investigating the role of leadership and organizational

Investigating the Role of Leadership and Organizational Culturein Fostering Innovation Ambidexterity

Hsing-Er Lin 1 and Edward F. McDonough III 2

1 [email protected]*Research associate

Maastricht School of ManagementMaastricht, NL+31-433870896

2 [email protected]

International Business & Strategy GroupCollege of Business Administration

Northeastern UniversityBoston, MA 02115+1- 617 373-4726

ABSTRACT

This study investigates the impact of leadership and an organization’sculture on the organization’s ability to exhibit innovation ambidexterity, i.e., theability to simultaneously generate multiple types of innovation. We found thatadaptive leadership had a direct and significant relationship on both internalprocess innovation and incremental product innovation. We also found thatentrepreneurial and sharing organization cultures mediated the relationshipbetween a bounded delegation style of leadership and internal processinnovation, and incremental product innovation, and radical product innovation.

Our results suggest that the way in which leadership affects innovation iscomplex. While prior research has suggested that transformational leadershipwill foster radical innovation and that transactional leadership will fosterincremental and internal process innovation, our findings suggest that this is aconsiderable oversimplification of the relationship between leadership andinnovation. Our findings suggest that culture is crucial to enable innovationambidexterity and further, that leadership and culture work in conjunction witheach other to generate innovation. Thus, failing to take into account the role oforganizational culture presents a distorted picture how leadership influences anorganization’s ability to generate multiple types of innovation simultaneously.Key words: Leadership, organization culture, innovation ambidexterity,innovation, exploration, exploitation, Taiwan

mailto:[email protected]*

mailto:[email protected]

Investigating the Role of Leadership and Organizational Culture in FosteringInnovation Ambidexterity

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INTRODUCTION

There is general agreement that innovation ambidexterity, i.e., the abilityto simultaneously generate multiple types of innovation, plays a central role insustaining 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 achievingambidexterity have been recognized, little work has been done on exactly howorganizations could achieve ambidexterity.” (pp. 3-4)

To date research on ambidexterity has focused on a handful ofantecedents including, structure, context and leadership (Raisch & Birkinshaw,2008). Research on structural antecedents has focused on creating separateorganization units and the use of formal and informal coordinating mechanismsto stimulate innovation ambidexterity (Duncan, 1976; Christensen 1997;Tushman and O’Reilly, 1996; Jansen, et al., 2006), while research on contexthas focused on creating systems, processes, and beliefs that will enable andencourage individuals to judge for themselves how to best divide their timebetween different types of innovative activities (Gibson & Birkinshaw, 2004).Research that has examined on leadership has focused on the role of topmanagement teams (TMTs) in helping to create ambidexterity (Smith &Tushman, 2005). Lubatkin, et al., (2006), e.g., has investigated the impact of thebehavioral integration of TMTs on ambidexterity, while other research on TMTshas examined the impact of founding teams’ prior affiliations on innovativeactivities (Beckman, 2006).

Another antecedent that is thought to play an important role in fosteringambidexterity is leadership style. It has been proposed, e.g., that differentleadership styles are needed in order to facilitate different types of innovation(Vera & Crossan, 2004; O’Reilly & Tushman, 2004). These researchers havesuggested that a participative form of leadership may be most helpful infostering radical and discontinuous types of innovation, while an authoritative,top down style of leadership may be most helpful in fostering incrementalinnovation (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 hasspecifically focused on the role of senior leadership style and its impact onfostering innovative activities leading to different types of innovation. Thus, oneof 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 leadersand organization culture in influencing innovation (Raisch and Birkinshaw,2008). While some researchers have suggested that leadership and culture actindependently to affect innovation, others suggest that leadership operatesthrough an organization’s culture to influence innovation. Understanding howleadership and culture interact to affect innovation ambidexterity is an important


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question that has not been investigated (Raisch and Birkinshaw, 2008).Therefore, a second purpose of our study is to examine the interaction ofleadership and an organization’s culture on the organization’s ability to fosterinnovation ambidexterity.

BACKGROUND

InnovationAccording 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 creationand commercialization of new knowledge in terms of a firm’s genericinnovation strategies (Porter, 1980), while Porter and Ketels (2003) defineinnovation as “the successful exploitation of new ideas”. As these definitionsmake clear, innovation is not limited to technological change or new productseven though it is frequently described in this way.

Further, as the January 2008 report of The Advisory Committee onMeasuring Innovation in the 21st Century Economy admonishes, “effectiveinnovation 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 AmericanEconomy, 2008). Recognizing the multi facetted nature of innovation, in ourstudy 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 continuumranging from incremental (or continuous) to radical (or breakthrough) productinnovation. Incremental new product innovations consist of productmodifications, cost reductions, and product repositionings, while radical newproduct innovations are ones that incorporate substantially different technologyfrom existing products and can fulfill key customer needs better than existingproducts (Chandy and Tellis, 1998).

In addition to product innovation, organizations can also undertakeinternal (to the organization) process innovation. This type of innovation istypically intended to improve organizational processes, work flows, or ways ofworking together to accomplish a company’s objectives (e.g., Davenport, 1993;Bender et al., 2000). Internal process innovations are not intended for sale toother companies, but instead are intended for use internally by the organizationto help it to work more effectively, generate greater efficiencies, increase speedof throughput, enhance communication flow, and the like. This type ofinnovation may come from any individual or department in the company.

