Does Technical Complexity Moderate the Relationship between Organization Structure & Firm-level Innovation?

AuthorSahay, Yamini Prakash


The idea that there is a best structure or design for innovations is no more acceptable. Researchers do not seem to converge on a best one. Of late there has been less focus on what promotes innovation in manufacturing organizations, as services seem to dominate the interests of corporates, researchers and academia alike. The current study specifically focuses on what promotes innovation in the manufacturing industry. Many researches talk about how strategy or leadership or organizational support promotes innovations. However, very few researchers have expressed interest in how an organization's structure impacts innovation. Innovation not only includes development of new products and services, but also new operating practices, managerial tactics and even business strategies. It may not always be a process of creating, rather a process of building, improving and adapting (Youtie, Shapira, Slanina, Wang & Zhang, 2005). Therefore, organization structure is the most important factor inside an organization which has direct impact on innovations. Popular research has also not focused on whether structure's impact on innovation varies from one organization to another due to differences in technology, work processes etc. To be more specific, why a particular structural factor influences innovation in different ways across different industries? It is these gaps that the current research attempts to address.

Objectives of the Study:

* To study the relationship between components of organization structure and innovation.

* To study whether this relationship is moderated by technical complexity.

* To compare structure--innovation relationship across two manufacturing sectors.

Literature Review

Centralization & Innovation: Kanter (2004) also found innovative organizations to be decentralized. McNulty and Ferlie (2004) posit that innovations increasingly require decentralization today. Findings of Khandwalla and Mehta (2004) indicate that extensive decentralization helped innovations. Decentraliza tion improves democratic decision-making, fosters responsiveness among employees, and enhances the ability of lower levels to influence management (Samaratunge, 2003) hence, facilitating innovations. Lee, Min, and Lee (2016) analyzed the effect of organization structure on innovation and found that decentralization fosters innovation, and a decentralized decision-making system promotes open innovation. Darvishmotevali (2019) found that decentralization promotes innovation in employees by inspiring creativity, initiative and risk-taking in them as a result of freedom for decisionmaking. On the basis of above researches the following hypothes is were generated.

Hypothesis 1: Centralization has negative relationship with perceived innovation.

Hypothesis 2: Concentration of authority has negative relationship with perceived innovation.

Centralization has been conceptualized as a combined measure of concentration of authority and participation-indecision-making.

Participation in Decision Making & Innovation: High levels of participation in decision-making leads to innovations even in the case of minority dissent (West & De Dreu, 2002). Khandwalla and Mehta (2004) found that decisions in innovative-organic structures emerged through participation of those involved in and affected by the decision directly. A study by Zubair, Bashir, Abrar & Baig (2015) concluded that participation in decision-making had a positive relation ship with employee creativity and also positive climate for creativity and change. On the basis of above, literature the following hypothesis was generated.

Hypothesis 3: Participation-in-decisionmaking has positive relationship with perceived innovation.

Formalization & Innovation: Use of formalization settles ambiguity and uncertainty. Greater autonomy and flexibility at implementation stage might be harmful for innovations according to Drach-Zahany, Somech, Granot and Spitzer (2004). Wijnberg, Ende and Wit (2002) report that formalization increases the accountability of decision makers towards each other and towards the organization as a whole. Some studies also concluded that formalization had a negative impact on innovation. However, their argument cannot be accepted without question as formalization may assist a different form of innovation (Kalay & Lynn, 2016). In their study they found that formalization has positive effects on administrative innovations, technological product innovations. On the basis of the above researches the following hypothesis was generated.

Hypothesis 4: Formalization has positive relationship with perceived innovation.

Technical Complexity & Innovation: Technical complexity led to rapid innovation according to Kash and Rycroft (2004). High level of job complexity in technically complex organizations provides plenty of opportunities for innovation. Sharma (2000) found that a high technical complexity was the key driver of innovations in the chemical industry. Vedamanickam (2001) found positive correlation between technical complexity and innovation. The Pharmaceutical sector according to Quere (2003) was characterized by constant transitions from maturing technology to radically new technologies. He says major technological breakthroughs of the 20th century have come from incorporation of in-house R&D capabilities (from fermentation to organic chemistry) in pharmaceutical firms. Ramirez and Tylecote (2004) found that pharmaceutical companies compared to others are characterized by high number of innovations. Their success strongly depends on their ability to launch new products on a regular basis. On the basis of above findings, the following moderating hypotheses were generated:

Hypothesis 5: Technical complexity moderates the relationship between formalization and perceived innovation.

Hypothesis 6: Technical complexity moderates the relationship between centralization and perceived innovation.

Hypothesis 7: Technical complexity moderates the relationship between participation in decision making and perceived innovation.

In a study of 339 organizations, Bart (2004) measured firm-level innovation by asking respondents to indicate: How innovative they perceived their organizations to be (using a 10-point scale). How important innovation was to their organizations (using a 10-point scale).

Perceived innovation that the present study measures is similar to Bart's (2004) measure of firm-level innovation. The variable measures employee perceptions of how innovative they consider their organization, the extent to which activities and processes in their organization encourage and promote innovations.

Literature studying perceived innovation is either not available or might be rare. Hence, it may be considered as a new concept, a contribution of the current study. In the present study perceived innovation has been included as a measure of innovation, the other measure being perceived number of innovations.

Research Methodology

Organization Structure: The independent variables are centralization, concentration of authority, participation in...

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