Organization design & perceptions of innovation: implications for the Indian pharmaceutical sector.

AuthorSahay, Yamini Prakash

This study probes in to the relationship between organization structure and perceptions of innovation in the pharmaceutical sector of India. Structure includes formalization, centralization, concentration of authority and participation in decision making. Innovation is measured by perceived innovation, that is, the perception of innovation in the organization. Data was collected using questionnaires and interviews. Results were analyzed using both quantitative (statistical) and qualitative (content analysis) techniques. Positive relationship was found between participation in decision making and perceived innovation. Negative relationship was found between centralization and perceived innovation, and between concentration of authority and perceived innovation. No significant relationship was found between formalization and perceived innovation.


The word organization comes from Greek organon, which denotes 'coherent system or unit where independent parts work as one' (Arora, Belenzon & Rios, 2014). Structure not only shapes innovation but plays an active role in successful implementation. Therefore the distinguishing organizational characteristics of innovative firms are of interest to researchers (Souitaris, 2002; Subramanian & Nilakanta, 1996). The design and practice of organization can be optimized to provide a base for constant innovation (Moore, 2004). In order to remain competitive in the global business world, organizations may need to change their systems that are run like machines and where the top leaders decide everything important (Duin & Baer, 2010). Arora, Belenzon & Rios (2014) propose that firms pursuing innovations need a well-matched supporting structure for the purpose of innovations.

Broadly innovation not only includes development of new products and services, but also new operating practices, processes, managerial tactics and even business strategies. It may not always be a process of creating, rather a process of building, improving and adapting (Youtie, 2003). Subramanian and Nilakanta (1996) in their research found relationship between organizational characteristics and firm innovativeness. According to them innovativeness is a multidimensional construct. Organizational characteristics they studied were centralization, formalization and specialization. Truly innovative organizations, according to Subramanian (1996), are those that exhibit innovative behavior consistently over time. He proposes that an organization's strategic orientation reflects long-term or temporally enduring behaviors, innovativeness is also an enduring organizational trait.

An organization's structure can probably best be studied by using perceptual measures. Researchers like Reddy (cited in Pestonjee, 1997), Singh and Pestonjee (1988), among many others, have studied and measured organization structure as a perceptual/behavioral variable. The current study is an exploratory research, partly behavioral in nature. A fairly new variable, perceived innovation, has been introduced in this study. The objective is to study the relationship between components of organization structure and perceived innovation in the pharmaceutical industry of India.

Literature Review

Studies by Lewis, Welsh, Dehler and Green (2002) suggests that formalization discourages idea generation due to inflexibility that constrains creativity. Schultz and Schilling (1998), analyzed the impact of 'rule density' and found that the more solutions to problems are codified into rules, lower is the probability of discovering solutions that have not been explained by existing rules. Accumulation of too many rules in the organization can give rise to inflexibility and decreased opportunities for innovation, because rule-based activities consume more time and energy of employees. Shadur, Kienzle and Rodwell (1999) found that in bureaucratic organizations, formalized employee participation led to tension as employees seek greater flexibility for informal problem-solving. Formalized participation with its set of rules may hinder free flow of ideas for innovations. West (2000) emphasized that increased formalization and control constrains innovation. Khandwalla and Mehta (2004) found that improvisation was encouraged in innovative organizations and getting results was stressed over following rules and procedures. For Subramanian and Nilakanta (1996) too low formalization facilitates innovations.

Proposition 1: Formalization has negative relationship with perceived innovation.

Decentralization or low centralization according to Subramanian and Nilakanta (1996) facilitates innovativeness by encouraging new ideas as it promotes flexibility and openness in the organization. West (2000) found high centralization to be a negative predictor of innovations. In his study Vedamanickam (2001) found that decentralization was positively correlated with workplace innovativeness. Shavinina (2003) suggested that empowered multi-functional teams are more successful innovators. Kanter (2004) also found innovative organizations to be decentralized. McNulty and Ferlie (2004) posited that innovations increasingly require decentralization today. Findings of Khandwalla and Mehta (2004) indicate that extensive decentralization helped innovations. Hence, for Samaratunge (2003), decentralization facilitates innovation by improving democratic decision making, fostering responsiveness among employees, and enhancing the ability of junior management to influence senior management through empowered decision making. As for Stevenson (2012), centralized leadership promotes a mechanistic system, which is exhausted and no longer meets the needs of the growing complex systems today; as it assumes that only one or a few persons in an organization know everything, hence, can make the right decision. Schraagen, Veld and De Koning (2010) maintained that in response to the dynamic environment, decentralized, team-based organizations are increasingly being adopted which have distributed power structures. In one research on an Indian sample Singh, Kodvani and Agrawal (2012) found that empowerment has a motivational effect on employees and significantly improves their performance and effectiveness. On the basis of above researches the following propositions were generated:

Proposition 2: Centralization has negative relationship with perceived innovation.

Proposition 3: Concentration of authority has negative relationship with perceived innovation.

Participative in Decision Making

West (1990) defines "Participative Safety" as a sense in team members that they can participate in the decision making process and share ideas without fear. He considers it important for innovation because participation in decision making engenders participative safety in employees. Khandwalla (1995) found positive correlations between participation in decision making and innovation in an Indian sample. According to Strauss, Heller, Pusic and Wilpert (1998) participation fostered integration as they found that where there was high level of participation in decision-making there was greater information sharing and interaction within groups. These groups were more likely to work through difficulties associated with introduction of innovations and benefit from participation. Participative decision making for innovations is more effective in comprehensively solving an informational conflict. This increases not only the chances of success of innovations, but also the receptivity to future innovation. Khandwalla and Mehta (2004) found that decisions in innovative-organic structures emerged through participation of those employees who were involved in and affected directly by a decision. Nayar (2010) discussing the...

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