It has been proposed that for organizations to be successful and effectivetheir senior leaders need to engage in behaviors that promote multiple types ofinnovation (O’Reilly & Tushman, 2004; March 1991).


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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 veryimportant role in fostering different types of innovation. An adaptive leadershipstyle is characterized as leadership that focuses on strategic thinking andorganizational capabilities in adapting to circumstance change and aligning withbusiness needs, while a bounded delegation leadership is characterized as theleadership coaching employees in line with organizational vision and goal butalso providing support and wide latitude to inspire employees’ creativity.

Adaptive Leadership and InnovationLeaders who exhibit an adaptive leadership style monitor the

organization’s external environment, and use this information to keep theorganization competitive and ensure continual organizational learning byadapting to variations in the external environments (Tushman, Anderson, &O’Reilly, 1997; Boal and Hooijberg, 2000; Vera and Crossan, 2004). Theseleaders absorb, understand, and integrate new information and ideas and aresensitive to the needs of very different kinds of businesses and adapt tovariations in the external environments (Tushman, Anderson, & O’Reilly, 1997;Boal and Hooijberg, 2000).

Being immersed in the organization’s external environment enables theseleaders to obtain customer feedback, learn of their customers’ problems andneeds, and obtain market information, which they can then pass along toindividuals in the organization. By facilitating this flow of information, this styleof 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 deepexpertise and the exchange of more knowledge about specialized and leadingedge technologies. Because such deep expertise usually comes about fromintensive immersion in a specialized field, it is unlikely that adaptive leaders,whose job is to manage the company, not develop radically new products, willhave been able to maintain either the deep expertise or knowledge that is neededto directly impact on radical innovation.

However, because these leaders serve as conduits for information betweencustomers and the organization, they are in a position to link customer needs andproblems with product development efforts within the organization. But,innovation focused on meeting customer needs and solving customer problemsis incremental in nature. Radical innovation, on the other hand, is stimulated bymore basic technological and scientific investigation and is focused ongenerating products that do not simply satisfy current customer needs, but ratheron offering new technologies to new markets.

Because of the adaptive nature of this leadership, with its focus oncontinual innovation, we also argue that adaptive leadership will impact on theorganization’s ability to generate internal process innovations. The information


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that adaptive leaders bring into the organization from the external environmentserves as a platform for innovation. It can inform the organization regarding theneed to update the ways of doing things better and stimulate thinking about whatnew 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 InnovationWhile 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 oninnovation by working through an organization’s culture. Leaders with abounded delegation style articulate goals for subordinates, but allow thesubordinates to identify the path they wish to take to achieve those goals(McDonough & Leifer, 1986). Leaders who use such a style are closelyconnected to subordinates and provide coaching to ensure subordinates’ success,but refrain from specifying specific paths that subordinates should take toachieve their goals (McDonough & Leifer, 1986).1

Research on bounded delegation leadership suggests that these leadersfoster innovation by providing a clear goal and support for creativity(McDonough & Leifer, 1986, Amabile et al., 1996, Mumford et al., 2002). Anarticulated goal provides an indication to followers of the importance ofinnovation and can increase their understanding of the goal’s importance. Suchbehaviors 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 considerablefreedom and tolerance to try new ideas and approaches, on the one hand, it alsorequires exerting a certain amount of control in order to ensure that ideas andapproaches actually result in innovations, on the other (McDonough & Leifer,1986). Successfully leading innovation demands that the leader bridge bothideation and business needs, and that they provide clear goals, while at the sametime allowing wide latitude to achieve those goals. The wide latitude to achievethe goals involves providing support, as well as time and freedom for thinkingand interacting with others (Amar, 1998; McDonough & Griffin, 2000; West etal., 2003; Sosik et al., 2005; Jung et al., 2008).

Thus, by providing employees wide latitude in achieving the

1 Bounded delegation leadership is different from both transformational and transactional leadership.Transformational leaders focus on making followers aware of the importance and value of task outcomes,activate their higher-order needs, and induce them to transcend their self interest for the sake of the organization,while transactional leaders specify behaviors for subordinates that should be used to achieve pre-ordained goals(Avolio & Bass, 1999).


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organization’s innovation goals and not constraining individuals regarding thepaths they may take to achieve these goals, bounded delegation leadership helpsto create an innovation enabling organization culture that will facilitateinnovation, rather than impacting directly on innovation.

Organizational cultureOrganizational 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 thatevolve over time (Trice & Beyer, 1984).

The Mediating Role of Organization CultureBoth theoretical discussion and empirical investigations suggest that the

promotion of an innovation enabling culture requires senior leaders’ support andinvolvement (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 animportant means of promoting an innovation enabling culture. And to fosterfailure tolerance requires that leaders are engaged, show interest in people’swork by asking pertinent questions, express support and give feedback, and arecollaborative rather than controlling (Farson & Keyes, 2002).

This line of research (cf., Amabile, 1997; Farson & Keyes, 2002) suggeststhat leadership plays an instrumental role in fostering innovation by affecting theorganization’s culture, within which individual behavior is manifested.Amabile’s research (1997), e.g., suggests that leadership is crucial to provide theinclination for innovation in an organization. Leaders play an important role indeveloping an innovation-oriented company by supporting creativity throughproviding resources, e.g., sufficient time, training, coaching, and money.Leaders also play an important role in encouraging new idea generation byproviding individuals with the freedom to try new things and with challengingwork. In this sense, creativity is the seed of innovation that requires watering byleaders. When a leader stimulates followers’ efforts to approach old situations innew ways, the leader entrepreneurial culture among followers that valuescreative thoughts, risk-taking approaches, and innovative work approaches (Junget al., 2003; Jung et al., 2008).

