1042-2587-00-251 $1.50Copyright 2000 byBaylor University

Unraveling theDeterminants andConsequences of anInnovation-SupportiveOrganizational CultureGaylen N. ChandlerChalon KellerDouglas W. Lyon

The current research identifies constructs that are supportive of an innovative culture insmall to medium-sized enterprises. A sample of 429 employees in 23 small to medium-sizedmanufacturing firms was used to identify constructs associated with an innovative culture.Supervisory support and reward system support are both positively related to an innovativeculture. Perceived work overload is negatively related. Companies with cultures supportiveof innovation tend to be smaller, have fewer formalized human resource practices, and lessmunificent resources. There is no direct relationship between an innovative culture and firmperformance; however, when the competitive environment is changing rapidly firm earningsare enhanced by an innovative culture.

here is an abundance of literature that expounds on the importance of creativityand innovation to keep organizations healthy, viable, and competitive. A relativelysmaller body of research focuses on the organizational characteristics that lead to inno-vation. For example. Woodman, Sawyer, and Griffin (1993) proposed that organizationalculture, rewards, and resources are determinants of creative behavior in organizations.Similarly, Amabile, Conti, Coon, Lazenby, and Herron, (1996) found that the perceivedwork environment influences the level of creativity in organizations. Damanpour (1991),in a study ofthe antecedents of organizational innovation, found that managerial attitudetoward change, and internal and extemal communication were positively related toinnovation. Given the relevance of organizational culture to innovation, the managerialand human resource practices associated with an "innovation-supportive culture" be-come a subject of research interest. As Woodman et al. note, "we . . . know little abouthow organizations can successfully promote and manage individual and organizationalcreativity" (1993, p. 316).

Although not explicitly stated, much of the existing literature assumes that it isimportant and desirable to foster creativity and innovation in all organizations (e.g.,Lumpkin & Dess, 1996; Covin & Slevin, 1991; Zahra, 1993, 1994; Lawless & Anderson,1996) and does not address the question of under which circumstances a culture sup-portive of innovation is associated with positive organizational-level outcomes. How-ever, Chandler (1993) points out that some organizations perform better when keyempioyees believe they are rewarded for being innovative, while other organizations

Fall, 2000 59

perform better when key employees believe they are rewarded for conforming to therules and not being very innovative.

The objective of this paper is not to examine the link between an "innovation-supportive culture" and innovation. That work has been done previously by the authorscited in the preceding paragraphs. Our objective is to address some of the "holes" in theliterature and to seek to better understand the managerial practices and other factorsassociated with an innovation-supportive culture and to assess the "fit" between anorganization's environment and its culture.

This study addresses these issues by examining the managerial and human resourcepractices that are associated with an organizational culture perceived to be supportive ofinnovation. Specifically, we examine three aspects of organizational culture that theorysuggests are important for the development of an innovation-supportive culture andinvestigate the specific managerial and human resource practices that promote the de-velopment of those three aspects of culture. We then investigate the external environ-ment of the firm, its impact on culture, and the "fit" between organizational culture andthe environmental context. The current study is organized around five research ques-tions:

(1) Are employee perceptions of supervisory support, perceptions of the extent towhich organizational reward systems are supportive of innovation, and perceptions ofworkload pressures among employees associated with perceptions of support for inno-vation?

(2) Are there statistically significant differences between firms with respect to em-ployee perceptions of support for innovation, or is perceived support for innovationsimply an individual phenomenon?

(3) Are there verifiable relationships between the managerial and human resourcepractices associated with culture development, and the degree to which an organization'sculture supports innovation?

(4) Are there verifiable relationships between characteristics of the external envi-ronment that are associated with employee perceptions of organizational culture?

(5) Does the organization's external environment moderate the relationship betweenan innovation-supportive culture and organizational performance?

Hence, this research contributes to the entrepreneurship literature by testing a con-tingency model linking innovation-supportive culture, environment, and firm perfor-mance. It contributes to the human resource management literature by exploring therelationships between human resource and managerial practices and the perception of aninnovation-supportive culture.

INNOVATION-SUPPORTIVE CULTURES

Organizational culture has generated a significant amount of research interest sincethe early 1980s (e.g.. Deal & Kennedy, 1982). One definition of organizational cultureis "the collective programming of the mind which distinguishes the members of oneorganization from another" (Hofstede, 1991, p. 262). Hence, differences in culture be-tween organizations are largely a function of managerial practice as perceived by orga-nization members (Hofstede, 1998).

As Barney (1986) notes, it is difficult to modify firm culture such that culturebecomes a source of sustained competitive advantage. However, culture-building activi-ties may be necessary to maintain parity with other firms. Hence, firms sometimesengage in activities intended to develop economically valuable characteristics in theircultures, such as those they believe are associated with innovation or other importantorganizational objectives.60 ENTREPRENEURSHIP THEORY and PRACTICE

We have selected three constructs from the literature (e.g.. Woodman et al., 1993;Amabile et al., 1996) that have to do with managerial practice and are believed toinfluence perceptions of innovation-supportive cultures. Amabile et al. (1996) discusssix stimulants and two obstacles to creativity. The stimulants are work group supports,challenging work, organizational encouragement, supervisory encouragement, freedom,and sufficient resources. The obstacles are workload pressure and organizational im-pediments. Our initial data collection for this project began in 1994 and our items weredeveloped prior to the publication of Amabile's et al. (1996) work. We did not includeitems representing challenging work and freedom; however, other aspects discussed byAmabile are consistent with the items included in our factors presented in Table 1.

