The impact of Corporate Culture on the Absorptive Capacity and Innovative Capacity of Companies
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The paper highlights the role of corporate culture as a concept that has a significant influence on the absorptive capacity and also on the innovative capacity of enterprises. The absorptive capacity is presented as a system that makes a work of observation, identification, collection and use of information and knowledge from abroad, which is considered essential to achieving and sustaining competitive advantage. The research performed shows how the different components of absorptive capacity, found in the literature are significant configuring the capacity as a latent variable with economic sense. Furthermore, regarding the sample studied, corporate culture has a significant influence on the innovative capacity. The model explains the influence of culture in the innovative capacity, and in the two components of it, incremental and radical innovation. The investigation has found also some interactions not included in the model proposed, as for example the relationship between the recognition as the part of the absorptive capacity component more related with radical innovation.
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The impact of Corporate Culture on the Absorptive Capacity and Innovative Capacity of Companies
- 1. The impact of Corporate Culture on the Absorptive Capacity and Innovative Capacity of Companies Enric Serradell-Lopez, UOC Carlos Grau-Algueró, UB International Journal of Manpower Track
- 2. Index Theoretical discussion: Culture, Absorptive Capacity, Innovation Main hypotheses Methodology: Sample, variables, model planned Main results and discussion Motivations for publishing
- 3. Contributions to scientific literature Verifying the influence of corporate culture on companies' absorptive and innovative capacity. Verifying the relationship of the different components of absorptive capacity with companies' innovative capacity. Offer a prescriptive contribution to company managers
- 4. Corporate culture Special characteristics of culture in organizations. Is culture a valuable resource ? Teece et al. (1997), Hall (1993), Grant (2004) Culture is the only dimension which is universally applicable to all organizations, (Chatman and Cha, 2002)
- 5. Corporate Culture Grant (2004: 189): “... the ability of employees to harmonise their efforts and integrate their different skills depends not only on their personal abilities but also the organisational context.
- 6. Culture and Absorptive Capacity The absorptive capacity construct refers to the ability of a company to identify, assimilate and exploit knowledge that comes from external sources. (Cohen and Levinthal, 1990) Common rules (Lane and Lubatkin, 1998)
- 7. Culture and Innovative Capacity Kotter and Heskett (1992): Strong culture and superior performance Schein (1998): Leadership Laforet (2008): Open culture O’Reagan et al (2006): Strategic planning Barney (1986): Central values
- 8. Dimensions of Absorptive Capacity and Innovation • Based on th studies of Cohen and Levinthal (1990) • Based on the research by Zahra and George (2002)
- 10. Main hypothesis H 1: Corporate culture is positively related to companies' absorptive capacity H 2: Corporate culture is positively related to companie’s innovative capacity H 3: Some dimensions of absorptive capacity are positively related to innovative capacity
- 11. Index Theoretical discussion: Culture, Absorptive Capacity, Innovation Main hypotheses Methodology: Sample, variables, statistical analysis Main results and discussion Motivations for publishing
- 12. Methodology Exploratory study: 53 large spanish companies • Number of employees: more than 250 employees • Sales: more than 50 M.E • Assets: more than 43 M.E. Structural equations model
- 16. Incremental Innovative Capacity Small modifications/improvements are made Innovations are introduced which strengthen the current products/service lines Innovations are introduced which increase the company's capacity to compete Radical innovative capacity Innovations are introduced which make the current product/service lines obsolete Innovations are regularly introduced which make the products/services offered by competitors obsolete
- 17. Corporate Culture Control, coordination and responsibility Collaboration Trust Motivation Work orientation Adaptation of person/company Creativity and propensity for innovation Commitment and organisational climate 26 items
- 19. Analysis method Structural Equations Model Statistical conditions acomplished Bootstrapping methodology
- 20. Index Theoretical discussion: Culture, Absorptive Capacity, Innovation Main hypotheses. Model planned Methodology: Sample, variables, statistical analysis Main results and discussion Motivations for publishing
- 22. Conclusions/Originality /Value Effects of culture on Absorptive Capacity Significant dimensions of Absorptive Capacity Effects of culture on Innovative Capacity Effects of absorptive capacity on innovation
- 23. Motivations for publishing Corporate culture deconstruction: implications for managers and publishing
- 24. The impact of Corporate Culture on the Absorptive Capacity and Innovative Capacity of Companies Enric Serradell-Lopez, UOC Carlos Grau-Algueró, UB International Journal of Manpower Track
Editor's Notes
- First of all, I'd like to thank you all for coming here today. My name is Enric Serradell and I am professor at the Economic and Business Studies of the Open University of Catalonia. I would like to present an study made with my coleague Dr. Carles Grau, professor of the University of Barcelona. The title of the article is: The impact of Corporate Culture on the Absorptive Capacity and Innovative Capacity of Companies The purpose of this study is to make a contribution on the knowledge of impact of corporate culture in some business capacities.