By providing employees with opportunities to explore, investigate andexperiment, bounded delegation leadership creates an entrepreneurialorganization culture that fosters innovative behavior (Amabile et al., 1996;Woodman et al., 1993; Sackmann, 2003, 2006; Ulwick, 2002; Anand et al.,2007). In an entrepreneurial culture members of the organization identifyopportunities and risks based on their perceptions of the internal and externalorganizational environment, integrate available resources, and bring in other


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individuals to enable them to undertake creative and innovative ventures(Sternberg, Kaufman & Pretz, 2003; Mumford & Licuanan, 2004; Chen, 2007).

Bounded delegation leaders also foster innovation by creating a sharingculture that facilitates interaction and information sharing among individualsacross the organization (Damanpour, 1991; Ahmed, 1998; McDermott, 1999;Menzel et al., 2008). This interaction and information sharing is an importantmeans of allowing organization members’ views and opinions to be heard andfor knowledge to be transferred (Menzel et al., 2008). Damanpour (1991) alsosuggests that internal communication is helpful to organizational innovativeness,while McDermott (1999) emphasizes that it is important to develop existingknowledge communities to facilitate information sharing. A sharing culturemakes interaction, communication, and knowledge transfer possible(Damanpour, 1991; Ahmed, 1998; McDermott, 1999; Menzel et al., 2008),which in turn, encourages exploratory behavior and learning.

Once an entrepreneurial and sharing culture is created, there is no inherentreason to expect that the outcome of creative behaviors and knowledge transferwill be restricted to radical innovation. Indeed, we might expect that anentrepreneurial culture will allow for different levels of creativity and allow forthe transfer of knowledge that is both more tacit and more explicit thus fosteringall types of innovation.

Thus, in entrepreneurial and sharing cultures, individuals or groups aremore inclined to take innovation initiatives (Amabile et al., 1996). Thus, weargue that such behavior is needed in order to generate innovation within theorganization, including more radical innovation (McDonough & Leifer, 1986;Amabile et al., 1996; McDonough & Griffin, 2000).

Hence, we propose that:H2: Entrepreneurial and sharing organizational cultures mediate the relationship

between bounded delegation leadership and incremental and radicalproduct innovation, as well as internal process innovation.

In sum, we propose that an adaptive leadership will impact directly onincremental product and internal process innovation, while a bounded delegationleadership style will influence all three types of innovation indirectly by creatingan organization culture that fosters innovation.

METHODOLOGY

Research DesignThe unit of analysis in the study is the strategic business unit (SBU). We

define an SBU as a profit center responsible for performance in one or moremarkets with the authority to influence the choice of the business’ competitivestrategy in its target markets. By focusing on the SBU, the likelihood that eachrespondent is well acquainted with the strategies, general processes,management, and performance of the SBU is increased (Narver et al., 2004).


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Our study was set in Taiwan. Taiwan presents an interesting context for ourstudy for at least two reasons. First, Taiwan has shown an innovation orientationin many aspects, e.g. Taiwan ranks number one in patents per million peoplegranted between January 1 and December 31, 2007 and Taiwanese companiesrank number 16 in the world in terms of R&D spending (World EconomicForum, Global Competitiveness Report 2008-2009). Thus, Taiwan provides anideal context for a study that focuses on innovation. Second, Taiwan provides aunique context for studying the interplay between leadership styles andorganizational culture. Taiwan is a country characterized by Western capitalismmixed with a Confucian orientation, which is manifested in many respectsincluding management practices and individual behaviors.

Our sample consisted of 125 Taiwanese owned SBUs that were drawnfrom several industries including, chemicals, pharmaceuticals, financialmanagement, mechanical engineering, and electronic engineering. Asresearchers have noted, innovation is more important to some industries thanothers (Jibu, et al., 2007). Thus, a majority of studies on innovation haveinvestigated companies in the manufacturing, chemicals, pharmaceuticals,telecommunications, electronics, and financial service industries (cf., Atuahene-Gima, 1996; Elenkov et al., 2005; Jibu et al., 2007; Jung et al., 2008). Oursampling criteria included 1) the importance of innovation to the industry and 2)the importance of innovation to the company. Companies were contacteddirectly to ascertain their interest in participating in the study. Thus, our samplewas a convenience sample of companies that fit the above criteria.

As shown in Table 1, size of SBU in our sample ranged from 45employees to over 3,000. The mean size equaled 1,135. Average age of theSBUs in the sample was 16 years. One hundred and seven SBUs (87%) wereprivately owned. Thirty six percent of the SBUs in the sample are in thebusiness of producing consumer products, 38% produce industrial products,20% produce customer services, and 4% produce industrial products. Forty-fiveof the SBUs in our sample had revenues of 1 to 4.9 billion Taiwanese dollars(US$30 million to US$1.5 billion), seventeen SBUs had revenues of 500-999million Taiwanese dollars (US$15-30 million) and nineteen SBUs had revenuesof 10 billion Taiwanese dollars and above (US$3 billion).2

[Insert Table 1 about here]

A number of researchers (Podsakoff, et al, 2003; Jung et al. 2003; 2008;Elenkov et al. 2005) suggest that respondents for independent and dependentvariables should be different in order to avoid self report and self evaluation thatcan result in common method bias. Thus, we developed one questionnaire tomeasure leadership and organization culture and a second questionnaire tomeasure innovation performance. In each SBU, a senior level manager was

2 Conversion based on an exchange rate 1 US$ = 33 NTD


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asked to fill out a questionnaire asking about the innovation performance of theSBU. Middle level managers were asked to fill out questionnaires that askedabout senior manager leadership style and organization culture. A total of 320respondents in 125 SBUs completed this questionnaire. The response rate forthis study was 65% (125 SBUs participated out of the 190 that were initiallyapproached).

