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Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142105107EDITORIALEDITORIALCREATIVITY AND INNOVATION MANAGEMENT

EDITORIAL

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Editorial

T

he role of HRM in innovation is the topic of this second issue of 2005 guest-edited by Jan Kees Looise (University of Twente) and Fred Huijgen (Radboud University Nijmegen). In most contributions on innovation management HRM issues play an important role. Examples of these are publications on topics like building high-performing engineering teams, developing a skilful and creative workforce, motivating your R&D staff, managing creative professionals and so on. However, until now, a systematic overview of the contribution of HRM to innovation has been lacking. This special issue contributes to such an overview. Four of the papers in this issue originate from the third international conference of the Dutch HRM Network, held at the University of Twente in The Netherlands in November 2003, under the title ‘Innovating HRM?’ and one comes from a previous conference in the same network. Among other topics, streams within the last conference were devoted to ‘Organizational innovation and HRM’ and ‘Technical innovation and HRM’. The two guest editors acted as convenors of these streams. The conference papers are complemented with three other papers on related subjects. Based on an extensive literature review, Jan de Leede and Jan Kees Looise present an overview of the existing approaches to innovation and HRM and of their mutual interests. Based on this, they try to develop an integrated framework regarding innovation and HRM in which two levels of integration are distinguished. The first level is the level of the organization as a whole, aiming at innovation as a strategic choice (the development of an innovative organisation) with the help of a deliberate HRM-strategy (or HRM innovation). The second level is the level of specific innovation stages (or activities or projects) in combination with specific HRM-practices to realize these stages. In their concluding section, De Leede and Looise propose further research into both of the levels of integration and to the interaction of both levels. The second contribution, by Helen Shipton, Doris Fay, Michael West, Malcom Patterson and Kamal Birdi, can be closely related to the model and research questions presented by de Leede and Looise. The paper contains the © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

results of a longitudinal research in thirty-five UK manufacturing firms to the effects of what they call sophisticated HRM systems on innovation in products, production technology and production processes. It is an example of research on the first level of the model. The HRM systems incorporate sophisticated (‘innovative’) approaches to recruitment and selection, performance management, induction and training. In addition to these ‘systems’, they distinguish learning climate and appraisal linked to remuneration as separate factors. The findings show that innovation in products in particular is enhanced by sophisticated HRM systems and a sophisticated learning climate, but is inhibited by appraisal linked to remuneration. Given the fact that these findings are based on a longitudinal research – the HRM systems were measured on time 1 and the innovation outcomes on time 2 – the results of the study (despite the rather small sample size) are very convincing. Another interesting idea from the paper is to link HRM systems and practices to the stages of the organizational learning cycle, like the creation, transfer and implementation of knowledge. This could form a third intermediary level connecting the overall organizational level and the level of the specific innovation phases or activities. The next two contributions are also in line with the first level of the De Leede and Looise model, but focus particularly on the connection between HRM policies and innovative work behaviour (IWB). In their paper, Luc Dorenbosch, Marloes van Engen and Marinus Verhagen look at the relationship between flexible job design and commitment-oriented HR activities and IWB. Flexible job design, or functional flexibility, is measured via the concepts of multifunctionality and redundancy, and production ownership is used as an intermediate variable. The research was executed using 450 administrative non-managerial employees of a large Dutch local government organization. The findings show a positive relationship between production ownership and IWB, and between functional flexibility (especially multifunctionality) and production ownership. Another finding is that IWB is also stimulated by commitment-oriented HRM practices, and that this relation is partly

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mediated by production ownership. Taken together, the research contributes to the understanding of determinants and mechanisms within both the job design and organizational context that facilitate IWB through production ownership. Nagarajan Ramamoorthy, Patrick Flood, Tracy Slattery and Ron Sardessai also deal with the connection between IWB and a number of factors like job design, psychological contracts and organizational justice. They developed an integrated model that was tested via a survey conducted with 204 blue-collar employees from Irish manufacturing organizations. Notwithstanding the difference in population – blue-collar workers compared to administrative employees – they come to mainly the same conclusions as the previous paper. The psychological contract variables obligation to innovate and job autonomy are important predictors for IWB, in this case also along with pay. Another finding is that while perceptions of equity, meritocracy and procedural justice did not affect IWB directly, they influence IWB through the mediating variables “met expectations” and “obligation to innovate”. The fifth and sixth contributions are more related to the connection of HRM with specific innovation stages, the second level of the HRM-innovation model. Bram Steijn and Kea Tijdens look at the connection between an organization’s HRM policy and its ICT implementation strategy, and at the connection between this strategy and the willingness of the workforce to acquire new ICT competences. With respect to the ICT implementation strategies, they follow the distinction made by Zuboff in an automated or control strategy and an information or commitment strategy. For HRM policy, they use four HRM practices that can be seen as representatives of high-performance work systems (HPWS). The research was executed on a representative sample of Dutch employees via a computerised telepanel. The findings show an association between certain HRM practices (especially worker involvement in decisionmaking and more support for performance) and an information-oriented implementation strategy. Another result is a positive – though rather weak – effect of both an informationoriented implementation strategy and certain HRM practices on the willingness to acquire new ICT competences. Tanya Bondarouk and Jan Kees Looise also deal with the question of how HRM (practices) can contribute to IT innovation implementation. The theoretical and empirical literature on IT-innovation seems to lack conceptual and practical support for the role of HRM (professionals). Based on a literature review of HRM literature on IT

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practices and IT literature on HRM practices, the authors develop a list of possible HRM practices that may be important for IT implementation. A test of this list in three extensive case studies reveals that, inspite of the fact that such a use could contribute considerably to the speed and success of the IT implementation, in all cases these practices were hardly used. The main explanation for this must be sought in the large distance between IT implementors and HRM professionals. This brings the authors to a plea for a more active involvement of HRM professionals in IT innovation projects. In his conceptual and discursive contribution, Nigel Bassett-Jones discusses the paradox of diversity management in connection with creativity and innovation. Both high-commitment (HR-)management and organizational diversity seem to foster creativity and innovation, but how can they be combined? High-commitment organizations support the creation and maintenance of an internal labour market and a high-level skills base, while diversity management refers to the regular inflow of new employees with diverse backgrounds and abilities. Given the growing diversity on the labour market, organizations have to learn to deal with this paradox in their future HRM policies. Chee-Meng Yap, KahHin Chai and Patrick Lemaire also address the role of diversity in innovation, and deal with the effect of functional diversity among managerial teams (or as they call it, human resource management at senior level) on innovation in SMEs. Given the fact that management teams in SMEs are limited in size, they not only look at function diversity between different persons, but also within a single person’s functions (intrapersonal function diversity). Based on a survey of 50 SMEs in Singapore, the authors come to the conclusion that intrapersonal function diversity has a positive impact on innovation, but that this impact is reduced for bigger firms. Another finding is that dominant function diversity has a negative effect on innovation in firms that are growing. The last paper is a report by Pier Abetti on the evolution of Steria, from a French venture to a European IT company. Specific features of this case study are the role of employee ownership and the entrepreneurial vision and spirit of the two successive entrepreneurs and leaders. At the very end of this rich and full issue, you may find a total of three adverts, two calls for specials and an announcement of the 15th European Doctoral Summerschool in Technology Management. The special on the topic of Creative Industries is an initiative from Silviya Svejenova, Jesper Strandgaard and

© Blackwell Publishing Ltd, 2005

EDITORIAL

Candy Jones based on their EGOS sessions. The Leadership call (guest-editors Gian Casimir and Tudor Rickards) was inspired by Tudor Rickards and Susan Moger’s review of Creative Leadership issues addressed in the journal throughout all volumes, presented at the First Creativity and Innovation Management Community meeting hosted in Oxford by Blackwells in March 2005. Please visit our website for an update on this most successful event. The Summerschool, organised under the auspices of EIASMs EDEN programme is of particular interest for PhD students. The


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Journal contributes one scholarship to this event which will be held in Vaasa, Finland, 11– 18 August 2005. All together this issue is an extensive one, to which to our regret no book reviews could be added. We will make this up in our September issue which will include a section of six articles brought together by Bart Van Looy of KU Leuven under the theme of Organising for Innovation in Established Firms. We wish you a very pleasant reading. Jan Kees Looise, Fred Huijgen and Olaf Fisscher

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Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142108117ARTICLESINNOVATION AND HRMCREATIVITY AND INNOVATION MANAGEMENT

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Innovation and HRM: Towards an Integrated Framework Jan de Leede and Jan Kees Looise This paper explores the connection between innovation (management) and human resource management. Much has been written about the both concepts separately, but there is no integrated conceptual framework available for the combination of the two. Our goal here is to develop such a framework. We do this in a number of steps, starting with a presentation of the existing approaches and models with respect to innovation (management) and HRM. This is followed by a search for the linkage between the two traditions, as a starting point for an integrated model and an in-depth case study regarding the link between innovation and HRM, in order to further develop our model. We conclude with the presentation of our model and with suggestions for further research.

Introduction

A

t first sight, innovation and human resource management (HRM) seem to be closely connected. In most literature on innovation and its management, there is considerable attention given to HRM issues, such as the development of a skilful and creative workforce, building high performance engineering teams, the management of creative professionals, the role of diversity in innovation, leadership roles in innovation processes, dual ladders in R&D and rewards for technical employees (see Angle, 2000; Bolwijn & Kumpe, 1996; den Hertog et al., 1991; Katz, 1997; Tidd, Bessant & Pavitt, 1997). Until recently, less attention was given to innovation in HRM literature, but the interest now seems to be growing fast. Except for the early recognition within ‘strategic’ HRM of the need for an HR policy related to innovation as a company strategy (see Miles & Snow, 1984; Schuler & Jackson, 1987), there was not that much interest in translating this policy into specific HR practices or in the ‘innovation-related’ outcomes of these policies. Only very recently has the interest in the HRM literature on innovationrelated practices and outcomes been seen to be growing (Boxall & Purcell, 2003; Looise & van Riemsdijk, 2004). Although much has been written about innovation and HRM separately, and about the role of HRM in innovation and the impor-

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tance of innovation for HRM respectively, so far there is integrated framework bringing the two subjects together. Thus, the most important thing we are trying to do here is to develop such an integrated framework. We will do this by starting with a presentation of the existing approaches and models with respect to innovation (management) and HRM in the second and third sections. The fourth section searches for the linkage between the two traditions, as a starting point for an integrated model. In the fifth, we present an indepth case study regarding the link between innovation and HRM, in order to further develop our model. We conclude with the presentation of our model, and with suggestions for further research. In several parts of this article, we draw on an earlier overview of the literature on the role of HRM policies and practices in innovation (de Leede, Looise & de Weerd-Nederhof, 1999).

Approaches to innovation Innovations can be defined in various ways. Schumpeter (1934) had already defined innovations as being at the heart of the entrepreneurial role: the creation of a linkage between new ideas and markets. In our contribution, we define an innovation as ‘a deliberate and radical change in existing products, processes or the organization in order to achieve a competitive advantage over competitors’ (see also © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

INNOVATION AND HRM

de Leede, 1997). Crucial aspects of innovation are seen as: • the introduction of something new, at least for the existing organization, in terms of new products or services, new technology or new forms of organization; • having a process aspect, this means that there are activities/stages such as goal formulation, design and organization, implementation and monitoring; • a development with somewhat radical leaps (discontinuities), although many authors also speak of incremental innovation (or continuous innovation); • the intention to gain advantages for the organization. With respect to the domains, or types, of innovation distinctions can be made among different innovation domains. Some authors, such as Damanpour and Evan (1984), make a distinction between two types of innovation, namely technological and administrative innovations. Technological innovations contain both product or process innovation alongside adminstrative and organizational innovations. Tidd, Bessant and Pavitt (1997) make distinctions among product, service and process innovations. Others, like Boer and During (2001), specify three types, namely: • product innovations: the development of new products and/or services; • process innovations: the introduction of new production or service technologies; • organizational innovations: the creation of new organizational forms and/or management practices. In our contribution, all such types of innovation will be included, although the main focus will be on the relationships between HRM and technical innovation (product/service and process innovation). As innovations have a dynamic character, they are generally described in terms of change processes. Rothwell (1992) provided a historical sketch of the development of the thinking about these processes. In early literature on innovations, these processes were seen as simple linear models with a number of sequential steps based on need pull and/or technology push. Later, the models became more complex and interactive, with more elements, feedback loops, parallel developments, upstream and downstream linkages, extensive networking. Well-known examples of the older approaches include Schumpeter (1934), with his three stages of invention-innovationdiffusion; and Zaltman, Duncan and Holbek (1973), who defined phases such as ‘initiative’ (in which there are sub-phases including


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knowledge and consciousness-raising, attitude forming and decision-making) and ‘implementation’ (with initial and ongoing implementation as sub-phases). Another example is Rogers (1983) who also had a major distinction between ‘initiation’ and ‘implementation’ with sub-phases such as ‘agenda-setting’, ‘matching’, ‘redefining/ restructuring’, ‘clarifying’ and ‘routinising’. Examples of more modern approaches can be found in Kanter (1983) with ‘the generation, acceptance and implementation of new ideas, processes, products or services’; and with During (1984) with ‘problem solving, internal diffusion and organisational adaptation’, in which ‘problem solving’ is seen as a cycle of four phases comprising (1) the creativity stage, (2) the selection stage, (3) the design stage and (4) the application stage. Utterback (1994) also describes the dynamics of innovation by modelling the relationships between product and process innovations. In this article, we draw on the model by Tidd, Bessant and Pavitt (1997), although we are aware of the fact that this might lay up open to the charge of not using the latest approaches to innovation processes. However, Tidd, Bessant and Pavitt (1997) did combine phases such as signal processing, strategy, resourcing and implementation (mediated by learning and reinnovation) with various activities during these phases (see Figure 1). We argue that this model provides a good starting-point for a comparison with HRM approaches.

Approaches towards HRM HRM can be defined as ‘all management decisions and activities that affect the nature of the relationship between the organisation and its employees – the human resources’ (Beer et al., 1984). It is common practice to distinguish a number of important areas of policies and practices within the broad field of HRM. Here we follow the breakdown used by Beer et al.: • the design of organizations and tasks (task technology, job content, job rotation, job enrichment, multi-tasking, group work, work quality, etc.); • the staffing of the organization by managing the in-, through- and outflow of personnel (recruitment, assessment and selection, introduction, career development, education and training, termination, outplacement, retirement, etc.); • the measurement of performance and the reward of employees (appraisal, job evaluation, pay for performance, bonuses, profit sharing, employee ownership, etc.);

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Phase Activities

Signal processing

Strategy

Resourcing

Implementation

Scanning environment for technological, market, regulatory and other signals

Analysis, choice, plan

Procure solution(s) which realize strategic decisions

Develop to maturity

Collect and filter signals from background noise Scan forward in time Process signals into relevant information for decision-making

Assess signals in terms of possibilities for action

Invent in-house through R&D activities

Link with overall business strategy

Use from existing R&D

Link with core knowledge base

Acquire via external R&D contract

Assess costs and benefits of different options

License or buy-in Technology transfer

Agree and commit resources

Parallel technical development and market development. For product development this is the external customer market; for process development this is the internal user market. Both require ‘change management’. Launch and commission After-sales support

Learning and re-innovation

Figure 1. Routines Underlying the Process of Innovation Management Source: Tidd, Bessant and Pavitt, 1997, p. 41.

• the channels for communication and participation in work and decision-making (information and communication, leadership, participation, etc.). All these areas can be further refined into specific policies and practices. For our purposes, however, these broad categories will suffice. Since the beginning of the 1980s, there has been an increasing awareness of the importance of linking HRM with business management, including business performance. Regarding the linkage between organization strategy and HRM, three approaches, or ‘schools’, have been developed (Boxall & Purcell, 2003): • the contingency or ‘best fit’ approach; • the best practice approach; • the resource-based approach. The contingency or ‘best fit’ school includes a range of models that advocate fitting HR strategy to its surrounding context. Examples of these are the connecting of HRM strategies to three basic types of organizational strategies by Miles and Snow (1984), namely: defenders, prospectors and analysers. Other examples are the framework by Schuler and Jackson (1987), in which they link HR practices and outcomes with ‘generic firm strategies’ as defined by Porter (1980) and the recent more evolutionary

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‘best fit’ models. The best practice approach towards HRM can be seen as a reaction to failures by finding empirical evidence for a ‘best fit’ approach and one that stresses the universal importance of a number of HRM practices. The idea underpinning the best practice school is that a firm will see improvements in its performance if it identifies and implements best practices. A well-known example of this approach is by Pfeffer (1994, 1998), with his list of 16 practices (later condensed to seven) for gaining a ‘competitive advantage through people’ and ‘building profits by putting people first’. Another example of this approach is the so-called AMO (ability, motivation and opportunity) model by Boxall and Purcell (2003). The resource-based approach to HRM has been developed since the 1990s, and focuses on the discovery of an exclusive fit between the resources of a firm – human and non-human – and its objectives. Supporters of this school (such as Barney, 1991) are especially interested in conditions that make resources valuable and scarce, inimitable, nonsubstitutable and appropriable. In HRM, the resource-based view has mainly been ‘translated’ as the management of capabilities and (core) competencies. In the HRM approaches and related research over the last decade most of the emphasis has been given to the linkages between organizational strategy, strategic


INNOVATION AND HRM

Organisation strategy differentiation (innovation) focus (quality)

111

HRM practices

selection training appraisal reward job design involvement

cost (cost reduction)

HRM outcomes

motivation commitment cooperation involvement flexibility organizational citizenship turnover conflict

Organisation outcomes productivity quality profit return on investment customer satisfaction

Figure 2. Linking HRM and Performance Source: based on Guest, 1997.

HRM and organizational performance. A good example of this can be found in the much used ‘boxes model’ of Guest (1997), in which a sequence is outlined from organization strategy through HRM practices, HRM behaviour and performance outcomes to financial outcomes. In Figure 2, Guest’s model is shown in a somewhat condensed and modified way: the HRM and behavioural outcomes are combined under the heading of HRM outcomes, the performance and financial outcomes combined under the heading of organizational outcomes and HRM strategy has been renamed organizational strategy.

Innovation and HRM: is there a basis for integration? When we compare the approaches and research interests concerning innovation and HRM, at first sight there seem to be more differences than similarities. However, if we look closer, we see connections that can be used to create a more integrated approach. We start this section with a general comparison of the two research domains, followed by a comparison of the content in terms of their common interest themes. In innovation research, there is a strong focus on processes. These processes are not restricted to the organization itself, and are closely related to external developments. Recently, interest has been especially in the direction of system integration, extensive networking, flexible and customized responses and continuous innovation (Fisscher et al., 2004; Tidd, Bessant & Pavitt, 1997;). A strong feature of these approaches and research has been their integrative and dynamic nature. A weakness is perhaps the rather broad and abstract way of looking at things, and the limited interest in causal and other relationships


between specific interventions and specific effects. As noted earlier, most HRM research during the last decade has been devoted to finding empirical evidence for a chain of steps from organization strategy, through HRM practices, towards HRM and organizational outcomes. A strong feature of this approach is its focus and the orientation towards effects and outcomes. A weakness, however, is the rather static characteristic of the HRM research: the focus is mostly on the search for causal relationships between policies, practices and outcomes, with only limited attention given to processes, dynamics and changes. In our integrated model, we aim to combine the strong points of both approaches and research traditions and – if possible – avoid the weaknesses. If we look for common themes in both innovation and HRM literature, we find quite a number of links between innovation and HRM issues. In our reading of the literature, there appears to be more interest shown by the innovation researcher in HRM practices than vice versa. So far, in the HRM literature, there seems to be little interest in innovation, apart from seeing innovation as an organizational strategy. A number of authors have already produced handsome overviews of HRM aspects of innovations – although they do not label them as such, preferring terms such as ‘organisational innovation’ or ‘organising for innovation’. Examples of these are Damanpour (1991), Clark (1993), Brown and Eisenhardt (1995), Tidd, Bessant and Pavitt (1997) and Dougherty (1996). Based on these overviews, and our own review of the literature (de Leede, Looise & de Weerd-Nederhof, 1999), we have drawn up the following list of topics concerning the role of aspects of HRM in connection with innovation: • appropriate organizational structure; • the staffing of innovative organizations;

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• • • • •

key roles of individuals; individual development and careers; effective team working and leadership; extensive communication and participation; performance (and its measurement) and reward; • creating a creative culture. Particularly in the innovation literature, the interest in HRM issues seems to be growing. However, the way the innovation side looks at HRM issues gives the impression of a still fragmented and instrumental approach. HRM is not seen in an integrative way – as it is seen in HRM literature – but only as a toolkit of specific practices. These practices are seen as a condition, or support, for specific innovation activities or stages. The innovation literature gives the impression that most HRM practices have to contribute to innovation at two distinct levels: 1. The level of the organization in general – in terms of building an innovative organization: stressing the need for shared vision and leadership, appropriate organizational structure, key individuals, training and development, high involvement, effective team-working, creative climate, etc. (see, for example, Tidd, Bessant & Pavitt, 1997). 2. The level of specific innovation stages, activities or projects: stressing leadership, the role of the middle manager as innovator, the different elements of project work and teamwork, the creativity of employees, etc. (see Angle, 2000; Katz, 1997; Nijhof , Krabbendam & Looise, 2002). In an integrated model of innovation and HRM, attention should be given to the role of HRM at both levels: the level of the creation of an innovative organization, and the level of specific innovation stages, activities, etc. The first level can be combined with the interest in the HRM literature for innovation as an organizational strategy and the related HRM practices. For the second level, one has to search for specific combinations of innovation activities and HRM practices, although related to the organizational level. This means that we have to look for a model that pays attention to the dynamic character of various types of innovations in organizations, that is in line with an innovationoriented organizational strategy supported by deliberately chosen (HRM) policies and practices at all relevant levels, and one that gives attention to specific outcomes. Before we try to outline such a model, we first want to look at a case study into the links between innovation and HRM.

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Case study: Philips CMA The case study concerned a new venture, and the growth and decline of a business unit of Philips that was active, in the mid-1990s, in the market for printer components (for a detailed description, see Verkerk, 2004). The business unit started production of the new product (the Ceramic Multilayer Actuator) in early 1992. It was initially very successful and generated good profits, but was very dependent on one large customer. That customer lost out to competition in the printer market and dropped its demand for the CMA in 1996. Following this, Philips management decided to halt production and closed the plant in 1997. The business unit had about 150 employees, including their own product and process developers. The dynamics of the market situation had earlier triggered the management of Philips CMA to start production before the product was fully developed. Thus, close cooperation between manufacturing, process engineering and product development had been crucial. Furthermore, co-development with the major client, and with some suppliers, was needed to respond to the demand. The case study shows the typical interrelationships between innovations in the product (development of the new product), the process (development of new technology and continuous improvement of the technology) and the organization (introduction of new forms of work systems, such as the mini-company concept). The new product made it necessary to adapt some of the existing equipment in order to manufacture the multilayer actuators. The need to increase yield and meet the tight client specifications called for a constant search for improvements in the process. This was not possible through the efforts of the product developers and process engineers alone: manufacturing knowledge and experience was also needed. The introduction of the minicompany concept was a response by the factory manager to the need for close cooperation between the operators, the process engineers and the product developers (de Leede and Looise, 1999). A mini-company was made up of the operators and leader of a unit (the segments of the flow process), and these were responsible for identifying and maintaining their largely internal clients and suppliers. In co-operation with these clients and suppliers, potential improvements in their manufacturing process were identified and resolved. In Table 1, we list the most important innovations and the role of HR. In analysing the findings from our case study, we tried to link HRM to innovation types and phases. We first tried to relate HRM


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Table 1. Innovations in Philips CMA Year

Product innovations

Late 1980s

1991

1992

Introduction of Ceramic Multilayer Actuator CMA for ink-jet printers

1993

New types of CMA

1994

A range of CMA variants

Process innovations

Design of new production facility in The Netherlands • Improvement of perpendicularity of dicing cut • Statistical Process Control Yield and efficiency improvements

Yield and efficiency improvements

1996

Yield and efficiency improvements

1997

practices to specific types of innovation, such as product, process and organizational innovations (de Leede, Looise & de WeerdNederhof, 1999; Looise & van Riemsdijk, 2004). Based on our literature review, we expected connections between product innovations and HRM practices such as staffing and developing activities and special forms of reward; and between process and organizational innovations and HRM practices such as job and organizational design and employee participation. However, in the case study, such connections were not that clear. What we see from the case study is the close interrelatedness of the various types of innovation and the role of HRM. This makes it difficult to relate specific HRM practices to specific types of innovations. HRM practices such as human

Role of HR

HR flow: recruitment and selection to stimulate creativity

Development of multilayer technology, combined with ceramic material Pilot production in Taiwan

1995


Organizational innovations

HR flow: recruitment and selection

Design of new organization

HR flow: recruitment and selection

• Kanban system • Process Action Teams • Job consultation

HR flow Employee influence: direct participation

Mini-company concept

Employee influence: direct participation; development of coaching leadership Training of employees, direct participation and reward system made to fit mini-companies Direct participation

Closure of production plant

HR flow (termination)

resource flow and performance and rewards not only play an important role in product/ service innovation, but also in process and organizational innovation. Furthermore, HRM practices linked to organizational and task design, and to information and participation, are important both for process innovation and for product innovation. Only very specific HRM practices seem to have a stronger link with one specific type of innovation. Examples of these are the role of creativity in product/ process innovation, and the role of employee participation in the implementation of new work methods. However, even in these instances, the practices are not restricted to one type of innovation. On a second reflection, it seems that the case study provides more evidence for there being

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a connection between specific HRM practices and the phase of the innovation process within all the three types of innovation. First, they had to select the right product champions and to foster creativity. In the early years of setting up the new factory in The Netherlands, their role was almost exclusively staffing and the design of HR systems in the field of human resource flow. The main priority was to attract a workforce with the appropriate capacities. During the introduction of the minicompanies, the role of HR became broader: it included the design of the work system, adjustments to the reward system, the development of middle management and enhancing the opportunities for employee influence. Subsequently (and to an extent simultaneously) the focus in the HR area was on creating and maintaining a capable and motivated workforce. A large part of the HR activities was devoted to the development and use of an extensive training programme. In the final year, the major role for HRM became closing the factory.

An integrated model for innovation and HRM In summarizing our findings from the case study and the literature review, we have to look for a model in which the strong points of both innovation and HRM approaches are combined, and the weak points minimized.

HRM strategy innovative HRM (function)

From the innovation side, HRM should be viewed as a strategic and integrated field contributing to the organization as a whole, and not just as fragmented practices supporting specific innovation activities, types or even phases. From the HRM side, innovation must not be seen, in a rather static way, as only a one-time strategic choice for the organization as a whole, but related to all kinds of dynamics inside and outside the organization. Furthermore, we propose focusing on the two levels mentioned before: the level of the organization and the level of the innovation activities. This leads us to the following integrated model for innovation and HRM (see Figure 3). In our view, the integration of the two fields is only possible if we start with an organizational strategy aiming for innovation – not just cost reduction or quality – and ending with an organizational outcome such as innovation success or extent of innovativeness, in terms of number of new products and/or services, implemented new processes or organizational changes. Between these two, mutually connected, moments of goal setting and resultsmeasuring, we see two levels of integration. The first level is the organization as a whole, aiming to create an innovative organization, with the help of a deliberate HRM strategy. Within this strategy, choices have to be made for specific HRM practices, or for specific ways of dealing with standard HRM practices, in order to achieve HRM outcomes that contribute to becoming an innovative organization.

HRM outcomes • creativity • commitment • competences

HRM practices • work • systems • HR flow • rewards • influence

Organizational strategy

Organizational outcomes

innovation (innovative organization)

innovation success HRM practices for signal processing • tasks • expertise • creativity

HRM practices for strategy • tasks • expertise • influence • leadership

HRM practices for resourcing • recruitment • tasks • reward • development

HRM practices for implementation • tasks • influence • reward • development

Figure 3. An Integrated Model for Innovation and HRM1 The authors thank Tanya Bondarouk for her help with this model

1

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INNOVATION AND HRM

In this context, we can also speak of ‘HRM innovation’: traditional HRM practices, such as work systems, HR flows, rewards and employee influence, have to be renewed to be in line with the innovative strategy of the organisation. In the past fifteen years, several authors (including Bolwijn & Kumpe, 1990, 1996; den Hertog et al., 1991; Looise, 1996; Schoemaker, 1998) have made proposals to bring HRM innovation into line with organizational innovation but, until now, not much empirical research has been done in this field. For the second level, we have chosen to use the several stages of the innovation process from the model of Tidd, Bessant and Pavitt (1997), believing that these can also be seen as innovation activities or projects. Each of these stages requires specific HRM practices, such as the assignment of specific tasks, the development of specific expertise or the opening of specific channels for creativity in the signal processing phase. However, the assignment of specific tasks and the development of specific expertise, the opening of channels for influence from different sides, the fulfilment of good leadership for the strategy phase, the recruitment of a competent workforce, the assignment of tasks, the balancing of rewards and the planning of the further development of the workforce also play a part in the resourcing phase and – in a different way – also in the implementation phase. Our integrated model on innovation and HRM exposes at least three broad areas of research questions: 1. What are the interactions between innovation strategies and HRM innovation? This concerns the general level of the organization: the interaction between innovation as an organizational strategy (‘becoming an innovative organization’) and HRM innovation. In this context, researchers need to be aware of the fact that HRM practices are embedded within external (societal, legal, institutional) and internal (historical, structural, cultural) contexts and cannot be changed overnight. For example, changing reward systems (flexible or performancerelated rewards) or HR flows (flexible contracts, working hours, etc.) may have a substantial impact on people – and an unbalanced approach can have all kinds of negative effects. An important issue in this context is the way in which the HR function is organized: for example, the spread of responsibilities for HR practices among top and line management, HR managers and the employees themselves, and the use of forms of e-HRM (see Looise and van Riemsdijk, 2004). A final but important


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issue is how to measure HRM and innovation outcomes, and their mutual connections. 2. What HR practices are appropriate in the various innovation stages? This question focuses on the level of specific innovation activities, stages, projects, etc. In our scheme, we have simply mentioned a number of possible HR practices that could be related to the different phases of innovation. Through new research, these ideas need to be verified and specified. As we have commented earlier, a lot has been written, in the innovation literature, about the connection between specific innovation phases, or activities, and specific HRM practices. However, most of this literature is rather normative in nature and it would be good to have further empirical evidence. In this context, we also want to look for a more comprehensive approach in which specific so-called bundles of HRM practices are related to certain innovation activities, phases, etc. We believe that our scheme can serve as a starting point for this type of research. Lastly, in this research line, there needs to be more interest in the innovative effects of the interaction between innovation phases or activities and HRM practices. 3. What interactions are there between the general level and the specific level (or levels since there can be several innovation phases/activities/projects at the same time within one organization)? This line of research focuses on the interplay between the general and specific levels, in connection to an innovation strategy and the measurement of innovation outcomes. In our opinion, this is the most relevant, but also the most difficult, part of our proposals for future research. It concerns the question of how to combine preparedness for innovation and HRM in general with an ability to focus on specific innovation activities and HRM practices.

