The impact of leadership styles and the components of leadership styles on innovative behaviour

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CHAPTER 3 OBJECTIVE 2

In this chapter, the second of the eight objectives is presented. The aim of this objective is to consolidate, synthesize and critique the empirical studies that have examined the relationship between organizational climate, innovation and organizational performance. The title of the article, as published in the Journal of Entrepreneurship and Innovation in Emerging Economies, is “Organizational climate, innovation and performance: A systematic review”. The format presented in this chapter is in line with the guidelines for authors published by the journal. Minor alterations were made to the structure of the article for the purpose of creating consistency between articles.

Organizational climate, innovation and performance: A systematic review

Abstract

Organizational climate plays an important role in the innovation of an organization. In addition, innovation has become critical for nations, organizations and individuals in an increasingly complex and challenging world. Yet very few studies are designed to investigate the causal path of the effect of innovation on organizational performance systematically by examining the influence of organizational climate. The purpose of the study has been to consolidate, synthesize and critique the empirical studies that have examined the relationship between organizational climate, innovation and organizational performance. A systematic literature review approach has been followed to find the appropriate studies on these constructs (organizational climate, innovation and organizational performance) and the building blocks of science (concepts, statement and conceptual framework) have been used as a structure to analyse and report on the findings. After consulting 96 major databases, covering a wide range of fields, only seven articles that investigated the causal path between organizational climate, innovation and organizational performance were identified. The differences and similarities on how concepts were used are presented. These differences become particularly apparent when the tools used to measure these constructs are examined. Studying the articles has also resulted in the development of appropriate and comprehensive typologies concerning the variables. The findings also show that models are typically linear and these are affirmed when subjective, rather than objective, measures are used. This research study alerts researchers and practitioners alike about the importance of clear and shared definitions of constructs. Without that meaningful communication, observation on the topic is impossible. The findings also show that the methods of measurement influence results, which should be considered when interpreting the results.
Keywords: organizational climate, organizational innovation, organizational performance, systematic review

Introduction

The competitive challenges faced by an organization require the organization to search for more innovative and novel approaches to the delivery of their product and services (Shanker, Bhanugopan and Fish, 2012). Innovation is considered by many scholars to be a key driver of organizational performance (Gunday, Ulusoy, Kilic and Alpkan, 2011, Grant, 2012, Matzler, Kepler, Deutinger and Harms, 2008). Important to the relationship is an organizational climate for innovation (Nusair, 2013, Panuwatwanich, Stewart and Mohamed, 2008).
Despite the importance of the aforementioned relationship (organizational climate, innovation and organizational performance), the majority of empirical studies that investigate these three constructs are generally fragmented. Some scholars (Lin and Liu, 2012, Zhang and Begley, 2011, Björkdahl and Börjesson, 2011) investigated the relationship between organizational climate and innovation. Others (Durán-Vázquez, Lorenzo-Valdés and Moreno-Quezada, 2012, Oke, Walumbwa and Myers, 2012) investigated the relationship between innovation and organizational performance. Very few studies are designed to trace the causal path between organizational climate, innovation and organizational performance.
A search of 96 academic databases shows that studies that investigate the relationship among organizational climate, innovation and organizational performance in one study are still in their infancy, as reflected in the seven articles published (Nusair, 2013, Choi, Moon and Ko, 2013, Nybakk and Jenssen, 2012, Charbonnier-Voirin, El Akremi and Vandenberghe, 2010, Panuwatwanich et al., 2008, Crespell and Hansen, 2008, Baer and Frese, 2003). The primary objective of this study is to consolidate the published scientific knowledge about the studies that have investigated the impact of the organizational climate for innovation on innovation and organizational performance. In order to do that, the three building blocks of science (concepts, statements and conceptual framework) will be used to analyse the published scientific knowledge.

Literature review

The literature will be presented in two parts. The first part covers the three constructs under investigation, and the second part focusses on what the building blocks of science entail.

Constructs

Organizational climate

Several definitions have been proposed for the term organizational climate. According to Hamidianpour, Esmaeilpour, Alizadeh and Dorgoee (2015) organizational climate denotes the employee’s perception about the organization’s rewards system, leadership credibility, organizational policy, formal and informal procedures, and, ultimately, a sense of belonging and trust within the organization. Perhaps it is with the above definition in mind that Padmaja (2014) argues that organizational climate includes leadership styles, participation in decision-making, the provision of challenging jobs to employees, the provision of a good working environment and the creation of a suitable career ladder for employees. From the employee’s point of view, managers are the most important elements in the social exchange climate of an organization (Qadeer and Jaffery, 2014).