MeasuresOur instruments were originally constructed in English and were then

translated into Chinese and back-translated into English to ensure the accuracyof the meaning of the questions. We also used a mixture of positive and negativequestions in order to minimize response bias. The questionnaires were then pre-tested using a sample of managers in Taiwan. All constructs in this study weremeasured on a seven-point Likert type scale.

Innovation Performance. The measures of innovation performancewere adapted from the work of Atuahene-Gima (2005) and Cooper &Kleinschmidt (2000). Because senior managers are in the best position toprovide responses to our questions concerning innovation performance, weasked these managers to look backwards over the past 3 years and provide theirperceptions of innovation performance. We felt it was important to use a 3 yeartime period because of the lag effects that are likely to exist between leadershipand its impact on innovativeness. Two items were used to measure internalprocess innovation. The items asked, “This SBU frequently implemented newinternal processes in the last three years” and “Compared to your majorcompetitor, this SBU implemented more new internal process innovations in thelast three years”. These two items were combined into one factor. Incrementalnew product innovation was measured by 2 items, including, “This SBUfrequently introduced incremental new products into new markets in the lastthree years” and “Compared to your major competitor, this SBU introducedmore incremental new products in the last three years.” These two items werecombined into one factor. Radical new product innovation was also measured by2 items. “This SBU frequently introduced radical new products into newmarkets in the last three years” and “Compared to your major competitor, thisSBU introduced more radical new products in the last three years.” These twoitems were also combined into one factor.

Senior Leadership Style. We asked middle managers to assess theleadership style of senior leaders. Our measure of adaptive leadership was drawnfrom the work of Boal and Hooijberg (2000) and consisted of three questions.They identified the core of adaptive leadership as the creation and maintenanceof absorptive capacity (Cohen & Levinthal, 1990) and adaptive capacity (Black& Boal, 1996; Hambrick, 1989). Our measure of bounded delegation leadershipconsisted of three questions adapted from McDonough & Leifer (1986) and


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Avolio & Bass (1999).To determine the number of items which contribute to common variance

actually needed to describe leadership behaviors, we conducted common factoranalyses on the bounded delegation and adaptive leadership dimensions.Principal Components extraction with an Equamax rotation method (Eigenvalue> 1) resulted in two factors, both of which closely paralleled the originaldimensions. One factor consisted of three items representing bounded delegationleadership. The other factor consisted of three items representing adaptiveleadership.

The measure of organization culture was adapted from the work ofO'Reilly, Chatman, & Caldwell (1991) and consisted of six questions. Theresults of factor analysis on organizational culture yielded two factors. Onefactor consisted of 3 items representing an entrepreneurial orientation culture,while a second factor consisted of three items representing a sharing culture.

Control Variables. We included SBU/company size and industry ascontrol variables because prior studies have documented their positiverelationship with organizational innovation (cf., Hitt et al., 1997; Jung et al.,2003; Elenkov et al., 2005; Jung et al., 2008).

Aggregation of SBU-level variables. Keller (1986) points out that theaggregation of individual scores to the group level may be appropriate simplybecause the theory and hypotheses of a study require a certain level of analysis.Thus, following Keller’s work (1986), we aggregated the member scores oneach variable and computed the company or strategic business unit meanresponses for each question. After aggregation, we followed Goodman et al.’s(1990) suggestion to justify the aggregation of SBU-level variables. We firstused the inter-rater agreement index (γwg ) to test within-SBU variance, and thenused intra-class Correlation Coefficients (ICC) to test between-SBUs differenceson each measure (e.g., James, Demaree & Wolf, 1993; Goodman et al., 1990).The external reliability of SBU level measures was assessed by computing thevalue of inter-rater agreement for each measure using the γwg index (James et al.,1993). The following γwg values were obtained, .63 for adaptive leadership, .65for bounded delegation leadership, .67 for entrepreneurship orientedorganizational culture, and .69 for sharing organizational culture. These γwg

values were above the value of.60 that is conventionally accepted. Forconstructs measured on a seven-point scale, the index ranges from –1.25≦γwg≦

1, indicating minimum and maximum acceptable agreement respectively (DeLuca & Atuahene-Gima, 2007). For each of the items the γwg index fellbetween –1.25≦γwg≦ 1.

We further employed intra-class correlation (ICC) to examine the degreeof agreement among respondents on each measure. Values of .81 for adaptiveleadership, .80 for bounded delegation leadership, .74 for entrepreneurshiporiented organizational culture, and .72 for sharing organizational culture wereobtained. All ICC values are greater than or equal to .60 indicating acceptable


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reliability (Schneider et al., 1998). The 95% level of confidence interval wascalculated for each ICC to take sampling variation into account. For each of theitems the ICC fell in the 95% level of confidence interval. Based on these results,aggregation was justified for these variables, and provided substantial supportfor the scales.