- I'd briefly like to take you through today's presentation: First, we're going to examine the theoretical discussion about relationships between corporate culture, absorptive capacity and innovative capacity. Once we've identified our challenges we will be able to propose the main hypotheses and the theoretical model that under our point of view represents all the relationships proposed. After that, we'll outline the main results obtained, and finally, some aspects to discuss. At the end, some motivations to consider this article to be published in International Journal of Manpower. I'd like to ask you to keep any questions you may have for the end of the presentation
- Our intention is to make the next contributions to scientific literature First of all, verifying… Secondly, verifying… And finally, we don’t want to forget what we consider one of the most important objectives of every scientifical study as is offer a prescriptive contribution to managers
- In recent years, academics and company managers have become increasingly interested in corporate culture. It has really become one of the most widely-developed fields of research in recent years. From the resource-based theory many authors have studied the culture as valuable resource, mainly authors as Teece, Hall and Grant, just for quoting some of them. Also, Culture is the only dimension which is universally applicable to all organizations, irrespective of their size, sector or age (Chatman and Cha, 2002) Despite all this, its special characteristics and intangible nature make it difficult to observe and study. In an attempt to fill this gap , we propose an analysis of corporate culture which will allow a closer look at this field. We intend to show how corporate culture allows the development of other business capacities. In the context of PhDissertation , luckily presented , we have studied the overall efect of corporate culture applied to large spanish companies.
- I’d like to review the link between corporate culture and human resources. As authors as Grant noted: …. The way in which this organisational context affects internal collaboration is determined by a key intangible resource: the culture of the organisation.
- Regarding the relationship between Culture and other capacities we have the special case of absorptive capacity. From the seminal definition of Cohen and Levinthal the absorptive capacity of an organisation would be the sum of the different absorptive capacities of each of the members, areas or departments, in practice we find that this is not exactly the case, as it not only depends on the capacities of its members, but also on how those members relate to each other. On this point, the importance of a corporate culture which encourages such relationships should therefore be stressed. Some authors, such Lane and Lubatkin (1998) also considered that the absorptive capacity would be higher when there are common rules or values; in short, a shared culture.
- Regarding the relationships between culture and innovation. These connections have been studied by a wide range of authors: Kotter and Heskett's pioneering study (1992) linked a strong culture to the superior performance of companies. Other authors as Schein stressed the importance of organizational culture, leadership and good performance. In more recent studies Laforet (2008) used the concept of partially open culture as a hindrance to innovation, and O'Regan et al. (2006) considered that culture, along with leadership and strategic planning, make a decisive contribution to innovation. We can’t forget Barney’s work than in 1986 showed how companies which are close to their clients are normally obsessed with customer service and satisfaction. This obsession, as Barney mentioned, reflects the central values of an organisational culture, as the cornerstone around which learning, risk acceptance and innovation are developed (DeLong and Fahey, 2000). Xenikou and Furham (1996), as well as Chow (2003), also studied how culture is closely linked to innovation.
- On the basis of the dimensions of Absorptive Capacity proposed by Cohen and Levinthal in 1990 and Zahra and George (2002). We suggest testing which dimensions are most closely linked to incremental and radical innovative capacity. These dimensions has been used later in an aggregate form to build Absorptive Capacity Construct.
- The 5 dimensions proposed are the following: Access: Access to the sources of information necessary in order to compete Recognition: Use of active strategies to search for information relevant to the company Assimilation: Exist an appropriate information collection system and the information obtained from external sources is stored Application: that corresponding to a systematic distribution of the information obtained among the management and the technical team Usefulness: The information processed is useful for making decisions On the basis of the above approach, we can formulate the following hypothesis...
- We will pass to the next point that is the methodology: sample information, variables construction and statistical analysis
- From the electronic survey undertaken, 53 full answers were received, representing a response rate of 17% All the companies meet the criteria for large company as defined by EEC regulations for two years: The regulations as you know are the next: Number of employees: more than 250 employees Volume of sales: more than 50 milion euros Volume of assets: more than 43 milion euros We have used a structural equations model that allow to represent graphically all the relationships and solve the full model proposed.
- In this table we can observe sample information The companies that answered the questionnaire as planned were extremely large and many of them trading in financial markets. Operating income exceed 5 hundred milion euros And the number of employees in average was higher than 2000 thousand employees.