References Angle, H.L. (2000) Psychology and Organizational Innovation. In: van de Ven, A.H., Angle, H.L. and Poole, M.S. (ed.), Research on the Management of Innovation. The Minnesota Studies. Oxford University Press, Oxford. Barney, J. (1991) Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. Beer, M., Spector, B., Lawrence, P.R., Quinn Mills, D. and Walton, R.E. (1984) Managing human assets. The Free Press, New York. Boer, H. and During, W.E. (2001), Innovation. What innovation? A comparison between product,

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process and organisational innovation. International Journal of Technology Management, 22(1/2/ 3), 83–107. Bolwijn, P.T. and Kumpe, T. (1990) Manufacturing in the 1990s – productivity, flexibility and innovation. Long Range Planning, 23(4), 44–51. Bolwijn, P.T. and Kumpe, T. (1996) About facts, fiction and forces in Human Resource Management. Human systems Management, 15(3), 161–172. Boxall, P. and Purcell, J. (2003) Strategy and Human Resource Management. Palgrave Macmillan, Basingstoke. Brown, S.L. and Eisenhardt, K.M. (1995) Product development: past research, present findings and future directions. Academy of Management Review, 20(2>), 343–378. Clark, J. (ed.) (1993) Human Resource Management and Technical Change, Sage Publications, London. Damanpour, F. (1991) Organizational Innovation: A Meta-analysis of Effects of Determinants and Moderators. Academy of Management Journal, 34(3), 555–590. Damanpour, F. and Evan, W.M. (1984) Organizational innovation and performance: the problem of ‘organizational lag’. Administrative Science Quarterly, 29, 392–409. Dougherty, D. (1996), Organizing for Innovation. In: Clegg, S.R., Hardy, C. and North, W.R. (ed.) The Handbook of Organisation Studies. Sage, London. During, W.E. (1984) The problem of innovation in SME. PhD thesis, Enschede (in Dutch). Fisscher, O., van Looy, B., de Weerd-Nederhof, P. and Debackere, K. (2004) Organisation of innovation. In: de Weerd-Nederhof, P., van Looy, B. and Visscher, K. (ed.), Innovative organizing. Kluwer, Deventer (in Dutch). Guest, D. (1997) Human Resource Management and Performance: a review and research agenda. International Journal of Human Resource Management, 8(3), 263–276. Hertog, F. den, van Sluijs, E., van Diepen, B. and van Assen, A. (1991) Innovation and personnel policy: control of the knowledge base. Bedrijfskunde, 63(2), 158–167 (in Dutch). Kanter, R.M. (1983) The Change Masters; Innovation and Entrepreneurship in the American Corporation. Simon & Schuster, New York. Katz, R. (ed.) (1997), The Human side of Managing Technological Innovation. A Collection of Readings. Oxford University Press, New York. Leede, J. de (1997) Bottom-up innovation. On the contribution of semi-autonomous work groups to product and process innovation. PhD thesis, University of Twente (in Dutch). Leede, J. de and Looise, J.C. (1999) Continuous improvement and the mini-company concept, International Journal of Operations and Production Management, 19(11), 1188–1202. Leede, J. de, Looise, J.C. and de Weerd-Nederhof, P. (1999), Human Resource Management and Innovation; towards an integrated multi-level approach.

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Paper presented at the first Conference of the Dutch HRM Network, 19 November 1999, Erasmus University Rotterdam. Leonard-Barton, D. (1992) The factory as a learning laboratory. Sloan Management Review, Fall, pp. 23– 38. Looise, J.C. (1996) Social innovation is necessary, but how? Inauguration speech, University of Twente (in Dutch). Looise, J.C. and van Riemsdijk, M. (2004) Innovating Organisations and HRM: A Conceptual Framework. Management Revue, 15(3), 277–288. Miles, R. and Snow, C. (1984) Designing strategic human resource systems. Organizational Dynamics, Summer, 36–52. Nijhof, A.H.J., Krabbendam, J.J. and Looise, J.C. (2002) Innovation through exemptions: building upon the existing creativity of employees. Technovation 22, 675–683. Pfeffer, J. (1994) Competitive Advantage Through People. Harvard Business School Press, Boston. Pfeffer, J. (1998) The Human Equation: Building Profits by Putting People First. Harvard Business School Press, Boston. Porter, M.E. (1980) Competitive Strategy Techniques for analyzing Industries and Competitors, The Free Press, New York. Rogers, E.M. (1983) Diffusion of Innovations, 3rd edn. The Free Press, New York. Rothwell, R. (1992) Successful industrial innovation: critical success factors for the 1990’s, R&D Management, 22(3), 221–239. Schoemaker, M.J.R. (1998) Organising work and employment relationships: between stavery and anarchy, Kluwer Bedryfsinformatie, Deventer. Schuler, R. and Jackson, S. (1987) Linking competitive strategies and human resource practices. Academy of Management Executive, 1(3), 207–219. Schumpeter, J.A. (1934) The theory of economic Development. An inquiry into Profits, Capital, Credit, Interest, and the Business Cycle, Oxford University Press, London. Tidd, J., Bessant, J. and Pavitt, K. (1997) Managing Innovation. Integrating Technological and Organizational Change. Wiley & Sons, Chichester. Utterback, J.M. (1994) Mastering the Dynamics of Innovation. Harvard Business School Press, Boston. Ven, A.H. van de, Angle, H. and Poole, M.S. (eds) (1989) Research on the Management of Innovation: The Minnesota Studies. Ballinger/Harper & Row, New York. Verkerk, M.J. (2004) Trust and Power on the Shop Floor; An ethnographical, ethical, and philosophical study on responsible behaviour in industrial organisations. PhD thesis University of Maastricht, Eburon, Delft. Weerd-Nederhof, P.C. de (1998) New Product Development Systems; Operational effectiveness and strategic flexibility. PhD thesis, Enschede. Zaltman, G., Duncan, R. and Holbek, J. (1973) Innovations and Organizations, Wiley, New York.


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Jan de Leede is senior researcher/consultant at TNO and an assistant professor Human Resource Management at the University of Twente. His PhD thesis (1997) was on product and process innovation and especially on the contribution of selfmanaging teams to innovation. His research is focused on self-managing teams, new production concepts, flexible labour, employment relations and virtual work. On these issues he has published international refereed articles (10), national refereed articles (6), several (chapters of) national and international books and more than 30 non-refereed articles and papers for (inter)national conferences. Jan Kees Looise is a professor of Human Resource Management at the faculty of Business, Public Administration and Technology of the University of Twente and head of the department of Human Resource Management. His main topics in research and education are human resource management, innovation of organizations and employment relations, worker participation and the impact of ICT on work and organisation. He is the (co-) author of eight books (most of them in Dutch) and about fifty scientific articles and chapters equally spread over Dutch and international refereed journals and Dutch and international books. He is a member of the editorial boards of Employee Relations (UK), Management Review (Germany), The Journal of Labour Issues (The Netherlands) and The HRM Journal (The Netherlands).


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Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142118128ARTICLESMANAGING PEOPLE TO PROMOTE INNOVATIONCREATIVITY AND INNOVATION MANAGEMENT

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Managing People to Promote Innovation Helen Shipton, Doris Fay, Michael West, Malcolm Patterson and Kamal Birdi There is growing evidence available to suggest that Human Resource Management (HRM) practice is an important predictor of organizational performance. Drawing upon organizational learning perspectives, we argue that HRM systems also have the potential to promote organizational innovation. We present longitudinal data from thirty-five UK manufacturing organizations to suggest that effective HRM systems – incorporating sophisticated approaches to recruitment and selection, induction, appraisal and training – predict organizational innovation in products and production technology. We further show that organizational innovation is enhanced where there is a supportive learning climate, and inhibited (for innovation in production processes) where there is a link between appraisal and remuneration.

W

ith increasing worldwide competition and ever more pressing environmental turbulence, the ability of organizations to innovate is seen more and more as one key factor to ensure their success (Brown & Eisenhardt, 1998; Cohen & Levinthal, 1990; Leonard-Barton, 1995; McGrath, 2001; Tsai, 2001). The logic is that through introducing new products and new technology, organizations are able to diversify, adapt and reinvent themselves (Schoonhoven, Eisenhardt & Lyman, 1990). While researchers have accumulated a lot of knowledge about individual characteristics and attributes of the workplace that enhance creativity and innovation (e.g. Amabile et al., 1996), our knowledge about organizational characteristics is still comparatively scarce. In this study, we consider the extent to which organizations can promote innovation through effective Human Resource Management (HRM) practice. Innovation is ‘the intentional introduction and application within an organization of ideas, processes, products or procedures, new to the unit of adoption, designed to significantly benefit the organization or wider society’ (West & Farr, 1990). Research has demonstrated how new products and technology enhance market share and stock market value, as well as ongoing survival (Banbury & Mitchell, 1995; Chaney & Devinney, 1992). On

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the other hand, companies find it difficult to innovate on a sustained basis (Department of Trade and Industry, 2000; Katila & Ahuja, 2002). Some scholars suggest that this can be achieved by ensuring that all members of the organization are receptive to, and have the necessary skills and motivation to support change (Paton & McCalman, 2000; Senior, 1997; Wilson, 1992). The argument is that change and innovation frequently fall outside the remit of technical specialists such as R&D professionals and involve those who have most knowledge of the task and the technology required to ensure its effective completion. Drawing upon organizational learning theory, we argue in this paper that HRM promotes innovation to the extent that people and the networks to which they belong are enabled to create, transfer and institutionalize knowledge. We go on to present the results of our study in the UK manufacturing sector, and to highlight the practical and theoretical significance of the research that we report.

HRM, Organizational Learning and Innovation There can be little doubt that organizations create the framework within which individuals feel motivated and committed to learning, © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

MANAGING PEOPLE TO PROMOTE INNOVATION

and to articulating and sharing the learning that they have acquired with others, with a view to its eventual implementation (Argyris, 1990; Crossnan, Lane & White, 1999; Fiol & Lyles, 1985; Huber, 1991; Kang, 2004; Nonaka & Takeuchi, 1995; Snell, Youndt & Wright, 1996; Starkey, 1996). Not wishing to be drawn into considering whether learning happens primarily at individual or organizational level (Shipton, 2004), we argue that organizational learning represents a capacity to create, transfer and implement knowledge. We suggest that innovation will be promoted and sustained where HRM practices are in place to manage the three stages of the organizational learning cycle – the creation, transfer and implementation of knowledge. Organizations vary enormously in the way they manage learning. According to Kang (2004) the management of learning can be broken down into three dimensions: learning for exploration, for exploitation or bilateral learning (cf. March, 1991). This perspective holds that where there is a commitment to exploratory learning, organizations will encourage employees to take risks, to experiment with ideas, to be flexible in their quest to discover new and different phenomena of interest. On the other hand, employees working in an environment where ‘exploitation’ is the preferred approach will be encouraged to follow established rules and protocols to maximize efficiency. Through engaging in ‘bilateral’ learning, organizations achieve equilibrium between the two alternative dimensions. We would argue that learning is only likely to give rise to organizational innovation where the dominant approach is oriented towards exploration rather than exploitation. We further suggest that the exploratory learning likely to give rise to innovation will take place where HRM practices are in place to manage the three stages of the organizational learning cycle – the creation, transfer and implementation of knowledge. In doing so, we highlight the specific role that HRM may play in promoting learning at each stage of the cycle.

The Creation of Knowledge This involves making associations, considering new ideas and being open to the possibilities for growth and learning implicit in new experiences. HRM systems need to create the framework whereby individuals are able and motivated to experiment with new ideas. First, to promote creativity, it is important that people are recruited who have the skills and knowledge required to meet identified gaps (MacDuffie, 1995; Song, Almeida & Wu, 2003).


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This will be achieved where organizations use relatively sophisticated practices such as psychometric tests, assessment centres and work sampling activities. Training should be designed to expose individuals to new and different experiences to facilitate the questioning of existing ways of operating (Shipton et al., in press). Extensive training in a variety of jobs or skills can create the breadth of knowledge required to make connections between divergent stimuli (Bae & Lawler, 2000; Guthrie, 2001). Such activities can give rise to less-entrenched perspectives and greater willingness on the part of employees to be adaptable and to take on board varied interpretations of problems (Clark, Amundson & Cardy, 2002). What of the relationship between knowledge creation and innovation? Innovation research has shown that ‘domain relevant’ knowledge represents one aspect of creativity (cf. Amabile et al., 1996). Given that innovation can only happen when individuals have a creative idea in the first place (West et al., 2004), it is important for organizations to implement the mechanisms necessary to support individuals in their quest to acquire knowledge. Reward systems can act as facilitators or barriers to individual creativity. Firms can use skill or knowledge-based pay to enable the acquisition of knowledge outside their immediate jobs, thereby promoting creativity (Guthrie, 2001). On the other hand, Bloom (1999) hypothesized that individuals who receive performance pay become focused on the achievement of specific objectives, to the detriment of other outcomes likely to promote longer-term performance, such as creativity and innovation. A wide literature shows that linking appraisal to remuneration tends to be unhelpful as a means of promoting better individual performance (Kessler & Purcell, 1992; Pfeffer, 1998; Wood, 1996). Linking pay to appraisal may inhibit the frank and open discussion of developmental needs.

The Transfer of Knowledge Transferring knowledge involves developing shared understanding between individuals and work groups, using dialogue. Kim argued that as a result of dialogue ‘the organization’s capacity for effective co-ordinated action increases’ (1993, p. 13). Nahapiet and Ghoshal (1998) showed that knowledge is not just an individual attribute; it has a collective, tacit dimension; therefore, according to one scholar ‘is the most secure and strategically significant kind of organizational knowledge’ (Spender, 1996, p. 52).

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HRM systems can help to reinforce the transfer of knowledge between individuals so that it assumes a collective dimension. Where organizations focus on team-based activity and horizontal processes that require reciprocal interdependence, employees can develop a frequency of contact with others that promotes effective co-ordination (cf. Gittel, 2000). Performance management systems that emphasize collective attainment can highlight the value attached to group achievement (Leana & Van Buren, 1999). Extensive induction and socialization can help employees to understand how they fit into the collective dimension of the workplace (Feldman, 2000). Mentoring activities (whereby senior members provide support and guidance to others on general career development matters) enable employees to build networks across the organization, thereby facilitating knowledge transfer (Collins & Clerk, 2004; Laursen & Foss, 2003). Career development meetings, regularly conducted, present a non-threatening environment within which employees acquire the skills necessary to work effectively with others. Lastly, a strong and consistent vision for employee development should reinforce the value of collective endeavor and help to promote trust in the organization and its commitment to employee growth and employability (Harrison & Kessels, 2004). Research on innovation suggests that new ideas and knowledge need to be communicated through the organization so that they can become implemented (Damanpour, 1990). This makes it possible for senior members of organizations to select the most appropriate course of action from a range of possible alternatives. The transfer of knowledge is thus a fundamental prerequisite for organizational innovation.

The Implementation of Knowledge Implementing knowledge involves affecting change in the way organizational activities are conducted. Where learning is embedded in systems, structures, strategy, routines and prescribed practices, it guides the actions and learning of others (Crossnan, Lane & White, 1999). There is research evidence to show that substantial improvements in performance may arise through organizations making efforts to codify learning and to articulate the unconscious thinking that informs practice (Argote & Epple, 1990; Cummings & Worley 1997; Epple, Argote & Devadas, 1991; Fiol & Lyles, 1985). At the same time, practices designed to promote empowerment – delayering, involvement and participation, allowing employees input into performance

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goal-setting – may prevent ‘core competences’ from becoming ‘core rigidities’ (LeonardBarton, 1992, 1995). This final stage of the organizational learning cycle represents the point at which innovations are enacted. Organizational innovation will only take place where there is commitment to this stage of the cycle. In summary, we suggest that innovation will be promoted and sustained where HRM practices are in place to manage the three stages of the organizational learning cycle – the creation, transfer and implementation of knowledge. This does not mean that a particular practice is only linked to one stage; indeed, some practices, such as training, are likely to promote creativity, whilst simultaneously enhancing the transfer and indeed the implementation of knowledge (especially where groups of employees are involved). Furthermore, while the three stages of the learning cycle are conceptually distinct, they are interrelated in practice and so need to be understood as a cycle or configuration. H1: The extent to which HRM systems are sophisticated is positively associated with innovation in products, in production technology and production processes; in other words, the more an organization has implemented sophisticated HRM systems, the more innovation takes place. H2: The extent to which practices designed to promote a ‘learning climate’ are implemented is positively associated with innovation in products, in production technology and production processes; in other words, the more an organization has implemented practices designed to promote a ‘learning climate’, the more innovation takes place. H3: The extent to which organizations link appraisal to pay practices is negatively associated with innovation in products, in production technology and production processes; in other words, the more an organization has implemented practices designed to link appraisal to remuneration, the less innovation takes place.

Method Sample The data were drawn from a dataset developed in a larger study of 111 companies conducted between 1992 and 1999 (West & Patterson, 1999). Manufacturing companies in the United Kingdom were identified from sector databases. In addition, a number of companies were identified by local Chambers of



Commerce and Trade Associations. This longitudinal study examines market environment, organizational characteristics and managerial practices. Senior managers in these companies were interviewed on site. The average number of employees in these companies was 260; the smallest company had 70, and the largest 900 employees. Organizations were drawn from three main industrial groups: electronics and communications, food and drink and mechanical engineering. These manufacturing sectors were chosen because they were those sectors with the largest numbers of UK manufacturing companies and because they employ the largest number of people in manufacturing. Here we report relationships between data gathered in managerial interviews and surveys in 35 companies at Time 1 (1993) and 25–27 companies at Time 2 (1995). Missing data reduced the full sample to these smaller samples: first, some companies did not participate in Time 2 data collection again; second, some of the measures could not be assessed in all organizations (e.g. companies that did not have an appraisal system could not be used for the analyses that looks at the effect of ‘appraisal linked to remuneration’). We compared the companies used for this study with the companies that were excluded from the analyses presented here regarding sector, all study variables and all control variables. There were no significant differences (p < 0.05). This was a longitudinal study, which involved taking measurements of HR practices, learning climate and innovation at specific points in time. Two time points are involved in this exercise. At Time 1, measurements were taken of the ‘sophistication of HRM’ as described below. At Time 2, we measured the learning climate, the measure that captures appraisal linked to remuneration (as detailed below) and innovation in products, production technology and production processes. Using a longitudinal design in the first instance made it possible to affirm the positive relationship between HRM practice and innovation (H1). The subsequent cross-sectional analyses made it possible to explore specific aspects of HRM and its relevance for innovation (H2 and H3).

Assessment of Independent Variables The independent variables – sophistication of HRM, learning climate and appraisal linked to remuneration – were collected with structured interviews. Interviewers were provided with an extensive interview schedule, which contained the variables (as described below) and the rating scales. Therefore, all independent


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variables are based on ratings provided by the interviewers. Interviews were carried out with senior managers in each of the organizations. Companies were briefed before the researchers’ visit on what areas the interview schedule covered and were asked to determine which senior managers were best placed to answer questions in each of the interview schedule areas. Four or five senior managers took part in the interviews for the organizations in the sample, including the chief executive of the company, production director and human resources manager. Interviews always took place on site and in all cases coincided with a tour of the production areas by the researchers.

Sophistication of HRM One interviewer per company rated sophistication and extensiveness of HRM on a scale from 1 to 5, where 5 represented high levels of sophistication and extensiveness and 1 low sophistication and extensiveness. The ‘sophistication of HRM’ measure is an overall assessment of various HRM activities; it is based on the information gathered in five areas: • performance management – whether or not there is a formal appraisal scheme, whether or not shop-floor workers are appraised, the frequency of appraisal, whether or not appraisers receive formal training and whether or not appraisals are monitored); • recruitment and selection – procedures for filling shop-floor posts, for filling management posts and for filling other posts; • induction – quality of induction for shopfloor staff and for management; • training – the extent of training for shopfloor employees, for supervisors, for clerical and administrative staff, and for management staff; how well planned is the training; how comprehensive is the training; how are training needs assessed; • strategy – researchers took into account responses to the question: ‘Is there a personnel/HRM strategy?’; whether data are collected for various aspects of employee activity, such as turnover, qualifications, age, absence and equal opportunities; whether management development involved the use of formal career plans, assessment/development centers, planned job rotation, high-flier schemes). In an effort to validate our measure, we also took account of employee perceptions of the HRM climate, and found that there were significant and positive correlations between employee ratings of training, of welfare, of

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performance monitoring and of vision and the interviewer rating detailed above of ‘sophistication of HRM’. This is in line with the approach endorsed by Bowen and Ostroff (2004), who argued that by taking account of employee ratings of important dimensions of HRM, researchers gain a deeper insight into the extent to which HRM practice is likely to impact upon organizational effectiveness.

The Learning Climate The learning climate was assessed by asking the following four questions in the interview: (1) Do you have a formally recognized mentoring system – a formal system where an employee has a named colleague who provides advice and guidance on a regular basis? (2) Is there a formal recognized procedure by which shop-floor employees meet with their manager/supervisor to discuss their long-term career development? (3) Is there a formal recognized procedure by which management employees meet with their manager/supervisor to discuss their long-term career development? (4) Do company policies, strategies or vision statements in any way refer to the importance of learning and/or employee development? Based on the respondents’ answers, interviewers provided ratings using a yes = 1/no = 0 rating format. Internal reliability was reasonable, although not ideal (Cronbach’s alpha = 0.66). We then calculated the mean of the four items to produce the scale ‘learning climate’.

Appraisal Linked to Remuneration Respondents were asked for information about appraisal for three categories of staff: clerical/administrative, professional/technical and management. Interviewers first checked whether each category of staff was appraised. Then, the respondents were asked whether the appraisal was linked to remuneration. This was again done for each of the staff categories. Interviewers provided ratings using a yes = 1/no = 0 format, indicating whether appraisal was linked to remuneration for (1) clerical/administrative, (2) professional/technical and (3) management staff. Cronbach’s alpha was good (0.95); we then calculated the mean of the three items to produce the scale ‘appraisal linked to remuneration’.

Assessment of the Dependent Variables Information about innovation was gathered via a postal questionnaire survey sent to senior

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managers in each participating organization. The survey measured innovation at two points in time (analyses presented here only uses Time 2 innovation as outcome variable). The questionnaire was labelled as a ‘change’ survey rather than an ‘innovation’ survey as the term ‘innovation’ is likely to introduce social desirability bias. It consisted of open questions and rating scales in relation to new or adapted products, innovations in production technology and innovations in production processes. Using the information senior managers had given in the survey, raters provided ratings of product innovation, innovation in production technology and innovation in production processes (more details on the rating procedure below). The survey explored the following information. Product Innovation Respondents gave estimates of the number of entirely new and adapted products developed in the last two years; percentage of production workers involved in making the new products; current sales turnover accounted for by the new products; and the extent to which production processes had been changed to accommodate the new products. Innovation in Production Technology Innovation in production technology included the introduction of new machines or systems such as single-cycle automatics, CNC and robots. Respondents listed the three most significant changes in this category introduced over the previous two years. They also gave estimates of the magnitude and novelty of the change for their organization on a three-point scale, ranging from 1 ‘minor’, through 2 ‘moderate’, to 3 ‘major’. Further questions concerned the percentage of production workers requiring retraining to use the different technology, and the proportion of the total production process incorporating the technology. Innovation in Production Processes Respondents were also asked about changes in production processes that focused on such changes as the introduction of scheduling and planning systems (e.g. MRP II), Just-In-Time (JIT) management or Total Quality Management (TQM). They were also asked to take into account any structural changes that had taken place, such as team-based working. The questions are as described above for changes in production technology.



Researchers rated responses to these questions. They were all at least Masters-level organizational psychologists with considerable experience of site visits, and of interviews with senior management in UK manufacturing companies. An innovation rating was given to each type of innovation on a seven-point scale from 1 ‘not at all innovative’ to 7 ‘very innovative’. These were based on the types of change introduced, their magnitude and novelty, and the impact on the workforce and the manufacturing process. Reliability and Validity of Innovation Measures To check for differences in innovation ratings by respondents between those companies where the respondent was or was not the managing director, analyses of variance were run on all innovation measures, with respondent position as the independent variable, controlling for organization size. There were no significant differences. Concurrent validity was assessed by correlating innovation ratings with employee ratings of the climate for innovation in their companies. This was based on a climate survey administered in 36 of the original 111 companies in the wider study (Patterson et al., 2005). The correlation between innovation in products (ratings made by researchers based on managers’ responses to the questionnaire) and employee ratings of the climate for innovation in their organizations was 0.40 (p < 0.01). There was also a strong relationship between employee ratings of climate and managerial reports of changes in production technology (r = 0.45, p < 0.001). Concurrent validity is therefore acceptable.

Control Variables Organizational size and profitability could be confounding variables in our analysis, so it was therefore important that we controlled for their effect. Size Organizational size was represented by counting the number of full-time equivalent employees in each organization. These data were log transformed in all analyses to normalize the distribution. Profitability Three main sources of information were used to determine company performance: company accounts, management accounts and the Cen-


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tral Statistical Office (CSO) database. Profitability was measured as profits before tax, deflated by the producer price index of the industry in which the firm belonged and normalized on firm employment to control for size. For this analysis – though others are also taken – real profits per employee were averaged for the period 1993–1995 (Time 1).

Analytic Strategy All hypotheses were tested with hierarchical regression analyses. The first hypothesis was tested using longitudinal data. In the first step, we entered the control variables: organizational size (Time 2) and profitability (Time 1). In the second step we entered sophistication of HRM (Time 1), predicting innovation in products, production technology and production processes as dependent variables (Time 2). For H2 and H3, we proceeded in the same way. We did so in two separate regression analyses, by first entering the control variables in step 1 and then entering the learning climate (Time 2) and appraisal linked to remuneration (Time 2) respectively.

Results Means, standard deviations and correlations are presented in Table 1. Results show that there is a higher overall mean for innovation in production processes than for other forms of innovation (3.2 on a scale of 1–7, as opposed to 2.8 for product innovation). This suggests that organizations may experience less difficulty innovating in this area than others; reasons for this possibility are considered in the discussion section. Table 2 presents the results of the regression analyses. ‘Sophistication of HRM’ appears to positively predict innovation in products and production technology after controlling for size and profitability of the organizations. Given that this is a longitudinal analysis, there is a strong case for suggesting that the HRM practices associated with this variable do indeed facilitate organizational innovation over the two-year period of the study. ‘Sophistication of HRM’ accounts for 20% of the variance for product innovation and 25% of the variance for innovation in production technology (b = 0.47, p < 0.05; b = 0.52, p < 0.01 respectively). There is, however, no significant relationship between ‘sophistication of HRM’ and innovation in production processes. Thus we present substantial but not complete support for H1.

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0.39 -0.02 0.21 -0.04 -0.44* 0.06 0.45* 0.50** 0.20 Notes: + p < 0.10; * p < 0.05; ** p < 0.01; n = 35 for Time 1 variable and n = 25–27 for Time 2 variables

0.23 0.33* 0.48** 0.47* -0.33+ -0.02 -0.01 -0.12 0.12 0.21 0.12 0.65 5.5 1.3 1.4 1.3 0.93 1.1 1.0 1. 2. 3. 4. 5. 6. 7. 8.

Size of organization – Time 2 Prior profitability – Time 1 Innovation in products – Time 2 Innovation in technology – Time 2 Innovation in processes – Time 2 Sophistication of HRM – Time 1 Learning climate – Time 2 Appraisal linked to remuneration – Time 2

5.2 3.5 2.8 2.9 3.2 2.6 0.92 0.59

0.17 0.21 -0.08 -0.15 0.30 0.22 0.02

6. 5. 4. 3. 2.

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Table 1. Means, Standard deviations and Correlations for all Study Variables

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A similar pattern of results emerges for learning climate. After controlling for size and profitability, learning climate is significantly associated with innovation in products and production technology (b = 0.46, p < 0.05; b = 0.53, p < 0.01). The ‘learning climate’ measure accounts for 20% of the variance for product innovation and 26% of the variance for innovation in production technology. Although no significant results are reported for innovation in production processes, these findings present substantial support for H2. Hypothesis 3 assumed a negative relationship between the extent to which organizations link appraisal to pay practices and innovation. Upon entering this variable into a regression, there were no significant results for innovation in products or technology, but there was a significant negative relationship between this variable and innovation in production processes (b = -0.39, p < 0.05). This variable accounted for around 15% of the variance for this form of innovation. Given the negative correlations depicted in the correlation matrix detailed in Table 1, we offer qualified support for this hypothesis on the basis of our study. The study draws upon both longitudinal and cross-sectional data in order to highlight the extent to which effective people management practice is associated with relatively high levels of organizational innovation in three main areas – products, production technology and production processes. We turn now to consideration of the significance of our findings in relation to the theoretical framework detailed in the introductory section of this study.

Discussion In this study, we focus upon organizational innovation and investigate the role that HRM may play in developing the individual skills and collective attributes required to innovate successfully. Our data show that organizations exhibiting ‘a sophisticated’ approach to HRM tend to be significantly more innovative – in terms of innovation in products and production technology – than those which manifest no such commitment. Our measure of HRM embraces a range of activity in this area, taking into account performance management, recruitment and selection, induction and socialization, training and commitment to HRM at strategic level. Investigation of the specific mechanisms likely to promote organizational innovation led us to focus upon attributes of the workplace learning environment. An organization supports learning when mentoring is


Dependent variables (Time 2)

Innovation in products

Independent variables

b

Sophistication of HRM (Time 1, n = 35) Step 1: Control variables: – organizational size – profitability

0.21 -0.06

Step 2: Sophistication of HRM Learning climate (Time 2, n = 27) Step 1: Control variables: – organizational size – profitability

0.47*

D R2

D adj. R2

0.46* 0.20 -0.16

Step 2: Appraisal linked to remuneration

-0.32

b

D R2

D adj. R2

-0.08 0.01 0.05 0.20*

-0.02 0.18

0.11 -0.07

Step 2: Learning climate Appraisal linked to remuneration (Time 2, n = 25) Step 1: Control variables: – organizational size – profitability

Innovation in production technology

0.52**

-0.04 0.18

0.53**

0.01 0.25**

-0.06 0.24

-0.04 0.07

0.21

D R2

D adj. R2

0.27

0.03 0.07

-0.03 0.05

0.08 0.00

0.01 -0.05

0.16 0.15*

0.09 0.11

-0.29 0.12 0.00 0.26**

-0.08 0.22

0.00 0.06 -0.41

-0.09 -0.02 0.05 0.10

b

-0.21 -0.12

0.01 0.05 0.04 0.20*

Innovation in production processes



Table 2. Results of Regression Analyses Showing Effects of Sophistication of HRM, Learning Climate and Appraisal Linked to Remuneration on Innovation

0.01 0.04

-0.08 0.00

-0.39*

Notes: * p < 0.05; ** p < 0.01;

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endorsed and supported, when there is high commitment towards the career development of shop floor as well as managerial and supervisory staff, and when there is a strong strategic vision for employee development. We argued that these HRM practices would be important in determining whether and how knowledge is transferred throughout the organization. Through career development meetings, for example, employees have the opportunity to prepare themselves for internal promotion or for lateral career moves, thereby transferring the knowledge that they have acquired into other areas. Furthermore, research shows that mentoring practices are extremely effective in developing individuals’ networking skills, thereby facilitating the flow and transfer of knowledge both laterally and vertically through organizational hierarchies (Collins & Clerk, 2004). Our results show that there are significant and positive relationships between the learning environment as depicted in this study and innovation in products and production technology. Focusing on the ‘knowledge creation’ stage of the learning cycle, we present some evidence to suggest that certain HRM practices may present impediments to learning and thereby impact negatively upon organizational innovation. We show that there is a significant negative association between appraisal linked to remuneration and innovation in production processes. We suggest that in addition to the impediments to creativity detailed in the componential model highlighted by Amabile et al. (1996), researchers may also wish to consider the effect of linking pay to performance, particularly when conducting appraisal. Our findings in this area are inconclusive, but deserve more focused consideration in future studies. What of the differential effects of HRM practices upon particular aspects of innovation? As mentioned in the results section, we present a higher mean score for innovation in production processes than for the other two types of innovation. This suggests that perhaps organizations are especially committed to instigating change in this area – but on the other hand, we have no evidence that HRM practice facilitates this process. One explanation for this finding may be that innovation in production processes usually involves significant change in the way work is structured and frequently involves the introduction of team-based working and/or work systems such as quality circles designed to change the focus of work activity. Major structural change of this type would tend to be set in motion by senior management, without there being much opportunity for the involvement of more junior

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members of staff. On the other hand, there is evidence to show that linking remuneration to appraisal negatively predicts this type of innovation. This is perhaps not surprising when one considers that through linking pay to appraisal, the organization is expressing support for a highly individualistic approach to work activity. Where these types of pay systems are in operation, there is likely to be widespread opposition from managers and from more junior members of staff to the introduction of the team-based ways of working associated with innovation in production processes. On the other hand, our study reveals that HRM practices are positively associated with innovation in products and production technology. Our results appear to support the theoretical ideas presented earlier in this paper to the effect that innovation frequently involves those who have most knowledge of the task and the technology required to ensure its effective completion. Thus where HRM practices promote creativity, and are designed to facilitate the articulation and transfer of knowledge, shop-floor and other employees develop the confidence and skills to put forward novel proposals designed to improve work operation. They may be better equipped as a result of these activities to promote product innovation, as well as innovation in production technology. Future research could look into the question of whether these activities help to develop employees’ personal initiative to initiate innovations (Fay & Frese, 2001). Given that organizations can deploy the learning systems most likely to achieve the goals that they stipulate (Nevis, DiBella & Gould, 1995), we suggest that to produce innovation, the dominant approach should be exploration rather than exploitation (cf. March, 1991). Employees working within an environment where exploration is acceptable and encouraged will take risks, experiment with new ideas and be flexible in their quest for new and different ways of approaching problems. Through focusing upon each stage of the organizational learning cycle, mechanisms can be designed to elicit creativity, to promote mutual collaboration/knowledge transfer and to facilitate knowledge institutionalization. Furthermore, through operating in this way, organizations exhibit the ‘dynamic capabilities’ necessary to sustain competitive advantage in turbulent environmental conditions. This is, to our knowledge, the first study to consider directly the relationship between HRM and organizational innovation as it evolves over the course of time. Our first hypothesis is based upon longitudinal data,



and thus allows for causal interpretation. Furthermore, by controlling the effect of size and profitability we can exclude alternative interpretations; for example, that organizations performing well had the resources to innovate and to develop effective HRM systems. One limitation of our study is the small sample size, especially for the analyses dealing with our second and third hypotheses (n = 25–27). In line with other research investigating organizational-level variables, we were not able to measure all the variables involved in our theoretical reasoning. Future research should try to measure the processes underlying HRM–innovation relationships by assessing different aspects of organizational learning. This will involve developing measures to capture the ‘collective’ dimensions of knowledge implicit in the knowledge transfer process, possibly by exploring the ‘relational’ aspects of work (cf. Gittell, 2000). Through focusing on two levels – learning appertaining to individuals as well as learning experienced collectively, and examining any potential interaction between the two – researchers could gain insight into the precise mechanisms by which organizational learning promotes innovation. Organizational learning represents an important new perspective to be taken into account by researchers evaluating the relationship between HRM activity and innovation. We believe that HRM practices – effectively designed and synchronized – enhance learning and empower people at all levels to instigate change and innovation. Managing people to promote innovation is necessary if we are to release the full creative potential of our work organizations.