Measurement Validation. Following Anderson and Gerbing’s (1988)suggestion, we performed a multistage process to further assess constructvalidity. We first examined correlations for each factor which derived fromcommon factor analysis. Then, we conducted confirmatory factor analysis(CFA) to test for the unidimensionality and convergent validity of theconstructs. The scale items, along with factor loadings, reliability and model fitstatistics, are shown in Table 2. Our CFA factor loadings (>=0.6) provideevidence of convergent validity. Next, we assessed discriminant validity of theconstructs by testing if correlations between any two constructs weresignificantly different from unity. This required a comparison between twomodels in which one was constrained with the correlation equal to one andanother was not. In each case discriminant validity was evidenced by thestatistically significant chi-square differences between the models. Finally, weassessed the reliability of the constructs with Cronbach’s coefficient alpha. Allscales have reliabilities greater than 0.70 (Cronbach’s α = 0.90, 0.89, 0.87,0.85, 0.85, 0.94,and 0.91 for adaptive, bounded-delegation leadership,entrepreneurial, sharing organizational culture, and internal process,incremental, radical product innovation performance respectively).


Several studies suggest the importance of testing two assumptions –linearity and homoscedasticity, when conducting multiple regression analysis(Cohen & Cohen, 1983; Berry & Feldman, 1985). Because we used abootstrapping procedure to test for mediating effect, there was no need to checkassumptions of normality and multicollinearity (MacKinnon et al., 2004;Preacher & Hayes 2004; 2008). To test linearity and homoscedasticity, standardmultiple regressions on each dependent variable were conducted. These yieldedthe following results R =0.47, F =8.10, p=.000 < 0.001 for process innovationperformance, R =0.49, F =9.04, p=.000 < 0.001 for incremental productinnovation performance, and R =0.45, F =7.12, p=.000 < 0.001 for radicalproduct innovation performance. The shape of the normal scatter P-P plot ofregression-standardized residuals satisfied the rectangularity requirements forlinearity and homoscedasticity.

DATA ANALYSIS

Table 3 provides descriptive statistics and pairwise correlations for allindependent and dependent variables.


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The Effects of Leadership on Innovation PerformanceMultiple regression analyses were performed to determine if there were

significant relationships between each type of innovation and adaptiveleadership, bounded delegation leadership, entrepreneurial organization culture,and sharing organization culture. We found that adaptive leadership wassignificantly related to incremental product innovation (H1a) and internalprocess innovation (H1b), providing support for Hypotheses 1a and 1b. Asexpected, there was no significant relationship between adaptive leadership andradical product innovation.


In order to test the mediation hypotheses of organization culture on theleadership-innovation relationship, we followed Preacher & Hayes’s (2004)approach to directly test the significance of indirect effects in the mediationmodels. The approach combines the Sobel test (Sobel, 1982) with abootstrapping method to obtaining confidence intervals, as well as the traditionalBaron and Kenny’s (1986) three-step approach criteria. We also used SPSSMacros provided by Preacher & Hayes (2004) to estimate the mediating effects.We report the results of the Sobel test and each step of Baron and Kenny’sprincipals to provide powerful estimation in this study. Traditionally, themediation analyses are most often guided by Baron & Kenny’s (1986) three-step procedures include, firstly, they indicate that regressing the mediator (i.e.,entrepreneurial and sharing organizational culture) on the independent variable(i.e., bounded delegation leadership) should yield a significant result. Second,regressing the dependent variable on the independent variable needs to yield asignificant result. Third, for mediation to exist, when the dependent variable isregressed on both the independent variable, i.e., leadership, and the mediator,i.e., organizational culture, the effect of the independent variable on thedependent variable must not be significant, and the B value for the independentvariable must be less in the third equation than in the second equation (cf. Baron& Kenny, 1986, MacKinnon & Dwyer, 1993).

We found that entrepreneurial and sharing cultures mediated therelationship between bounded delegation leadership and incremental and radicalproduct innovation, as well as internal process performance, providing supportfor Hypothesis 2 (Table 5).

[Insert Tables 5 about here]

DISCUSSION AND CONCLUSIONS


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One of the purposes of this study was to examine the impact of leadershipand an organization’s culture on the organization’s ability to generate innovationambidexterity. Our results suggest that the way in which leadership affectsinnovation is complex. While earlier theoretical reasoning suggested simplerelationships between transformational leadership and radical innovation, on theone hand, and transactional leadership and incremental and internal processinnovation on the other, our findings suggest that this is a considerableoversimplification of the actual situation found in companies. It appears, basedon what we found, that culture is crucial to enable innovation ambidexterity andfurther, that leadership and culture work in conjunction with each other. Thus,failing to take into account the role of organizational culture presents a distortedpicture how leadership influences an organization’s ability to generate differenttypes of innovation.

More specifically, we found that a bounded delegation style of leadershipimpacts on an organization’s culture, which in turn generates innovation, whilean adaptive style of leadership directly facilitates incremental and internalprocess innovation. Further, the two types of leadership play important, but quitedifferent roles in creating an innovation ambidexterity. With respect topromoting innovation, the same leadership style does not play an equallyimportant role in bringing about each type of innovation. On the one hand, anadaptive style of leadership impacts on incremental product innovation andinternal process innovation. On the other hand, a bounded delegation leadershipstyle impacts, albeit indirectly, radical innovation.