First, employees must trust management and feel that management supports them.Second, organizational systems, including the reward system, must be viewed by em-ployees as supportive of innovation. Third, excessive workload pressures inhibit cre-ativity. Employees without time or resources to complete assigned tasks are less likelyto exhibit innovative behaviors.

Management SupportThe perception that management is supportive is crucial in establishing a culture that

Table 1

Rotated Structure Matrix, Principal Components Analysis

Questionnaire Items Factor 1 Factor 2 Factor 3 Factor 4

If I improved product qualityIf I eliminated wasteful/inefficient work practicesIf I came up with a new product ideaIf I came up uith new ways to save moneyIf I came up with new marketing ideas I would be appro\ ed ofIf I tried new proceduresIf I improved team efficiencyIf I came up with productivity and quality improvementsIf I tried new ways of doing thingsIf I questioned old ways of doing thingsThe timely completion of my workThe amount of work I doThe quality of my workMy achievement of predetermined goalsHow well my team is doingThe results of my performance appraisalHow well I do compared to coworkersI trust my supervisorMy supervisor is concemed about employees" welfareMy superv isor gives me supportMy supervisor helps us discover problemsOur supervisors encourage participation in decision makingI am not given adequate time to do quality workThe time and resources I am given to complete jobs are limitedI frequently have to take work home or work overtimeMy workload is manageableI often lack sufficient resources to adequately complete job assignmentsI frequently have to buck rules/policies to get the job doneEigenvaluesPercentage of Variance ExplainedCoefficient Alpha

Fall 2000 61

.11

.75

.72

.71

.71

.70

.68

.65

.63

.46

.11

.08

.23

.25

.19

.26-.10

.18

.16

.19

.21

.34-.11-.20

.13-.05-.26-.248.69

31%.88

.01

.20

.01

.13.108-.02

.21

.27

.14

.12

.78

.76

.73

.73

.68

.65

.57

.16

.09

.19

.13

.15-.02-.07-.05-.03

.02-.092.82

10%.87

.17

.01-.01

.00

.01

.02

.28

.14

.33

.32

.15

.14

.27

.13

.20

.12-.16

.83

.80

.11

.62

.43-.17

.01-.02-.24-.20-.172.43

19c.83

-.18-.20-.26-.12-.26.113-.05-.07-.05

.16-.01-.07-.06-.08-.03-.08

.02-.19-.16-.15-.30-.11

.76

.72

.71-.71

.57

.561.77

6%.74

fosters innovation. The uncertainly and complexity inherent in innovation suggests thatemployee trust of management is central to the development of an innovation-supportiveculture because trust enables people to take risks without fear or undue penalty for failure(Porter, Lawler, & Hackman, 1975). There is considerable research on the role of trustin facilitating coordination within organizations (e.g., Granovetter, 1985). Innovation isfrequently the product of social relationships and complex systems of interaction. Trustis necessary for such systems to work effectively (Thompson, 1967; Granovetter, 1985).

Organizational Reward Systems Supportive of InnovationOrganizational systems must provide reward and recognition for creative work and

performance accomplishments (Amabile et al., 1996). There is a burgeoning literature onorganizational control systems such as pay-for-performance that can impact innovativeactivity by employees. Paradoxically, while pay-for-performance may encourage in-rolebehaviors (Oliver & Anderson, 1995), it may also discourage behaviors not linked tospecific rewards (Morrison, 1996). Hence, the reward system can have a significantimpact on innovative activity, both because it can be a tool to increase such activity andbecause it can discourage innovative activity by rewarding other behaviors. Further,expectancy theory (Vroom, 1964) predicts that individual effort requires that the indi-vidual must believe that goal accomplishment will lead to a reward. Therefore, theperception that organizational systems support innovative activity is an important com-ponent of individual motivation to engage in such activities.

Workload PressuresAmabile et al. (1996) speculate that employees may develop beliefs about the in-

trinsic value of projects that they have undertaken based upon the level of resourceallocation. A lack of resources such as time, materials, information, and so on can leadto reduced commitment to assigned goals (Klein & Kim, 1998). Perceptions of the levelof resource allocations in support of innovative activities may thus influence the degreeto which employees perceive the organizational culture to be supportive of innovation.

HypothesesAs the preceding discussion suggests, these constructs, either singly or together,

have been shown to be associated with the level of innovation and are expected to beassociated with the perceived degree to which an organization's culture supports inno-vation. The major point of the first hypothesis is simply a recognition that managementsupport, organizational reward systems, and workload pressures are related to the per-ception that the organizational culture supports innovation. This leads to our first hy-pothesis.

HI: Employee perceptions of an innovation-supportive culture will be positivelyrelated to perceptions of management support and organizational reward sys-tems, and negatively related to workload pressures.