Acknowledgements A version of this paper was presented at an HRM Network conference. ‘Innovating HRM’, Twente University, The Netherlands, November 2003, and in the referred stream of the CIPD Professional Standards Conference, Keele, June 2004.

References Amabile, T.M., Conti, R., Coon, H., Lazenby, J. and Herron, M. (1996) Assessing the work environment for creativity. Academy of Management Journal, 39, 1154–84. Argote, L. and Epple D. (1990) Learning curves in manufacturing. Science, 247, 920–24. Argyris, C. (1990). Overcoming organisational defences: Facilitating organisational learning. Allyn & Bacon, Boston, MA.


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Guthrie, J. (2001) High involvement practices, turnover and productivity. Academy of Management Journal, 44, 180–90. Harrison, R. and Kessels, J. (2004) Human resource development in a knowledge economy. Palgrave Macmillan, Basingstoke. Huber, G. (1991) Organisational learning: The contributing processes and the literature. Organisation Science, 2, 88–115. Kang, S.C. (2004) Human resource flexibility and organizational learning: Implications for HRM. Paper presented at the Academy of Management Conference (2004), New Orleans. Katila, R. and Ahuja, G. (2002) Something old, something new: A longitudinal study of search behaviour and new product introduction. Academy of Management Journal, 45, 1183–94. Kessler, I. and Purcell, J. (1992) Performance-related pay: Objectives and application. Human Resource Management Journal, 2(3), 16–33. Kim, D.H. (1993) The link between individual and organisational learning. Sloan Management Review, 35(1), 37–50. Laursen, K. and Foss, N. (2003) New human resource management practices, complementarities and the impact on innovation performance. Cambridge Journal of Economics, 27, 243–63. Leana, C. and Van Buren, H. (1999) Organizational social capital and employment practices. Academy of Management Review, 24, 538–56. Leonard-Barton, D. (1992) Core capabilities and core rigidities. A paradox in managing new product development. Strategic Management Journal, 13, 111–25. Leonard-Barton, D. (1995) Wellsprings of knowledge: Building and sustaining the sources of innovation. Harvard Business School Press, Boston, MA. MacDuffie, J.P. (1995) Human resource bundles and manufacturing performance. Industrial and Labor Relations Review, 48(2), 197–221. March, J.G. (1991) Exploration and exploitation in organizational learning. Organization Science, 2, 71–87. McGrath, R.G. (2001) Exploratory learning, innovative capacity and managerial oversight. Academy of Management Journal, 44, 118–31. Nahapiet, J. and Ghoshal, S. (1998) Social capital, intellectual capital and the organizational advantage. Academy of Management Review, 23, 242–66. Nevis, E.C., DiBella, A.J. and Gould, J.M. (1995) Understanding organisations as learning systems. Sloan Management Review, 36(2), 73–90. Nonaka, I. and Takeuchi, H. (1995) The knowledge creating company. Oxford University Press, Oxford. Paton, R.A. and McCalman, J. (2000) Change management. A guide to effective implementation (end edn). Sage, Thousand Oaks. Patterson, M.G., West, M.A., Shackleton, V.J., Dawson, J.F., Lawthom, R., Maitlis, S., Robinson, D.L.and Wallace, A.M. (2005) Development and validation of an organizational climate measure. Journal of Organizational Behavior, 26, 1–29. Pfeffer, J. (1998) Six dangerous myths about pay. Harvard Business Review, 76(3), 108–19. Schoonhoven, C., Eisenhardt, K. and Lyman, K. (1990) Speeding products to market: Waiting time

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to first product introduction in new firms. Administrative Science Quarterly, 35, 177–207. Senior, B. (1997) Organizational change. Pitman, London. Shipton, H. (2004) Organizational learning: reality or myth?Aston Business School Working Paper. Aston Business School, Birmingham. Shipton, H., West, M., Dawson, J., Birdi, K. and Patterson, M. (in press) Human resource management as a predictor of innovation. Human Resource Management Journal. Snell, S., Youndt, M. and Wright, P. (1996) Establishing a framework for research in strategic human resource management: Merging resource theory and organizational learning. Research in Personnel and Human Resources Management, 14, 61–90. Song, J., Almeida, P. and Wu, G. (2003) Learning by hiring: When is mobility more likely to facilitate interfirm knowledge transfer? Organization Science, 49, 351–65. Spender, J.C. (1996) Making knowledge the basis of a dynamic theory of the firm. Strategic Management Journal, 17, 45–62. Starkey, K. (1996) How organizations learn. International Thompson Business Press, London. Tsai, W. (2001) Knowledge transfer in intraorganizational networks: Effects of network position and absorptive capacity on business unit innovation and performance. Academy of Management Journal, 44, 996–1004. West, M.A. and Farr, J.L. (1990) Innovation at work. In West, M.A. and Farr, J.L. (eds.), Innovation and creativity at work. Wiley, Chichester pp. 3–13. West, M.A. and Patterson, M. (1999) The workforce and productivity: People management is the key to closing the productivity gap. New Economy, 6, 22–7. West M., Hirst, G., Richter, A. and Shipton, H. (2004) Twelve steps to heaven: Successfully managing change through developing innovative teams. European Journal of Work and Organizational Psychology, 13, 269–99. Wilson, D.C. (1992) A strategy for change. Routledge, London. Wood, S. (1996) High commitment management and payment systems. Journal of Management Studies, 33, 53–77.

Helen Shipton is a lecturer within the Work and Organizational Psychology Group of Aston Business School whose research interests focus upon HRM and its relationship with organizational learning and innovation. Doris Fay is a lecturer within the same Group and addresses questions surrounding creativity and innovation at individual and oranizational level. Michael West is Professor of Organizational Behaviour and Head of Research within Aston Business School. Kamal Birdi and Malcolm Patterson work within the Institute of Work Psychology at Sheffield University addressing issues surrounding HRM, learning and organisational performance.


Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142129141ARTICLESON-THE-JOB INNOVATIONCREATIVITY AND INNOVATION MANAGEMENT

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On-the-job Innovation: The Impact of Job Design and Human Resource Management through Production Ownership Luc Dorenbosch, Marloes L. van Engen and Marinus Verhagen A growing number of practitioners and academics endorse that the ability of organizations to foster, develop and use the innovative potential of their employees contributes to organizational success. Yet empirical investigation of individual innovation processes is lacking. In this research we address the question of whether both more flexibility in an employees’ job design and commitment-oriented HRM activities promote individual innovative work behaviour. Findings suggest that a multifunctional job design and the perceived HRM system promote employee involvement in innovative activities through increased feelings of ownership for work-related issues and problems.

Introduction ne of the challenges facing organizations in the recent economic era is increasing their responsiveness to radical changes in market demands as well as the effective deployment of new technology and ways of working. Innovation of products and internal processes has evidently become a necessity in meeting these demands. However, innovation is no longer solely a task of specialists, scientists or R&D professionals. Nowadays, many practitioners and academics endorse the view that organizations should foster, develop and use the innovative potential of their employees as a means to organizational success (e.g. Amabile, Conti, Coon, Lazenby and Herron, 1996; Axtell, Holman, Unsworth, Wall, Waterson and Harrington, 2000; Bunce & West, 1995; Janssen, 1998; Unsworth & Parker, 2003). Unleashing the innovative potential within the workforce is believed to be a factor in gaining competitive advantage often reflected in quality management and ‘continuous improvement’ initiatives. A growing number of academics focus on the determinants of innovation by individuals in organizations. What drives people to be creative and to improve things in their work?

O

© Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

The motivation of employees to engage in proactive or extra-role behaviour is the focus of research on concepts such as ‘organizational citizenship behaviour’ (OCB, Organ, 1988), ‘personal initiative’ (Frese Kring, Soose and Zempel, 1996), ‘employee creativity’ (Oldham & Cummings, 1996) or ‘critical reflective behaviour’ (van Woerkom, 2003). The notion of employees voluntarily ‘doing more than is required’ is also present in the concept of innovation. The innovation process not only encompasses the development of creative ideas, but also the implementation of these ideas. The notion of innovative work behaviour (IWB) (Janssen, 2000; Janssen, Schoonebeek & van Looy, 1997; Scott & Bruce, 1994) takes both aspects into account. IWB concerns the voluntary willingness by individual employees to constitute on-thejob innovations – for example, the upgrading of ways of working, communication with direct colleagues, the use of computers, or the development of new services or products. IWB can be studied from both the perspective of job characteristics and organizational practices that promote the opportunity and motivation to show IWB (Amabile, 1988; Axtell et al., 2000; Bunce & West, 1995; Janssen, et al., 1997; Oldham & Cummings, 1996;

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Unsworth & Parker, 2003; West & Farr, 1990). For example, Farr (1990) argues that employee creativity and IWB can be seen as outcomes of job design interventions. In this paper, we examine the effects of job design interventions; more specifically, interventions aimed at increasing functional flexibility. This refers to the extent that the job enables the employee to assist or even replace colleagues in unpredictable situations that arise during the daily work process. It is assumed that functional flexibility is fostered by a high variety of tasks and skills required within one's job and the homogeneity of skills among jobs of close colleagues. Following the Job Characteristics Model (Hackman & Oldham, 1980), this study proposes that a wide span of job activities broadens the psychological boundaries of one's job enhancing innovative behavior, through a broadened, more proactive concern for work-related problems. In what follows, we examine whether the degree of functional flexibility is a key factor in enhancing IWB through the psychological construct of ‘production ownership’ (Parker, Wall & Jackson, 1997; Parker, 2000). Within the employees’ organizational context, IWB may also be influenced by commitment-oriented human resource management practices. We explore this relationship within a social exchange theory framework (Blau, 1964; Tsui, Pearce, Porter & Tripoli, 1997; Whitener, 2001).

The Innovative Work Behaviour Perspective While there is a general consensus that innovation is a ‘good thing’, there is however little consensus how to define and measure innovation (Rickards, 1996). In research, the focus on innovation on an individual level has tended to be on creativity or suggestion making, rather than on implementation. Both creativity and implementation are components of innovation (Axtell et al., 2000). In this paper we take both components into account by defining IWB as the intentional introduction and application of ideas, processes, products or

PROBLEMRECOGNITION

IDEA GENERATION

CREATIVITY-ORIENTED WORK BEHAVIOUR

procedures, within a role, group or organization, new to the relevant unit of adoption designed to significantly benefit the individual, group, organization or wider society (West & Farr, 1990). Following Scott and Bruce (1994), Janssen et al. (1997) and Janssen (2000), IWB is conceived as a complex behaviour consisting of four interrelated sets of behavioural activities, namely (1) problem recognition, (2) idea generation, (3) idea promotion and (4) idea realization. As shown in Figure 1, the first two sets cover the notion of creativity-oriented behaviour, in which the individual's IWB starts with the recognition and understanding of workrelated problems, followed by the production of novel and useful ideas within the own work context. The last two behavioural sets refer to implementation-oriented behaviour, including the promotion of a novel idea to potential allies (e.g. colleagues and managers) and realizing actual ideas that ultimately can be applied within the work-role, group or total organization. It should be emphasized that we focus on the employees’ innovative performance towards smaller-scale, on-the-job innovations that contribute to the employees’ daily work practice.

Determinants of Innovative Work Behaviour As our goal is to examine dimensions of the employee's job and organizational context that are related to individual IWB, we focus on the degree to which functional flexibility characterizes one's job. The design of jobs has long been considered an important contributor to employees’ motivation to innovate (Axtell et al., 2000; Hackman & Oldham, 1980; West & Farr, 1990). The Job Characteristics Model (Hackman & Oldham, 1980) is still one of the leading theoretical principles (Parker & Wall, 1997; Parker, Wall & Cordery, 2001) regarding research on job design at an individual level. It identifies the core job characteristics: skill variety, task identity, task significance, autonomy and

IDEA PROMOTION

IDEA REALIZATION

IMPLEMENTATION-ORIENTED WORK BEHAVIOUR

Figure 1. Four Stages of Innovative Work Behaviour (based on Janssen, Schoonebeek and van Looy, 1997)

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feedback that affect outcomes such as work satisfaction, job performance and reduced absence and turnover, through so-called ‘critical psychological states’. These mediating effects of employee attitudes between the design of a job and relevant employee and work outcomes are originally clustered into three states: experienced meaningfulness of the work, experienced responsibility for the work and knowledge of results of work activities. They mediate the motivating potential of the job with relevant work outcomes. Although the importance of motivation is widely recognized, Parker (2000) emphasizes that in relation to innovation it is important to focus on the motivational variables that promote employee proactivity. Those are likely to be relevant drivers of innovation in a way that may result in other outcomes such as effective problem solving or coping with demands (Unsworth & Parker, 2003). Concerning employee motivation to engage in innovative activities, Parker (2000) distinguishes the concept of proactive motivation from passive motivation. A key aspect of this proactive motivation is the employees’ ‘production ownership’, which refers to ‘the extent to which employees feel concern for tasks, issues or problems beyond their immediate operational tasks’ (Parker, Wall and Jackson, 1997). It emphasizes an orientation of the employee on his own role within the organization, feeling responsible for the occurrence of problems concerning the quality of products or services provided, the satisfaction of customers, clients or citizens, but also the operational efficiencies, coordination and cohesion within the work unit. Parker, Wall and Jackson (1997) argue that employees are more likely to engage in innovative activities when they feel higher levels of concern and ownership of the problems confronting them in the workplace. Furthermore, Frese et al. (1996) state that to the extent that employees have a strong feeling of personal responsibility regarding workrelated change, they will attach positive valence to taking charge, because it will provide a sense of personal satisfaction and accomplishment. Morrison and Phelps (1999) have empirically shown that ‘felt responsibility’ is positively related to employees taking charge of workplace change. Recently, Axtell et al. (2000) provided evidence for a positive relation between the extent of production ownership within a manufacturing context and suggestion making by employees. Consequently, the following hypothesis was constructed: H1: The extent to which employees feel concern for and ownership of the problems confronting


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them in the workplace is positively related to IWB. Regarding the link between ownership and IWB, we argue that production ownership may be stronger for jobs that are characterized by functional flexibility. We shall outline this relationship below.

Functional Flexibility, Production Ownership and Innovative Work Behaviour Functional flexibility originated from the idea that organizations should have employable employees in order to respond quickly to fluctuations within work processes or production methods, or the increasing demands of customers, clients or citizens towards products and services (Molleman & van der Zwaan, 1994; Nauta, Goudswaard & Kraan, 2002). Based on the perspective of Morgan (1986), Molleman and van der Zwaan (1994) and Molleman and Slomp (1999), two principles of functional flexibility are explored in relation to IWB: multifunctionality and redundancy. Multifunctionality refers to the number of different tasks that are performed in a job and the broad scope of these tasks (see van de Ven & Ferry, 1980). Therefore, multifunctionality is the counterpart of job specialization. When a job involves a large number of broadly defined tasks, generalists with a variety of skills are required. Following Hackman and Oldham (1980), the degree to which a job includes a variety of activities thus determines the ‘skill variety’ within one's job. In this manner, the skill variety than equals the perceived multifunctionality that is required within one's job. Farr (1990) states that enriched jobs are more challenging than simplified jobs and require more thinking that could promote IWB. In addition, Herzberg (in Axtell et al., 2000) argues that a broader job scope would lead to employees knowing more, seeing more interrelationships in what they know and being more creative. Therefore it is suggested that multifunctionality accompanied by a broad skill structure within the job will support higher levels of creativity, as opposed to relative simple, routine jobs (Farr, 1990; Hackman & Oldham, 1980). The second determinant of functional flexibility is redundancy. Molleman and Slomp (1999) define redundancy as ‘the number of workers that are qualified to do a specific task’ (p. 1837). As such, redundancy refers to the homogeneity of tasks and skills between the various jobs in a team or unit, which enables direct colleagues to perform each other's job. van de Ven & Ferry (1980) conceive it as an aspect of the personnel composition of a unit,

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and emphasize the interchangeability of roles or jobs across direct colleagues. Morgan (1986) interprets the concept of ‘redundancy of functions’ as a degree of multiple skills that enable direct colleagues to perform each other's job and substitute as the need arises. As it is argued that a high degree of skill variety grasps the notion of multifunctionality within one's job and broadens the psychological borders of an employees’ job, which in turn promotes innovativeness, the same accounts for redundancy. For instance, Morgan (1986) argues that a method of creating room for innovation and development to occur is through the principle of redundancy of functions. Jobs within the work system designed to engage in a range of tasks encourage people to get involved in the challenges at hand, rather than focusing on narrow job descriptions and adopting a ‘that's not my responsibility’ attitude. Taking into account the mediating mechanism of production ownership, Parker, Wall and Jackson (1997) argue that broadening the job through multifunctionality and redundancy broadens the psychological borders of the job that withholds the employee from developing a ‘that's not my job’ attitude. This results in the following two hypotheses: H2a: The extent to which the employee's job requires multifunctionality is positively related to the level of concern for and ownership of the problems confronting him or her in the workplace. H2b: The extent to which an employee's job involves redundancy of functions is positively related to the level of concern for and ownership of the problems confronting him or her in the workplace. Subsequently, we expect that both dimensions of functional flexibility separately influence the IWB employees through the mechanism of ownership as shown in the following hypothesis: H3: Production ownership mediates the positive relationship between the separate dimensions of functional flexibility – multifunctionality and redundancy – and innovative work behaviour. Once more the conceptual difference between concepts of the multifunctionality and redundancy is emphasized. Multifunctionality refers to the broad skill structure required within the job, while redundancy concerns the degree of homogeneity of skills among jobs of direct colleagues in the daily work process. However, the outcomes of multifunctionality and redundancy are not necessarily the same (Molleman & Slomp, 1999). A job design char-

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acterized by redundancy enables employees to perform each other’s tasks, but does not necessarily involve a high degree of skill variety while the tasks might as well be very alike. In research, however, these components are not always that explicitly distinguished as it comes to defining functional flexibility (see Nauta, Goudswaard & Kraan, 2003).

Exploring the Influence of HRM on Innovative Work Behaviour As functional flexibility is believed to be a determinant of IWB within one's job, we also explored determinants within the employees’ organizational context. In this paper, based on earlier work on Human Resource Management (HRM) by Walton (1985) and studies by Arthur (1994), MacDuffie (1995), Boselie, Hesselink, Paauwe, Van der Wiele (2001) , the ‘commitment’ configuration of HRM is explored in relation to IWB. As opposed to High Commitment HRM, Arthur (1994) states that a High Control HRM system focuses on reduction of direct labour costs, or improving efficiency by enforcing employee compliance with specified rules and procedures. On the other hand, commitment-oriented HRM should shape desired employee behaviours and attitudes by establishing psychological links between organizational and employee goals. The decentralization of managerial decisionmaking, setting up participation mechanisms and providing the proper training, equitable rewards and openness of information, contribute to a High Commitment HRM system. This system can lead to employees who are more likely to engage in organizational citizenship behaviours (Organ, 1988), non-role, unrewarded behaviours that are believed ‘to be critical to organizational success’ (Arthur, 1994). To date, explicit empirical data on the effect of High Commitment HRM on innovativeness at an individual level is scarce. Following Tsui et al. (1997) and Whitener (2001), a social exchange theory (Blau, 1964) framework will be used to explore the relationship between a commitment HRM configuration and IWB. It is suggested that employees interpret actions within the organizational context such as HRM practices (Wayne, Shore & Liden, 1997) as signals of the personified organization's commitment to them. Employees reciprocate their perceptions accordingly in their own commitment and behaviour to the organization. In this study, the individual perception of HRM practices is included in order to explore the effect of organizational practices on production ownership and IWB at the individual level. Hence, the final hypothesis reads:



H4: The extent to which an employee perceives high commitment HRM practices is positively related to IWB, a relationship mediated by production ownership.

Method Procedure and Respondents Our population consisted of 450 administrative non-managerial employees of a large Dutch local government organization, employing over 2,000 people. Documentation on the organization's salary-scale structure was used to differentiate formal job contents. We focused on employees within administrative, knowledge-intensive professions and excluded employees within more operational and lower-vocational professions. This was done to exclude a priori the incomparability of IWB following from fundamental differences in the job content in the separated professions. Within the chosen population, employees were randomly selected from all sorts of function categories, such as policymakers, inspectors, engineers, internal consultants, designers or ICT professionals. A stratified sample of 243 respondents received a questionnaire through organization-internal mail. Participation was voluntary for all employees, and confidentiality was ensured. Of the sample, 132 questionnaires were returned, a response rate of 55%. The percentage of female participants was 39%; the average age of the sample was 43 years; the average organizational tenure was 12 years and 80% of the participants had at least a higher vocational education. The actual response was representative for the target population.

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Instruments Innovative Work Behaviour This measure drew on the four aspects of innovation: problem recognition, idea generation, idea promotion and idea realization. Items were based on scales for these four aspects by Janssen et al. (1997). For the present study, items were developed that specified six domains of innovation: (1) collaboration, (2) the use of computer technology, (3) quality of service, (4) quality of labour, (5) work processes and (6) the use of financial resources, for the two stages, problem recognition and idea generation. This was done to make the questionnaire less abstract and more tailor-made for the present population. In addition, the wording of the items was made to reflect the work domains in which IWB is likely. Items concerning idea promotion and realization were not specified towards the six domains of innovation, but instead they were more comprehensive indicators for measuring implementation oriented work behaviour. This subsequently led to 25 partly self-constructed items on IWB. Respondents indicated how often they performed IWBs in the workplace, using a 5-point scale ranging from ‘to a very little extent’ (1) to ‘to a very large extent’ (5). Factor analysis revealed that four dimensions could be distinguished. The content of these dimensions were different from those found by Janssen et al. (1997). Table 1 shows the items and factor loadings on the four dimensions. Ten items on creativity-oriented work behaviour (resembling the initial stages of innovation ‘problem recognition’ and ‘idea generation’) loaded on the first factor. Six items referring to implementation-oriented

Table 1. Factor Structure of the Innovative Work Behaviour Measure Items

Loadings Factor 1

Creativity-oriented work behaviour: 1. . . . actively think along concerning improvements in the work of direct colleagues? 2. . . . generate ideas to improve or renew services your department provides? 3. . . . generate ideas on how to optimise knowledge and skills within your department? 4. . . . generate new solutions to old problems? 5. . . . discuss matters with direct colleagues concerning your/their work?


Factor 2

Factor 3

Factor 4

0.842 0.785 0.733 0.640 0.607

0.480

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Table 1. Continued Items

Loadings Factor 1

6. . . . suggest new ways of communicating within your department? 7. . . . generate ideas concerning the distribution of tasks and work activities within your department? 8. . . . actively engage in the thinking on which knowledge and skills are required within your department? 9. . . . try to detect impediments to collaboration and coordination? 10. . . . actively engage in gathering information to identify deviations within your department? Implementation-oriented work behaviour: 11. . . . in collaboration with colleagues, get to transform new ideas in a way that they become applicable in practice? 12. . . . realize ideas within your department/ organization with an amount of persistence? 13. . . . get to transform new ideas in a way that they become applicable in practice? 14. . . . mobilize support from colleagues for your ideas and solutions? 15. . . . eliminate obstacles in the process of idea implementation? 16. . . . make your supervisor enthusiastic for your ideas? Innovative behaviour towards the use of computer technology: 17. . . . sort out new ways to use computer technology more effectively in your work? 18. . . . independently sort out and deploy new computer applications into your work situations? 19. . . . experiment with new ways of working?

Factor 2

Factor 3

0.595 0.327

0.562 0.550

0.317

0.450 0.397

0.420

0.831

0.761 0.330

0.677 0.674

0.380

0.620 0.424

0.596

0.849 0.871 0.366

0.597

Innovative behaviour towards the use of financial resources: 20. . . . sort out new possibilities to gain financial means or to reduce costs? 21. . . . keep yourself informed with your department's financial situation? Eigenvalue Percentage of variance explained

Factor 4

0.862 0.846 9.525 38.10

2.024 8.10

1.728 6.90

1.512 6.05

Notes: The factor solution that resulted in the best structure was a 6-factor solution. Two factors could not be interpreted and are not displayed. Items in bold could be interpreted and retained in subscales of the innovative work behaviour measure. All items start with the question: ‘To what extent do you . . .’ Items are translated from Dutch to English by the authors. Factors loadings with values less than 0.30 are not displayed.

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work behaviour (resembling the stages ‘idea promotion and ‘idea realization’) could also be distinguished and loaded on the second factor. Loadings on factors 3 and 4 were items on the use of computer technology and the use of financial resources respectively. It was concluded that creativity-oriented work behaviour and implementation-oriented work behaviour resemble separate dimensions of the IWB construct. Idea generation on economizing financial resources and the use of computer technology appeared to be a rather infrequent phenomenon in daily practice. This could indicate that only a small proportion of employees in the sample are formally involved and are able to engage innovative behaviour towards financial or computer-technology issues. As the focus of this research is on IWB in the daily work situation, these two domains were dropped from further analysis. The inter correlation between ‘creativityoriented IWB’ and ‘implementation-oriented IWB’ was 0.67. Given this relative high correlation, and following Scott and Bruce (1994) and Janssen (2000), these two aspects were conceived to combine additively to create a summative scale of IWB. Internal reliability was alpha 0.92. However, collapsing the creativity and implementation dimension into one measure has its limitations. Axtell et al. (2000) argue that there is a good reason to believe that two aspects of innovation will have a different actiology. Therefore, besides the overall scale for IWB, separate scales for creativity-oriented IWB and implementation-oriented IWB were included in further analyses. Internal reliability for the separate scales was alpha 0.90 and 0.88 respectively. Production ownership The extent to which people feel ownership for work issues beyond their immediate operational tasks was measured with a slightly revised version of the ‘production ownership’ scale (by Parker, Wall & Jackson, 1997; Parker, 2000). It compromises 12 items, all of which start with the question ‘Do you feel responsible . . .’. Example items are ‘if there was a lack of qualified people in your department’, ‘if people in your work area were not coordinating their efforts’. Respondents indicated their level of ownership on a 5-point scale ranging from ‘to a very little extent’ (1) to ‘to a very large extent’ (5). Internal consistency was high (alpha = 0.86). Multifunctionality The two scales for ‘multifunctionality’ and ‘redundancy’ measured functional flexibility.


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The scale for multifunctionality consisted of seven items based on the Job Design Survey (JDS, Hackman & Oldham, 1980), the Questionnaire on the Experience and Evaluation of Work (QEEW, van Veldhoven & Meijman, 1994) and the Job Content Questionnaire (JCQ, Karasek & Theorell, 1990). Example items included are ‘Your job requires learning new things’, ‘Your job requires using all your skills and talents’ (alpha = 0.78). Respondents indicated to what degree items resembled their own perception of job characteristics on a 5point scale ranging from ‘to a very little extent’ (1) to ‘to a very large extent’ (5). Redundancy The degree of perceived homogeneity of tasks and skills among the various jobs in a team or unit was assessed by six items, partially based on items from Goudswaard, Kraan & Dhondt (2002). Example items included are ‘Your direct colleagues perform tasks comparable with yours’, ‘Skills and knowledge at your disposal are comparable with skills and knowledge of your direct colleagues’ (alpha = 0.75). Participants indicated to what degree items resembled their own perception of their job on a 5-point scale ranging from ‘to a very little extent’ (1) to ‘to a very large extent’ (5). High Commitment HRM Practices This variable was measured using a scale developed by Boselie et al. (2001). The following five aspects are distinguished: (1) employee participation, (2) wages, (3) training and development, (4) information sharing and (5) supervisor support. High scores represent a commitment-oriented HRM system. Example items included are ‘In comparison to my colleagues I get well paid’, ‘There is a lot of effort done to get to know the opinions and ideas of employees in my department’, ‘In my job, I get enough opportunities for personal growth and development’, ‘I am well informed on the vision and mission of the organization’, ‘My direct supervisor lets me know how I perform on a regular basis’. Respondents could indicate to what degree items resembled their own perception of HRM practices on a 5-point scale ranging from ‘to a very little extent (1)’ to ‘to a very large extent’ (5). The measure was constructed by taking the mean of the sum of scores on 18 items representing a commitment-oriented HR system (18 items accounted for a Chronbach's alpha of 0.88). A low score for this variable indicates the employees’ perception of a ‘low commitment’ set of HRM practices. High scores

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indicate the employees’ perception of a ‘high commitment’ set of HRM practices.

