency
3.9 Factors enabling Innovation Competency
Innovations in an organization result from various factors which have been studied by many researchers. Understanding factors influencing or enabling innovations in an organization is of benefit for any firms or organizations requiring the adoption of innovations to create changes and improve their organizations for progress and competitive advantages. Studies relating to factors enabling innovations in an organization have diverse results based on the context of organizations. For example, regarding the study of factors on organizational size influencing innovations in an organization, we have to consider details of the study and types of innovation.
For instance, small-sized organizations will have more capabilities to create innovations in a form of a radical innovation than large-sized organizations which always have an incremental innovation. However, inconsistencies in studying factors on organizational size influencing innovations in an organization can be seen in the literature of Nord and Tucker (1987). It summarizes that smaller organizations will have more innovation competencies because of their flexibility, adaptability, and ability to accept changes. Hitt, Hoskisson and Ireland (1990) stated that, in the perspective of corporate organizations, large organizations may have more innovation competencies because they have more financial resources, diverse facilities, professional and skilled workers, and higher technical potential and knowledge.
However, there is still controversy about the effect of size of organization on innovation (Damanpour and Wischnevsky, 2006).
There are also inconsistencies relating to organizational age in many researches that are similar to the studies on organizational size influencing innovations. Some researchers showed that organizational age possibly helps to create innovations because the collection of knowledge base is the opportunity of possessing organizational innovations. In the meantime, organizational age may obstruct
innovation creation because longstanding organizations cannot change their routines easily and are unable to adapt to their innovative activities in order to respond to technological advances occurring outside the organization (Abernathy and Utterback, 1987; Tushman and Anderson, 1986; quoted in Damanpour and Wischnevsky, 2006).
Additionally, there are various studies on organizational innovation which focus on factors influencing organizational innovations, such as organizational innovation-oriented strategies of organization, market orientation, effect of competitiveness orientation on organizational innovation (Laforet, 2009). O’Regan Ghobadian and Sims (2006) suggested that organizational innovation is driven by an organization’s culture, leadership and strategic planning. Dougherty and Hardy (1996) proposed that sufficient organizational resources, determining innovative strategies as a business action plan, and organizational structure supporting cooperation between departments or teams will drive the organization to create innovative products.
O'Regan and Ghobadian (2005) suggested that the organizational environment affects the organizational innovation. Knowledge creation is recognized as the major attribute of an innovation organization. Both innovation and knowledge creation share meaning with each other (Merx-Chermin and Nijhof, 2005). Moreover, firms and business agencies should also strive to institutionalize innovation as a part of internal operations by establishing an appropriate factor, such as, culture, structure, incentives, systems, and processes that facilitate innovation to occur as part of daily business (Yeh-Yun and Yi-Ching, 2007).
Tidd, Bessant and Pavitt (2001: 313-340) proposed that innovative organization consists of the following components:
1) Shared vision, leadership and the will to innovate
2) Appropriate organization structure: An appropriate structure or structure supporting innovative organization will not have a specific form.
3) Key individuals: Persons having knowledge and expertise in operation, communication skill, individual interaction skill, internal and external power, influence and network, and being a gatekeeper
4) Stretching training and development: Knowledge and skills are important to innovation creation so that training and development are necessary to personnel in the organization.
63
5) High involvement in innovation: Innovation creation involves individuals who are experts in technology, engineering, and design.
6) Effective team working: Innovation is the beginning of aggregating differences of perspective on problem-solving and experiment. It indicates that working as a team will cause more fluency of creative idea generation and flexibility in the problem-solving process than working alone.
7) Creative climate: Good organizational climate will stimulate creative behavior in employees. It is what an organization should do to create a creative climate.
8) External focus: Successful innovative organizations must be open for external opinions in order to develop and understand needs from environment. It is the approach for solving problems and the source of innovation.
9) Extensive communication: Innovative organizations must have comprehensive communication models.
10) Learning organization: Learning and transferring knowledge becomes the basic factor of an innovative organization. Innovations can be presented through the learning cycle, experience sharing, and perspective reflection. The organization must support and promote learning and channels for exchanging and sharing knowledge and learning.