Our first hypothesis is tested at an individual level of analysis. However, culture isthe aggregation of individual attitudes and values and is best analyzed at an organiza-tional level of analysis (Hofstede, 1998). Hence, to investigate a claim that individualperceptions of management support, organizational systems supportive of innovation,and relative freedom from workload pressures create an organizational culture support-ive of innovation, it would be very useful to be able to show that aggregated individual

62 ENTREPRENEURSHIP THEORY and PRACTICE

attitudes vary across organizations. Thus, the perception of an innovation-supportiveculture is not simply an individual phenomenon, but rather an aggregation of individualperceptions that can be used to differentiate the working environments of differentcompanies. This leads to our second hypothesis.

H2: Perceptions of an innovation-supportive culture, along with management sup-port, organizational reward systems, and workload pressures, can individuallyor in configuration discriminate between firm cultures.

In the preceding section, we investigated employee perceptions of aspects of orga-nization culture and the degree to which those three aspects of culture determine w hetheror not the overall organization culture is supportive of innovation. Hofstede (1998) statesthat differences between organizations are based on differences in managerial and humanresource practices. As Pfeffer (1995) notes, it is widely believed by both academics andpractitioners that firm performance can be improved by a number of management prac-tices. Human resource practices related to employee training, team-based productionsystems, incentive-based reward systems, and employee empowerment are believed tobe particularly effective. It follows, then, that management and human resource policiesand practices, individually or in configuration, impact employee perceptions of firmculture. Our intent is not to predict which human resource and managerial practices areassociated with an innovation supportive culture, but rather to verify that such differ-ences exist.

H3; There will be differences between companies with innovation-supportive andnon-innovation-supportive cultures with respect to human resource and mana-gerial practices.

In addition, Lawrence and Lorsch (1967) discuss the infiuence the environment hasin the development of the organization; hence, we believe that organizational culture islikely to be infiuenced by the external environment. Thompson (1967) notes that orga-nizations seek to develop cultures and systems that insulate them from uncontrollableexternalities. That is, the culture and systems of an organization evolve in direct responseto environmental uncertainty. Therefore, we expect environmental characteristics such asperceived competitive intensity and perceived environmental munificence to infiuencethe development of cultures either supportive of innovation or not supportive of inno-vation.

H4: There will be differences between companies with innovation-supportive andnon-innovation-supportive cultures with respect to the perceived intensity of thecompetitive environment and perceived environmental munificence.

In the present research context, Ashby's (1956) law of requisite variety implies thatcultures supportive of innovation would be better suited to rapidly changing, multifac-eted environments than cultures that encourage conformity to rules and procedures. Therelationship of innovativeness to firm performance has been examined in a number ofstudies in the entrepreneurship literature (e.g., Covin & Slevin, 1989, 1991). However,to our knowledge, the determinants and role of an innovation-supportive culture infacilitating firm performance have not been examined. Our first four hypotheses focus onvarious issues concerning firm culture and its relationship to innovation. The last re-search question, in keeping with Rosenberg's admonition that "the greater one's under-standing of the links in (a causal) chain, the better one's understanding of the relation-ship" (1968, p. 63), tests a contingency model of firm culture, the extemal environment,and firm performance. Thus, if the organization's culture is consistent with the extemalenvironment, we would expect to see enhanced organizational performance. Hence, ourfinal hypothesis is as follows.

Fall 2000 63

H5: The dynamism of the environment will moderate the relationship betweeninnovation-supportive cultures and company performance.

METHODS

SampleThe data for this study are an extension of a previous data set of small to medium-

sized manufacturing firms in Utah. An initial survey was mailed in 1994 to the CEOs of476 Utah manufacturing firms selected by industry group to represent both high-tech andlow-tech industries. Surveys were mailed to a complete census of firms in the selectedindustry groups. Eorty-nine percent of the companies in the sample frame were high-techmanufacturing firms in aerospace, measuring devices, automotive products, biomedicalproducts, chemicals, communications products, composite materials, computer equip-ment, electronics, machinery, lasers, pharmaceutical, and robotics as listed by Utah'sHigh Technology Directory^ (Bureau of Economic and Business Research, 1993). Theremaining companies came from the Utah Directory of Business and Industry (UtahDivision of Business and Economic Development, 1992). They were manufacturingfirms in three basic manufacturing industries: structural metal, industrial machinery, andsporting and athletic goods. One week after the initial questionnaire was mailed, wemailed a follow-up postcard, with a second mailing of the questionnaire two weeks later.Fifty-six questionnaires were returned marked not deliverable as addressed. We received120 completed questionnaires for an effective response rate of 28%. There were nosignificant differences in response rate from each industry group. Our sample was alsorepresentative of the sales level distribution of the sample frame. From this initial survey,we obtained information about the firm's level of involvement with productivity andquality initiatives, the firm's sales and growth performance, and some organizationaldemographics. The median company age in our sample was 13 years with a range from2 to 124 years. The median number of employees was 31, with a range of 2 to 1150.