Table 2. Results of Regression Analysis, Predicting Production Ownership from Functional Flexibility

Background Variables

Variables

To control for the possibility that differences in the core tasks within the various function categories might lead to misinterpretations of the relationship between functional flexibility and IWB, all function categories (0 = policymakers, 1 = consultants, 1 = support, 1 = inspectors, 1 = engineers, 1 = ICT-professionals and 1 = other) were entered as dummy variables. Furthermore, sociodemographic variables such as job tenure in years (centred) and dummy-variables for gender (0 = female; 1 = male) full-time contract (0 = 32 working hours per week) and education (0 = higher vocational education; 1 = lower vocational education) were entered in regression analysis.

Data Analysis A series of multiple regression analysis was performed to assess the effects of functional flexibility, High Commitment HRM and production ownership on IWB. The background variables were entered for each regression analysis. For H3 and H4, which predict that production ownership mediates the relationship between functional flexibility variables and IWB, High Commitment HRM and IWB respectively, a hierarchical multiple regression analysis has been used to assess the three conditions demonstrating mediation: (1) a significant relationship between the mediator and the dependent variable controlling for the independent variable, (2) a significant relationship between the independent and the dependent variable and (3) the relationship between the independent variable and the dependent variable decreasing or becoming non-significant when the mediator is added to the step (Baron & Kenny, 1986). Sociodemographic variables, function categories, independent and intermediate variables were entered separately, and were used to test whether independent variables become non-significant in the final model in which production ownership was added to the equation.

Results Table 2 presents the results of a regression analysis in which production ownership is predicted form redundancy and multifunctionality. Table 3 contains the direct effects of

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Production Ownership

Control Variables Job Tenure Education (Lower Vocational) Gender (Male) Working hours (> 32 p/week) Function Category a Consult Support Inspection Engineering ICT Other Functional Flexibility Redundancy Multifunctionality R2 F value

0.150 -0.109 0.049 -0.220* 0.246* 0.063 0.005 -0.012 0.115 0.263* 0.187* 0.229* 0.21 2.49**

Notes: N = 132. * p < 0.05; ** p < 0.01. a Dummycoded, policymaking is the omitted reference category.

functional flexibility on IWB. In Table 4, the mediating effect of production ownership on IWB, as proposed in the research model, is shown. In Table 5, the relationship between the perceived High Commitment HRM system and ownership and IWB is explored. All analyses were controlled for job demands, job tenure, gender effects, education, work hours per week and the different function categories. The regression analysis on production ownership presented in Table 2 shows a relationship between redundancy and production ownership (b = 0.187; p < 0.05) and multifunctionality and production ownership (b = 0.229; p < 0.05). Results indicate that the more employees experience interchangeability of roles and jobs across direct colleagues, the more likely employees are to feel stronger ownership of tasks, issues or problems beyond their immediate operational tasks. Similarly, the extent to which the employees’ job requires a broad and varied mix of skills and knowledge positively relates to production ownership. As such, promoting functionality flexibility through increasing redundancy and multifunctionality stimulates a proactive attitude towards the work situation. Surprising



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Table 3. Results of Regression Analysis, Predicting IWB from Functional Flexibility and Production Ownership Variables

Control Variables Job Tenure Education (Lower vocational) Gender (Male) Working hours (>32 p/week) Function Categorya Consult Support Inspection Engineering ICT Other Functional Flexibility Redundancy Multifunctionality Mediator Production Ownership R2 F value

Innovative Work Behaviour (IWB)

Creativityoriented IWB

Implementationoriented IWB

-0.211* -0.193* -0.053 0.076

-0.223* -0.152 -0.015 0.050

-0.132 -0.203* -0.117 0.087

-0.215* -0.116 -0.097 -0.022 0.086 -0.105

-0.168* -0.091 -0.090 -0.041 0.075 -0.007

-0.266* -0.098 -0.087 -0.018 0.081 -0.250*

0.050 0.221**

0.084 0.135

-0.002 0.313**

0.417**

0.435**

0.291**

0.405 5.67**

0.382 5.27**

0.368 4.89**

Notes: N = 132. * p < 0.05; ** p < 0.01. a Dummycoded, policymaking is the omitted reference category.

Table 4. Results of a Hierarchical Regression Analysis, Predicting IWB from Functional Flexibility (Controlling for Production Ownership) a Variables

Functional Flexibility Redundancy Multifunctionality Mediator Production ownership R2 F value


Creativityorientated IWB

Implementationorientated IWB

Step I

Step II

Step I

Step II

Step I

Step II

0.130 0.312**

0.050 0.221**

0.165 0.234**

0.084 0.135

0.054 0.378**

0.084 0.313**

–

0.417**

–

0.435**

–

0.291**

0.266 3.29**

0.405 5.67**

0.232 2.82**

0.382 5.27**

0.300 3.94**

0.368 4.89**

Notes: N = 132. * p < 0.05; ** p < 0.01. a All covariates discussed in the method section were entered.

however, is the negative effect of employees working 75–100% full-time on production ownership as opposed to employees who work less (b = -0.220; p < 0.05). Contrary to expectations, employees working less than


75% full-time indicate more feelings of ownership than employees working 75–100% fulltime. To conclude, the results imply that our hypotheses H2a and H2b are confirmed by the data.

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Table 5. Results of a Hierarchical Regression analysis, Predicting IWB from High Commitment HRM (controlling for Production Ownership) Variables

Production Ownership

Step I

Step II Step I

Organizational context High Commitment 0.301** HRM Mediator Production Ownership – – R2 F value

0.199 2.45**


–

Creativityorientated IWB

Step II Step I

Implementationorientated IWB

Step II Step I

0.344** 0.224** 0.311** 0.186*

321**

Step II

239**

–

0.407** –

0.431** –

0.278**

0.271 3.58**

0.405 5.96**

0.394 5.79**

0.343 4.57**

0.245 3.19**

0.280 3.76**

Notes: N = 132. * p < 0.05; ** p < 0.01. All covariates discussed in the method section were entered.

Table 3 shows the relationship between production ownership and IWB, as well the relationship between the functional flexibility variables and IWB. The two seperate dimensions creativity-oriented IWB and implementation-oriented IWB were also entered as dependent variables. As expected, the results show a strong positive relationship between production ownership and IWB (b = 0.417; p < 0.01). For the separate subscales of IWB, regression analyses show also strong positive relationships of production ownership. However, the effect is less strong for implementation-orientated IWB (b = 0.291; p < 0.01) than for creativity-orientated IWB (b = 0.435; p < 0.01). This suggests that the feelings of ownership of problems confronting employees in the workplace are more strongly related to the development of new ideas than to behaviour that aims at getting novel ideas implemented. However, it should be noted that effects remain strong for both behaviours. This is not surprising, given the high intercorrelations between the two subscales of IWB. The results on the relationship between production ownership and IWB mean hypothesis 1 is also confirmed by the data. In addition, we found that job tenure related negatively with IWB and lower vocational education and IWB. This means that the longer employees remain in the same function, the less they will engage in innovative activities. Possibly this reflects a tendency for people to comply more with the work situa-

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tion and to feel less of a need to invest in novelties, the longer people are in the same place. Second, following Janssen (1999) the negative effect of lower vocational education on IWB could be explained by the fact that higher vocational education focuses more on problem-solving skills – essential to IWB – than a lower vocational education. Lastly, employees belonging to the ‘consult’ function category report a consistent negative relationship with IWB as opposed to policymakers. This conceptually contradicts with the significant positive effect of this function category on the degree of production ownership as shown in Table 2. Therefore, the job of an internal consultant can be described as getting confronted and being responsible for problems that arise in the organization, but not as being in the position to exert creativity and produce new ideas that can be implemented. Hypothesis 3 predicted that production ownership mediates the relationship between functional flexibility and IWB. Table 4 presents the results of two regression analyses testing whether production ownership acts as a mediator. The results show that the significant relationship between multifunctionality and IWB (b = 0.312; p < 0.01) declines when in step 2 production ownership is added to the equation (b = 0.221: p < 0.01). However, this relationship remains significant when controlling for production ownership. This suggests that production ownership partially mediates the relationship between multifunctionality and



IWB. Furthermore, the results in Table 4 show that the significant relationship between multifunctionality and the subscale of creativityoriented IWB (b = 0.234; p < 0.01) turns non-significant when production ownership is added to the equation (b = 0.135; p > 0.05). This suggests that production ownership fully mediates the relationship between having a job that requires a broad varied mix of skills and knowledge and developing novel ideas within the daily work practice. Redundancy does not constitute a significant direct relationship with IWB. To conclude, the results mean that hypothesis 3 is partially confirmed by the data.

Results for the Relationship between HighCommitment HRM and IWB Table 5 shows the regression analysis of the perceived High Commitment HRM system on production ownership and IWB. It was found that employee perceptions of High Commitment HRM practices have a significant positive effect on both feelings of production ownership [b = 0.301; p < .01] and engaging in IWB [b = 0.344; p < .01]. To test hypothesis 4, we examined whether production ownership mediates the relationship between High Commitment HRM and IWB. In step 2 of the regression analysis, we entered production ownership, now as an independent variable. Results show that the significant relationship between perceived High Commitment HRM and IWB (b = 0.344; p < 0.01) declines when production ownership is added to the analysis (b = 0.224; p < 0.01). However, this relationship remains significant when controlling for production ownership. This suggests that production ownership partially mediates the relationship between perceived High Commitment HRM and IWB, but has a direct effect as well. The data supports a positive effect of the perception of High Commitment HRM practices on IWB, partially through increasing production ownership. As such, hypothesis 4 is accepted.

Conclusion and Discussion The focus of this paper is on the perceived characteristics of the job and Human Resource Management practices thought to facilitate individual innovative behaviour. Key questions were whether a job design characterized by functional flexibility enhances employees’ on-the-job innovative behavior. Following the framework of the Job Characteristics Model (Hackman & Oldham, 1980), it was theorized that production ownership is a critical


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psychological state that mediates the relationship between variables for functional flexibility and IWB as an outcome. The extent to which employees feel ownership of tasks, issues or problems beyond their immediate operational tasks was expected to be a key determinant of showing IWB. Next, based on a social exchange theory framework, it was suggested that management could facilitate IWB through employing HRM practices that are commitment-oriented. Subsequently, we tested the relationship between perceiving a High Commitment HRM system and ultimately engaging in IWB in the daily work practice. As predicted in hypothesis 1, we found a strong positive relationship, indicating that a proactive attitude as ownership promotes the generation and implementation of ideas within the work context. Hypothesis 1 was accepted. The subsequent hypotheses 2a and 2b predicted that production ownership might be stronger (a) for jobs that are characterized by functional flexibility. Examining two dimensions of functional flexibility, it was found that production ownership was stronger for jobs characterized by both redundancy and multifunctionality. Both hypotheses were accepted. Furthermore, it was found that a relationship between multifunctionality and IWB was partially mediated by production ownership. Redundancy had no significant effect on IWB. Therefore hypothesis 3 was partially confirmed. Lastly, results indicated that employees who perceived HRM practices to be commitmentoriented both felt more ownership for work issues beyond their immediate operational tasks and showed more IWB. Here, production ownership partially mediated the relationship between high-commitment HRM and innovative outcomes. The data supported the explorative H4. Overall, the results of the study suggest that conditions for showing IWB are found in the flexible job design, as this broadens the concern for work issues beyond the immediate tasks. In turn, ownership positively affects IWB that contributes to diverse aspects of the daily practice. This result contributes to the extensive body of knowledge concerning the relevance of job design in promoting employee outcomes like (innovative) performance or employee well being (e.g. Bunce & West, 1995; Unsworth & Parker, 2003; West & Farr, 1990). However, explaining the effect of functional flexibility has its limitations. It can be questioned whether the two separate measures for functional flexibility – redundancy and

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multifunctionality – provide an adequate insight in the concept of functional flexibility at a job level. We measured subjective functional flexibility in the job, and relied on employee-reports of their own job characteristics by asking whether tasks were comparable with colleagues and if they required a varied and broad mix of skills and knowledge. An objective measure would be appropriate in order to specifically know how to design a job that stimulates innovation. We did not include the design principle of ‘job control’, which concentrates on the degree of decision latitude employees have in the way they execute their work. In this study, our main interest was the relationship between psychological job boundaries and individual innovation. As such, we concentrated on the high variety of tasks and skills required within one's job and the homogeneity of skills between jobs of direct colleagues. Nevertheless, this view on functional flexibility significantly relates to production ownership and IWB. However, future research should focus more thoroughly on both theoretical and methodological issues of the multifaceted construct of functional flexibility. For instance, the separate dimensions underlying this form of flexibility are not equivalents, as Molleman & Slomp (1998) note. Therefore, the outcomes of multifunctionality and redundancy are not necessarily the same. It is worth examining the benefits of each of the separate dimensions and possible interaction effects. The concept and measurement of IWB has its limitations. For example, IWB resulting in new patterns working could indicate a process of ‘reversed causality’ in which IWB influences the employee’s job design. However, following earlier research on the relationship between job characteristics and individual innovativeness (Amabile et al., 1996; Axtell et al., 2000; Oldham & Cummings, 1996), it is suggested that job characteristics precede innovative outcomes. The notion of reversed causality between IWB and functional flexibility should however be acknowledged. Furthermore, the use of self-reports on IWB is also questionable, because employees may be tempted to see themselves as innovators. Leader-reports could solve this problem, but this raises the question of whether supervisors are able to notice all smaller-scale IWB that employees engage in. Lastly, exploring the effect of perceiving High Commitment HRM practices, it was argued that employees perceive an HRM system that indicates the personified organization's commitment to them. Social exchange theory (Blau, 1964; Tsui et al., 1997) suggests that employees reciprocate this perception

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accordingly, in their own commitment and behaviour to the organization. Results show that this could be the case, but this research does not make clear which of the aspects of HRM constitute the strongest effect on IWB. To provide more insight in the effect of HRM practices on innovative outcomes, future research should also examine the separate effects of HRM practices in place. Taken together, this research contributes to the understanding of determinants and mechanisms within both the job design and organizational context that facilitate IWB through production ownership.

Acknowledgements This research resulted from a master thesis, carried out with support of TNO Work and Employment, The Netherlands. We would like to thank Steven Dhondt, Karolus Kraan and Ton Korver for comments and help in the period June 2001–June 2002. We would also like to thank two anonymous reviewers for their helpful comments.

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Farr, J.L. (1990) Individual Innovation. In West, M.A. and Farr, J.L. (Eds.) Innovation and Creativity at Work. Wiley, Chichester, pp. 1–13. Frese, M., Kring, W., Soose, A. and Zempel, J. (1996) Personal Initiative at Work: Differences between East and West Germany. Academy of Management Journal, 34, 297–334. Goudswaard, A., Kraan, K.O. and Dhondt, S. (2000) Flexibiliteit in balans: flexibilisering en de gevolgen voor werkgever én werknemer. Hoofddorp, TNO Arbeid. Guest, D.E. (1999) Human resource management: the worker's verdict. Human Resource Management Journal, 9, 5–25. Hackman, J.R. and Oldham, G.R. (1980) Work redesign. Addison-Wesley, Reading, Mass. Janssen, O., Schoonebeek, G. and van Looy, B. (1997) Cognities van empowerment als de schakel tussen delegerend leiderschap en innovatief gedrag van werknemers. Gedrag en Organisatie, 10, 175–94. Janssen, O. (1999) Werkdruk, billijkheidspercepties en innovatief werkgedrag van Leidinggevenden. Gedrag en Organisatie, 12, 255–69. Janssen, O. (2000) Job demands, perceptions of effort-reward fairness and innovative work behaviour. Journal of Occupational and Organizational Psychology, 73, 287–302. Kanter, R.M. (1988) The change masters: corporate entrepreneurs at work. Unwin Paperbacks, London. Karasek, R. and Theorell, T. (1990) Healthy work: stress, productivity, and the reconstruction of working life. Basic Books, New York. MacDuffie, J.P. (1995) Human Resource Bundles and Manufacturing Performance. Industrial and Labor Relations Review, 48, 197–221. Molleman, E. and van der Zwaan, A. (1994) Grenzen van zelforganisatie. Gedrag en Organisatie, 7, 451–71. Molleman, E. and Slomp, J.. (1999) Functional flexibility and team performance. International Journal of Production Research, 37, 1837–58. Morgan, G. (1986) Images of organizations. Sage Publications, Thousand Oaks. Morrison, E.W. and Phelps, C.C. (1999) Taking Charge at Work: Extra-role Efforts to Initiate Workplace Change. Academy of Management Journal, 42, 403–19. Nauta, A., Goudswaard, A. and Kraan, K. O. (2002) Effecten van functionele flexibiliteit op betrokkenheid en uitputting in blauwe- en witteboordenberoepen. Gedrag en Organisatie, 15, 79–93. Oldham, G.R. and Cummings, A. (1996) Employee creativity: Personal and contextual factors at work. Academy of Management Journal, 39, 607–34. Organ, D.W. (1988) Organizational citizenship behavior: The good soldier syndrome. Lexington Books, Lexington. Parker, S.K. (2000) From Passive to Proactive Motivation: The Importance of Flexible Role Orientations and Role Breadth Self-efficacy. Applied Psychology, 49, 447–69. Parker, S.K. and Wall, T.D. (1997) Job and work design: organizing work to promote well-being and effectiveness. Sage Publications, Thousand Oaks.


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Parker, S.K., Wall, T.D. and Jackson, P.R. (1997) ‘That's Not My Job’: Developing Flexible Employee Work Orientations. Academy of Management Journal, 40, 899–929. Parker, S. K., Wall, T.D. and Cordery, J.L. (2001) Future Work Design Research and Practice: Towards an elaborated Model of Work Design. Journal of Occupational and Organizational Psychology, 74, 413–40. Rickards, T. (1996) The management of innovation: recasting the role of creativity. The European Journal of Work and Organizational Psychology, 5, 13. Scott, S.G. and Bruce, R.A. (1994) Determinants of Innovative Behavior: A Path Model of Individual Innovation in the Workplace. Academy of Management Journal, 37, 580–607. Tsui, A.S., Pearce, J.L., Porter, L.W. and Tripoli, A.M.. (1997) Alternative approaches to employee-organizational relationship: Does investment in employees pay off? Academy of Management Journal, 40, 1089–1121. Unsworth, K.L. and Parker, S.K. (2003) Proactivity and Innovation: Promoting a New Workforce for the New Workplace. In Holman, D., Wall, T.D., Clegg, C.W., Sparrow, P. and Howard, A. (Eds.) The New Workplace: A Guide to the Human Impact of Modern Work Practices. Wiley, Chichester, 175– 96. van Veldhoven, M. and Meijman, T.F. (1994) The measurement of psychosocial job demands with a questionnaire: the questionnaire on the experience and evaluation of work (QEEW). Amsterdam, Nederlands Instituut voor Arbeidsomstandigheden. van de Ven, A.H. and Ferry, D.L. (1980) Measuring and assessing organizations. Wiley, New York. West, M.A. and Farr, J.L. (1990) Innovation at Work. In West, M.A. and Farr, J.L. (Eds.) Innovation and Creativity at Work. Wiley, Chichester, pp. 1–13. Whitener, E.M. (2001) Do ‘high commitment’ human resource practices affect employee commitment? Journal of Management, 27, 515–35. van Woerkom, M. (2003) Critical reflection at work: Bridging individual and organisational learning. Enschede, University of Twente.

Luc Dorenbosch is a PhD candidate at the department of Human Resource Studies at Tilburg University, The Netherlands. Recent research addresses the conceptualization of internal consistency among HRM practices and the HRM-performance link. Marloes L. van Engen is assistant professor, Human Resource Studies at Tilburg University, The Netherlands. Her research focuses on gender and diversity in organizations. Marinus Verhagen is lecturer at the department of Human Resource Studies, Tilburg University, The Netherlands.

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Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142142150ARTICLESDETERMINANTS OF INNOVATIVE WORK BEHAVIOURCREATIVITY AND INNOVATION MANAGEMENT

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Determinants of Innovative Work Behaviour: Development and Test of an Integrated Model Nagarajan Ramamoorthy, Patrick C. Flood, Tracy Slattery and Ron Sardessai In this study, we developed and tested a causal model to predict innovative work behaviour (IWB) integrating the literatures on psychological contract, job design and organizational justice. Two hundred and four employees from Irish manufacturing organizations participated in the study, and we collected data using a survey questionnaire. The psychological contract variable of perceived obligation to innovate, job autonomy and pay showed direct effects on IWB. In addition, pay and job autonomy also had indirect effects on IWB through the mediating variable of psychological contract – perceived obligation to innovate. The organizational process of meritocracy, equity perceptions and procedural justice perceptions influenced IWB through the mediating variables of psychological contract, although none of these variables influenced IWB directly. Overall, the results indicated good support for the integrative model and provided support for the crucial role played by psychological contract in influencing IWB. Implications are discussed.

Introduction n the present age of rapid change, organizations are facing greater demand from their environment to engage in innovative behaviours to create and deliver their products and/ or services to stay competitive, and to lead the change process itself. In order to accomplish this task successfully, organizations rely on their employees to innovate their processes, methods and operations. Individual employees must engage in innovative work behaviours (IWB) if organizations are to benefit from such behaviours. The factors causing employees to engage in IWBs have been explored using different frameworks. The literature on organizational justice (Adams, 1965; Thibaut & Walker, 1975) suggests that both distributive (equity) and procedural justice components may impact IWBs. On the other hand, the psychological contract literature (Rousseau, 1990) argues that from an employee’s perspective, fulfillment of mutual contractual obligations (psychological contracts) may influence their workplace behaviours. Specifically, psychological contract fulfillment may result in employees engaging in IWBs. Lastly, the liter-

I

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ature on job design (Hackman & Oldham, 1980) suggests that freedom and autonomy experienced by employees on their jobs are generally conducive to employees engaging in creative and innovative behaviours. Despite the development of these literatures independently, a coherent model is lacking. Therefore, in this study, we integrated the literature on job characteristics, organizational justice and psychological contract to develop and test an integrative causal model to predict innovative work behaviours. In the next section, we present the hypothesized model with a review of the literature supporting the development of the hypotheses. We then present the methodology used to test the model, followed by the results. We conclude with a discussion and implications for research and practice.

Review of the Literature and Model Development Figure 1 presents the hypothesized model with the relevant variables. Central to our model are the two psychological contract variables – met expectations and obligations on © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

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Meritocracy

Justice perceptions

Met expectations Innovative work behaviours

Pay Obligation to innovate

Job autonomy

Figure 1. The Hypothesized Causal Model of the Relationships Between Organizational Processes, Psychological Contract, Job Autonomy and Innovative Work Behaviours the part of the employees to engage in IWB. We further propose that two organizational processes – justice perceptions and meritocracy (Flood et al., 2001) – affect the psychological contract variables. We also included job autonomy (Hackman & Oldham, 1980) and pay as influencing the psychological contract variables. In other words, the primary focus of the paper is to study the causal linkages among these variables.

Definition and Nature of Innovative Work Behaviours Janssen (2000) defined IWB as the intentional creation, introduction and application of new ideas within a work role, group or organization, in order to benefit role performance, the group or the organization. Janssen further suggested that IWB might consist of idea generation, idea promotion and idea realization. Furthermore, IWBs are neither expected of the employees in their formal role as employees, nor form an explicit contract between the employees and the organization. Such behaviours are purely discretionary behaviours, called extra-role behaviours, and are not formally recognized by organizational reward systems (Organ, 1988). Nevertheless, employees engaging in such behaviours are likely to benefit the organization, the group or even individual employees to perform their job tasks more effectively. In other words, if and when employees fail to engage in IWBs, they may not be in violation of the explicit contract with the organization and hence, may not suffer any adverse consequences. In a sense, IWBs are more likely to be the result of intrinsic motivations of the employees, and may be the outcome of their perceptions of psychological contract fulfillment. That is, they may or


may not feel obliged to engage in these behaviours, depending on the extent to which they feel that their psychological contracts have been fulfilled.

Psychological Contract and IWB Rousseau (1990, p. 390) defined a psychological contract as ‘an individual’s beliefs regarding reciprocal obligations’. Such perceptions of mutual obligations may be formed either through implicit or explicit contractual obligations (Arnold, 1996; Freese & Schalk, 1996; Herriott, Manning & Kidd, 1997; Paul, Niehoff & Turnley, 2000; Sapienza, Korsgaard, & Schweiger, 1997). Furthermore, perceptions of contract fulfillment on the part of the employees may result in loyalty, performance, organizational commitment and intentions to stay with the employer. Such contract fulfillment may result in employees feeling that their expectations regarding contractual obligations have been met or unmet (Flood et al., 2001). Although met expectations (Wanous et al., 1992) and perceived employee obligations may appear to be similar constructs, they may perhaps reflect two different dimensions of psychological contract. Met expectations refer to an employee’s assessment and belief that his/her expectations have been satisfied through their work experiences. Such expectations may be formed unilaterally without any explicit or implicit promises of the employer. Arnold (1996) suggests that mutuality is neither required nor critical as long as those critical aspects that employees come to expect in their work environment are met or unmet. Herriott et al. (1997) showed that employees believed in organizational obligations in terms of fairness, needs, training and growth pros-

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pects, autonomy and discretion, pay and work environment, and employers’ perceptions of mutual obligations differed slightly from that of employees. When employees perceive that the employer has fulfilled his/her obligations, they are more likely to perceive an obligation to engage in discretionary and voluntary behaviours that may be of benefit to the organization. On the other hand, when employees feel that a contract violation has occurred, they are more likely not to engage in discretionary behaviours, as such behaviours are neither required of them nor formally rewarded by organizations. Flood et al. (2001) showed that the met-expectations aspect of the psychological contract impacted the perceived obligation to contribute to the organization. In light of this, we propose that both met expectations and perceived obligation to innovate will positively affect innovative work behaviours. In addition to a direct effect, the met-expectations aspect of the psychological contract will also have a positive impact on the perceived obligation to innovate.

Organizational Processes and Psychological Contract Flood et al. (2001) showed that organizational processes – meritocracy and justice perceptions – influenced the extent to which employees perceived a psychological contract obligation with their employers. Specifically, meritocracy refers to the degree to which employees perceive that their organizations reward employees for their performance, and base promotions on merit rather than other forms such as nepotism or seniority. When merit determines the career and growth prospects of employees, they are more likely to perceive that their expectations have been met, because it is logical to assume that providing reasonable career growth and opportunities to advance may be perceived by employees as a reasonable obligation on the part of their organizations. When employees perceive that organizational processes of meritocracy reward their effort and discretionary behaviours, they may perceive their expectations have been met; this, in turn, may influence their obligation to engage in discretionary behaviours or their obligation to innovate. Hence, we are hypothesizing positive effects of meritocracy on met expectations and obligation to innovate. In addition to meritocracy, another organizational process that may impact the psychological contract is organizational justice perception. Specifically, the notion of equity (Adams, 1965) and procedural justice perceptions (Thibaut & Walker, 1975) may both be

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important variables influencing the psychological contract perceptions. In a sense, psychological contracts that deal with fulfillment of mutual obligations and expectations may implicitly incorporate the issue of fairness and equity in outcomes, as emphasized by the transactional component of the psychological contract (Arnold, 1996) and fairness of the procedures and processes as implied by the relational component of the psychological contract. The notion of equity deals with the fairness of the outcome: ‘Have I been rewarded fairly for the effort I put in?’. On the other hand, the notion of procedural justice deals with the fairness of processes such as defining and clarifying the performance standards, consistent enforcement of these standards without prejudice or bias and the opportunity to resolve differences with the organization. As shown by several studies (e.g. Flood et al., 2001; Herriot et al., 1997; Sapienza et al., 1997) perceptions of unfairness may adversely affect the psychological contract of employees. In light of these findings, we propose that both equity perceptions and procedural justice perceptions will have positive effects on met expectations and obligation to innovate.

Job Autonomy, Psychological Contract and Innovative Work Behaviours Generally, empowered employees contribute to the organization by providing ideas that would otherwise not be developed (Paul, Niehoff & Turnley, 2000). Although several different ways exist to empower employees either at the individual or group level, a critical aspect of empowerment incorporates the degree of autonomy granted to an employee to carry out his/her work. Job autonomy, or perceived freedom to do one’s job, is also a critical aspect of the job enrichment approach identified by Hackman and Oldham (1980). Such an autonomy or freedom may permit employees to engage in ‘trial and error’ and find more efficient and effective ways of doing their work. Since innovation involves trial and error, and successes and failures, job autonomy provides employees with an avenue to try out new ideas even in the face of failure. Autonomy eliminates the need for the employees to work within a prescribed set of bureaucratic rules and regulations. Furthermore, autonomy has also been shown to be one of the critical components that employees have come to expect from their employment (Herriott et al., 1997). Perceptions of autonomy in their work may also influence the extent to which an employee may want to engage in innovative work behaviours



(obligation to innovate) and also on the behaviour itself. Therefore, we are hypothesizing that job autonomy will have positive effects on obligation to innovate directly and innovative work behaviours indirectly, through the intervening variable of obligation to innovate.

Pay and Psychological Contract The role of pay in influencing employee attitudes and behaviours has been examined in several studies (Milkovich & Newman, 2005). While examining employer obligations as perceived by the employees, Herriot et al. (1997) reported that pay was one of the obligations employees reported. Lester and Kickul (2001) also reported that among the MBA students participating in the study, not only was pay ranked in terms of its importance but the participants also perceived a greater discrepancy between what they had expected and what they received, thus indicating a breach of psychological contract. Lester and Kuckul’s (2001) study also reported that even small discrepancies on extrinsic outcomes such as pay negatively affected the job performance of the individuals, presumably through the mediating variable of the unmet-expectations aspect of psychological contract. Therefore, we hypothesize that pay will have a positive effect on both met expectations and obligation to innovate. In summary, in the causal model developed and tested in this study, we propose that organizational processes – meritocracy and justice perceptions – and pay will positively affect met expectations and obligation to innovate. Met expectations will also have positive effects on obligation to innovate and innovative work behaviours. Furthermore, job autonomy will positively affect obligation to innovate and IWB. We next discuss the methodology used to test the model, then present our results and discuss the implications of our findings.

Method

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Two hundred and four blue-collar employees from the manufacturing organizations in Ireland participated in the study. Of these, 111 employees (54.4%) were men and 93 employees (45.6%) were women. One hundred and three (50.5%) of the employees had a high school certificate and the rest of the employees had junior and senior-level diplomas. One hundred and fourteen employees (55.9%) reported earnings of less than IR£15,000, 64 employees (31.8%) reported earnings of between IR£15,000 and IR£30,000 and the rest (12.3%) reported earnings of more than IR£30,000. We collected data from these employees during their work hours as the time for completing the surveys was provided by the companies participating in the study. Therefore, the response rate was fairly high (Approx. 95%), barring a few absences.

Measures Met Expectations We used a twelve-item scale to measure the degree to which the participants’ expectations were met with 1 = ‘much worse than expected’ and 5 = ‘much more than expected’ as anchors. These items tapped into the met expectations regarding job, pay, growth potentials and work environment. Appendix A shows this twelve-item scale and its reliability. Data coding was done such that a higher score indicated a higher degree of met expectations. Obligation to Innovate We measured the obligation to innovate using two items. Participants were asked to indicate the extent to which they felt obliged to ‘provide their employer with own unique knowledge and input’, and ‘provide their employer with innovative suggestions for improvement’ with 1 = ‘not at all obliged’ and 4 = ‘very much obliged’ as anchors. These two items yielded a coefficient alpha of 0.76. Data coding was done such that a higher score indicated a higher level of felt obligation to innovate.

Sample We collected data from the participants using a survey methodology. Several manufacturing organizations in the Shannon/Limerick area of Ireland were contacted to participate in the research. Mostly, personal contacts within the organization helped participation in the study. Organizations that refused to participate indicated that they were too busy to assign time for the survey and/or were going through a phase of change that prevented them from administering any surveys.