Our findings also reinforce the notion that leadership and anorganization’s culture are intimately intertwined and that both are needed inorder to successfully generate innovation ambidexterity. Prior research has leftunanswered the question about whether leadership or organization culture has agreater impact on innovation (cf., Halbesleben et al., 2003; Kets De Vries, 1996;Sharma & Rai, 2003; Tierney, Farmer, & Graen, 1999; West et al., 2003;Elenkov et al., 2005; Jung et al., 2003; Jung et al., 2008; Amabile, 1997). Someresearchers have found a relationship between leadership and innovation (e.g.,Stata, 1989; Tushman & Nadler, 1986; Mumford & Licuanan, 2004; Jung et al.,2003; Jung et al., 2008; Elenkov et al., 2005; Chen, 2007), while others havefound that organizational culture is a major factor influencing innovation (e.g.,Deal & Kennedy, 1982; Kotter & Heskett, 1992; Lee & Yu, 2004; Ouchi, 1980;Ireland & Hitt, 1999; Jung et al., 2003; Jung et al., 2008).

The results from this study suggest that leadership and culture work inconjunction with each other, and provide additional insight into just howleadership and culture work together and for what purpose, when it comes toinnovation. They propose that both leadership and organization culture playimportant roles in fostering innovation, but that the relative influence ofleadership versus culture depends on the type of innovation being investigated.Our study suggests that an organization’s culture can be used to foster all typesof innovation, while leadership, and in particular adaptive leadership, can be


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used to directly foster incremental product and internal process innovation.It is also important to emphasize that, while some of the literature on

ambidextrous organizations suggests that leadership within organizations needsto be capable of shifting back and forth between a more transformational style ofleadership and a more transactional style of leadership (Vera & Crossan, 2004),we believe that this does not reflect the reality facing the organizations that westudied. In these organizations, which were relatively small, innovation was amultidimensional activity, i.e., these organizations generated internal processinnovations, incremental product innovations, and radical innovations - all at thesame time. Indeed, “best practice” in the new product development literaturesuggests that organizations should develop a portfolio of innovation projects thatinclude some that are more incremental and some that are more radical(McDonough & Spital, 2003). In most organizations, the innovation projectswithin this portfolio are undertaken simultaneously. At the same time, manyargue that internal innovation needs to be a continuous activity (cf., Davenport,1993; Bender et al., 2000). This implies that the organization’s leadership needsto enact different leadership styles simultaneously (McDonough & Leifer, 1983)that will lead to the creation of a variety of cultures that will foster thesedifferent types of innovation outcomes.

Our findings also suggest the importance of taking a “fine grained”approach in order to understand more deeply and accurately how the leadershipof an organization and its culture influence the variety of types of innovationthat organizations need to generate. Such an approach entails investigatingmultiple dimensions of leadership, organization culture, and multipledimensions of innovation, within the same study. We believe that by taking amore “fine grained” approach this research has helped to clarify theinterrelationship between organization culture and leadership, as well as therelationship between leadership and innovation ambidexterity. Beginning withthe work of March (1991), research has made clear the need for organizations toexploit their current capabilities as a way of generating revenues and harvestingthe fruits of their innovative activities. At the same time however, simplyfocusing on harvesting revenues from current products and innovative activity isunlikely to lead to sustained competitive advantage. To maintain long runcompetitive advantage organizations need to also continually investigate newopportunities and develop new knowledge that will enable them to generateleading edge innovations. Research that focuses on only one dimension ofinnovative activity, i.e., research that does not take a more fine grained approachby investigating multiple types of innovation, will only be able to provide alimited understanding of the interplay between product and process andincremental and radical innovation. As well, it will be limited in terms of itsability to provide insights into the factors driving each type of innovativeactivity, and into innovation ambidexterity.

It has also been pointed out recently that there has been virtually noresearch that has examined the international context impacting on ambidexterity


15

research (Raisch & Birkinshaw, 2008). Yet, given the evidence of the impact ofsocietal culture in other management areas of research (Hofstede, 1983; Houseet al., 2004; Sirmon & Lane, 2004; Elenkov et al., 2005), it is important toinvestigate whether the international context plays a role. The tendency forresearch on leadership and culture to focus on Western countries such as NorthAmerica or Western Europe (Jackson & Schuler, 1995; Porter, 1985; Schuler,1992; Wright & McMahan, 1992; Huselid, 1995; Elenkov et al., 2005), meansthat we have little understanding of what leadership styles affect different typesof innovation in non-Western countries (for exceptions see, House & Aditya,1997; Jung et al., 2003; Jung et al., 2008).

Prior research on the interaction between leadership and societal culturesuggests that we might anticipate that leaders in Taiwanese organizations wouldexhibit leadership styles that are different from those exhibited by managers inWestern companies. For example, in a study of leadership in Taiwanesecompanies, Jung, et al. (2003) found a negative relationship betweenempowerment and organizational innovation, thus suggesting that delegatingmore autonomy to employees results in less innovation. They speculate that inTaiwan’s culture with its relatively high in power distance (Hofstede, 2003),leaving employees alone with little guidance regarding how to accomplish goalsmay lead to confusion rather than innovation.

Our findings, however, contradict Jung, et al.’s in 2003. It is interesting tospeculate on the extent to which the Confucian orientation that dominates inTaiwan may have more of an impact on behaviors versus power distance. It maybe that Taiwan’s Confucian orientation accounts for the leaders in our studyhaving a direct affect on generating incremental innovation and processinnovation. Given the importance of hierarchy and respect for elders in theConfucian philosophy it may be that these leaders simply directed theirsubordinates to act on the customer feedback and market information that theyhad brought back into the organization. Given the Confucian orientation that isstill prevalent in Taiwan, it would not be unreasonable to assume that suchdirectives would be met with acceptance, unlike in more Western companieswhere such directive behavior would likely be seen as unpalatable.