Innovation

Innovation is perceived to be one of the core competences of a successful firm (Chen, Lee, Tsui and Yu, 2012). Yet, despite its importance, the term ‘innovation’ is still somewhat blurry and is sometimes confused with invention. The term innovation is defined as a new issue that creates value to a firm or stakeholders (Saunila and Ukko, 2012). Innovation can be “incremental” or “radical”. Incremental innovation build on existing competencies and is related to minor improvements to existing products or services (Inauen and Schenker-Wicki, 2012). In contrast, radical innovation is the development of new services or a fundamentally new way of organizing and delivering a service (Mustafid and Anggadwita, 2013). As such, the terms ‘incremental’ and ‘radical’ indicate the degree of novelty (Un, 2010).

Organizational performance

Organisational performance is the most important indicator of organisational success and one of the most important variables in management research (Stegerean and Gavrea, 2010). According to Lakhal (2014), organisational performance refers to how well an organization achieves its market-oriented objectives as well as its financial goals. Many organizations have developed or adopted a number of organizational performance measurement systems to monitor the success of their corporate strategy. The Balanced-Score Card, however, is touted as the most comprehensive organizational performance measurement system because the tool provides a mix of both financial and non-financial means to monitor and manage organizational performance (Hilman and Siam, 2014). Financial performance includes income generation, annual operating expenditure, cash flow impact, return on assets (ROA), return of equity (ROE), market growth, credit impact and percentage of profit (Gupta, Dutta and Chen, 2014). The non-financial performance includes customer satisfaction, internal process and learning, international ranking, reputation, good governance and customer loyalty (Ariff et al., 2014, Hilman and Siam, 2014).

Building blocks of science

One of the major traits of science is the focus on phenomena that can be publicly observed and tested (Handfield and Melnyk, 1998). As a result, the three pillars on which science is build are observation, induction, and deduction (Popper, 1961). Perhaps it is in this context that Reynolds (1971) argued that a scientific body of knowledge should consist of concepts and statement. Building on the seminal work of Mouton (1996) and Kerlinger and Lee (2000), De Vos, Strydom, Fouché and Delport (2011) echoed the same sentiments that concepts and statement are central to the building blocks of science, but they went a step further to argue that the conceptual frameworks is an equally important component in the building blocks of science. The three building blocks of science (concepts, statement and conceptual frameworks) guided the authors when analysing the published scientific knowledge.

Concepts

In the Oxford Dictionary, the term ‘concept’ is defined as “an idea or principle that is connected to an abstract” (Hornby, 2010: 298). In other words, concepts are the symbolic constructions by means of which people make sense of the meaning attributed to their words (Mouton, 1996). As a result, understanding concepts is the most basic requirement of a scientific enquiry (De Vos et al., 2011). Possibly it is with this context in mind that Sharma and Chrisman (1999) argued that, in order for researchers to be able to build on the existing body of knowledge, it is imperative that the research concept is clearly defined.

Statement

In simple terms, the Oxford Dictionary defines ‘statement’ as an opinion based on what someone has said or written (Hornby, 2010). A statement takes on many forms which include definition, hypothesis or a proposition (De Vos et al., 2011). For discussion purposes, a brief description of each statement follows:
• A definition is a form of statement that delimits or demarcates the meaning of a word in terms of its sense of reference (Mouton, 1996). A definition can be operational (denotative) or theoretical (connotative). The theoretical definition denotes a specification of the connotative meaning of a concept. The operational definition describes a certain operation, typically some type of a measurement in which the use of the concept is considered to be valid.
• A hypothesis is a statement that should be observed in a real world if the theory is correct (De Vos et al., 2011). The empirical hypothesis is thus an information item that becomes transformed into a new observation, derived from interpreting the hypothesis, using instrumentation, scaling and sampling (Handfield and Melnyk, 1998).
• A proposition is a statement that contains claims that can be tested (Mouton, 1996). Stated differently, a proposition states the relationship between two constructs or more (Bacharach, 1989). Unlike hypotheses, however, propositions involve concepts rather than measures.