Equity We measured equity using the two items from Ramamoorthy and Flood (2002). These two items were: ‘I am fairly rewarded for the amount of effort I put in’ and ‘I am fairly rewarded for the responsibilities I take on’, with 1 = ‘Strongly disagree’ and 5 = ‘Strongly agree’ as anchors. These two items exhibited a coefficient alpha of 0.89. Data coding was done such that a higher score indicated a higher level of equity perception.

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Meritocracy We measured meritocracy using three items from Flood et al. (2001) with 1 = ‘Strongly disagree’ and 5 = ‘Strongly agree’ as anchors. The three items were: ‘Salary increases in this company are based on ability and how well you do your work’, ‘Promotion in this company is based on ability and how well you do your work’, and ‘There is a good chance of promotion in this company’. The coefficient alpha of the scale was 0.72. Data coding was done such that a higher score indicated a higher level of meritocracy perception. Procedural Justice Perceptions We measured procedural justice perceptions using the five-item composite scale from Ramamoorthy and Flood (2004) with 1 = ‘Strongly disagree’ and 5 = ‘Strongly agree’ as anchors. These items measured the extent to which performance standards are consistently enforced and the opportunity for resolving differences with the organization. The coefficient alpha of the scale was 0.74. Data coding was done such that a higher score indicated a higher level of procedural justice perception. Appendix A gives the procedural justice perceptions scale used in the study. Perceived Job Autonomy We measured perceived job autonomy using a nine-item scale developed for this study. These nine items measured the extent to which an employee has control over his/her own work with 1 = ‘never’ and 5 = ‘always’ as anchors. These nine items yielded a coefficient alpha of 0.90. Data coding was done such that a higher score indicated a higher level of job autonomy. Appendix A gives the nine-item scale. Innovative Work Behaviour We measured innovative work behaviour using the nine items from Janssen (2000). These nine items measured the extent to which an employee engages in innovative work behaviours, with 1 = ‘never’ and 5 = ‘always’ as anchors. These nine items yielded a coefficient alpha of 0.94. Data coding was done such that a higher score indicated a higher level of innovative work behavior. Appendix A gives the nine-item scale and its reliability. Gross Pay We measured gross earnings using the following scale: 1 = ‘less than IR£15,000’; 2 = ‘IR£15,000 to 20,000; 3 = IR£20,000 to 25,000; 4

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= IR£25,000 to 30,000; 5 = IR£30,000 to 35,000 and 6 = More than IR£35,000.

Data Analyses Strategy We used the methodology suggested by Pedhazur (1982) to derive the path coefficients. The path coefficient from a predictor to the dependent variable is the standardized regression coefficient for the predictor controlling for all other predictors in the equation. We used the one tail t-tests to test for the significance of the hypothesized path coefficients. In order to test for the significance of the overall model, we conducted the log likelihood test suggested by Pedhazur (1982, p. 619) that tested the over-identified model with the constrained paths with the just-identified model with all possible paths (twenty-eight paths in this model). The null hypothesis tested was that the over-identified model fits the data as well as the just-identified model. When the resultant Chi-square statistic for the overidentified model is less than the critical Chisquare with the number of constrained paths as the degrees of freedom (p > 0.05), the null hypothesis is retained suggesting that the over-identified model adequately fits the data as good as the just-identified model. Since the Chi-square statistic is greatly influenced by the sample size and has a tendency to reject the null-hypothesis even when the model fits the data well (Joreskog & Sorbom, 2001), we also examined the measure of goodness of fit (Q), suggested by Pedhazur (1982) for overidentified models. This measure of goodness of fit can range from 0 to 1 with a value of 1 indicating a perfect fit and a value of 0 indicating no fit at all.

Results Table 1 presents the means, standard deviations, and correlations among the variables used in the study. Figure 2 presents the model that emerged indicating the path coefficients (p) with the associated significance levels (µ). The log likelihood test that tested the overidentified model against the just-identified model produced a Chi-square statistic of 1.46 (Chi-squarecritical = 28.869, p > 0.05) failing to reject the null hypothesis that the overidentified model fits the data as well as the just-identified model. Also, the Q-Coefficient, a goodness of fit index for the over-identified model, was 0.98 indicating a very good fit of the restricted model with constrained paths. In other words, the parsimonious model that emerged adequately fitted the data very well.



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Table 1. Means, Standard Deviations and Correlations among the Variables Variables

s) Mean (s

Obligation to Innovate Meritocracy Equity Job Autonomy Innovative Work Behavior Procedural Justice Pay Met Expectations

2.40 (0.85) 2.79 (0.96) 2.98 (1.04) 2.94 (0.90) 2.30 (0.90)

1

2

3

4

0.17** 0.14* 0.32*** 0.30*** 0.25*** 0.17** 0.32*** 0.16** 0.12*

5

6

7

0.63***

3.10 (0.69) 0.26*** 0.39*** 0.31*** 0.22*** 0.19** 2.06 (1.56) 0.09 -0.19** 0.17** 0.15* 0.23*** -0.08 2.81 (0.48) 0.25*** 0.40*** 0.41*** 0.19** 0.18** 0.36*** 0.19**

Notes: * p < 0.05, ** p < 0.01, *** p < 0.001.

Pay

0.22 (3.57)***

Meritocracy

0.13 (2.32)*

0.29 (4.25)***

Met expectations

.15 (2.17)* 0.14 (2.40)*

Obligation to innovate

Innovative work behaviours

0.22 (3.34)*** Equity

0.20 (3.01)**

.15 (2.10)*

0.24 (3.57)***

0.57 (10.16)*** Procedural justice perceptions

Job autonomy

Figure 2. The Effect of Organizational Processes, Psychological Contract, Job Autonomy and Innovative Work Behaviours: The Emergent Model

As shown in Figure 2, obligation to innovate (p = 0.14, µ < 0.05) had a direct effect on IWB. We had hypothesized that the psychological contract variable of met expectation will have a direct effect on IWB, in addition to an indirect effect through the intervening variable of obligation to innovate. However, the direct effect model was not supported for the psychological contract variable of met expectations as the path coefficient from met expectation to IWB was not statistically significant. However, the psychological contract variable of met expectations influenced innovative work behaviours through the intervening variable of obligation


to innovate (p = 0.15, µ < 0.05) thus providing partial support for the model. We hypothesized job autonomy to have an indirect effect on IWB through the intervening variable of obligation to innovate. The results indicated that job autonomy had a direct effect on IWB (p = 0.57, µ < 0.001), in addition to an indirect effect on IWB through the intervening variable of obligation to innovate (p = 0.24, µ < 0.05). Thus, we found partial support for the hypothesized relationship between job autonomy and IWB. Overall, the model seemed to fit better with the addition of a direct path from job autonomy to IWB.

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We hypothesized that pay would indirectly affect IWBs through the intervening variables of met expectation and obligation to innovate, yet the results indicated that pay also had a direct effect on IWB (p = 0.13, µ < 0.05). Furthermore, pay did not impact obligation to innovate as the path coefficient was not statistically significant and thus failing to support our hypothesis that pay would affect IWB through the intervening variable of obligation to innovate. However, pay affected the psychological contract variable of met expectations (p = 0.22, µ < 0.001) that in turn affected the perceived obligation to innovate. Thus, the hypothesized relationships between pay and IWB were generally supportive with the addition of a direct effect of pay on IWB and the deletion of the direct effect of pay on obligation to innovate. We had hypothesized that justice perceptions would impact IWBs through the intervening variables of met expectations and obligation to innovate. As expected, the two justice variables – equity and procedural justice perceptions – did not impact innovative work behaviours directly. However, they did show indirect effects through the mediating variables of met expectations and obligation to innovate. The paths from procedural justice perceptions to met expectations (p = 0.20, µ < 0.01), and to obligation to innovate (p = 0.15, µ < 0.05) were statistically significant. Also, the path from equity perceptions to met expectations (p = 0.22, µ < 0.001) was statistically significant. Thus, the effects of justice perceptions on innovative work behaviours were transmitted through the psychological contract variables of met expectations and obligation to innovate. Finally, the meritocracy variable had a direct effect on the psychological contract variable of met expectations (p = 0.294, µ < 0.001), although it did not impact the obligation to innovate or innovative work behaviours directly. That is, the antecedents of obligation to innovate appear to be procedural justice perceptions and job autonomy, and not meritocracy and distributive justice perceptions. On the other hand, the antecedents of psychological contract fulfillment appear to be both forms of justice perceptions – distributive and procedural – and meritocracy. A few comments are worth noting before concluding the results. The fit index of 0.98 obtained in our study suggests that the proposed model is a viable model to examine predictors of IWB. That is, theoretically even if we add a few more paths (e.g. pay Æ obligation to innovate) or deletion of certain paths (e.g. pay Æ IWB), we need to examine the relative gain in the explanatory power compared to the loss

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of degrees of freedom or conversely, the loss of explanatory power vis-à-vis the gain in degrees of freedom. While we do not claim this to be the only model, we can say that the present model with a fit index of close to 1 appears to be the most parsimonious model. That is, the addition of paths does not provide any better fit but the deletion of certain paths result in considerable loss of explanatory power. Future studies should, however, look at a few other competing models.

Discussions In this study, we integrated the organizational justice, job design and psychological contract literatures to examine the impact on IWB. The integrated model provided a good fit with the data. We found that both the psychological contract variable of obligation to innovate and job autonomy predicted innovative work behaviours along with pay. While the justice perceptions of equity, meritocracy and procedural justice did not directly affect IWB, they influenced IWB through the mediating variables of psychological contracts – met expectations and perceived obligation to innovate. The results of the study have several implications for managerial practices and organizations emphasizing innovation. In terms of designing jobs, providing autonomy for employees about the manner in which they do their work appears to have the strongest influence on IWB. Lesser control over the manner in which employees carry out their work, environments conducive to employees generating newer methods of doing their work, and support in implementing the ideas appear to result in employees engaging in IWBs. Furthermore, control over one’s own job also appears to result in providing an enriched experience on the job, which may in turn motivate employees to innovate. Thus, job design approaches seem to have both direct and indirect effects on IWBs. Perhaps, managers and organizations need to pay close attention to the way in which jobs are designed to promote IWBs. Under the reasonable assumption that IWBs are discretionary behaviours, engaging in IWBs may be the result of intrinsic motivations of employees. That is, employees decide on their own whether to engage in IWBs or not. The results of our study show that the extent to which employees perceive their expectations have been met (or unmet) seem to affect their perceived obligation to the employer. Such perceived obligations influence their IWB. Thus, the psychological



contract variables of met expectations and perceived obligations seem to play critical roles in the IWBs of employees. Although pay is an extrinsic factor and was thought to not influence discretionary behaviours such as IWB, pay also had some modest effect in affecting IWBs. This was somewhat surprising to us as the literature on discretionary behaviours suggests that discretionary behaviours are not recognized and formally rewarded by the organizational processes and systems. However, in our study, pay influenced the IWBs of employees directly, as well as, through the mediating psychological contract variables of met expectations and perceived obligation to innovate. It is possible that employees may see IWBs as on the job performance rather than discretionary behaviours and hence, they may come to expect that they be rewarded for such performance, whether or not organizations perceive that way. Rewarding IWBs may be a good strategy for organizations for two different reasons. First, it encourages employees to try out new ideas and implement them. Second, such rewards in the form of higher pay for IWBs also seem to affect the fulfillment of psychological contracts. Our study results also showed that met expectations or employee perceptions of fulfilment of psychological contract influenced their perceived obligation. The organizational processes of meritocracy, distributive justice and procedural justice components did not have any direct effect on IWBs. Yet meritocracy and justice perceptions influenced IWBs indirectly through the mediating variables of psychological contract. Our results are also consistent with all the other studies in emphasizing the critical and important role played by organizational justice perceptions.

Conclusion The present study indicates the importance of studying linkages among distinct literatures that have examined the causes of IWBs of employees. The integration of job design, justice, and psychological contract literatures greatly enhances our understanding of IWBs of employees. While the focus of this study was on blue-collar employees, future studies should attempt to examine these linkages among other categories of employees such as knowledge workers, professional employees and white-collar employees. One limitation of our study was in restricting the setting to one national culture, namely, Ireland. To the extent that employee values differ across cultures, the notions of justice


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perceptions and fulfilment of psychological contracts and their violations may differ across cultures. Future studies should also examine the linkages in a cross-national context to enhance our understanding of the generalizability of our findings. One possibility may be to test the model in a collectivist culture, as Ireland ranked high on the individualism dimension in Hofstede’s (1980) study. Another potential area may be to study the influence of power distance on our model. A high power distance society may result in employees being told what to do and what not to do, which may curb their tendencies to innovate. Nevertheless, this study presents one of the first attempts to develop and test a coherent model predicting IWBs, and much more work needs to be done to understand this complex phenomenon.

References Adams, J.S. (1965) Inequity in social exchange. In Berkowitz L. (Ed.) Advances in Experimental Social Psychology, 2. Academic Press, New York pp. 267– 299. Arnold, J. (1996) The psychological contract: A concept in need of closer scrutiny? European Journal of Work and Organizational Psychology, 5(4), 511– 520. Flood, P., Turner, T., Ramamoorthy, N. and Pearson, J. (2001) Causes and consequences of psychological contract among knowledge workers in the high technology and financial services industries. The International Journal of Human Resource Management, 12, 1152–1165. Freese, C. and Schalk, R. (1996) Implications of differences in psychological contracts for human resource management. European Journal of Work and Organizational Psychology, 5(4), 501– 509. Hackman, J. and Oldham, G. (1980) Work redesign. Addison-Wesley, Reading, MA. Herriot, W.E., Manning, G. and Kidd, J.M. (1997) The content of the psychological contract. British Journal of Management, 8, 151–162. Hofstede, G. (1980) Cultures consequences: International differences in work related values. Sage: Beverly Hills, CA. Janssen, O. (2000) Job demands, perceptions of effort-reward fairness and innovative work behaviour. Journal of Occupational and Organizational Psychology, 73, 287–302. Joreskog, K. and Sorbom, D. (2001) LISREL8: User’s Reference Guide. Scientific Software International, Lincolnwood, IL. Lester, S.W. and Kickul, J. (2001) Psychological contracts in the 21st century: What employees value most and how well organizations are responding to these expectations. Human Resource Planning, 24(1), 10–21. Milkovich, G.T. and Newman, J.M. (2005) Compensation, 8th edition. McGraw-Hill/Irwin, Homewood, IL.

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Organ, D.W. (1988) Organizational citizenship behaviour: The good soldier syndrome. Lexington Books, Lexington, MA. Paul, R.J., Niehoff, B.P. and Turnley, W.H. (2000) Empowerment, expectations, and the psychological contract-managing the dilemmas and gaining the advantages. Journal of Socio-Economics, 29, 471–485. Pedhazur, E.J. (1982) Multiple regression in behavioural research: Explanation and prediction. Holt, Rinehart & Winston, Fort Worth, Texas, USA. Ramamoorthy, N. and Flood, P. (2002) Employee attitudes and behavioral intentions: A test of the main and moderating effects of individualismcollectivism orientations. Human Relations, 55(9), 1071–1096. Ramamoorthy, N. and Flood, P.C. (2004) Gender and employee attitudes: The role of organizational justice perceptions. British Journal of Management, 15, 547–558. Rousseau, D.M. (1990) New hire perceptions of their own and their employer’s obligations: A study of psychological contracts. Journal of Organizational Behavior, 11, 389–400. Sapienza, H.J., Korsgaard, M.A. and Schweiger, D.M. (1997) Procedural justice and changes in psychological contracts: A longitudinal study of reengineering planning. Academy of Management Proceedings, 354–358. Thibaut, J. and Walker, L. (1975) Procedural justice: A psychological view. John Wiley & Sons, Hillsdale, NJ. Wanous, J.P., Poland, T.D., Premack, S.L. and Davis, K.S. (1992) The effects of met expectations on newcomer attitudes and behaviors: A review and meta analysis. Journal of Applied Psychology, 77(3), 288–297.

Appendix A Scales Used in the Study µ = 0.76) Met expectations (µ To what extent have your expectations concerning your job and the company been met in the following areas? Amount of Responsibility A job that provides autonomy A job that is interesting Freedom to use my own judgement Feelings of accomplishment Ability to manage work and family Fair Treatment Candid and open feedback Cooperative work relationships Good opportunities for promotion Pay tied to your performance Amount of Salary

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µ = 0.74) Procedural justice perceptions (µ The performance standards or criteria used in the allocation of rewards are very clearly communicated to employees My company consistently enforces the standards they set for reward allocation for all the employees The performance standards and norms used in the allocation of rewards are consistently enforced for most of the employees I have known. In our company, employees are free to discuss their dissatisfaction about rewards allocations with their supervisors When I feel that I have not been fairly rewarded, I can resolve it through discussion with my supervisor. µ = 0.90) Job autonomy (µ With what frequency do you engage in the behaviours listed below? I choose the methods to carry out my work I often review my work objectives I am prepared to challenge organizational policies and practices I plan my work I often review the methods I use to get the job done I decide the order in which I do things I often review how well I communicate information with colleagues on work-related issues I have full authority in determining how much time I spend on particular tasks I often review my approach to getting the job done µ = 0.94) Innovative work behaviours (µ With what frequency do you engage in the behaviours listed below? Creating new ideas for difficult issues Searching out new work methods, techniques or instruments Generating original solutions for problems Mobilising support for innovative ideas Acquiring approval for innovative ideas Making important company members enthusiastic for innovative ideas Transforming innovative ideas into useful applications Introducing innovative ideas into the work environment in a systematic way Evaluating the utility of innovative ideas


Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142151159ARTICLESWORKERS AND THEIR WILLINGNESS TO LEARNCREATIVITY AND INNOVATION MANAGEMENT

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Workers and Their Willingness to Learn: Will ICT-Implementation Strategies and HRM Practices Contribute to Innovation? Bram Steijn and Kea Tijdens The article deals with the relationship between the willingness of workers to acquire ICTcompetences), the ICT-implementation strategy (to ‘automate’ or ‘to informate’) pursuit by organizations and the HRM practices used by them. Based on a simple conceptual model, we tested three hypotheses: the more extended the use HRM practices in organizations, the more often workers will work in a work setting based on an informated ICT implementation strategy; an informated ICT implementation strategy will lead to a higher willingness of employees to acquire ICT-related competences; the effect of an informated ICT-strategy on the willingness to acquire ICT-related competences will be higher than that of the HRM-practices. To test these hypotheses, we used a survey of 733 Dutch employees working with ICT devices. Our analysis gives some partial support to the first two hypotheses, but the third is rejected by the data: ICT-implementation strategies and some HRM-practices have an independent effect on the willingness to acquire ICT-compentences.

HRM and innovation

A

s HRM is supposed to contribute to organizational success (Harel & Tzafrir, 1999, p. 185; Ulrich, 1997), it is logical to assume that a relationship between the use of HRM practices and (technical) innovation will exist (cf. Searle & Ball, 2003). Although an abundant body of empirical research shows that the use of HRM practices has positive effects both on worker attitudes (higher job satisfaction, increased morale and commitment) and on organizational outcomes such as higher profit, higher productivity, increased customer care and so on (Appelbaum et al., 2000; Boselie, 2002), research into the relationship between HRM and (technical) innovation is relatively scarce (Spell, 2001; Thierrien & Léonard, 2003). Nonetheless, on an organizational level, Othman (2001) argued that a successful adoption of IT depends on the development of ‘matching’ HRM practices. In this respect, Laursen and Foss (2003) showed empirically that the use of HRM practices is positively associated with the innovation performance © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

of firms. Michie and Sheehan (1999) came to a similar conclusion showing that ‘high road HRM-practices’ were positively correlated to investment in R&D and new technology. On the employee level, Spell (2001) showed that much of the available research implies that the skill needs of employees are linking technology with HRM. This seems a logical conclusion as ‘good’ HRM practices imply substantial attention for the need to develop the skills of employees. Some even describe the development of skills as a ‘litmus test’ of HRM (Grugulis, 2003; cf. Appelbaum et al., 2000, p. 27). This, however, will not be the only reason. Looking at the literature on information and communication technology (ICT) and skills, one would assume that innovative behaviour of workers is not only dependent on HRM, but also on the possibilities offered to workers by this technology to be innovative. In this respect, we do not want to focus on possible technical constraints of the technology itself, as we support the widespread rejection of technological determinism (Castells, 1996). The view that the introduction of new

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HRM practices

ICT implementation strategy

(Technical) innovation

Figure 1. Conceptual Model

technology is related to organizational choice is widely shared (Child & Loveridge, 1990; de Witte & Steijn, 2000; Francis, 1986). Many empirical studies follow a contingent approach and focus on factors that mediate the use of technology, work organization and the work attitudes of employees (Yeuk-Mui, 2001). In this respect, a much-cited but seldom empirically researched distinction made by Zuboff (1988) comes to the fore. According to Zuboff (1988, p. 388) information technology has a dual character: it has a capacity to automate and to informate. This distinction can be seen as a description of two different strategies that can be used in organizations to implement or use information technology; therefore we will regard them in this article as two different implementation strategies of ICT. If an automated strategy is used, managers use technology as a ‘fail-safe system to increase their sense of certainty and control over both production and organisational functions’ (1988, p. 390). As organisational innovations are absent, technological developments are in this way ‘assimilated into the status quo’ (1988, p. 392). In contrast, an informating strategy will lead to a transformation of the workplace towards an ‘informated’ organization. It is also a learning organization where the traditional hierarchical relationship between supervisors and workers no longer work: Zuboff uses the concept of ‘posthierarchical relationships’ in this respect (1988, p. 399). Clearly, workers are better of in such an organization, as their quality of working life and the possibility to develop their capabilities are much higher. One would, therefore, also assume that the potential for technical innovation in such an informated context would be much higher. As Yeuk-Mui (2001, p. 180) puts it: ‘The informating and networking capacity of IT enhances the stock, flow and sharing of ideas and knowledge among employees and between employees and management’. How relates this to HRM? Given the importance of ‘the employee’ in HRM-approaches, it can be expected a more extended use of HRM practices is related to a work situation where an informated ICT-implementation strategy is used. On the other hand, an automated ICT-implementation strategy will probably be

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related to a lesser use of HRM-practices. We can therefore visualize the relationship between HRM, ICT-implementation strategy and technical innovation in the following simple model. The main assumption beneath this model is that innovative behaviour of workers will be mainly influenced indirectly by HRM practices. With respect to ICT, the way workers use this new technology will be an important determinant of this behaviour. This implementation strategy – as we have called it – is not primarily dependent on aspects of the technical system itself, but also related to choices made by management about the personnel policies that they would like to pursue. The more extended use of HRM practices will therefore be related to an ICT work context that will stimulate innovative behaviour of workers. Our main goal in this article is to investigate whether this model makes sense. Unfortunately, the dataset that we have available does not include a direct measure of ‘technical innovation’. However, we will be able to use a proxy instead. To do that, we assume that the technical innovation in an organization will be higher when the willingness of workers to acquire ICT competences is higher; that is, a greater willingness to acquire such competences will reflect itself into a higher degree of technical innovation in a given organization.1 This (necessary) assumption seems not to be far-fetched given the amount on literature on – for instance – ‘the learning organization’, which states – among other things – that ‘the need for competitiveness in organisations in which ICT has been introduced can only be achieved by learning in the workplace’ (Boreham & Lammont, 2000). Without the willingness to acquire new competences, employees will not be able to fully use the capabilities ICT, which will also mean that their capabilities to innovate this use will diminish. Indeed, learning and acquiring knowledge will precede innovation.2

1

This limitation also means we limit technical innovation to innovation related to ICT. 2 Compare Pfeffer (2002, p. 95) according to whom encouraging innovation and learning are closely related.



Now we can formulate our research objective: 1. Does a relationship exists between the organization’s HRM-policy and its ICT implementation strategy?; 2. Does a relationship exist between the organization’s implementation strategy and the willingness of its workforce to acquire new ICT competences? In the next section, we will further elaborate the research model outlined above. This will cumulate in the formulation of the three main hypotheses that will be central in this article. Before presenting the results of the analysis, the third section presents the dataset, the operationalization of the main variables and the methodology. The fourth section describes the results of the analysis, followed by the main conclusions in the final section.

Hypotheses and research design As previously mentioned, we have based the two different strategies to implement and use technology we discerned on the typology of Zuboff. Her distinction between an ‘automated’ and an ‘informated’ work-situation is certainly not new. It is an echo of the much earlier conceptualizations of McGregor (1960) and Burns and Stalker (1961): an automated organization can be described as a theory X or a mechanistic organization, whereas an informated organization can be associated with theory Y or an organic organization. In fact, since the early 1980s many studies have been based on a similar point: ‘Business as usual no longer works’ (Appelbaum & Batt, 1994). Therefore, organizations are looking for new organizing principles and new relationships with employees in order to replace the traditional Taylorist or Fordist organization: analytical concepts such as ‘high-involvement workplaces’, ‘new production concepts’ or ‘post-Fordism’ are used to describe these changes (Steijn, 2001). Zuboff’s plea for an information strategy when using ICT puts her in the same category: she clearly believes ICT can only be used to its full potential in a postFordist work setting. This vision is also closely related on research into the effects of ‘new production concepts’ or ‘high performance work organizations’ on organizational and employee outcomes. Such high-performance work organizations make effective use of distinctive HRM practices (Appelbaum et al., 2000; Ichniowski, et al, 1996; International Labour Organization, 2002). Many studies show the positive effects of this on worker and organizational out-


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comes. For the most part, these studies seem to focus on ‘traditional’ outcome variables, such as commitment, trust, job satisfaction and work stress on a worker level, and added value, productivity and profit on the organizational level (Appelbaum et al., 2000). However, the effects of these organizational types on the way people work with technology (or ‘ICT implementation strategy’) and their willingness to acquire more ICT-related competences are hardly researched. Which HRM-practices will be used in highperformance work organizations? The conceptualization of what exactly are ‘high performance work systems’ (HPWS) varies from study to study. Nevertheless, in the literature, consensus is growing about the types of HRM practices that belong to an HPWS approach. A recent overview in an International Labour Organization study (2002, chapter 2) distinguishes four dimensions of HRM practices that together shape HPWS systems: (a) employee involvement and involvement in decision-making; (b) support for employee performance; (c) rewards for performance; (d) sharing of information and knowledge. In this way, the literature on HPWS follows the lead of HRM studies, suggesting that HRM is about a set of practices (Guest, 2000). Guest showed that the greater the number of HRM practices used, the greater the impact on workers and other stakeholders. The literature on HPWS can be seen as a refinement to this, arguing that a specific set of HRM practices is important in order for an organization to become high performing. It can be expected that the use of these HRM practices is linked to the way ICT is implemented in an organization and the way in which workers use this technology. Our first hypothesis deals with the first arrow in our conceptual model. It is therefore: H1: The more extended the use HRM-practices in organizations, the more often workers will work in a work setting based on an informated ICT implementation strategy. Our second hypothesis deals with the second part of the model: the relationship between ICT implementation strategies and the willingness of workers to acquire ICT-related competences (as proxy for technical innovation). Following Zuboff’s elaboration of her distinction, this hypothesis can be formulated as follows: H2: An informated ICT implementation strategy will lead to a higher willingness of employees to acquire ICT-related competences. Following that, our third hypothesis is:

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H3: The effect of an informated ICT strategy on the willingness to acquire ICT-related competences will be higher than that of the HRM practices. HRM practices will mainly influence the willingness of employees to acquire ICT-related competences through the effect of such practices on ICT implementation strategies.

Data and operationalization The data In order to test the hypotheses for a representative sample of Dutch employees, we designed a questionnaire using the computerized Telepanel. This panel is a representative sample of the Dutch population, with more than 2,000 households that are questioned weekly. Although computerized, the panel is not limited to computer-users, because households that do not own a computer receive a device so that they can complete the questionnaires using their television set. The panel is managed by CenERdata Panel at the University of Tilburg, The Netherlands.3 For our ICT competencies survey, only data on individuals aged 16–64 in dependent employment have been selected. The survey was conducted in January 2002. The respondents were asked 68 questions. A total of 938 employees (597 men and 341 women) answered questions about their ICT use and competencies, their jobs, the HRM policy and other characteristics of their workplace. Men’s average age was 43.0, and women’s average age 39.7. Almost three-quarters live with a partner, slightly more men than women (77% versus 71%). Distributed over the life cycle, relatively more men have a family with young children, and more women have a family with grown-up children. On average, the men work 37.8 hours per week and the women 28.5 hours. As our analysis focuses on ICT use, only respondents who do use any ICT equipment (89%) have been selected for the analysis. Furthermore, we only selected respondents who had been working for their current employer for at least one year.

3 Because the respondents form part of the computer panel, the fact that their computer skills are higher than the ‘average’ employee cannot for that matter be excluded. This means that it would be advisable to present the questions under a different setting too. Although Telepanel itself emphasizes the representative character of the panel, the average educational level and job rating of the respondents also appears to be relatively high (cf. Tijdens and Steijn, 2002, p. 6). Nonetheless, this has no impact on determining the scope of the effects of different independent variables on their adaptability.

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Both criteria reduced the number of valid observations to 733.

Operationalization of the four concepts The first concept to be operationalised was the ICT implementation strategy. Here we used Zuboff’s conceptualization. To measure this strategy, as perceived by the employee, a variable was constructed using a scale consisting of five items (ranging from 1 to 4) indicating the extent to which respondents could independently operate the automated equipment or manipulate the software programs they used.4 The five items formed a good scale (alpha = 0.81). The scores on the separate items were added together, creating a scale with values ranging from 4 (highly automated) to 20 (highly informated). The average scale score was 15.19. In view of the fact that the theoretical mean of this scale is 12.5 ([5 + 20]/2), this implied that on average the respondents were working in an informated situation. This was further emphasized by the fact that only 1% of the respondents had the lowest scale score of 5 (= the most automated) and 15% the highest score of 20 (= the most informated). The second concept deals with the HRM practices. To measure the practices as perceived by the employee, we used the concept of high performance work systems (HPWS). As previously discussed, it is generally understood that the more HRM practices are used by an organization, the more it can be described as an HPW organization. In the ILO (2002) overview, four types of practices were distinguished: (a) employee involvement and involvement in decision making; (b) support for employee performance; (c) rewards for performance; (d) sharing of information and knowledge. Although one could argue that HRM practices need to be measured at an organizational level, Guest (2000) has pointed out that an employee survey is also suited to measure these practices as well or probably even better, because HR managers may exaggerate the extend to which HRM practices have really been implemented (2000, p. 12). Our survey contains several items that can be used to establish the degree an organization can be described as an HPW organization. We will use the following ‘HPW-indicators’: degree of involvement in decision-making, support for employee performance; rewards for performance and sharing of information and knowledge. 4 As not all respondents use a software program (some only use an automated device), the construction of this scale reduced the number of valid observations to 673.



Degree of involvement in decision-making 5

With respect to eight items, our respondents were asked whether (a) they could make decisions themselves, (b) these decisions were taken collectively by the team the worker belongs to, or (c) were made by ‘others’ (i.e. supervisor, management). To determine the degree of involvement, the answers were dichotomized, considering whether or not the decisions are taken by others (i.e. a + b versus c). Next, an index – ranging from 0 to 8 – was constructed. On this scale, a lower score indicates a lower degree of involvement. The scores on the resulting scale were slightly skewed (skewness = -0.32); 10% of the workers scored a ‘2’ or lower and 24% a ‘7’ or higher. Support for employee performance To establish the degree to which employees are motivated to increase their performance, we use a survey question about the subjects discussed in formal or informal settings between an employee and their supervisor. In this respect we are interested in four subjects: career possibilities, performance on the job, salary increases and educational needs. If more subjects are discussed between supervisor and worker, the employee performance support will be higher. This is measured as follows: the employee could indicate whether a subject was discussed in (a) a formal appraisal interview, or (b) another formal meeting between supervisor and employee, or (c) an informal meeting between supervisor and employee. We simply counted whether or not a subject was discussed in any of these meetings. Next, the score on a ‘support for performance-scale’ is measured ranging from 0 (no scores on any of the four areas we distinguished) to 4 (all four areas are discussed in at least one type of meeting). The resulting scale scores were highly skewed (skewness = -0.70): 10% scored ‘0’ and 36% ‘4’, with a mean score of 2.67, indicating that according to the respondents support for performance is in generally high.