Hage (1999) identified that a complex division of labor, an organic structure and a high-risk strategy relate to organizational innovation. Particularly, the complex division of labor highly relates to organizational innovations because it would lead to much greater adaptiveness and flexibility relative to changes in the organizational environment. In addition, the complex division of labor reduces number of centralization and formalization which are characteristics of bureaucracy.
Previously, there were many researchers considering factors influencing organizational innovations. Organizational factors or organizational characteristics or organizational context is one of the factors influencing organizational innovations (Kimberly and Evanisko, 1981; Kwon and Zmud, 1987; Tornatzky and Fleischer, 1990 quoted in Chieh-Yu, 2007). Organizational characteristics influencing organizational innovations have been studied widely, for example, the organization’s structure, culture and climate have an influence on the adoption of organizational innovations.
Amabile (1988 quoted in Chieh-Yu, 2007) stated that management skills organization’s support on innovation, and support of resources for innovation affect organizational innovation. Tornatzky and Fleischer (1990 quoted in Chieh-Yu, 2007) stated that the linkage between slack resources, communication among employees, quality of human resources, and leadership behavior can encourage the adoption of innovation.
Merx-Chermin and Nijhof (2005) studied the learning organization, knowledge creation, and innovation in an organization. According to some research results, it was found that there are impacts of organizational factors on innovative processes such as strategy alignment, structure, system, climate, and leadership.
While strategic alignment plays an outstanding role towards innovation process.
Read (2000 quoted in Kenny and Reedy, 2006) studied the determinants of innovation and found that the most important determinant was management support for innovation and an innovative culture, while market orientation and customer orientation are also important as well. Besides, internal communication is one of the determinants influencing innovations. In addition, Read (2000 quoted in Kenny and Reedy, 2006) added that human resource innovation strategy, team emphasis, and knowledge management are the drivers of innovation. Glinska, Carr and Halliday (2012) concluded that research and development, internal communication and knowledge dissemination, and risk-taking culture involves the achievement of innovations in an organization.
Research and development also plays an important role in the achievement of innovations in an organization by creating new knowledge. Organizational culture which bears risks on failure from initializing any activities can encourage the organization to initiate something new and make innovation successful. In addition, good communication and knowledge dissemination will increase the knowledge of an organization’s personnel and enable the research and development team to have sufficient knowledge and abilities to develop successful innovations. Freel (2005) also concluded that research and development, training and development will cause the organization to have greater knowledge and more qualified human resources, leading to the ability to develop new knowledge and innovations.
According to the abovementioned study, issues relating to factors influencing organizational innovation of scholars, it can be seen that there are various similar
65
perspectives relating to factors influencing organizational innovation proposed. This literature review has gathered study issues relating to factors influencing organizational innovation from various scholars as shown in the table below.
Table 3.4 Summary of Issues relating to Factors Influencing Innovation of Scholars
Organizational Culture Organizational Structure Human Resource PracticeInnovativeness Facilitators Organizational Learning Leadership Environment Org Resource R&D
1. Shyu et al (2006 )
2. Wolfe (1994)
3. Prakash and Gupta (2008)
4. Garcia - Morales (2008)
5. Merx - Chermin and Nijhof (2005)
6. Gloet and Terziovski (2004)
7. Jing - Wen and Yong - Hui (2009)
8. Nielsen (2007)
9. Sáeng, Aramburu and Rivera (2009)
10. Borins (2001)
11. Lievens, Moeneart and S' Jegers (2000)
12. Hartmann (2006)
13. Read (2000)
14. Hage (1999)
15. Burns & Stall (1961) 16. Zammuto & o' Connor
(1992)
17. Tidd, Bessant and Pavit (2001)
Table 3.4 (Continued)
Organizational Culture Organizational Structure Human Resource Practice Innovativeness Facilitators Organizational Learning Leadership Environment Org Resource R&D
18. Birchall and Armstrong (2003)
19. McLean (2005)
20. Damanpour (1991) quoted in Hage
21. Naranjo Valencia (2010)
22. O’Regan,&Ghobadian,2006
23. Damanpour &
Fariborz(1991)
24. Ke & Wei (2006)
25. Hallinger (2003)
26. Scott and Bruce (1994)
27. Aragon-Correa et al (2007)
28. Hu et al (2013)
29. Patterson (2011)
30. King and Anderson (1990)
31. Scupola (2003)
32. Chieh-Yu lin (2007)
33. Tornatzky (1990)
34. Alam and Nandan(2010)
35. Chieh-Yu
36. Lindgren et al (2004)
37. Lawson & Samson(2001)
38. Lattuch et al (2013)
39. Glinska et al (2012)
According to Table 3.4, it can be concluded that the factors having an influence on organizational innovation are organizational culture, organizational structure, human resource practices, learning of organization, leadership, organizational environment, organizational resources, and research and development.