After acquiring and analyzing the initial data, a letter was mailed to the CEOs of the120 companies who had responded to the initial questionnaire inviting them to partici-pate in an extension of the study. Thirty-two of the 120 companies consented to take partin the current study. The relatively low number of companies willing to participate isexplained primarily by the fact that we wished to collect data from three different sourcesin the company. First, we requested additional information from the CEO. Second, werequested information about human resource practices from another member of themanagement team (other than the CEO) who had responsibilities for human resources.Third, we wished to survey a random sample of at least 25% of all employees in orderto develop measures of employee perceptions of the culture of the organization. Each ofthe CEOs was contacted by telephone and arrangements were made to collect theinformation. After three reminder phone calls, complete data were returned for 23companies. After seeing the extensive nature of the requested information, nine of theCEOs who previously agreed to participate eventually declined. In the 23 respondingcompanies 505 employees received surveys. A total of 429 employees responded, for an85% response rate.

The sub-sample of 23 firms included small to medium-sized manufacturing enter-prises, with company size ranging from 10 employees to 443 employees. Median firmage was 18 years. Fourteen of the companies responding came from Utah's High Tech-nology Directory (Bureau of Economic and Business Research, 1993). The remainingnine companies came from the Utah Directory of Business and Industry (Utah Divisionof Business and Economic Development, 1992). T-tests were used to check for signifi-cant differences between the sample frame of 120 and the 23 companies that responded.The 23 responding companies were slightly older than the original sample (18 years64 ENTREPRENEURSHIP THEORY and PRACTICE

compared to 13 years, p < .05). This is explained by the inclusion of two companiesfounded in 1926 and 1927. The remaining 21 companies were all less than 30 years old.If tbe two outlying companies are not considered, there are no remaining significantdifferences in company age. There were no significant differences in company size(number of employees), industry classification (low-tech v. high-tech), or reported saleslevels.

There were 429 employees who responded to the questionnaire at the operationalemployee level. Of the 429 employees, 61% were male, median education was somecollege or technical school, median length of employment with the company was fouryears (mean 7.46 years), median tenure at the current job was two years (mean 3.48years), and median employee age was 36 years.

MeasuresWe developed individual, organizational, and industry levels of measurement. First

we developed measures of employee perceptions of the firms" cultures. We developed 28items intended to measure employee perceptions of culture. These were factor analyzedusing principle components analysis. A four-factor solution was specified based on thetheoretical underpinnings of this research. A screen plot analysis indicated that a four-factor solution was optimal. The four-factor solution explained 549c of the total variance.Table 1 displays all items included in the factor analysis, the rotated structure matrixalong with eigenvalues, percentage of variance explained, and coefficient alpha. Basedon the factor analysis results, simple scales were calculated by averaging the items ineach scale. As Hofstede (1998) notes, culture is the aggregation of individual attitudesand values. Thus, these measures were aggregated from employee responses in eachcompany. The resulting factors are described below.

Factor 1: Innovation supportive culture. Perceptions of an innovation-supportiveculture were measured using a 10-item Likert-type scale. The response format stated: IfI participated in the following activity I would be (1) disapproved (2) mildly disap-proved. (3) neither approved nor disapproved. (4) mildly approved, and (5) approved.Core items for the scale include: (1) Improved product quality. (2) Developed a newproduct idea. (3) Came up with new ways to save money. (4) Improved team efficiency,and (5) Tried new ways of doing things. Coefficient alpha for the scale is .88.

Factor 2: Organizational reward systems. Perceptions of how well organizationalreward systems functioned to measure and reward perfonnance were measured usingseven items in 5-point Likert-type scales ranging from disagree to agree. The followingitems were included: My rewards are determined by (1) the amount of work I do. (2) thetimely completion of my work, (3) the quality of my work, (4) my achievement ofpredetermined goals. Coefficient alpha for the scale is .87.

Factor 3: Management support. Perceptions of management support were measuredusing five items in a 5-point Likert-type scale ranging from disagree to agree. Core itemsinclude: (1) I trust my supervisor, (2) My supervisor is concemed about employeewelfare, (3) My supervisor gives me support, (4) my supervisor helps us discoverproblems. Coefficient alpha for the scale is .83.

Factor 4: Workload pressure. Perceptions of workload pressure were translated intoitems that directly affect workers at an operational level. These perceptions were mea-sured using six items in 5-point Likert-type scales ranging from disagree to agree. Coreitems include: (1)1 frequently have to take work home or work overtime, (2) I amconstrained by limited time and resources, (3) I am not given enough time to do qualitywork, (4) I frequently have to buck rules/policies to get the job done. Coefficient alphafor the scale is .74.

Fall, 2000 65

Measures Developed from CEO ResponsesCEOs provided information to measure three constructs: (1) the degree of perceived

competitive intensity in the industry, (2) industry dynamism, and (3) environmentalmunificence, all measured at the organization level. These were measured using 5-pointLikert-type scales. Each construct had a coefficient alpha in excess of .70 (Nunnally,1978). Factor analysis was not used because at the company level of analysis the samplesize is too small.