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not only that respondents get paid according to their performance, but also that they should perceive the resulting salary as ‘just’. We therefore decided to use the following item as a measure of ‘rewards for performance’: ‘my salary is in accordance with my performance’. The respondents were asked to give their answer to this on a five-point scale (1–5): 42.2% answered they (completely) agreed and 29.7% (completely) disagreed. A higher score on the scale indicated a better reward for performance. Sharing of information and knowledge The survey has no ‘perfect’ item to measure this aspect of HPW organizations. One item, however, comes close. Therefore, we will use the answer of the employees on the item ‘communication between supervisors and employees is good’ as a proxy for the degree to which information and knowledge are shared. The answers of the respondents on this item range from 1 (definitely not) to 5 (definitely yes): therefore, the higher the score, the better information and knowledge are shared. Of the respondents, 17.8% said the communication was (definitively) not good, and 47.6% indicated that it was (definitively) good. The third concept refers to the willingness of workers to acquire new ICT-related competences. This variable was constructed by using four Likert-items that formed a reasonable scale (alpha 0.74).6 Scores on the four items have been added, creating a scale with values ranging from 4 (very weak willingness) to 20 (very high willingness). As 76% scored above the theoretical mean of the scale (12), it appears the respondents were in general in favour of obtaining new ICT competences. In our empirical analysis we will also include several control variables:

Performance is difficult to measure. In our view, the essence of an HPW organization is

• firm size – number of employees working in the work setting; • intensity of computer use – a four item variable with scores ranging from ‘occasionally’ to ‘every day’; • the extend of the working week – number of working hours; • a dummy variable – whether or not one holds a supervisory position, age, gender and educational level.

5

6

Rewards for performance

These eight aspects were: work-planning, quality of the product or service, improving work-processes, relations with clients, work-schedule or work-times, conditions of employment, purchase of equipment, purchase of computer software.


These items were: (a) I like to learn how computers or programs work; (b) I like to go to computer courses; (c) generally, I find computer training very useful; (d) I really want to know more about computers and programs.

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Results HRM policy and ICT implementation strategy In the first part of our analysis, we will focus on H1, testing the effect of HRM practices on the ICT implementation strategy at the employee level. Table 1 shows the results of an ordinary least-squares regression analysis, with ICT implementation strategy as a dependent variable and the four HPW practices and control variables as independent. Table 1 shows mixed results with respect to the relationship between the ICT implementation strategy and broader HRM practices. Two of these practices – involvement in decisionmaking and support for employee performance – are significantly related to the ICT implementation strategy, the effect of involvement clearly being the strongest. This suggests that a more advanced use of HRM practices and an informated ICT strategy do indeed go hand in hand. The other HRM practices, however, do not have a significant effect. Overall, this suggests the ICT implementation strategy is only linked to certain HPW practices. Apart from this, the significant effects of supervisory position and educational level – supervisors and the higher educated more often work in a work context with an infor-

mated ICT implementation strategy – also need to be mentioned. To investigate this further, we also performed a second regression analysis with an overall score on the ICT implementation variable. This variable was constructed as follows: for each of the four HPW practices a dummy variable was constructed, differentiating respondents who scored above the mean score. Next, an overall variable was constructed measuring the number of times a respondent scored above the mean score. The result is an almost normally distributed variable (skewness = 0.02; 8% scored ‘0’ and 9% ‘4’). The results (table not included) again showed an effect of HRM-practices on ICTimplementation strategy, but this effect is clearly lower (beta = 0.18) compared to the effect in Table 1 of the ‘involvement in decision-making’ on its own. This confirms our earlier finding that only certain HRM-practices are related to the ICT implementation strategy. Overall, this suggests that our first hypothesis was only partially confirmed by the data.

ICT implementation strategy and willingness to acquire ICT competences In H2, we assumed that an informated ICT implementation strategy would lead to a

Table 1. Predicting ICT -implementation strategy ICT-implementation strategy B (Constant) HRM-practices Involvement in decision-making (0 = low, . . . , 8 = high) Support for employee performance (0 = low, . . . , 4 = high) Reward for performance (0 = low, . . . , 5 = high) Communication (0 = low, . . . , 5 = high) Control variables Firm size (nr of empl.) Supervisory position (0 = no, 1 = yes) Work hours per week (number) Age (in years) Gender (0 = male, 1= female) Intensity of ICT use (1 = occasionally; . . . 4 = every day) Educational level (1 = primary school, . . . , 9 = university) N R square

beta

7.30

SD 0.00

0.65 0.27 0.13 -0.22

0.32 0.09 0.37 -0.06

0.00 0.01 0.31 0.12

-0.01 0.64 0.04 0.02 -0.38 0.22 -0.31

-0.01 0.09 0.08 -0.05 -0.05 0.04 0.10 632 0.02

0.68 0.02 0.06 -0.15 0.24 0.27 0.01

Notes: 1 = extremely automated, . . . , 20 = extremely informated from HRM-practices, OLS regression coefficients, using the Telepanel ICT-survey.

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higher willingness of the employees to acquire ICT competences. The results of the analysis are presented in Table 2. Overall, with only 2% of the variance explained, the results are very meagre: combined the included variables are clearly not able to explain a substantial part of the willingness of respondents to acquire new ICTrelated competences. It is remarkable to note that none of the included control variables show a significant effect. Nevertheless, this analysis confirms H2, indicating that the ICT implementation strategy has a statistically significant effect on this willingness: the more employees work in a more-informated work setting, the more they are willing to learn new ICT competences. At first sight, the data also confirms H3, as the effect of the ICT implementation strategy is larger than the effect of the HRM-practices – of these, only ‘support for performance’ shows a statistically significant effect on the willingness to learn. However, a further analysis shows that we have in fact to reject H3. According to this hypothesis, the effect of HRM practices will be mediated by the ICT implementation strategy. If this is true, the effect of these practices on the dependent

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variable should be higher when we exclude this strategy from the analysis. If we do that, however, nothing really changes (analysis not included): the R2 drops to below 1%, but the beta-effect of ‘support for performance’ stays at 0.10, whereas the effects of the other HRM practices remain far from significant. In other words: the effect of ‘employee support’ on willingness to learn adds up to the effect of the ICT implementation-strategy: a ‘stronger’ effect of HRM-practices that is ‘explained away’ by this strategy (as suggested by H3) clearly does not exist.

Conclusion The possible relationship between HRM and innovation is analysed in this article by focusing on factors determining the willingness of workers to acquire ICT competences. Two main factors have been addressed, one related to the ICT determination strategy followed, and the other related to the HRM practices used within the organization. A main hypothesis was that the effect of HRM practices on the willingness to acquire ICT-related competences is mainly indirect (through the ICT

Table 2. Predicting four effects from the ICT-implementation strategy and other variables, OLS regression coefficients, using the ICT Telepanel-survey Willingness to acquire ICT competences

(Constant) ICT-implementation strategy (1 = extremely automated . . . ; 20 = extremely informated HRM-practices Involvement in decision-making (0 = low, . . . , 8 = high) Support for employee performance (0 = low, . . . , 4 = high) Reward for performance (0 = low, . . . , 5 = high) Communication (0 = low, . . . , 5 = high) Control variables Firm size (nr of empl.) Supervisory position (0 = no, 1 = yes) Work hours per week (number) Age (in years) Gender (0 = male, 1 = female) Intensity of ICT-use (1 = occasionally; . . . 4 = every day) Educational level (1 = primary school, . . . , 9 = university) N R square


B

beta

significance

14.52 0.09

0.12

0.00 0.01

-0.09 0.20 -0.09 0.10

-0.06 0.10 -0.03 0.04

0.22 0.02 0.40 0.37

0.00 -0.11 -0.01 -0.11 0.01 0.04 -0.12

0.02 -0.21 -0.04 0.21 -0.08 0.01 -0.08 632 0.02

0.66 0.62 0.46 0.62 0.10 0.86 0.06

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implementation strategy). In this respect, we hypothesized that the use of HRM practices would be related to an informated implementation strategy – in turn leading to a greater to desire to learn. This latter idea (formulated in H1: ‘The more extended the use HRM-practices in organisations, the more often workers will work in a work setting based on an informated ICT implementation strategy’) is partly confirmed. There is a clear association between certain HRM practices and the chosen ICT implementation strategy: organizations that offer workers a greater involvement in decision-making and that give more support for performance, also more often use an informated ICT implementation strategy. These findings also imply an answer to research question 1. The second research objective is answered by our findings with respect to H2: a relationship exists between the ICT implementation strategy and the willingness of workers to learn more ICT competences. Although the effect is rather small, an informated implementation strategy is associated with a higher willingness to learn these competences. Therefore, our data confirm also our second hypothesis – although it must be stressed the overall possibility of increasing the willingness of workers to learn seem rather small, as the variance we are able to explain is rather limited. This confirms a previous analysis on the same dataset (see Tijdens and Steijn, 2005), which suggested that ‘structural variables’ (such as personnel, work- and organizational-related variables) were only in a very limited way related to the willingness to acquire competences. Variables originating in social psychology, especially ‘computer anxiety’ – see Beckers (2003) regarding this concept – appear to be far more important. More importantly, the crucial third hypothesis, the ‘linking pin’ between H1 and H2, is not supported by the data. We had expected that the effect of HRM practices on the willingness to learn would be mainly indirect, through the ICT implementation strategy pursuit by an organization. This proves, however, not to be the case. Overall, the effect of HRM practices on the willingness to learn is rather limited, as only one of the four practices we discerned (‘support for performance’) is directly related to this willingness. But even more importantly, the effect of this one variable adds up to the effect of the ICT implementation strategy. Both variables, therefore, have their own independent effect on the willingness to acquire new competences. What can organizations learn from this? Keeping in mind the fact that our analysis

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shows that the willingness of workers to acquire ICT competences can only be influenced in a very limited way, it also reveals the importance of an informated ICT implementation strategy. In other words, enhancing employees’ autonomy in working with automated designs and software programs, and an HRM policy relying on performance support – talking with your employees and try to learn what they need – will nevertheless enhance their willingness to learn new computerrelated things. Although we did not investigate this directly, it seems likely that this will in turn contribute to a greater potential for innovation within the organization.

Acknowledgements This research was supported by a Netherlands Research Organisation Small Grant (NWOgrant no 014-43-604). The dataset is available from the NIWI/KNAW Steinmetz-archive, no. P1566.

References Appelbaum, E. and Batt, R.L. (1994) The new American workplace: transforming work systems in the United States. ILR Press, Ithaca. Appelbaum, E., Bailey, T., Berg, P. and Kalleberg, A. (2000) Manufacturing advantage: why highperformance work systems pay off. Cornell University Press, Ithaca. Beckers, J.J. (2003) Computer Anxiety: Determinants and consequences. Maastricht. Boreham, N.C. and Lammont, N. (2001) The need for competences due to the increasing use of information and communication technologies. CEDEFOP, Thessaloniki. Boselie, P. (2002) Human resource management. Work systems and performance: A theoretical-empirical approach. Tinbergen Institute, Rotterdam. Castells, M. (1996) The information age economy, society and culture. Blackwell, Cambridge, MA. Child, J. and Loveridge, R. (Eds.) (1990) Information Technology in European Services. Towards a microelectronic future. Oxford University Press, Oxford. Burns, T. and Stalker, G.M. (1961) The management of innovation. Tavistock Publications, London. Francis, A. (1986) New Technology at Work. Clarendon Press, Oxford. Guest, D.E. (2000) Human resource management – the workers’ verdict. Human Resource Management Journal, 3, 5–25. Grugulis, I. (2003) Putting skills to work: Learning and employment and the start of the century. Human Resource Management Journal, 13(2), 3–12. Harel, G.H. and Tzafrir, S.S. (1999) The effect of Human Resource Management Practices on the perceptions of organizational and market performance of the firm. Human Resource Management, 38(3), 185–200.



Ichniowski, C., Kochan, A., Levine, D., Olson, C. and Straus, G. (1996) What works at work: Overview and assessment. Industrial Relations, 35(3), 299–333. International Labour Office (ILO) (2002) Supporting work place learning for high performance working. Available at http://www.clms.le.ac.uk/ILO/ index.htm Laursen, K. and Foss, N.J. (2003) New human resource management practices, complementarities and the impact on innovation performance. Cambridge Journal of Economics, 27(2), 243–263. McGregor, D. (1960) The Human Side of Enterprise. McGraw-Hill, New York. Michie, J. and Sheehan, M. (1999) HRM-practices, R&D expenditure and innovative investment: evidence from the UK’s 1990 Workplace Industrial Relations Survey (WIRS). Industrial and Corporate Change, 8(2), 211–234. Othman, R. (2001) Antecedents and outcome of IT use: how does HRM fit in? Asia Pacific Management Review, 6(1), 91–103. Pfeffer, J. (2002) To Build a Culture of Innovation, avoid Conventional Management Wisdom. In Hesselbeim, F., Goldsmith, M. and Somerville, I. (eds.) Leading for Innovation and organizing for results. Jossey-Bass, San Francisco. Searle, R.H. and Ball, K.S. (2003) Supporting Innovation through HR Policy: Evidence from the UK. Creativity and Innovation Management, 12(1), 50– 62. Spell, C.S. (2001) Organizational technologies and human resource management. Human Relations, 54(2), 193–213. Steijn, B. (2001) Work systems, Quality of Working Life and Attitudes of Workers. An Empirical Study towards the effects of Team and nonTeamwork. New Technology, Work, and Employment, 16(3), 191–203. Thierrien, P. and Léonard, A. (2003) The Evolving Workplace Series Empowering employees: A route


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to innovation. Available at http://www.hrdcdrhc.gc.ca/sp-ps/arb-dgra/publications/ research/2002docs/eeari/e/eeari_E_0.shtml. Tijdens, K.G. and Steijn, B. (2005) The determinants of ICT competencies among employees. New Technology, Work, and Employment, 20(1), in print. Ulrich, D. (1997) Human resource champions the next agenda for adding value and delivering results. Harvard Business School Press, Boston MA. de Witte, M.C. and Steijn, B. (2000) Automation, Job Content and Underemployment. Work, employment and society, 14(2), 245–264. Yeuk-Mui, M.T. (2001) Information technology in frontline service work organization. Journal of Sociology, 37(2), 177–206. Zuboff, S. (1988) In the age of the smart machine: the future of work and power. Basic Books, New York.

Bram Steijn ([email protected]) is associate professor in Public Administration (field: HRM and labour) at the Erasmus University Rotterdam. His current research interests deal with the effects of ICT on organization and labour, and with HRM practices within the public sector. Kea Tijdens ([email protected]) is research coordinator at the Amsterdam Institute of Labor Studies at the University of Amsterdam. She is professor of ‘Women and Employment’ at Erasmus University, Rotterdam. Her current research interests include the relationship between IT and organizations, the gendered structures in organizations, work–life policies in firms and the upgrading and downgrading of occupations.

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Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142160168ARTICLESHR CONTRIBUTION TO IT INNOVATION IMPLEMENTATIONCREATIVITY AND INNOVATION MANAGEMENT

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HR Contribution to IT Innovation Implementation: Results of Three Case Studies Tanya Bondarouk and Jan Kees Looise The theoretical and empirical investigation of information technologies (IT) innovation implementations reveals that they lack conceptual and practical support from HRM professionals. The HRM practices undertaken by HR professionals are not even discussed. We argue that HR departments should contribute to IT innovation projects by being responsible for explicitly defining job tasks that have to be automated, establishing a rewards system for those who have to learn and use a new technology and analysing the training needs of the users and providing them with adequate training. HRM should more actively intervene in IT innovation projects. Such intervention would, we believe, foster compatibility between the prior intentions of information technology, the strategies and practices, the individual users’ needs in it and the adoption of IT by the users.

Introduction

I

T innovation implementations are widely acknowledged as turbulent and conflicting developments in organizations that demand the implementation of different technical and social changes. When we look at a live IT innovation project, it is apparent that a project team has to deal with various complicating circumstances surrounding IT innovation including: budget limitations, political games inside a company, agreements with a consultancy firm, availability of resources, reallocating of resources, job tasks analysis and existing technological infrastructure (Gottschalk, 1999; Klein and Sorra, 1996; Martinez, 1994; Segars, Grover & Teng, 1998). At the same time, it is clear that IT project teams mainly consist of IT professionals with a technical background, but without input from the HRM side. In this article, we aim to define the IT managerial practices that in our view should be performed by HR professionals during IT innovation implementation projects. In order to achieve that, we first discuss HRM literature that emphasizes practices for technical innovation, and IT literature that focuses on HRM practices. The literature review allows us to propose HR practices that

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could contribute to IT innovation implementation projects. To showcase the reality of the HRM contribution in IT projects, we provide the findings from three case studies conducted in Dutch organizations that once manifested IT innovation strategies and introduced new information technologies to their employees. The case studies were conducted as investigations into IT innovations implementation. However, their findings have revealed broader insights on the managerial support issues, including HRM practices, during the IT projects.

HRM Practices for IT Innovation In this article, we are interested in the question of which HR practices promote IT innovation in a company. We will look at this from two perspectives: HRM studies and IT studies.

HRM Literature About IT Innovation At the beginning of the 1990s, a series of research studies conducted in the field of the HRM roles in technical innovation (Bessant, 1993; Clark, 1993; Legge, 1993; Preece, 1993) stressed the importance of strategic HR functioning: © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

HR CONTRIBUTION TO IT INNOVATION IMPLEMENTATION

if we view strategic behaviour not as a discrete decision but as an incremental process of decision-making and adaptation over time and space, there is some evidence that HR issues may play an important role in the management of technical change that might appear at first sight (Clark, 1993, p. 215). The empirical research done in the beginning of the 1990s (Clark, 1993) has pointed to the most essential personnel issues in the introduction of technical change, irrespective of whether it is personnel specialists, nonspecialists with responsibilities for personnel issues or line managers who are the champions of these issues. They could be grouped into three main types: • work structuring; • organization design; • personnel issues in the narrow sense. Regarding work structuring, changes in supervision, the creation of semi-autonomous teams – these were underestimated, and the organizations subsequently introduced limitations in allowing staff to play to their strengths (Clark, 1993, p. 216). On organization design issues, the three most important trends were observed as the breakdown of traditional departmental boundaries, de-layering and ‘lean’ staffing levels, and quality, which was intended to improve. Furthermore, Clark (1993) observed that the four usual, narrow HRM issues – selection, appraisal, reward and development – got the most attention in organizations during technological change and were even regarded as true hallmarks of strategic HRM. At the same time, it was also noticed that those narrow HRM issues were highly prominent factors in the management of advanced technical change. Of the four issues, however, selection of the appropriate staff was a particular priority in organizations, as was the training and development of staff to work with the new technology. Later, discussing the role of HR in promoting technological innovation, Chung (1997) addressed specific tools and practices. He proposed the following issues: • the use of a human-centred technological philosophy aiming to support workers whose basic skills are leveraged by advanced manufacturing technology; • the presence of a technological champion, a high-level management individual who is knowledgeable about the new technology and provides continuous support for it. Research has shown a higher impact of the technological champion during the start-up phase than during the planning and installation phases;


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• worker involvement in planning. This has been shown to have a higher influence in the planning phase of technology introduction than in the conceptual phase on the use of new technology; • use of pilot-level technological projects that allow for the gradual introduction of the technology. Research confirms that it also permits employees involved in the pilots to train other workers. • re-organization of the workforce, which involves reconsideration and reassignment of the job tasks, and allows more integrated work teams. • empowerment of the technological workers, which consists of changing the decision-making level to the lowest level supported by the information generated by the technology. However, empirical research has shown that worker empowerment at the early start-up stage of the technology introduction could have potentially negative results because of a still unstable manufacturing system. Only after the system had passed through the start-up phase and was fully debugged would worker empowerment provide benefit (Chung, 1997). Three concluding remarks are worth mentioning here. Research has already distinguished several HR practices that are valuable during technological innovations, for example, the presence of a technological champion, worker involvement in planning and empowerment of the users of a technological innovation. However, these and other practices are yet not embedded in the holistic complexity of technological innovation implementations in such projects. Most attention is paid to the narrow HRM instruments at the individual level such selection, appraisal, rewards, and development, while HR practices at the group and organizational levels are less addressed. Work restructuring and organizational (re)design issues remain as theoretical constructs and are not fully involved in the reality of IT innovations, and therefore HRM is still not utilizing its strategic possibilities. While discussing HR practices for technological innovation, the literature does not cover specialities of IT innovations. One could derive recommendations and ‘translate’ general HR practices for an IT innovation. However, we believe such a simplistic approach would not take into consideration the specialities of information technologies. For example, if we follow the usual advice to select capable workers, this could be interpreted as looking for employees who have advanced software experience. However, studies in the IT field

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show that software experience does not ensure successful use of a new IT by the employees. Or IT research shows that users’ involvement in IT innovation is not enough just at the planning and introduction stages of IT projects, but should be addressed until project completion. However, this aspect is not tackled in the HR literature on IT innovations.

IT Literature About HRM Practices A review of the relevant IT literature has yielded a wide range of managerial practices and practices that could support IT innovations. For example, a comprehensive review done by Sauer (1999) has revealed twelve socalled factor classes that were dominant in the IT literature as potential causes of failure if ignored: user involvement, management commitment, value basis, mutual understanding, design quality, performance level, project management, resource adequacy, situational stability, management process, implementation process, and individual differences. The work of Sauer (1999) supports three important notes. First, many IT studies focus on only one or two factor classes and overlook the multifaceted integrated managerial support needed in IT implementation. Second, it is not clear who is responsible for undertaking those practices. And third, it is not clear what is the basis on which one should select those practices. Computer Personnel Research (CPR) is close HRM issues in the IT field, and has been publishing studies on work and workers since the 1960s (Ambrose, Ramprasad & Rai, 1998; Jordan & Whiteley, 1994; Niederman & Mandviwalla, 2004; Schell, 1998). This research focuses on the human issues related to the MIS professionals and end users, ‘that are critical in the development, acquisition, management, use, and maintenance of information technologies’ (Niederman & Moore, 2000, p. 68). Analysis of 300 papers published in the CPR proceedings within a nine-year period has revealed sixteen topics associated with HRM practices: job analysis, job attitudes, training and development, performance, individual differences, managing and coaching, workplace design, careers, recruitment and selection, communication, retention, organizational structure, workplace ethics, compensation, decision-making and stress/burnout (listed as from the most frequently to least frequently investigated) (Niederman & Moore, 2000). The authors conclude: As a rule, CPR researchers don’t seem to have begun by working from these categories and frankly don’t seem much concerned with HR/OB classifications . . . This represents

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strength of the CPR literature that has emphasized pragmatic issues . . . It also implies that this literature may have a major contribution to the HR literature by moving from historic categorization to new more technology concerned issues (Niederman & Moore, 2000, p. 73). To summarize, IT literature does recognize the importance of HR issues and it shows at least three tendencies. The IT literature has pointed those HR issues that are probably the most relevant for IT. There is a definite value, for example, in developing HR knowledge about design of new IT jobs like network specialists, chief information officers, help-desk respondent, or system analyst or another value becase HR is IT studies on the fit between organizational commitment and technology preferences. However, the IT literature fails to look at the HR practices systematically, giving its reason for this as ‘finding the most pragmatic and relevant practices’, and ignoring historical HRM models. The IT articles mix different approaches to and strategies for the managerial issues in IT innovation implementations. Although such a mix might contain insightful recommendations and guidelines, the studies only cover a great range of diverse managerial practices and do not specify them in detail. The studies propose and/or investigate managerial activities that in our view should be undertaken by different professionals: for example, technical piloting of IT by technical experts; project budgeting by a project team; adequate training by both IT and HR specialists; task re-assignment, employing a new reward system by HR specialists; requirements analysis by IT professionals. However, the literature on IT implementation does not specify the professionals responsible for undertaking those activities; rather it implicitly attributes them to the information system specialists or to the project teams that are in practice mainly composed of technical people. We think that it is sensible to keep many IT project activities in the hands of software specialists, but it is also wise to make at least three adjustments. First, we disagree with the opinion that the pragmatic approach in searching HR practices is the most fruitful for IT projects. Ignoring a systematic HRM approach would mean ignoring a complex nature of social and human aspects involved in IT projects. Why, for example, to concentrate on training skills and not – on compensation policies or work time re-scheduling? Choices for certain HR practices, or ‘people issues’ in IT projects should have a systematic basis where those practices are interrelated, and only jointly contribute to the development and maintenance



of IT. Second, as we mentioned earlier, IT managers deal with a great range of activities during the IT projects, including financial, technical, HR and other aspects. Therefore, we propose that HR activities can be undertaken with the help of HRM professionals. Third, we should indicate to what extent these practices should intervene in an IT innovation. The next section presents our view on this intervention.

HR Contribution to IT Innovation Projects Managerial support for an IT innovation could be defined as management decisions and activities aimed at encouraging use of the IT innovation by the targeted employees (Klein & Sorra, 1996). Within such a broad framework, we define HRM practices as the HR tools that affect the employment relationship during/ because of the introduction of a new IT, and try to develop activities to improve those relationships (De Leede, Looise & de WeeredNederhof, 1999). In order to operationalize this definition, we have chosen the concept of HRM innovation (Looise & van Riemsdijk, 2004), where HRM is viewed as a four-set concept including:

• • • •

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new organization and job design; new forms of human resource flow; new forms of performance and reward; new forms of communication and participation.

New organization and job design in the technological innovation process is related to the analysis and (re)assignment of the tasks to be automated by new IT. New forms of human resource flow are associated with the resourcing of the organization by managing inflow, through flow and outflow of personnel in a new technological work situation. The reward system is to be adapted to the technological change in a company through introducing new pay systems, appraisal and job evaluation. And lastly, new forms of communication and participation are likely to achieve intensive employee participation in the IT project, and new ways of informing them. Table 1 provides an overview of the HR practices that we think should be led by HR professionals during IT projects. It is worth emphasizing that we are discussing the HR practices that contribute to the management of IT innovation projects but cannot be considered as a panacea for the IT project’s success.

Table 1. Operationalization of HR Practices for an IT Innovation HR support dimensions for an IT innovation implementation

Components

1. New organization and job design

explicit definitions of tasks to be automated by new IT, definitions of responsibilities and boundaries of operations of the users brought by new IT (re)-structuring of team work establishing new working time to learn and practise with IT recruiting policy oriented to complexity and radicalness of new IT career development plans with respect to new forms of working with IT

2. New forms of human resource flow

– – – – – –

3. New forms of communication and participation

– – – – – –

4. New forms of performance and reward


– – – –

users’ participation in the decision-making in the IT project authority and freedom of the users in planning their work with IT authority of the users to communicate with an IT supplier developing regulations to provide newcomers with information about IT innovation users’ contribution in defining their training needs adequacy of training sessions in terms of their duration, quality, depth and breadth of coverage adequacy and availability of material resources to learn IT regularity of evaluation of the use of IT recognition of progress in use of the system rewards, reorganization of the pay system for the users

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In other words, they should be combined with the other managerial issues in the projects, such as providing an adequate IT infrastructure, measuring technical performance, requirements engineering and maintaining functional administration of technology.

Research Methods We conducted three case studies in Dutch organizations where new IT systems were being introduced. The case studies lasted 6–10 months, and aimed at obtaining knowledge about the implementation of IT. However, the rich qualitative data allowed us to raise questions about the HR support during the projects. Overall, in the three case studies, we conducted a total of 83 interviews. Ninety employees were interviewed (there were some group-based interviews) as follows: • eleven managerial employees responsible for strategic policy-making in the companies and for selecting the information system; • ten members of the project teams involved in steering the technology implementation, who provided support for end-users, performed help-desk duties, maintained the functional and technical administration of the system; • sixty-seven end-users of the systems, who had to work with the newly introduced IT on a daily basis; • two people responsible for the technical administration of the systems;

Case Study 1: Beaufort Project The first case study was conducted in Medinet, a large regional hospital in The Netherlands. The focus of our research was the users of the new information technology, Beaufort, that was introduced in September 2000 to the personnel and salary department (PSA), and in May 2001 to the local HR managers from four departments, who became the decentralized users of the system. The new Beaufort information system aimed to increase the efficiency of personnel administration by restructuring the HRM processes: the decentralized users were expected to carry out data processing directly using the system. The idea was that local managers should input the personnel data straight into the system and could share that information across departments. The project resulted in two opposite situations: the PSA department implemented Beau-

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fort effectively, efficiently and in accordance with the initial plan; the introduction of the same system to the personnel specialists in other departments failed, which led to the blocking of the whole project in October– November 2001.

Case Study 2: KennisNet Project The second case study was conducted in InsurOrg, an insurance company in The Netherlands. The digital knowledge network – KennisNet – was introduced in October 2001 to the non-life insurance product managers. One of the goals of the system was to provide technical support for creating, gathering and disseminating professional information among the non-life-insurance specialists in five remote locations. Product managers’ tasks were related to knowledge management within a certain nonlife insurance product. In particular, these included: analysis of the market, qualitative analysis of the results, new product development and knowledge monitoring – all related to the terms, policies, and changes in non-life insurance products. Despite the users’ interest and need of such a system at the beginning, the targeted employees were still not working with it two months after its introduction, and the project appeared to be almost beyond hope.

Case Study 3: SAP_HR Project Our third case study was conducted in a large Dutch University. The focus of the research was personnel and salary administrators – the users of a new information technology, SAP_HR, which was introduced in January 2002. HR administrative tasks had to be performed through SAP_HR, including, for example, appointment of an employee, modification of basic information, payment information, working-time registration, relocation processing, promotion, administration of leave (sabbatical, sick, parental) and making HR statistical reports. One of the main reasons why the organization decided to introduce a new personnel system was the necessity for replacing old personnel management technology, because the contract with its supplier was about to expire. The users struggled with the system for first eight months, trying to resolve numerous difficulties in working with SAP, and even to slow down the implementation project. However, the pressure from the ‘top’ gave no other choice to the employees than to fight on



with mySAP_HR. After a year, use of the technology became easier, although not without difficulties.

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system took place only in the event of negative emergencies.