67
3.10 Components of Organizational Competency
According to the perspective of Lado, Boyd and Wright (1992), the model of organizational competency consists of four main types of competencies: managerial competency, input-based competency, transformation-based competency and output- based competency. Figure 3.6 shows the details of the relationship of four main types of competences as follows:
Figure 3.6 Competency-based Model Source: Lado, Boyd and Wright, 1992.
1) Managerial competencies refer to the formulation of an organization’s strategy and decision-making process of the top management. Strategies, visions and goals of the organization will be communicated throughout the organization. In the meantime, the organization will provide the process which enhances the abilities of the organization’s personnel so that they are able to perform duties according to the goal of the organization. Such process must be applied efficiently by the management of the organization. Besides, the management of organizational resources must be efficient as well in order to create good outcomes for the organization. In this stage,
Environment Environment
Managerial Competencies and Strategic Focus
Output-Based Competencies
Transformation-Based Competencies Resource-Based
Competencies
management support will be important in enhancing the efficiency of innovative activities of the organization (Hoonsopon and Ruenrom, 2012).
2) Input-based competencies or resource-based competencies involve the acquisition and deployment of organizational resources and the efficient conversion of these resources into innovation capability. Based on the resource-based view, the organization possessing this type of competency will succeed in the acquisition of valuable resources and efficient resource management (Daft, 2001).
The acquisition and management of resources does not mean the existing internal resources only, but also external resources and the organizational environment acquired through purchasing and borrowing from other sources or organizations.
3) Transformation-based competency are the organizational capabilities required to advantageously convert inputs or organizational resources to outputs. To have this competency, the organization must have the capability in producing outputs in the form of new products or new processes which are more rapid than other organizations. Organizational culture, research and development, and organizational learning can enhance this type of competency of the organization. In addition, Cavagnoli (2011) stated that innovations are the outcome of a process of the organization’s knowledge transformation to new products and services (Audretsch, 2006) and the appropriate organizational culture will also support the learning of the organization which is considered to be a part of this competency. Investment in research and development of new products is an effort in differentiating outputs of the organization. According to the study of various literatures, it was found that the differentiation effort is one of the attributes of an innovative organization.
4) Output-based competencies refer to the outcomes arising out of the organization’s processes which can give value to customers in the form of innovation of quality products or service.
5) The major components of the competency-based model are the environmental factor of the organization, which has an influence on innovative competency through the managerial competency of the organization, and the input factor of the organization as shown in Figure 3.6. An example of environmental impact on organizational competency is governmental support (Chieh-Yu, 2007) such as budget contribution, etc. In addition, customer and market orientation is also the significant external factor influencing organizational innovations.
69
Freiling (2004) studied organizational competency by linking to the open- system theory. The organization manages its resources and changes them to the outputs which can respond to the organizational environment such as marketing competition. The process starts from the management process which determines the strategic framework for developing and managing the operating system of the organization in order to transform organizational resources to organizational outputs which can respond to the organizational environment such as market competition. In the aspect of competitive advantages of the organization, organizational outputs generating competitive advantages are considered innovation, which creates value to customers of the organization and a sustainable business operation.
Figure 3.7 Relationship Between Internal Processes of Organization and Organizational Environment
Source: Freiling, 2004.