Competitive intensity. Perceived competitive intensity was measured with four itemsusing 5-point Likert-type scales: (1) It is inexpensive to enter this industry, (2) Highstart-up costs keep a lot of competitors out of the industry (reverse scored), (3) We haveseveral direct competitors, and (4) Products in our industry are relatively homogeneous.Coefficient alpha for the scale is .73.

Industry dynamism. Industry dynamism was measured using three items using5-point Likert-type scales: (1) Technologies in our industry are changing rapidly, (2) Inour industry we must frequently improve work processes to compete, (3) Our industryis characterized by a high degree of change. Coefficient alpha for the scale is .80.

Environmental munificence. Environmental munificence refers to the abundance orscarcity of key resources. Environmental munificence was measured using five itemsranging from unavailable to always readily available on 5-point scales: (1) capital, (2)low-cost factors of production, (3) managerial expertise, (4) process technology exper-tise, and (5) low-cost labor. Coefficient alpha for the scale is .81.

Managerial PracticesFor employees working at an operating level in manufacturing firms, the managerial

practices of the firms can best be captured by specific measurements of manufacturingpractices. Consistent with prior research (e.g., Snell & Dean, 1992), we conceptualizedthese practices as a continuous rather than dichotomous variable. In other words, com-panies pursue different manufacturing practices in varying degrees. Our measures weredeveloped from the literature focusing on productivity and quality improvement (e.g..Dean & Bowen, 1994; Reeves & Bednar, 1994). Manufacturing practices were measuredusing a total of 23 items grouped in the following five subscales:

1) Management involvement. Six items measured the CEOs' perceptions of theirown involvement in, and support for, world-class manufacturing practices.

2) Closeness to customers. Four items measured the company's emphasis on stayingclose to customers and the degree to which involvement with, and leaming from, cus-tomers was emphasized.

3) Waste. Four items measured the company's emphasis on the elimination ofwasteful practices in the organization.

4) Quality tools. Five items measured the use of quality tools in the workplace suchas Kanban, source inspection, cause and effect diagrams, and statistical process control.

5) Clean up. Four items measured the emphasis on making things organized, keepingwork areas spotless, doing preventative maintenance, and following work rules.All data for these measures came from CEO responses in the first phase of data collec-tion. Coefficient alphas for the subscales ranged from .71 to .95, and the coefficient alphafor the entire managerial practices scale was .86.

Company PerformanceConsistent with prior research, we used firm profitability and sales growth as de-

66 ENTREPRENEURSHIP THEORY and PRACTICE

pendent variables for our last hypothesis. Because these were all privately held small andmedium-sized enterprises, and secondary data were not available, CEOs provided per-formance information. Previous research shows that these variables are reliable and validestimators of performance (Chandler & Hanks, 1993). CEOs of the sample firms wereasked to respond to a categorical measure to report annual earnings: less than $25k. $25kto $50k, $50k to $100k, $100k to $250k, $250k to $500k, $500 to $1 million, and over$1 million. The Pearson correlation coefficient between primary and secondary respon-dents on this item (interrater reliability) was .87.

CEOs were also asked to report the last two years of sales figures. Sales growth wascalculated using the following formula: (1994 sales 1993 sales)/1993 sales.

Measures Developed from Human Resource Manager ResponsesHuman resource practices were reported by human resource managers. These prac-

tices were also measured on 5-point scales ranging from strongly disagree to stronglyagree. Eight items were used to measure human resource practices: (1) We have well-defined incentive systems, (2) We have formalized job descriptions, (3) We have for-malized performance appraisals, (4) We have well-developed employee training pro-grams, (5) Top management is involved in recruiting and hiring employees, (6) We usea consistent discipline system, (7) We provide extensive orientation for new employees,and (8) We have formalized programs to encourage employee participation. Coefficientalpha for the scale is .80.

Control VariablesControl variables at the individual level of analysis were employee age, sex. edu-

cation level, tenure at the company, and company membership. At the organizationallevel of analysis, company age. company size (number of employees), and the high-technology/low-technology classification were used as control variables.

ANALYSIS AND RESULTS

Descriptive statistics and correlations at the employee level of analysis are displayedin Table 2. Descriptive statistics and correlations derived at the organizational level ofanalysis are displayed in Table 3. As can be seen from these tables, there are moderatelevels of correlation between independent variables. Dillon and Goldstein (1984) statethat multicollinearity may be a problem if (a) certain regression coefficients have signsopposite to what would be expected, (b) simple correlations are high but correspondingparameter effects are not significant, or (c) the R-square value of the model is high, butpartial correlation coefficients are low. Since none of these is the case we see no severeeffects of multicollinearity that may confound the analysis.

To test the first hypothesis (n = 429) we used hierarchical regression analysis. Wechose rec^ression analysis over simple correlation analysis because we wanted to controlfor as many external factors as possible. We point out that regression analysis in thiscontext is simply a measure of linear association. A perceived innovation-supportiveculture was the dependent variable. We recognize that the dependent variable for thishypothesis is a perceptual variable provided by employees. As a result, the independentand dependent variables for this particular hypothesis are prone to common method andcommon source variance which has the effect of overstating the true level of correlation(Campbell & Fiske, 1959). Therefore, the results for hypothesis 1 should be viewed withsome caution since the correlation may be inflated. Results are displayed in Table 4.