HR Practices Affecting the KennisNet Project

Findings HR Practices Affecting the Beaufort Project The Beaufort project was managed and led by the project team consisting of four members, three of whom had software experience in other IT projects in Medinet, and one was appointed to be responsible for the training of the users. None of the project team members was specialized in HR work. New job tasks that had to be automated were not defined and operationalized. When the decentralized users began to use Beaufort, this presented a big obstacle. They stressed that time registration and sick-leave administration were just minor administrative responsibilities within their HR work, but the system forced them to pay too much attention to these tasks. The way of working also became more complex for the decentralized users. They had to duplicate their inputs: they did this electronically for the PSA to check, and in the old way on paper. Currently we have to multiply the personnel information three times: we are still working with our own system, we have to learn Beaufort, and there is a need to keep on with the paperwork in order to check if the information is correct (Tom, local manager). There were many differing learning opportunities arranged for the PSA employees. Six of them (out of 18) followed three- to four-day software courses at a supplier location followed by a special didactical course in June and July 2000. This group became the core for peer teaching within the department. Instructions were provided for all PSA members by their colleagues and by experts. There was a separate three- to five-hour training session for each Beaufort module. The learning possibilities for the decentralized users were different. Only one of them attended the Beaufort course, and she was expected to teach the others how to operate the system. For the other decentralized users, the major source of information about Beaufort was a one-hour instruction session provided by one of the PSA specialists. The employees were not rewarded or given recognition for their efforts invested in learning the new system. Comments from the project team on their use of, or learning of the


The KennisNet project was managed and led by the project team, consisting of six members, among whom were the project leader, who had an IT background, and five other staff who formed the non-life insurance centre in the company. The KennisNet project was one of many other activities for them. None of them was specialized in HR work. Product managers in five locations had slightly different task content because of the differing backgrounds of the group members – they were representatives of former competitors – and through the diversity of performance logistics, work rules and traditions. As a result, the employees faced such questions as with whom to share knowledge, who to ask for advice and what information to share. There was the necessity of having information ‘right now’, without any delay. Hence, telephone and e-mail technology, or even face-toface talks, were perceived as more supportive. Before KennisNet was introduced, there was a workshop in which the specifications and functionalities of the system were introduced and clarified. The majority of the employees perceived this as sufficient and clear, although some of them noted that it was ‘not very intensive’ and ‘could be better’. We found that some of them did not even remember this had occurred: As an introduction, I had two hours of instruction. It could have been better, I must say. I realise that better instructions and education would have helped more (Joost, product manager). In a manual on how to work with KennisNet, there was no description of the work situations in which it would be wise to use KennisNet (and its various items), of targeted groups of users and their information needs covered by the system, rules and recommendations on how to work with it (what to input, and when), and so on. The employees were free to choose whether to use it or not, when to use the technology and for what purposes. However, some of the users noted that at the beginning there was one rule: all documents must be sent to the managers, who would then make the inputs into the system. The managers stressed the voluntary basis of the use of KennisNet.

HR Practices Affecting the SAP_HR Project The SAP_HR project was managed and led by the functional administration of the technol-

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ogy, consisting of five members, all with an IT background. The leader of the project was a representative of an external consultancy firm specializing in SAP technologies. After SAP_HR went live, the users discovered that some options in the system became useless: registration of train card details, subscriptions and full information about children of the University employees. The employees said that they were not given opportunities to learn and practise with SAP_HR, as all their usual tasks still had to be done. At the beginning I tried to practise with the system, but there was nobody around of whom I could ask a question and get fruitful help. In fact, it was even impossible to practice! I felt that I was cut off from my work – I was blocked (Betsy, personnel administrator). Before SAP_HR was introduced, there was a course about the system, provided by the consultants. Interviewees were all of the opinion that this was not sufficient and did not provide any idea about using SAP_HR: During the first day of the course they explained to us how to click the buttons, but it was too simplistic. The second day was a bit better – about the administration of basic employee appointments. But, in reality, all the appointments include so many special details and different personal situations that when I came to do the work, I felt lost with my limited knowledge from the course (Marijke, personnel administrator). In all units, during the departmental meetings they discussed ‘bad’ cases in the use of SAP_HR – i.e. when employees did not get their salaries. Reward schemes did not exist. In the units, the heads of the departments financially rewarded users for their troubles with SAP_HR on their own initiative.

Discussion In this article we have proposed that some managerial practices during IT innovation projects require professional HR attention and should therefore be performed with the participation of HR specialists. We call this an HRM contribution to the IT innovation projects, emphasizing that those practices should be harmoniously combined with other project practices. We have defined the HRM practices in IT innovation implementations as the HR tools that affect the employment relationship during/because of the introduction of a new

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IT, and try to develop activities to improve those relationships. The importance of human and organizational issues in IT implementations is widely recognized in the research agenda. Many researchers indicate the priority of the social aspects in IT projects (Child & Loveridge, 1990; Orlikowski, 2000; Markus, 2004; de Witte & Steijn, 2000). HRM contributions as viewed in this paper should be considered as further elaboration on the social and organizational aspects of IT innovations implementations. In the theoretical discussion, we showed the split between two literatures, IT and HRM, related to the human issues in IT projects. Both literatures do have valuable findings for each other. For example, IT research could benefit if considers a systematic HRM approach, and HR research could gain a lot from concrete technologically oriented practices investigated in the computer world. In the three case studies we conducted, the companies manifested IT innovation projects, i.e. new information technologies were introduced to the employees. To start with, we should acknowledge the enormous work done by the IT project teams in all case studies to get the technologies running: collaboration with consultants, maintenance of the technologies, sustaining organizational IT infrastructures, budgeting of the projects, providing training to the users, organizing evaluation sessions and so on. At the same time, we saw that all the project teams were composed of IT professionals. We did not see any participation by HR specialists in those projects. To put it even more explicitly: we did not observe that the needs in professional HR advice/support/ participation were analysed. Project leaders did all the managerial routines themselves, including typical HR activities like training needs analysis (if any), providing the users with instructions, restructuring of an organization’s units and reassignment of the job tasks (if any). A brief summary of the findings is given in Table 2. Observations showed that all the case studies failed to operationalize the job tasks to be automated. We did not see explicit definitions of the tasks and new responsibilities including the boundaries of operations with the employees’ technology. All users mentioned the shortage of time given to them to practise with and learn the system, i.e. the working time was not re-scheduled and adapted to a new working situation. Although the new technologies required group re-structuring in InsurOrg and the case-study university, we did not find that team work was (re)established.



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Table 2. Cross-Case Analysis of the Results HR support for an IT innovation implementation

Beaufort project

KennisNet project

SAP_HR project

PSA users

Decentralized users

+/++ –

– – +/-

– – -

– – +

–

–

–

–

1. New organization and job design 2. New forms of human resource flow 3. New forms of communication and participation 4. New forms of performance and reward

++ strong, + moderately strong, +/- moderate, - mostly weak, – weak.

None of the case studies displayed a special recruitment policy with a focus on the new technologies. The project leaders were not even empowered to hire IT-capable specialists. The PSA employees received effective instructions and other learning sources, including time allocated to practise with Beaufort. The decentralized users were left on their own to cope with their huge problems in operating Beaufort and the consequent negative attitudes towards the system. The training for the KennisNet users became what we characterize as very uncaring: one official workshop with instructions for the whole group, one introductory e-mail message to everybody from the project leader and a distributed manual, also composed by the project leader. In the university, training sessions were far removed from the reality of the personnel and salary tasks, and were mostly oriented towards technical functionalities. They were all provided by an external consultancy firm and included a standard three-day programme. Lack of clarity and uncertainty about the use of SAP_HR forced the users to design their own manuals, sub-manuals and short e-mail instructions. This makes us think that only ‘customized’, user-centred learning opportunities lead to an improvement in the users accepting the system. In our view, users do not need the standard technical manuals that resemble telephone books. Rather, the users need taskbased, job-related manuals on why, when and how they should use the various services in the system. The same holds true for the standardized instruction sessions often provided to the users long before they actually work with the system. Training should be designed on the basis of the users’ concrete tasks, with examples from their own work situations, with a possibility to provide it just-in-time when they are required to complete a task.


Another observation based both on theoretical discussion and case studies is that HR and IT professionals still speak ‘different languages’. Finding the common language would benefit both parties. However, in order to be effective, HRM professionals probably should have competencies to deliver and elaborate on this message, and further – to work the common language out. Based on these observations, we think that the HR professionals ‘missed their chance’ to encourage employees, to affect the nature of the relationship between organizations and their ‘human resources’, i.e. to be more strategically oriented. We propose that HRM should more actively intervene in IT innovation projects. Such intervention would, we believe, foster compatibility between the prior intentions of information technology, the strategies and practices, the individual users’ needs in it and the adoption of IT by the users.

References Ambrose, P.J., Ramaprasad, A. and Rai, A. (1998) Information systems, knowledge work and the IS professional: implications for human resource management. CPR-98. ACM Publications, Boston, MA pp. 78–81. Bessant, J. (1993) Towards factory 2000: designing organisations for computer-integrated technologies. In Clark, J. (ed.), Human Resource Management & Technical Change. Sage Publications. pp. 192–212. Child, J. and Loveridge, R. (ed.) (1990) Information Technology in European Services. Towards a Microelectronic Future. Oxford University Press, Oxford. Chung, C.A. (1997) Human issues influencing the successful implementation of advanced manufacturing technology. Journal of Engineering and Technology Management, 13, 283–299. Clark, J. (1993) Managing people in a time of technical change: conclusions and implications. In

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Clark, J. (ed.), Human Resource Management & Technical Change SAGE Publications. pp. 212–223. Gottschalk, P. (1999) Implementation predictors of strategic information systems plans. Information & Management, 36, 77–91. Klein, K.J. and Sorra, J.S. (1996) The challenge of innovation implementation. Academy of Management Review, 21, 1055–1080. Jordan, E. and Whiteley, A.M. (1994) HRM practices in information technology management. SIGCPR-94, Alexandria, VA, March 1994 pp. 57– 64. Leede, de, Looise, J.C. and Weerd-Nederhof, P. de (1999) Human Resource Management and innovation: towards an integrated multi-level approach. Paper presented at the first Dutch HRM-Network Conference, Erasmus University, Rotterdam, 19 November. Looise, J.C. and Riemsdijk, M. van (2004) Innovating organisations and HRM: a conceptual framework. Management Revue, 15, 277–288. Legge, K. (1993) The role of personnel specialists: centrality or marginalization? In Clark, J. (ed.), Human Resource Management & Technical Change, SAGE Publications. pp. 20–43. Markus, M.L. (2004) Technochange management: using IT to drive organisational change. Journal of Information Technology, 19, 4–21. Martinez, E. (1994) Avoiding large-scale information systems project failure: the importance of fundamentals. Project Management Journal, 25, 17– 25. Niederman, F. and Mandviwalla, M. (2004) Introduction to special issue on the evolution of IT (computer) personnel research: more theory, more understanding, more questions. The DATA BASE for Advances in Information Systems, Summer, 35, 6–8. Niederman, F. and Moore, J.E. (2000) Computer personnel research: what have we learned in this decade?. SIGCPR 2000. ACM Publications, Evanston IL pp. 67–76. Orlikowski, W.J. (2000) Using technology and constituting structures: a practice lens for studying technology in organisations. Organization Science, 11, 404–428. Preece, D. (1993) Human resource specialists and technical change at Greenfield Sites. In Clark, J. (ed.) Human Resource Management & Technical Change. SAGE Publications pp. 101–116.

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Sauer, C. (1999) Deciding the future for IS failures not the choice you might think. In Currie, W. and Galliers, R. (eds), Rethinking Management Information Systems, Oxford University Press, Oxford pp. 279–309. Segars, A.H., Grover, V. and Teng, T.C. (1998) Strategic information systems planning: planning system dimensions, internal coalignment, and implications for planning effectiveness. Decision Sciences, 29, 303–345. Schell, G.P. (1998) Perspectives on computer personnel research. Computer Personnel, April, 3– 12. Witte, M.C. de and Steijn, B. (2000) Automation, Job Content and Underemployment. Work, Employment and Society, 14, 245–264.

Tatyana Bondarouk is an assistant professor of Human Resource Management at the faculty of Business, Public Administration and Technology of the University of Twente. She holds a Masters and a PhD in Management from the University of Twente. Her research interests include social issues of implementation of information technologies, network organizations and research methodology. Jan Kees Looise is a professor of Human Resource Management at the faculty of Business, Public Administration and Technology of the University of Twente and head of the department of Human Resource Management. He holds a Masters in Organisational Sociology from the Free University in Amsterdam and a PhD in Management from the University of Twente. His main topics in research and education are human resource management, innovative organizational forms and employment relations, worker participation and the impact of ICT on work and organisation. He is the (co-)author of eight books (most of them in Dutch) and about fifty scientific articles and chapters equally spread over Dutch and international- refereed journals and Dutch and international books.


Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142169175ARTICLESDIVERSITY MANAGEMENT, CREATIVITY AND INNOVATIONCREATIVITY AND INNOVATION MANAGEMENT

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The Paradox of Diversity Management, Creativity and Innovation Nigel Bassett-Jones This conceptual and discursive paper argues that diversity is a recognizable source of creativity and innovation that can provide a basis for competitive advantage. On the other hand, diversity is also a cause of misunderstanding, suspicion and conflict in the workplace that can result in absenteeism, poor quality, low morale and loss of competitiveness. Firms seeking competitive advantage therefore face a paradoxical situation. If they embrace diversity, they risk workplace conflict, and if they avoid diversity, they risk loss of competitiveness. The advantages and disadvantages associated with workforce diversity put organizations in a position of managing a paradoxical situation. To give support to this assertion, the paper considers what is meant by diversity, how it is best managed, what its relationship with creativity and innovation might be and how the problems created by the management of diversity, creativity and innovation might be resolved.

Introduction The paper examines the relationship between diversity, creativity, innovation and competitive advantage in firms that operate within a high-commitment context. High-commitment organizations are those with an approach to human resource management (HRM) that fosters and supports the creation and maintenance of an internal labour market and a highlevel skills base. Employees are managed by means of an outcome-driven rather than a process-driven approach. This approach, in turn, is founded on a reliance on employee skills and knowledge, rather than high levels of supervision to ensure required levels of quality and output (Bamberger & Meshoulam, 2000; Lepak and Snell, 1999). Unfortunately, managers operating in a high-commitment context face a dilemma. They can either seek to harness diversity in order to promote creativity and innovation or they can ignore the diversity dimension, within the constraints of the law. If they are successful in embracing diversity, then organizational agility, founded upon creativity and innovation, can ensue (Cox and Blake, 1991). Organizations that adopt a high-commitment orientation are confronted by a number of challenges. Because their approach to HRM relies on low staff turnover and retention of scarce skills, they may find it difficult to create © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

a diverse workforce, preferring as they do, the conflict-reducing influence of homogeneity. While much of the argument presented here can be applied to all organizations, it is high-commitment organizations that are the paper’s focus, because the issues raised are especially evident in these firms. The paper begins by defining diversity and diversity management. It then explores the genesis of diversity as a management concept, before going on to consider the complex interrelationship between diversity, creativity, innovation and competitive advantage, suggesting that creativity is a precondition for innovation, and that creativity and innovation are enhanced by the existence of diversity. This discussion leads to a consideration of the issue of managing diversity. Then HRM appropriate for diversity management is discussed. The final section makes the case for embracing diversity management sooner rather than later, particularly in highcommitment organizations.

Definitions of Diversity and Diversity Management For the purposes of this paper’s argument, the term ‘diversity’ encompasses a range of differences in ethnicity/nationality, gender, function, ability, language, religion, lifestyle or

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tenure (Kossek & Lobel, 1996). Additionally, ‘diversity’ in the workplace includes more than employees’ diverse demographic backgrounds, and takes in differences in culture and intellectual capability. It takes more than demographic or ethnic diversity to result in creativity that leads companies to perform better (Leonard & Swapp, 1999). The term ‘diversity management’ refers to the systematic and planned commitment on the part of organizations to recruit and retain employees with diverse backgrounds and abilities. It is an activity that is mainly to be found within the HRM training and development domains of organisations (Betters-Reed & Moore, 1992; Thomas, 1992). In the context of this paper, diversity management is defined as the aggregate effect of HRM sub-systems, including recruitment, reward, performance appraisal, employee development and individual managerial behaviours in delivering competitive advantage through leadership and team work.

The Genesis of Diversity as a Management Concept It is worth noting that while the notion of managing diversity has evolved out of social policies designed to promote equality, and that while, historically, these policies in both the UK and the USA have been focused on delivering equality of access to opportunity for disadvantaged social groups, the approach and the agenda in each national context has been different. In the USA, policy has tended to be driven by a commitment to ‘affirmative action’. In the UK, however, affirmative action has, to date, been perceived as positive discrimination, and has been effectively proscribed by law. To understand some of the dynamics that gave rise to this divergence, it is necessary to review the demographic patterns of the two countries. America was first alerted to impending changes in the demographic composition of its labour market in a report entitled Workforce 2000 (Johnston & Packard, 1987). In the flurry of interest that followed, a range of data pointed to the extent to which the American economy was changing (Latimer, 1998; Watson, 1996). The United Kingdom is different. Whereas in America, ethnic minority populations accounted for 26% of the total, in the UK, it was 5.5%. It is hardly surprising, therefore, that equality of opportunity was perceived as an issue of greater political urgency and social consequence in the USA. Opinion differs on why diversity management emerged in the way

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that it did. Kirton and Greene (2000) and Kossek and Lobel (1996) have suggested that the diversity paradigm evolved because it was perceived to be less threatening and controversial than affirmative action driven by notions of equality of opportunity. Writers like Yakura (1996) have asserted that diversity management was an attempt to enlist the support of disenchanted white males. Others, such as Prasad et al. (1997), have suggested that the diversity approach, with its emphasis on corporate initiative and human capital theories, resonated more harmoniously with American individualism than state intervention imposed through policies of equality of opportunity. Moreover, whilst the USA and the UK are in the vanguard when it comes to recognizing that diversity constitutes a major management challenge, commentators have noted that other Western economies are confronted by dramatic shifts in their demographic balance that will push the effective management of diversity up the management agenda. The United Nations projects that the European population could shrink by as much as 94 million or 13% by 2050 and that, amongst the G8, only the USA, Canada and the UK will have growing populations. By 2020, it is estimated that the world’s population will consist of more than 1,000 million people aged 60 and older. Governmental and organizational responses to these challenges might include importing young skilled labour from those regions of the world that are well-endowed with skilled and educated young people, and the development of social policies and taxation regimes that encourage child-rearing and the retention of the skills of older workers for longer. Organizations with a high-commitment strategy and a largely homogeneous workforce may well find that low staff turnover fosters cultural inertia and inhibits the creation of diversity. HRM sub-systems define the limits of managerial discretion in managing what can be termed the spectrum of diversity. It is the aggregate effect of the attitudes, skills and behaviours of individual managers that determines the extent to which organizations are able to sustain high commitment within a diverse workforce.

The Interrelationship of Diversity, Creativity, Innovation and Competitive Advantage The recognition of the relationships between diversity, creativity, innovation and competitive advantage has stimulated both academics



and the business community to search for factors and situations that give rise to creativity in individuals, and for the catalysts of creativity in teams (West & Anderson, 1996). Creativity is a necessary precondition for successful innovation. King and Anderson (1995) highlighted the problematic nature of defining creativity. The growth of interest in the field has been accompanied by a proliferation of definitions that have polarized around four themes: the creative person, creative process, creative product and the creative environment (Isaksen et al., 2000). It is difficult to separate process from product because products can be intangible, and processes often result in the creation of product. There is, however, considerable consensus around what constitutes a creative product. King and Anderson (1995) define its key characteristic as novelty, i.e. the conception must differ significantly from what has gone before. It should also be appropriate to the situation it was created to address, be public in its effect and deliver a perceived benefit. Competitive advantage is as much about incremental system and process innovation, therefore, as it is about radical product innovation. The link between innovation and competitive advantage has long been understood. Interest in the field was first given impetus by researchers like Abernathy and Utterback (1978). They demonstrated that industry outsiders usually adopted radical innovation as a strategy for overcoming barriers to entry. In so doing, they created a situation in which the dominance of particular players, either within an area of the industry or across the industry as whole, began to lose their hegemony because of an inability to innovate quickly enough to respond to the competitive challenge. In the ensuing confusion, many of the established players found themselves too psychologically and financially committed to the preservation of the status quo to embrace change. Whilst innovation in the West has tended to be defined in terms of breakthrough technologies and products, the kaizen philosophy encouraged Japanese manufacturers to think more broadly and to devise strategies for promoting involvement, not only across the organization, but also across the supply chain. During the late 1980s and early 1990s, Western organizations came to recognize that industry leadership through radical innovation was being ceded to fast-followers, skilled in reverse engineering and cost reduction through process improvement. Their response was to promote greater involvement from their people through the application of


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HRM as a device for improving systems and driving down costs. At the same time, Hamel and Prahalad (1994) provided considerable impetus to the resource-based view of the firm by demonstrating that Japanese corporations sought to sustain their leadership position by forging and exploiting strategic alliances. Both of these responses can be seen as strategic moves towards the management of diversity. In the case of the Western corporation, Japanese techniques for the management of functional diversity, such as quality function deployment, were embraced, whilst Japanese corporations used strategic alliances to infuse new ideas and know-how into their culturally homogeneous corporations. There is conflicting evidence as to the extent to which diversity can deliver competitive advantage. On the one hand, exponents of the information decision approach (for example, Cox and Blake, 1991; Iles & Hayers, 1997; Richard & Shelor, 2002) argue that when diversity is managed well, it can enhance creativity, resulting in increased commitment, job satisfaction and a better interface with the market place. In contrast, advocates of social identity theory (for example, Ely and Thomas, 2001; Ibaarra, 1993; Kanter, 1977; Tafjel, 1982) are more pessimistic. They argue that diversity damages cohesiveness, reduces communication and produces in-groups and out-groups. This results in discord, distrust, poor quality and lack of customer focus and market orientation. If innovation results in a product, system or process that is new to a context, and delivers a definable benefit to a social constituency, then the antecedent lies in the creativity of individuals, whether working independently or in teams. Cummings (1998) has shown that the delivery of a successful innovation involves three stages – conception (which includes creativity), successful development and successful application. The closer the concept comes to the marketplace, however, the greater the number of people involved. This results in the emergence of two distinct types of challenge – technical and human. Technical problems require the creative energy of teams, whilst human problems arise because of the need to promote diffusion and buy-in to the new idea, initially across the organization and sometimes across the supply chain. Diversity, combined with an understanding of individual strengths and weaknesses, and working relationships that are founded upon sensitivity and trust, have been shown to enhance creativity and problem-solving capability (Hennessey & Amabile, 1998). Indeed,

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Isaksen and Lauer (2002) identified key factors that contribute to creativity and provide a collaborative climate. These are trust, team spirit, unified commitment, principled leadership, an elevating goal, a results-driven structure, standards of excellence, participation in decision-making, external support and recognition, and an aptitude to adjust roles and behaviours to accommodate new emergent values. Employees either work in teams, defined by Katzenbach and Smith (1993) as ‘people with complementary skills who are committed to a common purpose, set of performance goals, and approach, for which they hold themselves mutually accountable’, or they work in groups. The latter are differentiated as ‘people working together who are not as coherent or purposive as team members’. Teams are composed of individuals who have the ability to recognize the personal strengths and limitations of their colleagues. They adjust their behaviours so as to respond to the needs of their peers. These patterns of mutual adjustment result in reduced levels of interpersonal tension and conflict. It falls to the HRM function to promote significant investment in developing managers and encouraging them to accept the emotional labour inherent in managing diversity within the organization (Ruscio et al., 1995).

Managing Diversity The literature on diversity highlights a range of responses to the challenge of diversity management. Dass and Parker (1999) identified no fewer than twelve strategic responses to the challenge of managing diversity. Moore (1999) reduced the number of behavioural stereotypes to four – the diversity hostile, the diversity blind, the diversity naïve and the diversity integrationist. Whilst the first three behavioural stereotypes fail to recognize that different management skill sets are required to respond effectively to different diversity challenges, the fourth stereotype is proactive in its approach. Moore’s stereotypes recognize that neither functional nor cultural diversity automatically leads to positive or negative outcomes. However, different patterns of diversity present different managerial challenges, to which some organizations respond, whilst others do not. Thomas and Ely (1996) showed that cognitive and experiential diversity adds to the perspectives available to the organization and encourages clarification, organiation and combination of new approaches for the accomplishing of goals. Similarly, Donnellon (1993)

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and Tushman (1997) found that work units characterized by diversity have the capability to access broader networks of contacts. This enables them to acquire new information that informs decisions, increases commitment to choices and enhances responsiveness to environmental turbulence. Latimer (1998) argued that diversity in terms of ethnicity, age, gender, personality and educational background promotes creativity and problem-solving capability. He suggests that groups have been found to be less risk averse than an individual’s ‘risky shift’. Increased diversity leads to lower levels of risk aversion and better decision-making and problem-solving capability. This arises because diversity promotes a more robust critical evaluation of the first solution to receive substantial support. One of the objections to diversity is that it damages cohesiveness. Cohesiveness, however, makes groups vulnerable to ‘group think’. Diversity acts as an impediment to this phenomenon. Conflict is perceived to damage cohesiveness; however, when it is effectively channelled, it can lead to improved creative problem-solving and decision-making, because the diversity of perspective generates more alternatives and greater critical evaluation. Results pointing to ‘value in diversity’ have been countered by theorists who have shown that heterogeneous groups experience more conflict, higher turnover, less social integration and more problems with communication than their homogeneous counterparts (Knight et al., 1999; O’Reilly et al, 1989; Williams and O’Reilly, 1998). Other studies have suggested lower levels of attachment to employing organizations on the part of individuals who perceive themselves to be different from their co-workers (Mighty, 1997; Tsui et al., 1992). These studies give a clear indication of the nature of the challenge confronting those seeking to promote commitment amongst diverse work groups.

Appropriate HRM for Diversity Management High-commitment organizations will tend to prefer an outcome-driven approach to managing people. The required levels of quality and output are seen to result from employee skills and knowledge, rather than high levels of supervision. Suitable conditions to promote creativity and innovation in diverse contexts are associated with the management of work routines, and the creation of appropriate teams. Indeed,



currently, an increasing amount of work within an organization is accomplished through groups or teams, rather than by individual action. When selecting individuals to join a team, it helps if managers not only consider functional competence, but also the preferences that people have for different types of work and different types of work context. The ways in which individuals like to work, and the activities within their job roles that give them greatest satisfaction, will shape the way in which they choose to discharge their responsibilities, working individually or in teams. These manifestations of personal style are important in a team context. Individuals with similar styles may well establish trust early; their homogeneity of approach, however, may become a significant blind spot. In building a high performance team, there is not only a need to match functional competence and personality against the requirements of the job, there is also a need to produce a balance of work preferences, attitude to risk and an inclusive orientation to social identity. In highcommitment team contexts, a strong case can be made for blind selection to the shortlist stage, based on a minimum threshold of functional competence and the results of a range of personality and work preference measures that are blind to age, ethnicity and gender, and that are designed to ensure balance and diversity within the team. Garvin (1998) has shown how functional diversity gives rise to a potential conflict. He observed that those versed in a particular discipline or function, perceive and define quality in different ways. To those tasked with procurement of resources, quality is perceived to be value for money. Those involved in design see it as intangible and transcendent. Those working in production define it as conforming to requirements. Marketers suggest that it is relative perceived value, whilst sales people argue that quality is for the customer to define. Historically, these tensions produced compartmentalized management practices, because of an absence of tools to reconcile differences of perspective. Teams with diverse membership and a collectivist orientation are likely to have a deeper well of resource upon which to draw when generating ideas, combining them and subjecting them to critical evaluation. The likelihood of adopting a sub-optimal trajectory, therefore is reduced, especially if the team’s approach to systematizing creativity and problem solving is highly developed. Whilst early success and recognition help to cement a sense of identity and belonging, people and processes need to be supported by a


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set of HRM sub-systems that focus on constantly reinforcing these processes. The literature suggests that the greater the diversity, the greater the collectivist orientation needs to be. Systems like the Kaplan and Norton’s balanced scorecard (1996) and 360-degree feedback, when combined with reward systems that empower managers to implement employee ideas on their own initiative, help create the supportive infrastructure necessary to deliver results.

Concluding Remarks In the context of this paper, diversity management is defined as the aggregate effect of HRM sub-systems, including recruitment, reward, performance appraisal, employee development and individual managerial behaviours in delivering competitive advantage through leadership and team work. The combustible cocktail of creative tension that is inherent in diverse organizational contexts must be contained within a multilayered vessel. The outer layer must be composed of carefully crafted HRM sub-systems that are both vertically integrated with the business objectives and horizontally integrated one with another (Bamburger & Meshoulam, 2000). The inner layer consists of effective leadership, which can only be provided by suitably trained managers. They need to understand the challenges of diversity management, and to have the emotional intelligence and commitment necessary to build a personal relationship with each individual, or group/team member. In support of the view that the existence of diversity in a firm can lead to competitive advantage, the paper considered questions such as ‘What is meant by diversity? ‘How is it managed, especially from an HRM point of view?’ ‘What is its relationship with creativity and innovation?’ It has been argued that embracing diversity management is a risky business. Organizations that embrace high-commitment HRM strategies do so because the systems and processes through which they add value are too complex for managers to control directly through supervision. Instead, they adopt an output orientation. This approach demands that they delegate authority to individuals and teams to make operational decisions. Organizations that adopt an output orientation need innovation and continuous improvement in both products and processes to support a strategy for delivering high-perceived value to the customer. Diversity facilitates the process when managed well.

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Unfortunately, there is a paradox. Organizations with an internal orientation to the labour market measure the success of their approach to HRM through high retention rates, low employee voice and a willingness to go beyond contract. This militates against diversity, unless senior managers are highly diversity sensitive and are prepared to put in place HRM sub-systems that support diversity. Whilst the risks associated with strategies that embrace homogeneity and heterogeneity are different, this paper has questioned whether organizations seeking an innovation advantage really have a choice. This rather deterministic position is predicated on the view that the combination of demographic trends, legislative pressure and market forces in respect of competition for scarce skills will render the barriers to entry for minority groups more permeable. If this view is correct, then in the long term, the need to manage diversity will become unavoidable. In this event, organizations that have adopted high-commitment HR strategies will not be asking whether they should embrace diversity, but rather, how it can best be done. The challenge that confronts the pioneers is how to achieve the transition. What this paper has sought to show is that it is possible to capitalize on lessons already learned in managing functional diversity – although this is only one of the many types of diversity to be found within firms. We have seen that a number of tools already exist. These will require further development. Others must be added. The shift that has already taken place from the lowtrust, functionally divided organization to team-based, interdepartmental working that presaged the quality revolution, offers us a template for managing the transition. High-commitment organizations that start early can develop an advantage. If they are to succeed, they must demonstrate a commitment to deploying HRM strategies that are designed to foster trust and inclusiveness through effective leadership, on the one hand, with creativity and innovation techniques that capitalize on diversity to deliver an innovation advantage on the other. In this connection, the literature suggests that the old adage that there can be no gain without pain, is true. However, it is almost certainly better to experience growing pain, than the pain associated with loss of competitiveness and decline arising from an inability to adapt quickly enough to changing conditions. In short, in a high-commitment context, managers are caught between the devil and the deep blue sea.

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References Abernathy, W.J. and Utterback, M. (1978) Patterns of Industrial Innovation, Technology Review, 80(7), 41–47. Amabile, T.M. (1995) Attributions of Creativity: What are the consequences?Creativity Research Journal, 8(5), 423–427. Bamberger, P. and Meshoulam, I. (2000) Human Resource Strategy: Formulation, Implementation and Impact. Sage, Thousand Oaks CA. Belbin, M. (1981) Management teams: why they succeed or fail. Heinemann, London. Betters-Reed, B.L. and Moore, L.L. (1992) Managing Diversity: Focusing on women and the whitewash dilemma. In Sekaran, U. and Long, F.T.L. (eds.) Womenpower: Managing in times of demographic turbulence. Sage, Newbury Park, CA pp. 31–58. Cox, T. and Blake, H. (1991) Managing cultural diversity: implications for organizational competitiveness. Academy of Management Executive, 5(3), 45–57. Cumming, B.S. (1998) Innovation overview and future challenges European Journal of Innovation Management, Vol 1 (1). Dansky, H.K., Maldonado, R.W., De Souza, G. and Dreachslin, J.L. (2003) Organisational strategy and diversity management: Diversity sensitive orientation as a moderating influence, Health Care Management Review, July–September, 243– 253. Dass, P. and Parker, B. (1999) Strategies for managing human resource diversity: From resistance to learning. Academy of Management Executive, May, 13(2), 68–81. Deming, W.E. (1988) Out of Crisis. Cambridge University Press, Cambridge. Donnelon, A. (1993) Cross-functional teams in product development: Accommodating the structure to the process. Journal of Product Innovation Management, 10, 377–392. Echols, A.E. and Neck, P. (1998) The impact of behaviours and structure on corporate entrepreneurial success, Journal of Managerial Psychology; 13(1/2), 38–46. Ely, J. and Thomas, D.A. (2001) Cultural diversity at work: The effects of diversity perspectives on work group processes and outcomes, Administrative Science Quarterly, 46(2), 229–273. Flood, P. (1998) Is HRM Dead? In Sparrow, P. and Marchington, M. (eds.), Human Resource Management: The New Agenda. Financial Times Pitman Publishing, St Ives. Garvin, D.A. (1988) Managing Quality. Maxwell MacMillan, Free Press, Toronto. Hamel, G. and Prahalad, C.K. (1994) Competing for the Future. HBS Press, Boston, MA. Hennessey, B.A. and Amabile, T.M. (1998) Reward, intrinsic motivation, and creativity, American Psychologist, 53(6), 674–676. Ibaarra, H. (1993) Personal networks of woman and minorities in management: A conceptual framework, Academy of Management Review, 18(1), 56– 87. Iles, P. and Hayers, P.K. (1997) Managing diversity in transnational project teams. Journal of Management Psychology, 12(2), 95–117.