- All the managers belonged to the top management team. The functional area of the managers mainly was commercial, finance and information systems with more than a 50% percent . The participation of top management team suggests that the responses are of great value and reliability.
- I would like to comment how are built the different variables Regarding Absorptive capacity is composed with eight items, based in Cohen and Levinthal work, and distributed in five dimensions as I explained before
- Regarding innovation, that in the model acts a dependent variable The indicator has been constructed by adapting the work of Subramaniam and Youndt (2005) using an aggregate variable based on 5 items. Three related with incremental innovation and two items related with radical innovation.
- Regarding corporate culture, This variable has been constructed by means of an additive scale and is based in 26 items. Has been based on research by Zahra et al., Xenikou and Furham, Detert et al., Holowetzki and Smith and McKeen among others. The link between all these dimensions is that according to the scientific literature are all related to the innovation- The 26 items are distributed in 8 dimensions. The dimensions included are…… Control,… Trust,… The Cronbach’s alpha for the construct is 0,911 that is quite good. Due to their nature, we consider these dimensions to be perfectly complementary and useful for the construction of the concept of culture.
- Let me show you a chart that summarizes the three hypotheses proposed. Hypothesis number 1 Hypothesis number 2 In fact and regarding to the third hypothesis we are interested to study which dimensions of absorptive capacity are more related with the incremental or radical innovative capacity. So we could name it as indirect effects of the dimensions of absorptive capacity over innovation. In fact, we take advantage of using Structural Equations model to identify some relationships in a exploratory system.
- All the conditions to aply Structural Equations Model were acomplished following Olobatuyi and Hair suggestions. The advantages offered by the use of this methodology include the fact that it allows represent graphically the relationships between variables and multiple hypotheses can be tested together and at the same time. The model has been tested using bootstrapping a nd Bollen-Stine methodology. The results allow not to reject the null hypothesis that is that the model is correct. So, the model as a whole is significant.
- Let me to pass to the next point
- As I said before,The model as a whole is significant All fit parameters have values close to one so the data fit well with the model proposed. The culture variable has significant values with regard to its relationship with the absorptive capacity and innovative capacity variables. Both relationships are shown to be significant and with the plus sign anticipated in the study hypothesis. It can therefore be concluded that hypotheses 1 and 2 are supported by the data presented. Also, The five proposed dimensions of absorptive capacity are shown as relevant and necessary for absorptive capacity construct The absorptive capacity does not have a direct and significant relationship with innovative capacity. On a preliminary level of analysis hypothesis number 3 could therefore be rejected. From the analysis of the indirect effects it can be deduced that absorptive capacity indirectly influences both types of innovation, incremental and radical.. The recognition dimension thus has a direct and significant influence on radical innovative capacity, whilst the usefulness dimension has a direct and significant effect on incremental innovative capacity. The proposed work hypothesis can therefore be partially accepted
- 1. Firstly, and as a central element of our research, culture is established as an element which has a direct and decisive effect on two particularly important business capacities: absorptive capacity and innovative capacity. The influence of culture on the creation and development of these capacities has been verified. More specifically, the effect of culture on absorptive capacity is important, direct and significant. 2. A detailed analysis of the effect of culture on the different dimensions of absorptive capacity allows us to emphasise the fact that culture has an indirect relationship with each and every one of them. The five proposed dimensions of absorptive capacity are shown to be necessary for the creation of absorption by the company. Furthermore, it has been shown that every dimension has different weightings on this relationship and it would be a challenge for future studies. 3. With regard to the effect of culture on innovative capacity, the existence of a positive and statistically significant relationship has been shown. From all of the above it can be concluded that the suggested dimensions of culture, or at least their combined effect, have beneficial effects on absorption and innovative capacity, and on the components of each one. 4. Particular attention has been paid to the relationship between absorptive capacity on innovation. On the whole, and in overall terms, absorptive capacity acts as a driver of innovative capacity, and although it hasn’t significant direct effects, it has some indirect effects. Also, and in line with the results set out above, these effects are higher in incremental than in radical innovation. We consider that these results have high value for future research
- Now and finishing, I would like to comment two aspects Deconstructing corporate culture allow us to use some of their dimensions in a prescriptive way and be useful for managers. Using eight dimensions of culture could be a system to manage effectively the change in organizations and stimulate a corporate culture for innovation. We believe that this study has contributed to a greater understanding of the research problem considered. We also consider that the relationships proposed between Absorptive Capacity , specially linking recognition with radical innovation and Usefulness with incremental innovation may be very interesting both for academics and managers in order to be considered for publishing.
- And, that’s all. Thank you very much for your attention.