Fall 2000 67

Table 2

Descriptive Statistics and Correlations for Employee-Level Data

1.23.4.5.6.7.8.

Variables

Innovative CultureManagerial SupportReward System SupportWorkload PressureSexAgeEducation LevelEmployment Tenure

Mean

3.713.563.432.800.62

36.113.797.47

s.d.

0.620.770.890.750.55

10.221.518.23

1

.504**

.380**-.339**-.103-.038

.100-.123*

2

.341**-.368**

.030-.109*

.005-.258**

3

-.198**.042

-.011-.091-.024

4

.070

.199**o\2**.235**

6

.197**

.144**

.211**

7

.235**

.618**

8

.068

* p < .05

**p < .01

Employee sex, age, education level, and tenure with the company were entered as a blockof control variables. Length of tenure with the company is negatively related to percep-tions of an innovation-supportive culture. The other control variables are not significant.In addition, a dummy variable was created for each company. Another dummy variablewas created to control for high-technology/low-technology companies. These were en-tered to control for differences in perceptions based on company membership or high-technology/low-technology environments. Finally, perceptions of management support,organizational reward systems, and workload pressures were entered at the next stage.Management support and organizational reward systems are positively related to per-ceptions of innovation supportiveness (both p < .05). The workload pressures constructis negatively related (p < .05). Thus, our first hypothesis is supported.

According to Hofstede (1998), in order to ascertain whether employee perceptionsare a manifestation of the culture of the organization we must discriminate betweenorganizations based on these dimensions. The dummy variables indicating companymembership included in the previous regression analysis indicates that there are somesignificant differences. However, such an analysis paints an incomplete picture. Hence,to test our second hypothesis we used employee responses and multiple discriminantanalysis to analyze differences in company culture as perceived by the employees (Wat-son, 1982). Seven of the 23 companies had fewer than 10 employees reporting. Thus, wehave eliminated them from this stage of the analysis and focus on 376 employees in the16 remaining companies with more than 10 employees reporting. The 28 items used todevelop measures of company culture were used in a stepwise discriminant analysisusing the Wilkes method (Watson, 1982). Results indicate that there are indeed differ-ences in employee perceptions of company culture. The tlrst five discriminant functionswere statistically significant (p < .01) and explained 85.6% of the total variance. Therotated structure matrix and related results are displayed in Table 5. The reclassificationresults indicate that 50.8% of the employees are correctly classified with the appropriatecompany. That is substantially higher than the 6.9% that would be expected by randomchance. Hence, our second hypothesis was partially supported. There were verifiabledifferences among groups of companies based on items measuring workload pressures,support for innovation, and supervisory support. However, reward system items do notdiscriminate between the companies in our sample.

We used the results of the multiple discriminant analysis to provide insights into our

68 ENTREPRENEURSHIP THEORY and PRACTICE

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Fall, 2000 69

Table 4

Multiple Regression Results to Test Hypothesis 1N = 429(Dependent Variable = Perception of a Culture Supportiveof Innovation)

VariableStandardized Beta

Model 1Standardized Beta

Model 2Standardized Beta

Model 3

Company 1Company 2Company 3Company 4Company 5Company 6Company 7Company 8Company 9Company 10Company 11Company 12Company 13Company 14Company 15Company 16Company 17Company 18Company 19Company 20Company 21Company 22High TechEmployee AgeEmployee SexEducation LevelEmployment TenureSupervisory SupportReward System SupportWorkload PressureFAdjusted R-

.067

.036

.158***

.177***

.032

.057223***.239***

-.013-.001

.089-.050

.072-.092-.021

.094-.103_ 242***

.014

.017-.063-.033

.229*

2.798***.119

-.001.011.106.117

-.001.030.174**.136.012

-.023.073

-.056.078

-.120.026.074.115.249***.009.029

-.077-.034

.059

.046-.023-.171*-.099

2.58***.124

-.035-.031

.102*

.026-.003

.031

.162**

.038

.013-.028

.029-.047

.073-.094-.053

.052-.082-.139*

.065-.002-.053-.049-.035

.058-.086-.116-.046

T94***.215***

-.203***7.11***

.379

*p < .10

** p < .05

*** p < .01

third and fourth hypotheses. The discriminant functions were used to classify all 23companies into two groups. Approximately half of the firms (n = 11) grouped togetherrather tightly into a high innovation/management support group. The remaining firms(n = 12) were included in a group with lower innovation, lower management support,and higher workload pressures. The third and fourth hypotheses stated that differenceswere expected between innovation-supportive and non-innovation-supportive cultureswith respect to human resource and manufacturing practices, the perceived intensity ofthe competitive environment, and perceived environmental munificence. Due to the

70 ENTREPRENEURSHIP THEORY and PRACTICE

Table 5

Rotated Discriminant Structure Matrix to Test Hypothesis 2;Companies as Grouping Variable(15 Companies, 374 Employees)

VariableFunction Function Function Function Function

I II III IV V

My workload is manageableTried new ways of doing thingsNew product ideaProductivity and quality improvementsLimited time and resourcesNot given adequate time to do quality workQuestioned old ways of doing thingsI trust my super\isorMy supervisor is concemed about employee welfareMy supervisor helps discover problems

