Role of Organization Design Determinants in Innovation Ability of Indian Startups.
| Author | Chaturvedi, Richa |
Introduction
A startup may develop from a small business started by few people with an innovative idea and expand to a huge multibillion-dollar business. This transition may lean towards growth and development of business or may lead to a hard landing as a result of business contraction or stagnation. Being small firms with limited resources, startups are more susceptible to such vagaries of a capricious and turbulent environment. Whilst, the sensitivity to comprehend the changing environment and re-defining the organizational strategy may be feasible for big businesses which have dedicated teams and resources to invest for studying and recommending changes. However, it is the smaller businesses, and startups, which may not be able to provide the requisite focus and attention towards the changing environmental parameters as a consequence of their limited resources (Van De Vrande et al, 2009; Dahlander & Gann, 2010; Chesbrough, 2011). However, smaller firms have the advantage of flexibility, organic structure, proximity to market, dynamism and motivation. Their leaders have to weave through these capabilities to create a formidable position in the market. In the absence of long-term sustainable advantage, startups have to keep innovating to create short-term wins to maintain a competitive edge. The founders of startups are extremely proficient in their areas of expertise; however, it is the capability to catalyze and manage the innovation process of the firm which shields it from deeply precarious situations and bolsters the innovation culture of their firm (Thom, 1990). This study essentially attempts to understand the elements of organization design and their association with innovation in startups in order to help them adapt to the changing organizational environment for ensuring their sustenance and longevity in the turbulent business environment. Though there cannot be templated solutions for the problems, however certain guidelines can be extracted from this research.
Organization design is a deliberate process of configuring strategy, structure, people, processes and reward systems to create an effective organization capable of achieving the business strategy (Galbraith, 2014). Startups, being small organizations in nascent stage can consciously design their organization in a manner that bind various elements of organization design to help them achieve competitive edge over their competitors. Various organization scientists have highlighted a myriad of factors involved in organization design which have helped organizations in achieving innovational efficiency. Service and Boockholdt (1998), after reviewing around 500 journals, identified eight broad factors that affect innovativeness. These were: management style, structure of organization, organization of human resources, key innovation promoters, culture and work climate and marketing and customer response system. In other prominent studies management support, customer market focus and a high level of internal and external communication, human resource strategies, flexible structure and flexible posture were considered important determinants of organizational innovation (Read, 2000; Baligh et. al. 1996). Damanpour (1991) asserted in his metaanalysis of the relationship between organizational innovation and its potential determinants that specialization, functional differentiation, managerial attitude towards change, internal and external communication, and professionalism are the factors which have significant relationship with innovation in the firm. Based on the literature, this study has adapted the model of Khandwalla and Mehta (2004) to explain the factors affecting innovation in a firm, which are: innovation supportive strategic management, top management style, innovation supportive organization structure, practices and culture and effective management of innovation. However, Khandwalla's study was based on large organizations whereas this paper focuses on startups, thus the variables included among the factors were moderated to explain a similar concept for startups.
Government definition of a startup is an entity incorporated or registered in India, which is not more than 7 years old, with an annual turnover not exceeding Rs.25 crores in any preceding financial year, working towards innovation development, deployment or commercialization of new products and processes or services driven by technology or intellectual property. However, this definition is only applicable for government enlisted startups.
For this study the researcher considered startups as companies which are younger than 10 years and which have an innovative technology or business model and have to strive for significant employee and/or sales growth (Kollmann, 2016). Startups which were at least two years old were included in the study because most of the startups fail within two years of their life (Giardino, 2014), size of the firms included in sample ranged from six to 350 employees.
Literature Review & Hypotheses
A startup company is an entrepreneurial venture which is typically a newly emerged business that aims to meet a market place need by developing a viable business model. However, the entrepreneurial firms are faced by rapidly changing and fast paced competitive environments which make enormous demands on organizations to actively interpret opportunities and threats when making key strategic decisions. An entrepreneurial strategy making process referred to as 'entrepreneurial posture' by Covin and Slevin (1989) and 'entrepreneurial orientation' by Lumpkin & Dess (1996) exists in a firm that engages in product market innovations. Startup firms are characterized as opportunity seeking and risk-taking firms led by strong leaders taking decisive actions. These firms go out of their way to assess the needs and wants of customers on a continuing basis (Manohar & Pandit, 2014). As per Wiklund and Shephard (2003), market knowledge can increase firm's ability to discover and exploit opportunities. It has also been asserted that customer familiarity and knowledge of ways to serve the market can increase the longevity and growth of the firm (Shane, 2000; Hippel, 1998). Porter's (1980) differentiation strategy which emphasizes on attempts to offer a product that is perceived industry-wise as unique is the strategy which drives the firm towards innovation. Miles and Snow's (1978) competitive strategy maintained that prospectors are the organizations which almost continuously search for production/market opportunities and they regularly experiment with potential responses to emerging trends. Five scales were developed based on the literature of strategy adopted by innovation driven entrepreneurial firms in their nascent stage. Strategic orientation was the first factor which was developed after aggregation of five scales. This leads to the first hypothesis:
Hypothesis 1: Strategic orientation of the startup has significant association with the innovation ability of the startup.
The second construct of this study focuses on the innovation supportive top management style. As per Khandwalla (1976), the beliefs and philosophy of an organization key decision maker i.e. top management, concerning the management of organization is of strategic importance. He also emphasized that the most suited management style for organizations functioning in dynamic environments seeking creativity is entrepreneurial style, which is...
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