Conceptual framework

A framework is defined as the parts of a building or an object that support its weight and give it shape (Hornby, 2010). According to De Vos et al. (2011), there are three distinct types of conceptual frameworks, namely, topologies, theories and paradigms:
• A topology is defined as a conceptual framework the phenomena of which can be classified based on common characteristics (Mouton, 1996). In other words, a typology is a systematic classification or a study of types.
• A model is an abstract presentation of reality (De Vos et al., 2011). Along similar lines, Whetten (1989) defined a model as a virtual aid that highlights the main features of the phenomena. Put differently, “a model is a simplified description of the phenomenon in the real world that is an object of the research” (Blunch, 2013).
• A theory is a set of interrelated constructs or variables (Kerlinger and Lee, 2000). According to Dubin (1978), a theory must contain four essential elements, namely “what”, “how”, “why” and “who, where and when”. The first element “what” seeks to identify which factors should be considered as part of the explanation of the phenomenon of interest. Having identified a set of factors (i.e. variables, constructs or concepts), the next logical question is to identify “how” they are related, followed by the rationale behind the relationship. The underlying question about the rationale is “why” the other scholars should give credence to the presentation of the phenomenon. In order to give credence and put forward a particular theory, it is important to state explicitly the limitations and contextual factors that might influence the findings (Morrison, 2003). As such, the questions of “who, where, and when” becomes very important because they address the object, the geographical setting, the organizational type or industry and time horizon in which the phenomenon has been studied.
• A paradigm is a set of beliefs, values and techniques shared by the members of a community (Kuhn, 1970). In other words, a paradigm is a general framework for looking at life (De Vos et al., 2011). The paradigm plays an important role when the researcher embarks on a process of explaining a phenomenon because a research paradigm influences how the researcher views and interprets material and guides the consequent action to be taken about it.
To explore the relationship between climate for innovation, innovation and organizational performance, the three building blocks of science (concepts, statements and conceptual framework) have been examined to analyse prior studies which have investigated the relationship among these constructs critically.

Methodology

This study has adopted two generic steps central to the systematic review methodology, namely, defining the search strategy when engaging the available literature and then selecting relevant studies by applying inclusion and exclusion criteria (Nightingale, 2009). As such, the primary aim of this systematic review is to analyse prior studies which have investigated the relationship among organizational climate, innovation and organizational performance.
The keywords “climate”, “innovation” and “performance” were used in the search. As the keywords “creativity” and “innovation” are occasionally used interchangeably in the literature, these were also included. Similarly, the keywords “financial”, “output”, and “return on investment” (return*) were used because they are occasionally used interchangeably with performance. The options (criteria) selected for the search were full text, peer-reviewed, scholarly journals and published in English. Target articles needed to match all three keywords in a title, using two major academic databases, namely EBSCOhost and ProQuest. In total 27 articles were retrieved from both EBSCOhost and ProQuest. Seven duplicate articles were, however, identified, resulting in 20 distinct articles retrieved from the search.
The abstracts of the articles which met the first level of inclusion criteria were analysed in order to identify those articles that (1) treat climate for innovation, (2) innovation, performance in a single and (3) performance as variables. Seven articles (presented in Table 1) met these criteria.

Findings

As presented in Table 1, only seven articles were retrieved that investigated the relationship between climate for innovation, innovation and organizational study. These findings illustrate that there is a lack of research that investigates the causal path among these three constructs. There is, however, no shortage of studies investigating the relationship between these strategic variables when studied in pairs, climate and innovation on one hand and innovation and organizational performance on the other. Studying these constructs in isolation, however, makes it difficult to understand the causal relationship among these constructs.
Of the seven articles that investigated the causal path among organizational climate, innovation and organizational performance, only one is more than ten years old, while the others were published during the last eight years. The seven articles that explicitly investigate the relationship between climate for innovation, innovation and organizational performance were analysed, using the three building blocks of science (concepts, statements and conceptual frameworks) identified by De Vos et al. (2011).

Concepts

As described in the literature review, concepts are the symbolic constructions by means of which people make sense of the meaning attributed to their words (Mouton, 1996). Table 1 presents the list of concepts listed in the article that investigates the relationship among climate for innovation, innovation and organizational performance. These are the words that appear in the keywords list of the article.
Table 1 reveals that only five of the seven articles listed keywords (Panuwatwanich et al., 2008, Charbonnier-Voirin et al., 2010, Nybakk and Jenssen, 2012, Choi et al., 2013, Nusair, 2013). The most common (more than twice) keywords that appear in the five articles are climate for innovation, innovation and performance. Other keywords are design, transformational leadership, multilevel analysis and ethical climate.

Statements

The following statements (definitions and hypotheses) were found on the articles analysed. All studies were quantitative in nature, and, as such, there were no propositions.