.88-.21-.13

.14-.08

.15-.01-.03-.06

.04

-.09.60.31.44.04

-.02.12.02.06.17

.24

.06

.08-.10

.92

.51-.01-.03-.02-.19

-.01.20.03

-.03-.01

.00

.94

.02

.04

.06

-.10.21.15

-.09.00

-.07.06.67.49.40

DiscriminantFunction

CanonicalCorrelation Significance Level

Proportion of totaldiscriminting power

Cumulative proportion oftotal discriminating power

In

mrvrv

.698

.524

.500

.433

.373

.000

.000

.000

.000

.008

39.715.813.99.66.7

39.755.469.378.985.6

restricted sample size at this level of analysis we used univariate t-tests to test thishypothesis. Table 6 includes the results of the univariate t-tests.

Results of the univariate T-tests indicate that firms with cultures supportive ofinnovation perceived their environments to be somewhat less competitive (p < .10).However, they also perceived that they had less access to capital and low-cost factors ofproduction than did their counterparts with cultures less supportive of innovation, indi-cating that perhaps there is some "'bootstrapping" occurring. They were less likely tohave formalized human resource programs. There were no significant differences inmanufacturing practices. The high-innovation group had a mean of 44 employees com-pared to a mean of 130 employees for the low-innovation group.

Our final hypothesis is a contingency argument suggesting that if the culture fits theenvironment, performance will be enhanced. Results are displayed in Table 7. To testthis proposition, we used moderated hierarchical regression analysis with a multiplica-tive interaction term. The form of moderation between environment, culture, and firmperformance can be tested by using complementary moderated regression analysis (Ven-katraman, 1989). The multiplicative interaction term represents the variance explainedby the interaction of "X" (rapidly changing environment) with "Z" (culture supportive ofinnovation) beyond the direct effects of the original variables. This perspective can berepresented in the following equations:

Y =Y =

+ a, X -I-+ +

-I- e+ a3

Fall 2000 71

Table 6

T-Test Results to Test Hypothesis 3

3.412.982.142.863.732.07

3.21***.26

1.83*2.61***-.972.40**

Mean: Non-Innovation Mean: InnovationSupportive Group Supportive Group

Variable N = 12 N = 11 T score

Natural Log of Number of Employees 4.55Natural Log of Company Age 3.08Competitive Intensity 2.78Resource Munificence 3.61Manufacturing Practices 3.42Human Resource Practices 2.82

*p < .10

** p < .05

***p< .01

The multiplicative effect may result in high levels of multicollinearity. However,Southwood (1978) demonstrated that a simple scale of origin transformation reducesmulticollinearity and it remains a valid analytical tool for testing moderation. After thetransformation, the t-score associated with ' 'aj" is a valid estimator of the significance ofthe interaction term (Venkatraman, 1989). Both company earnings and sales growthwere used as dependent variables. Results indicate that neither a culture supportive ofinnovation nor a dynamic environment are directly related to firm earnings. However,when a culture supportive of innovation is linked with a rapidly changing environmentthere is a positive relationship (p < .05) with firm earnings. The regression equationsrelating to firm growth are not significant. Thus, our final hypothesis is supported withrespect to firm earnings, but not with respect to firm growth.

DISCUSSION AND IMPLICATIONS FOR MANAGEMENTWe have attempted in this paper to delineate the characteristics of innovation-

supportive cultures as perceived by employees. The results from hypothesis 1 suggestthat such cultures require that employees perceive that management support and orga-nizational reward systems are consistent with a commitment to innovation on the part ofmanagement. Excessive workload pressures seem to inhibit the perception of an inno-vative culture.

The testing of hypothesis 2 demonstrates that there are significant differences amongorganizations with respect to the degree of support for innovation. As noted by Carrier(1993), the strategy and entrepreneurship literature has recognized the importance ofcontinued innovation, and an emergent body of literature seeks to identify the conditionsrequired for intrapreneurship to occur in organizations. The current research adds to thatbody of literature by identifying a set of constructs that can be used to assess anorganization's culture and the degree to which that culture supports innovation. Further,our results indicate that the strength of those perceptions varies across organizations andinfluences the degree to which employees believe that a firm's culture is supportive ofinnovation.

The tests of the third and fourth hypotheses demonstrated that employees' percep-

72 ENTREPRENEURSHIP THEORY and PRACTICE

Table 7

Moderated Regression Results to Test Hypothesis 4N = 23

Variable

Natural Log Company AgeNatural Log Company SizeHigh-TechCulture Supportive of InnovationDynamic EnvironmentInnovation x DynamismAdjusted R"F Statistic