This conclusion, however, is hard to reconcile with our finding thatorganizational culture mediates the relationship between leadership and radicalinnovation. How does the Confucian orientation allow for the generation ofradical innovation? Creating a culture that will in turn lead to innovation meansthat the leader is playing an indirect or “hands-off” role. This seemscontradictory to the notion of Confucian leaders as being controlling. Onepossible explanation is the highly competitive environment facing Taiwan thathas undoubtedly raised these leaders’ awareness of the need to generate radicalinnovation, and the consequent need to rely on experts in the organization tohelp make this happen. Thus, it may be that when it comes to radical innovation,these leaders recognize the need for specialized expertise that they simply do notpossess, thus “forcing” them to allow subordinates wide latitude in their search


16

and learning processes. In this sense, it appears that the Western orientation ofTaiwanese leaders comes to the fore.

Thus, our findings have implications for the actions that Taiwanesemanagers and perhaps non-Taiwanese managers as well, need to consider inorder to facilitate innovation ambidexterity. Firstly, our findings suggest thatleaders need to be sensitive to the type of innovation that they are trying topromote. But, they also need to be aware that while leadership can directlyinfluence incremental and internal process innovation, in order to promoteradical innovation leaders need to focus on creating a culture of innovation thatwill lead to the generation of radical innovations. Thus leaders need to be awareof the relative influence of leadership and organization culture on innovation.Effectively creating innovation ambidexterity is not simply a matter ofemploying leadership styles or creating an organization culture. Instead, it is amatter of knowing when to use one or the other in order to foster all types ofinnovation.

Clearly, there is a need for further study to investigate exactly how leadersactually promote innovative activities among their subordinates. While crosssectional research is useful, we need to add the more dynamic perspective thatreal-time case studies could provide. Because our sample focused onorganizations in Taiwan, generalizability of the results is limited. Thus, there isalso a need to replicate this study in Western organizations, as well as in non-Western, emerging economies in order to more systematically investigate howcultural heritage influences leadership behaviors and decision-making and theirimpact on innovation performance.

This study is limited as well as a consequence of our having investigatedonly a few dimensions of innovation performance, leadership, and organizationculture. Thus, we can provide only an incomplete picture of the role ofleadership and culture in affecting innovation. This calls for more research thatlooks at additional aspects of these variables. But, by taking a more fine grainedapproach to investigating the relationships among leadership, organizationculture and innovation our study has made clear the need for future research toinclude multiple dimensions of each of these variables in their investigations. Aswell, it makes clear the importance of examining each leadership styleseparately in order to understand each style’s effect on innovation performance,and each style’s interactions with other factors, including organization culture,as they influence innovation performance.


17

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Table 1 Sample ProfileCharacteristics Number Percent

50 employees and below 43 34.8%

51-500 employees 45 36.5%

501-1000 employees 6 4.8%

1001 and above … 23 19%

SBU size

Missing data 6 4.9%

Public owned 14 11.4%

Private owned 107 87%

Ownership

Missing data 2 1.6%

Consumer products 44 35.8%

Consumer services 24 19.5%Industrial products 47 38.2%

Business Product

Industrial services 5 4%Chemicals 5 4.1%

Pharmaceuticals 23 18.7%

Financial management 7 5.7%

Mechanical engineering 17 13.8%

Electronic engineering 55 44.7%

Industry3

Others 16 13.0%

Less than10 million 10 8.2%

10-99 million 12 9.8%

100-250 million 7 5.7%

251-499 million 5 4.1%

500-999 million 17 13.8%

1-4.9 billion 45 36.6%

5-9.9 billion 5 4.1%

10 billion & above 19 15.4%

Revenues

Missing data 3 2.4%

SBU average age (years) 16

N 125

Note: 1) missing data means no answer from respondent. 2) for revenue, the currency in Taiwan is new Taiwandollars. Conversion based on an exchange rate 1 US$ = 33 NTD.

Table 2. Construct Measurement and Confirmatory Factor Analyses by AMOS

3 Pharmaceuticals industry includes pharmaceuticals, health care and food industry. Mechanical engineeringindustry includes aerospace, car, and industrial equipments industry. Electronic engineering industry includeselectronics, entertainment and telecommunication industry. Others include non-durable goods, services,construction and so on.


25

Item Description SummaryFactor Loadings

Adaptive Leadership (Cronbach’sα= 0.90) The senior leaders of this SBU accept change in accordance with competitive

conditions.0.88

The senior leaders of this SBU are able to perceive variations in theenvironment in a timely manner.

0.82

The senior leaders of this SBU have the ability to understand relationshipsbetween our SBU and the environment.

0.82

Bounded Delegation Leadership (Cronbach’sα= 0.89) The senior leaders’ ideas make me re-think ideas which I had never questioned

before.0.76

The senior leaders of this SBU arouse my curiosity about new ways of doingthings.

0.75

The senior leaders of this SBU show me how to look at problems from newangles.