Definitions

The most common words/phrases defined are organizational climate, climate for innovation, innovativeness, organizational innovation and performance. Other definitions include innovation strategy, culture for innovation and organizational process. For the purpose of this paper, however, the focus is on the three variables under investigation, namely organizational climate, innovation and organizational performance.
• Organizational climate: The definitions pertaining to ‘climate’ include organizational climate, climate for initiative, climate for innovation and support for innovation. According to Crespell and Hansen (2008), organizational climate is an organizational reality composed of behaviours, employee attitudes and feelings, which are characterized by the environment of the organization. Along similar lines, Charbonnier-Voirin et al. (2010) adopt the term “organizational climate” as the set of shared perceptions regarding organizational policies and procedures that convey messages regarding the reward system, which often emerge through social interaction processes. Similarly Baer and Frese (2003) view the term “organizational climate” as being a broad class of organizational variables that describe the organizational context for individual actions. In the same vein, ‘climate for innovation’ is defined as an organizational climate that fosters innovative behaviour (Crespell and Hansen, 2008). In other words, climate for innovation refers to the norms and practices that encourage flexibility, the expression of ideas, and learning (Charbonnier-Voirin et al., 2010). Perhaps it is in this context that Baer and Frese (2003) define ‘climate for initiative’ as the formal and informal organizational practices and procedures that guide and support proactive-ness, self-starting and persistence approach towards the work. In a broader context, Choi et al. (2013) define ‘support for innovation’ as the degree to which management encourages employees to try new things and to take risks.
• Innovation: None of the study material found in this search defines the word ‘innovation’ explicitly. Instead studies opted to use the word innovativeness and the phrase innovation strategy. Nybakk and Jenssen (2012) adopted the definition of innovativeness of West and Farr (1989). According to West and Farr (1989), the term ‘innovativeness’ is defined as a quality that is shared by most professionals and management workers. Nybakk and Jenssen (2012) go further to argue that, given the appropriate facilitating environment, innovativeness has a potential to be enacted in the working environment. Baer and Frese (2003) adopted a more comprehensive definition of innovativeness put forward by various scholars (Denison, 1996, Hurley and Hult, 1998). Baer and Frese (2003) define innovativeness as a cultural phenomenon that is readily observable in an organizational climate. Even more far-reaching, the innovation strategy is defined as a concept that embodies four dimensions describing the degree to which innovation can be manifested. These dimensions are products, processes, business systems embedded in management values as well as the degree of expenditure in research and development (R&D).
• Organizational performance: Only two (Charbonnier-Voirin et al., 2010, Nusair, 2013) of the seven studies which investigate the relationship among organizational climate, innovation and organization performance define organizational performance. Both studies adopted individual performance as a proxy of organizational performance. In the first study, Charbonnier-Voirin et al. (2010) define adaptive performance as the proficiency with which an individual can alter his or her behaviour in order to meet the demand of the environment, an event, or a new situation. This includes skills such as solving problems, dealing with uncertain and unpredictable work situations, handling emergency and crisis situations, learning new work tasks, technologies and procedures, handling work stress, demonstrating interpersonal, culturally- and physically-oriented adaptability. In the second study, Nusair (2013) adopted the performance definition as described by Lawler and Porter (2008) in which they stated that performance is a function of individual ability and skills and effort in a given situation. Although other studies do not explicitly define organizational performance, attempts were made to show how organizational performance is measured. For instance, Baer and Frese (2003) use the firm’s goal achievement and return on assets (ROA) as a proxy to measure organizational performance. Panuwatwanich et al. (2008) measured organizational performance in terms of economic growth and customer satisfaction. Nybakk and Jenssen (2012) use return on sales (ROS), sales growth rate, return on assets (ROA) and overall competitiveness, whereas Choi et al. (2013) opted for sales growth and revenue as a proxy to measure organizational performance

TABLE OF CONTENTS
ABSTRACT 
PREFACE 
ACKNOWLEDGEMENTS 
CHAPTER 1 ORIENTATION 
1.1 Background
1.2 Problem statement
1.3 Goals and objectives
1.4 Importance of the study
1.5 Delineation
1.6 Limitations
1.7 Research method
1.8 Chapter divisions
CHAPTER 2 OBJECTIVE 1 
The relationship between leadership styles, innovation and organisational
performance: A systematic review
CHAPTER 3 OBJECTIVE 2 
Organizational climate, innovation and performance: A systematic review
CHAPTER 4 OBJECTIVE 3 
The relationship between leadership style, organisational climate, innovation and organisational performance: An investigation into the research methodology used
CHAPTER 5 OBJECTIVE 4 
An examination of the instruments used to measure incremental and radical innovations: A systematic review
CHAPTER 6 OBJECTIVE 5 
Innovation and organisational performance: A critical review of the instruments used to measure organisational performance
CHAPTER 7 OBJECTIVE 6 
The impact of leadership styles and the components of leadership styles on
innovative behaviour
CHAPTER 8 OBJECTIVE 7 
Towards a comprehensive model on the relationship between leadership styles, organisational climate, innovation and organisational performance
CHAPTER 9 OBJECTIVE 8 
Innovation strategies and organisational performance: An empirical analysis into the South African retail banking sector
CHAPTER 10 CONCLUSIONS, LIMITATIONS AND RECOMMENDATIONS 
10.1 Conclusions
10.2 Cumulative summary and concluding remarks
10.3 Limitations and achievements
10.4 Summary of contribution
10.5 Recommendations
10.6 Suggestions for future research
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