StandardizedBeta

Dependent =Earnings

-.19.54**.12

-.01-.245

.323.12**

StandardizedBeta

Dependent =Earnings

-.19.68***.14

-.20-.01

.57***

.586.24***

StandardizedBeta

Dependent =Sales Growth

.21-.11-.17

.43-.36

.232.04

StandardizedBeta

Dependent -Sales Growth

.07-.17-.26

.42-.34-.26

.231.89

** p < .05

***p< .01

tions of whether or not a firm's culture is supportive of innovation vary as a function ofmanagement and human resource practices, perceived environmental competitive inten-sity, and environmental munificence. Interestingly, the development of formalized hu-man resource practices tends to have a negative influence on perceptions of an innova-tion-supportive culture. This occurred even after controlling for the size of the organi-zation. In many ways this is consistent with Harrison's (1987) observation thatmanagerial systems seeking to control employees actually reduce opportunities for ini-tiative, creativity, and individual contribution. Hence, formalized HR practices, a formof bureaucracy, may stifle creativity by imposing a mechanistic organizational structure(Robey, 1991). Some simple post hoc analyses were conducted to better understand thedynamics underlying this finding. Another interesting finding is that, using bivariatePearsson correlations of HR practices with aggregated measures of organizational sup-port for innovation, neither managerial support nor reward system support is signifi-cantly correlated with HR practices.

Finally, the results indicate a positive association of an innovation-supportive cultureon firm earnings under conditions of rapid environmental change. This is consistent withour final hypothesis. However, the interaction of innovation-supportive culture and rapidenvironmental change is not significantly related to firm growth. There are a number ofpossible explanations for these partially confiicting results. First, there may be a laggedperformance effect (Zahra, 1991; Zahra & Covin, 1995). For instance, Zahra and Covin(1995, p. 44) observe that cross-sectional research may not "allow sufficient time forentrepreneurial actions to have their full market and corresponding financial impact."Hence, the results of this study may refiect the impact of past events on financialperformance. In addition, there may be a different lag time between entrepreneurialactivity/culture-building activity and financial performance, and such activities and firmgrowth. For instance, the observed increase in financial performance may stem fromentrepreneurial activities undertaken in a previous period that are bearing fruit in thecurrent period. Such previous activities were not controlled for in the current study.

It appears that the innovation-supportive culture/performance relationship is ex-

Fall, 2000 73

tremely complex. Each company works in a different task environment. Our findingsseem to indicate that companies operating in non-munificent environments are moreinnovative. Likewise, it is probable that such firms are less likely to grow. Perhaps firmsthat find success become less innovative as they become larger and more bureaucratic(Robey, 1991). Our finding that formalized HR practices, a form of bureaucracy, arenegatively related to perceptions of an innovation-supportive culture supports this ex-planation. A third possibility is that the significant interaction effect is simply an artifactproduced by small sample size. In any event, these results indicate that high levels ofinnovation may not be appropriate for all companies.

In general, our research is supportive of the findings in previous research on inno-vation (e.g., Amabile et al., 1996). Perceptions of managerial and reward system supportare positively associated with an innovation-supportive culture. Perhaps of greater in-terest is that the results suggest that among small and medium-sized enterprises, com-pany size and formalization tend to inhibit employee perceptions of an innovation-supportive culture. Formalized human resource systems, including programs designed toenhance employee participation, are negatively related to an innovation-supportive cul-ture. This finding is consistent with that of Welbourne and Andrews (1996, p. 911) whofound that employee "compensation programs that link employee wages to the successof an organization have a strong and negative effect" on measures of stock marketperformance. Clearly, much work remains to be done as we seek to unravel the deter-minants and consequences of an innovation-supportive organizational culture.

One caveat to this research and an area for future examination concerns the samplesizes used to test hypotheses 3, 4, and 5. Since those hypotheses were tested at theorganizational level of analysis, the sample size dropped from 429 in hypotheses 1 and2 to 23 in hypotheses 3-5. As a consequence, our findings for the final hypotheses, whilesparking some interest, may not be generalizeable beyond our sample.

Future researchers could augment the current research findings with structured in-terviews of key personnel to more fully explore the extent and nature of managerialpractices related to culture-building, as well as the link between firm culture and per-formance. "Fine grained'' (Harrigan, 1983) methodologies such as case analysis mayprovide insights into how and why specific dimensions of culture foster innovation, andthe nature and extent of the impact on firm performance. Likewise, larger and morediverse sample sizes will provide more generalizable findings.

From a normative standpoint, the results of this research seem to indicate that bothenvironmental factors and managerial practices strongly infiuence culture. This is asignificant finding with broad research and normative implications because, heretofore,culture has generally been regarded as a construct internal to the firm. The finding thatculture can be infiuenced by characteristics of the external environment suggests thatculture-building activities may, depending upon environmental characteristics prevailingin a given industry, be less effective than hoped. Future research should seek to morefully explicate these relationships and determine the conditions under which character-istics of the environment are most salient to culture-building activities. Given the ap-parent association between organizational culture, environment, and firm perfonnance,further research into these and related issues holds a strong prospect of enhancingnormative theorya fundamental objective of both entrepreneurship and strategy re-search.

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Gaylen N. Chandler is Associate Professor of Management and Human Resources at Utah State University,Logan.

Chalon Keller is Assistant Director of MBA Programs at Utah State University, Logan.

Douglas W. Lyon is Assistant Professor of Management and Human Resources at Utah State University,Logan.

76 ENTREPRENEURSHIP THEORY a n d PRACTICE