0.77

Model Fit Indexχ2 =295.76 (p=0.000),χ2 / DF= 5.58, CFI=0.88, NFI=0.86, RMSEA=0.1

Entrepreneurial Organizational Culture ((Cronbach’sα= 0.87) This SBU is a very entrepreneurial place. 0.78 This SBU encourages employees to take risks. 0.91 This SBU rewards those who take risk. 0.83Sharing Organizational Culture ((Cronbach’sα= 0.85) Knowledge is widely shared in this SBU. 0.81 This SBU emphasizes openness between people. 0.90 Mutual trust and respect are very important in this SBU. 0.80Model Fit Indexχ2 =89.37 (p=0.000),χ2 / DF= 4.70, CFI=0.94, NFI=0.92, RMSEA=0.1Internal Process Innovation Performance (Correlation Coefficient = 0.85) This SBU frequently implemented new internal processes in the last three

years.0.94

Compared to your major competitor, this SBU implemented more new internalprocess innovations

in the last three years

0.79

Incremental Product Innovation Performance (Correlation Coefficient = 0.94) This SBU frequently introduced incremental new products into new markets in

the last three years.0.95

Compared to your major competitor, this SBU introduced more incrementalnew products in the last three years.

0.93

Radical Product Innovation Performance (Correlation Coefficient = 0.91) This SBU frequently introduced radical new products into new markets in the

last three years.0.92

Compared to your major competitor, this SBU introduced more radical newproducts in the last three years.

0.91

Model Fit Indexχ2 =18.09 (p=0.006),χ2 / DF= 3.02, CFI=0.98, NFI=0.97, RMSEA=0.1

Remark: The measures of internal process innovation performance, incremental product innovation performanceand radical product performance are shown as correlation coefficients.

Table 3. Descriptive Statistics and Correlation Matrix


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Correlationa Mean Std.Dev.

1 2 3 4 5 6 7 8 91 - 7.75 4.15

2 .03 - 1117 3722.89

3 .01 -.10 - 5.14 .92

4 .14 -.09 .55** - 4.63 1.20

5 .14 -.20* .37** .40** - 4.16 1.31

6 -.00 -.28** .37** .36** .62** - 4.68 1.06

7 .05 -.12 .40** .25** .32** .37** - 4.44 1.36

8 -.01 -.12 .44** .30** .33** .36** .56** - 4.48 1.42

9 .15 .00 .28** .25** .42** .33** .51** .66** - 4.13 1.41

1= SBU industry, 2=SBU size, 3=adaptive leadership, 4=bounded delegation leadership, 5=entrepreneurialorientation organizational culture, 6=sharing organizational culture, 7=internal process innovation performance,8=incremental product performance, 9=radical product performanceaListwise deletion N=117** Correlation is significant at 0.01 level (2-tailed).

* Correlation is significant at 0.05 level (2-tailed)

Table 4 The Results of Multiple Regression Analysis of Internal Process,Incremental and Radical Product Innovation Performance on Leadership andOrganizational Culture

Internal ProcessInnovation

IncrementalProductInnovation

Radical ProductInnovation

Beta t p Beta t p Beta t pAdaptive Leadership .30 2.92 .00*** .33 3.21 .00*** .12 1.16 .25Bounded DelegationLeadership

-.02 -.20 .84 .02 .22 .83 .03 .29 .77

Organization Culture –Entrepreneurial orientation

.08 .71 .48 .09 .86 .39 .33 2.90 .00***

Organization Culture - Sharingorientation

.22 2.04 .04** .17 1.58 .12 .07 .59 .56

R .47 .49 .45R2 .22 .24 .20F 8.10 9.04 7.12p .000 .000 .000N 120 119 119Remarks * p< .1, ** p< .05, *** p< .01, **** p< .001, Listwise deletion

Table 5. The Results of Sobel Test of Mediated Effects of Internal Process,


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Incremental and Radical Product Innovation Performance on BoundedDelegation Leadership and Organization Culture

M1 M2 M3 M4 M5 M6

Beta p Beta p Beta p Beta p Beta p Beta P

IPS-BDL .25 .01

EOC-BDL .40 .00

IPS-EOC,BDL .15 .12

IPS-BDL,EOC .26 .01

IPT-BDL .30 .00

EOC-BDL .40 .00

IPT-EOC,BDL .20 .04

IPT-BDL,EOC .26 .01

RPT-BDL .25 .01

EOC-BDL .40 .00

RPT-EOC,BDL .10 .30

RPT-BDL,EOC .39 .00

IPS-BDL .25 .01

SOC-BDL .36 .00

IPS-SOC,BDL .14 .13

IPS-BDL,SOC .32 .00

IPT-BDL .30 .00

SOC-BDL .36 .00

IPT-SOC,BDL .20 .03

IPT-BDL,SOC .29 .00

RPT-BDL .25 .01

SOC-BDL .36 .00

RPT-SOC,BDL .15 .11

RPT-BDL,SOC .27 .00

Sobel Test .02 .02 .00 .01 .01 .02

Independent Variable=BDL, Mediator=EOC and SOC, Dependent Variables=IPS, IPT, RPT.M1=(BDL, EOC, IPS), M2=(BDL, EOC, IPT), M3=(BDL, EOC, RPT), M4=(BDL, SOC, IPS), M5=(BDL, SOC, IPT),M6=(BDL, SOC, RPT).BDL = bounded delegation leadership, EOC = entrepreneurial orientation organizational culture, SOC = sharingorganizational culture, IPS = internal process innovation, IPT = incremental product innovation, RPT = radical productinnovation*P<.1, **P<.05, ***P<.01, ****P<.005

investigating the role of leadership and organizational

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