Isaksen, S.G. and Lauer, K.J. (2002) The climate for creativity and change in teams, Creativity and Innovation Management, 11, 74–85. Isaksen, Scott, G., Lauer, Kenneth J. and Ekvall, G. (2000) Perceptions of the best and worst climates for creativity: Preliminary validation evidence for the situational outlook questionnaire, Creativity Research Journal, 13(2), 171–185. Johnston, W.B. and Packard, A.H. (1987) Workforce 2000: Work and Workers for the 21st Century. Hudson, Indianapolis, IN. Kanter, R. (1977) Men and Women of the Corporation. Basic Books, New York. Kaplan, R.S. and Norton, D.P. (1996) The Balanced Scorecard: Translating Strategy into Action. HBS Press, Boston, MA. Katzenbach, J.R. and Smith, D.K. (1993) The wisdom of teams: Creating the high-performance organisation. Harvard Business School Press, Cambridge, MA. King, N. and Anderson, N. (1995) Innovation and Change in Organisations. Routledge, London. Kirton, G. and Greene, A. (2000) The Dynamics of Managing Diversity: A critical a roach. Butterworth Heinemann, Oxford. Knight, D., Pearce, C.L., Smith K.G., Olian, J.D., Sims, H.P., Smith, K.A. and Flood, P. (1999) Top management team diversity, group process, and strategic consensus, Journal of Strategic Management, May, 20(5), 445–465. Kossek, E.E. and Lobel, S.A. (eds.) (1996) Managing Diversity: Human Resource Strategies for Transforming the Workplace. Blackwell, Cambridge, MA. Latimer, R.L. (1998) The case for diversity in global business, and the impact of diversity on team performance, Competitiveness Review; Indiana. 8(2), 3–17. Leonard, D. and Swap, W. (1999) When Sparks Fly: Igniting creativity in groups. Harvard Business School Press, Cambridge, MA. Lepak, D.P. and Snell, S.A. (1999) The strategic management of human capital: Determinants and implications of different relationships, Academy of Management Review, 24(1), 1–18. Luhmann, N. (1986) Trust and Power. Wiley, Chichester. Margerison, C.J. and McCann, R. (1985) How to Lead a Winning Team. MCB University Press, Bradford. Margerison, C.J., McCann, D.J. and Davies, R.V. (1995) Focus on team appraisal, Team Performance Management, 1(4), 13–18. Mighty, J.E. (1997) Triple jeopardy: Immigrant women of colour in the labor force. In Prasad, P., Mills, A.J., Elmes, M. and Prasad, A. (eds.) Managing the Organizational Melting Pot: Dilemmas of Workplace Diversity. Sage, Thousand Oaks, CA. Moore, S. (1999) Understanding and managing diversity amongst groups at work: Key issues for organisational training and development. Journal of European Industrial Training, 23(4), 208–218. O’Reilly, C.A., Caldwell, D.F. and Barnett, P. (1989) Work Group demography, social integration, and turnover: Administrative Science Quarterly 34, 21– 37. Prahalad, S. and Hamel, G. (1990) The core competence of the corporation, Harvard Business Review, May–June. Prasad, P., Mills, J.A., Elmes, M. and Prasad, A. (1997) Managing the Organisational Melting Pot: © Blackwell Publishing Ltd, 2005

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Dilemmas of Workplace Diversity. Sage, Thousand Oaks, CA. Richard, O.C. and Shelor, M. (2002) Linking top management team heterogeneity to firm performance: Juxtaposing two mid-range theories. International Journal of Human Resource Management, 13(6), 958–974. Ruscio, J., Whitney, D.M. and Amabile, T.M. (1995) Looking inside the fishbowl of creativity: Verbal and behavioural predictors of creative performance, Creativity Research Journal, 11(3), 243–264. Tajfel, H. (1982) Instrumentality, identity and social comparisons. Cited in Mighty J.E. Triple Jeopardy: Immigrant Women of Colour in the Labor Force. In Pushkala Prasad, Albert J Mills, Michael Elmes and Anshuman Prasad (eds) Managing the Organizational Melting Pot: Dilemmas of Workplace Diversity, Thousand Oaks, California. Thomas, D.A. and Ely, R.J. (1996). Making differences matter: A new paradigm for managing diversity. Harvard Business Review, 74, 79–90. Thomas, R.R. (1992) Managing Diversity: A conceptual framework. In Jackson, S.E. (ed.) Diversity in the workplace: Human resource initiatives. Guildford, New York pp. 306–318. Tsui, A.S., Egan, T.D. and O’Reilly, C.A. (1992) Being Different: Relational demography and organizational attachment: Administrative Science Quarterly, 37, 549–579. Tushman, M.L. (1997) Special boundary roles in the innovation process, Administrative Science Quarterly, 22, 587–605. Watson, C. (1996) Making diversity work: Differences among employees, Executive Female 19(5), 40–44. West, M.A. (1997). Developing Creativity in Organizations. Leicester: British Psychological Society. West M.A. (2000). State of the art: Creativity and innovation at work. Psychologist, 13(9), 460–464. West, M.A. and Anderson, N.R. (1996). Innovation in top management teams. Journal of Applied Psychology, 81, 680–693. West, M.A. and Farr, J.L. (eds.) (1990). Innovation and Creativity at Work: Psychological and Organizational Strategies. John Wiley, Chichester. Williams, K.Y., O’Reilly, C. (1998) Forty years of diversity research: A Review. In Staw, B.M. and Cummings, L.L. (eds.), Research in Organisational Behaviour, 77–100. Greenwich CT, JAI Press. Yakura, E. (1996) EEO law and managing diversity. In Kossek, E. and Lobel, S. (eds), Managing Diversity. Blackwell, Cambridge, MA.

Nigel Bassett-Jones is currently a principal lecturer at Oxford Brookes University Business School, where he lectures in HRM, strategy, and innovation and change mainly to post-graduate students. Current research interests include, creativity and innovation, creativity and diversity management and systems perspectives on diversity management. He is also an experienced OD consultant.

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Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142176190ARTICLESFUNCTIONAL DIVERSITY AND INNOVATION IN SMESCREATIVITY AND INNOVATION MANAGEMENT

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An Empirical Study on Functional Diversity and Innovation in SMEs Chee-Meng Yap, Kah-Hin Chai and Patrick Lemaire Functional diversity among managerial teams can foster innovation. This empirical study considers two types of function diversities: dominant function diversity, which measures the range of function specialization available across the top management team, and intrapersonal function diversity, which measures the range of function experience within each individual in the management team. Data collected from small and medium-sized enterprises in Singapore show that intrapersonal function diversity has a positive impact on innovation, but that this impact is reduced for bigger firms. Dominant function diversity has a negative effect on innovation for firms that are growing.

Introduction

E

ven though the individual impact of small and medium-sized enterprises (SMEs) is weak, collectively they exert a strong influence on a nation’s economy. Their growth and development directly influence the economic quality of life (Morris & Lewis, 1991) as evidenced by the key roles they play in generating employment, promoting innovation, engendering competition and creating economic wealth (Sengenberger, Loveman & Piore, 1990). Consequently, it is not surprising that countries such as Singapore are turning their attention to SMEs (Tan, 2002). As part of this attention, one of the focus areas is on the facilitation of innovation within SMEs. Researchers have long recognized innovation as a vital ingredient for survival and profitability (Tidd, Bessant and Pavitt, 1997; Lumpking & Dess, 1996; Read, 2000). Firms compete with the introduction of new products or services, to capture new markets and to reach fast-changing customer expectations. They also seek new processes for production and service delivery in order to reduce costs and increase customer satisfaction. However, innovation is a resource-intensive business where managers must continuously build and exploit unique resources and capabilities, most of which are intangibles. The resourcebased view focuses on these valuable, unique, inimitable resources which confer sustainable competitive advantages (Barney, 1991; Penrose, 1995). Amongst the resources that are

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valuable for innovation are top management teams. In this respect, SMEs suffer from the liability of smallness. Heneman and Berkley (1999) noted that small firms face problems of access to material and financial resources and have to manage with a small number of employees assuming multiple roles, and therefore, blurring job boundaries and responsibilities. In addition, small firms possess an underdeveloped HRM function, which places them at a disadvantage in accessing the labour pool, leading to difficulty in recruiting qualified employees (Hausdorf & Duncan, 2004; Heneman & Berkley, 1999; Hornsby and Kuratco, 1990). Hornsby and Kuratko (1990) also found that smaller firms offer lower remuneration and benefits than larger firms. To explore how SMEs overcome this aspect of liability of smallness, this research focuses on human resources management at the senior level. The ability of a firm to innovate and improve continuously has been proved to be related to the employees’ skills and knowledge (Nonaka, 1991; Nonaka & Kenney, 1991). The skill sets and experience of employees must be adapted to the firm, and it takes years to build up this intangible asset efficiently (Heneman, Tansky & Camp, 2000). The human resources limitation of SMEs implies that at the top management level, they may be unable to possess the complete set of the requisite functional skills, which compels them to enhance and focus on specific skills, while outsourcing others. Especially important is the presence of functional diversity within the top © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

FUNCTIONAL DIVERSITY AND INNOVATION IN SMES

management team in SMEs, as empirical studies have shown that functionally diverse teams are more innovative (Bantel & Jackson, 1989). Functional diversity within a team can be conceptualized as the distribution of functional experience across the individual team members. However, functional diversity can also be found in individuals with experience in a broad range of functional areas. In a limited human resources environment, SMEs may have to depend on each individual staff member having as wide a functional experience as possible, as it may be unable to generate diversity through narrow functional specialist spread across all the functions required. This study aims to identify the impact of functional diversity on innovation. In order to account for the SMEs’ lack of human resources, we consider both functional diversity between employees and diversity of each employee. The scope of this study is restricted to diversity within the managerial staff in accordance with previous studies indicating the main role these staff have on the innovative process.

Theory and Hypothesis The relevant knowledge and expertise of human resources gathered within the boundaries of a firm enables its effective and efficient operations. The multiplicity of tasks undertaken by a firm requires a diversity of knowledge and expertise among its human resources. Although all the required functional responsibilities can be assigned to employees, this assignment does not ensure the presence of experiential-based diversity. The knowledge and expertise come from the employee background and do not always fit perfectly with the functions he or she has been assigned to. Therefore, we need to move beyond the functional assignment, which does not accurately represent the skills and abilities diversity, in our consideration of functional diversity. In most existing work on functional diversity at the management level, researchers have considered functional diversity as the distribution of the individual across a range of functional categories, according to his dominant expertise. However, the functional diversity in a firm can be a result of either the aggregation of several specialists in various functional categories, or the presence of employees with broad functional background and expertise. We therefore focus on two different concepts of the functional diversity: the dominant function diversity and the intrapersonal functional diversity.


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The Effect of Dominant Functional Diversity The dominant function of an employee is the function category that most closely represents his background and where he has spent the greater part of his career. The extent to which the group members differ in their dominant function is the dominant function diversity of the group, which is by far the most common conceptualization of functional diversity in the literature (Bunderson & Sutcliffe, 2002). This measurement of functional diversity highlights the actual knowledge and expertise diversity of the group, rather than the relevant functions required within the group. Innovation requires competencies in both idea generation and idea implementation. Having a variety of approaches to a problem is positively related to idea generation (Raghuram & Garud, 1996; Sessa, Jackson & Rapini, 1995). Dominant function diversity provides the firm with a broad range of skills and behaviours, and thus flexibility, which ease the implementation of new process or organizational innovations (Wright & Snell, 1998). On the negative side, lower consensus (Knight et al., 1999) and higher conflicts (Knight et al., 1999; Pelled, Eisenhardt & Xin, 1999) have also been associated with this heterogeneity, which could hinder the implementation of ideas. Organizations characterized by diversity reported lower amounts of communication among co-workers, suggesting that diversity decreases overall communications (Sessa, Jackson & Rapini, 1995). Therefore, multiple perspectives that are valuable in innovative practice may not emerge because of people’s reluctance to interact with others. Simons, Pelled and Smith (1999) show that debate is more likely to be fruitful when it stems from different experiences and perspectives that are relevant to the task discussed. Dominant function diversity has to stay job related to have a greater impact on organizational performance. Positive sociocognitive benefits of diversity are regularly threatened by loss of team coherence and behavioural integration (Finkelstein & Hambrick, 1996). Dominant function diversity can have both positive and negative effects on innovation. Nonetheless, since dominant function heterogeneity in the management staff has been positively related to innovation (Bantel & Jackson, 1989) and long-term performance (Pelled, Eisenhardt & Xin, 1999), we propose that: H1: In SMEs, dominant function diversity of the managerial staff has a positive impact on innovation.

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The Effect of Intrapersonal Function Diversity Diversity can be found within an individual. Intrapersonal functional diversity is assessed by examining the number of years spent in each function during an individual’s career. The range of intrapersonal diversity spans the narrow functional specialist with experience in very few functions to the broad generalist whose experience encompasses many functions. Van de Ven and Polley (1992) proposed that an organization’s ability to innovate is tied closely to its internal organization factors as well as the various relationships it possesses with the external environment. An SME’s propensity to create and innovate stems from its ability to select and manage the surrounding technology (Riedle, 1989), understand the market and implement strategy to respond to a variety of different competitive demands (Wright & Snell, 1998). SMEs seek flexibility to continuously adapt themselves to the rapidly changing economy and technology. The staff involved in the innovative process has to cope with the new technologies without entirely controlling the technological aspect. They also have to achieve successfully the different tasks and roles required throughout the innovative process. The lack of resources, the increasing technology complexity and competition constrain innovative SME towards recruitment of individual with high skills diversity. Firms have to compete in a learning economy where their interaction and relationship produce, diffuse and deploy new and economically useful knowledge. Information flow and communication is a key concept to creativity (Shapero, 1985) and innovation (Tang, 1998, 1999). Firms that can forge and manage a network efficiently are able to learn and innovate faster. Without a common language, it is difficult to engage in combination and exchange (Nahapiet & Ghoshal, 1998). Sharing a common knowledge foundation among all communicants facilitates the mutual understanding. Bunderson and Sutcliffe’s recent study (2002) highlights the positive impact of interpersonal functional diversity on information sharing. Language and communication is considered to be highly important for creation of trust in interpersonal relationships, which is essential for further knowledge sharing (Justensen, 2000). Moreover, communication is useless without an increase of the communicants’ knowledge, which is accelerated by a basic knowledge in the topic tackled. Various experiences will increase the range of domains of possible knowledge acquisition. A diverse knowledge foundation of an individual facilitates communication and the acquisition of

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new knowledge (Bunderson & Sutcliffe, 2002), and hence fosters innovation. Therefore, we can state the hypothesis: H2: In SMEs, intrapersonal function diversity of the managerial staff has a positive impact on innovation.

Size as Moderator Even though dominant function diversity can be found even in small teams, it might not cover the whole range of functions required for achieving the innovative process. This raises the issue of the trade-off between the usefulness of narrow functional specialist and broad generalist who can handle a range of functional areas. Innovation is related to the presence of highly qualified personnel leveraging on their ability to interact and access external sources of knowledge (Caloghirou, Kastelli & Tsakanikas, 2002). The relatively larger SMEs can carry a larger number of narrow functional specialists compared to smaller peers when the scale efficiencies are present. The interaction between all the functionalities and external network is richer, with more attention focused on each network specific to the functional specialization. As the network increases with the range of dominant functional diversity, opportunities for innovations will increase as the exposure to the larger network provides a larger pool of ideas. However, only in the larger SMEs can the firm have the resources and capabilities to benefit from the greater innovation opportunity brought upon by the higher level of dominant function diversity. Hence, we have the following hypothesis: H3: The positive impact on innovation of dominant function diversity of the managerial staff increases with the SME’s size. In a limited human resources environment, SMEs cannot afford to create ‘skill and ability’ diversity through several individual specializations while keeping a broad knowledge foundation of the team. Intrapersonal functional diversity will provide the team with this broad range of functional knowledge. SMEs need to ensure intrapersonal diversity because it can ill afford the services of a larger number of senior, narrow specialists. The lack of human resources should lead the managerial staff towards intrapersonal functional diversity of their members in order to be innovative. However, as we get to the larger SMEs with more employees and management personnel, we would expect that the number of



specialists within the management ranks would be sufficient to meet the functional diversity. Thus, the intrapersonal function diversity will be less critical to innovation for the SMEs. This argument leads us to the following hypothesis: H4: The positive impact on innovation of the managerial staff intrapersonal function diversity decreases with the SME’s size.

Growth as Moderator In addition to size, which is a static measure of the human resources available to a firm, we also consider the dynamic aspect through the examination of the effect of growth. As the firm grows, it can afford to have a larger number of specialist managers, each focusing on executing his functional role efficiently instead of having a small number of top managers assuming multiple portfolios. While this will enhance the efficiency of operations as well as deepen the expertise base and contacts of the SMEs, the manner by which growth is achieved may be detrimental to innovation. Pelled, Eisenhardt and Xin (1999) find that longevity of tenure among top management facilitates the development of common understanding. Hence, a fast-growing firm with new functionally diverse top management personnel, leading to increased dominant function diversity, will face the challenge of lack of common understanding. Knight et al. (1999) observed that the presence of such a diverse group could lead to dysfunctional interpersonal conflict, while Carpenter and Frederickson (2001) find that reaching strategic consensus with such a diverse group is difficult. Given the above argument, we develop the following hypothesis: H5: The positive impact on innovation of dominant function diversity of the managerial staff decreases with the SMEs growth rate. However, it can be easily surmised from Pelled, Eisenhardt and Xin’s (1999) observation that if one of the causes of dysfunctional interpersonal conflict is the lack of common understanding amongst the top management staff caused by expansion of their ranks, then it follows that the dysfunctional effect will be diluted if the top management ranks have high intrapersonal function diversity. In such a case, the broad-based experience of the top management provides the common ground brought by overlapping experiences that allows them to focus on the management and innovation task at hand instead of on dysfunctional interpersonal conflict. In a high intrap-


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ersonal function diversity setting, managers relying on their personal past experiences to handle the challenges faced require less time to communicate and implement novel ideas, even with new managers, in the presence of a broad base of common understanding. Furthermore, the growth of SMEs in the direction of increasing intrapersonal function diversity not only overcomes the disadvantage of lack of common understanding but also enlarges the expertise base of the firms with inflow of new managerial talents. These actually provide additional human resources for the SMEs by which to undertake innovation. The above arguments lead to the following hypothesis: H6: The positive impact on innovation of intrapersonal function diversity of the managerial staff increases with the SMEs growth rate.

Methodology Population Surveyed and Data Collection The survey was conducted among SMEs in Singapore using the SME500 database. This database contains the details of the 500 best performing SMEs in Singapore ranked on the basis of their financial results. Contact details are readily available in this commonly used database. A key reason for using this database is that high performance companies are more likely to engage in innovation, which is the focus of this study. The managing director of each surveyed firm was asked to distribute the questionnaire to its management and senior professional staff. The number of questionnaires provided depended on the number of employees of the firm. We based the design and administration of the survey on Frohlich’s (2002) technical note on improving the response rate of a survey research. We posted a covering letter with university letterhead to each executive, explaining the aims and benefits of the research, copies of the questionnaire and prepaid envelopes. In the questionnaire, clear definition of innovation and functional background are provided. Two weeks after the first mailing, a reminder letter was sent to targeted firms that have not replied within that time. An e-mail was also sent to companies that had participated in the survey but which had not sent enough responses. An electronic questionnaire was attached to this e-mail to facilitate its dissemination to colleagues of the respondents. Out of the 500 companies targeted, 77 responded, 14 could not be located at the

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address on record, 9 had ceased operations and 14 declined to participate. The rest were non-respondents. Since this study is a multifirm survey with multiple respondents within each firm, we had to ensure the relevant population had been surveyed in each company. The global response rate was of 15%; the number of useable data was 10% of the population surveyed. Of the 77 companies, 27 had not provided enough responses even after e-mail reminders. The average number of respondents within each company was 4.84 (SD = 3.228). A total of 34% reported a service of between five and ten years and 49.2% of the respondents had been with the present company for more than ten years.

Measurement of Dependent, Independent and Moderator Variables The study’s dependant variable is innovation. We measured innovation in a respondent firm by counting the number of product and process innovations introduced in the past two years. Innovation is therefore the sum of two measures: the number of product innovations and the number of process innovations introduced by the firm. The degree of heterogeneity of a variable can be calculated using Blau’s (1977) index, a widely used measure of heterogeneity for cases where the underlying data are categorical in nature. The dominant function of an employee is the functional area in which he has spent the greater part of his career. Dominant function diversity is a measure of the heterogeneity of these functions among a group of employees. However, the use of Blau’s index alone does not account for the number of years spent by the individual in his dominant function. For instance, an employee who has spent ten years in a specific function might have a more standard and rigid approach to problem solving compared to an employee who has spent only five years in his/her dominant function. The impact of these two employees will be different within the team. The greater experience of the former is an advantage in terms of greater expertise, but a disadvantage in terms of rigidity. Hence, we account for an individual’s years of experience in his dominant function in computing the index for dominant function diversity. The formulation of the index for dominant function diversity is given as f

1 - Â Pi2 i =1

where

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Ni

Â Yd

i,j

Pi =

j =1 N Ni

Â Â Yd

i,j

i =1 j =1

Ni is the number of employees surveyed whose dominant function is i. N is the total number of employees surveyed. Ydi,j is the number of years the employee j has spent in the dominant function i and f is the number of functional areas. Intrapersonal functional diversity measures the diversity of an individual’s functional background during his career by accounting for the number of year spent in each function. Blau’s (1977) index is used to assess intrapersonal functional diversity. Since we are measuring the intrapersonal function diversity of the management team, we compute the average of the intrapersonal functional diversity of each individual. Intrapersonal Functional Diversity =

f ˆ 1 n Ê 2 Â Á 1 - Â Pij ˜ n i =1 Ë ¯ j =1

Pij is the percentage of total years of experience of the ith person surveyed spent the jth functional area. The index considers f functional areas of the n persons surveyed. Note that consistent with the dominant function diversity measure, the intrapersonal function diversity measure also considers the number of years spent within each function. The functions selected for inclusion in this study is based on previous studies on functional diversity (Bunderson & Sutcliffe, 2002; Carpenter & Frederickson, 2001; Hambrick, Cho & Chen, 1996; Michel & Hambrick, 1992; Murray, 1989; Simons, Pelled & Smith, 1999). The surveyed population was asked to indicate their years of work experience in each of these twelve functional areas: general administration, sales and marketing, finance and accounting, human resources management (include training), research and development, purchasing, legal, quality assurance, equipment maintenance/management, distribution/logistic chain management/production planning, production/manufacturing and others, for which they had to specify the function. These data enabled us to calculate the two measures of functional diversity. The firm’s size is measured by the logarithm (base 2) of the number of employees in the firm. Taking the logarithm reduces the effect of the skewness of the firm size distribution. Growth is measured as the increase in employment of the company. We use a growth index similar to Evans (1987).



G=

LnSt ' - LnSt t ' -t

where G is the growth index, S is the employment size, t¢ and t are the two dates delimiting the period where growth is measured.

Measurement of Control Variables The leadership culture and attitude that are commonly manifested in the strategic priorities of the firm may influence the level of innovation. Firms that emphasize innovation in their strategy, coupled with supportive attitude towards processes and incentives that encourage innovative behaviour, create a supportive culture for innovation (Hii, 1999; Martins & Terblanche, 2003). In such innovative and creative organizations, the management desires change and constantly seeks for improvement in the way things get done (Johnson, 1996). Thus, it is envisaged that, all things being equal, SMEs that support innovation initiatives, promote a controlled risk-taking culture and reward innovation initiatives will produce more innovation compared to SMEs with less innovative culture. We assess culture towards innovation with a construct of nine items, with each item scored on a five-point Likert scale. The presence of communication, information sharing and knowledge acquisition tools facilitates innovation and must be accounted for as a control variable (Chiesa, Coughlan & Voss, 1996). We measure information and communication tools with a construct of two items, with each item scored on a five-point Likert scale. Even though the two diversity indices measure the distribution of expertise among different functions within a company, they do not encompass the overall experience of the management staff. This length of experience is an important indicator of the knowledge background of the individual. We therefore controlled for the average years of work experience of the managerial staff surveyed. Bantel and Jackson (1989) empirically assessed a negative significant correlation between age and tenure heterogeneity and innovation. Age heterogeneity involves various political, social and economic experiences, which have a fundamental role in shaping attitudes and values. Besides, attitudes change with the ageing process. Heterogeneity in the tenure within the organization will also have an impact on working attitudes. We therefore controlled these two forms of diversity. Based on self-reported age and tenure within the organization of the management staff, both variables were computed with the coefficient


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of variation (dividing the standard deviation by the mean) (Allison, 1978). We also control for size and growth, which impact innovation (Huergo & Jaumandreu, 2002; Stock, Greis & Fischer 2002). Lastly, the industry sector was controlled by using a dummy variable. We placed the companies in one of the two sectors, namely, the service sector and the manufacturing sector. The survey was tested on three people with extensive knowledge of Singapore SMEs. These are the deputy director of a research institute, an SME entrepreneur and a senior visiting fellow at a local university with 20 years of industry experience. Their review of the questionnaire resulted in the adaptation of the functional areas to better fit the Singaporean SME context, the rewording of some questions to remove ambiguities and the addition of explanations to some questions.

Analysis We employed the negative binomial regression model to analyse our data as the measure of innovation is a count data with a considerable overdispersion value of 1.76 (Cameron & Trivedi, 1998). c2 goodness-of-fit tests conducted on both the full and reduced negative binomial regression model showed that it is an appropriate model for our data. Following Cameron and Troivedi (1998), we first tested the full model, where all the independent variables, moderating variables and control variables were included in the regression equation. After using the Chi-squared statistic derived from maximum likelihood estimates to confirm that the full model had significant explanatory power, we then tested the reduced models, whereby non-significant variables were dropped from the model. In line with the usual convention, non-significant variables were retained in the reduced model only when the interaction terms that contained them were significant. The final model is one where all the variables that remain in the regression model are significant at least at the 10% level.

Results Table 1 shows the mean, standard deviation and correlations of all the variables. Firms in the sample has an average employment size of about 55 (ln55 ª 4) with this employment growing at an anemic rate of 0.8% annually. The average number of innovations for the past two years was 3.24, with a standard deviation of 2.39. The average years of work experience is about 16.86 years, with minor

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Volume 14 Number 2 2005 Table 1. Means, Standard Deviation and Correlations Variable 1. 2. 3. 4. 5. 6.

Mean

2.39 0.83 0.19 3.03 1.23 6.15

1 1 0.194 0.073 0.298** 0.109 0.039

2

3

4

5

6

1 0.230 -0.117 -0.082 -0.121

1 0.170 -0.029 -0.205

1 0.597*** 0.169

1 0.000

-0.091 -0.200

-0.041 0.034

0.113 0.180

0.050 -0.162 0.145 -0.100

-0.225 0.092

0.50 0.25

0.222 0.061

0.141 0.255*

0.224 -0.088

0.033 0.107

0.150 0.012 -0.012 -0.095

0.19

0.410***

0.121

0.124

0.002

-0.136

0.090 0.000 0.183 0.167

0.502*** -0.018 0.436*** 0.187 0.168 0.915*** 0.157 0.921***

8

9

10

11

12

13

14

1

0.14 0.28

1.18 0.060 0.80 0.373*** 0.093 -0.063 0.082 -0.018

7

1 0.531***

0.141 1 0.180 -0.293**

1

0.136

0.174 -0.002

0.148

0.009 -0.102 0.130 -0.105 0.183 0.100 0.014 -0.236* -0.112 -0.008 -0.097 -0.141

0.131 -0.233 0.083 0.026 0.029 0.204 -0.022 0.233

0.211

-0.048 0.172

1


Notes: *** Correlation significant at 1%; ** Correlation significant at 5%; * Correlation significant at 10%

1

0.945*** 0.138 1 0.203 0.927*** 0.290** 1 -0.081 -0.040 0.001 0.038 1 -0.205 0.089 -0.120 0.157 0.859***


INNOV 3.24 LGSIZE 4.01 GROWTH 0.0081 CULTURE 32.96 INFO. COM. TOOLS 6.78 AVERAGE YEARS WORK 16.86 EXPERIENCE 7. AGE HETEROGENITY 0.27 8. TENURE 0.62 HETEROGENEITY 9. SECTOR 0.42 10. DOMINANT 0.46 FUNCTION DIVERSITY (DOM) 11. INTRAPERSONAL 0.35 FUNCTIONAL DIVERSITY (INTRA) 12. DOM ¥LGSIZE 1.89 13. INTRA ¥LGSIZE 1.43 14. DOM ¥GROWTH -0.00035 15. INTRA ¥GROWTH 0.0072

SD


heterogeneity in age. However, tenure heterogeneity, at 0.62, is much wider and indicates a range of respondents having very different amount of experience within the company. Given the high employee turnover in Singapore, this figure is not surprising. It is noted that the dominant function diversity score of 0.46 is higher than intrapersonal diversity score of 0.35, though the standard deviation of the former is higher. Thus, the average firms in the sample contain greater diversity of dominant functional experience across the management rank compared to the spread of diversity of functional experience for a single person. This indicates that the average firm is more likely to share the functional load, rather than having a single person assume multiple functional portfolios, as would be the case of very small firms. Examining the pairwise correlations, we note that size has a significant positive correlation with dominant diversity, which is not surprising as a larger firm can afford to have specialists in senior management. Also, it

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appears that culture and the use of information communication tools are significantly positively correlated. Tenure and age heterogeneity are also positively correlated, a result that is consistent with the expectation that the age spread will be larger in firms where the tenure spread is also larger. Lastly, there is a significant negative correlation between sector and dominant functional diversity. Since sector is coded 0 for manufacturing and 1 for services, the negative correlation indicates that the dominant functional diversity is lower for the services compared to the manufacturing sectors. Table 2 shows the results of the negative binomial regression. We first tested the full model with all the regressors included in the negative binomial regression equation (Cameron & Trivedi, 1998). Looking at column three in Table 2, we note that the full model is significant when compared to an unfitted model where all the regressors are assumed to be insignificant. The likelihood ratio in this case is 68.1688 and with 14 degrees of freedom, the

Table 2. Negative Binomial Regression of Number of Innovations Independent Variables

CONSTANT LGSIZE GROWTH CULTURE INFORMATION COMMUNICATION TOOLS AVERAGE YEARS WORK EXPERIENCE AGE HETEROGENITY TENURE HETEROGENEITY SECTOR DOMINANT FUNCTION DIVERSITY (DOM) INTRAPERSONAL FUNCTIONAL DIVERSITY (INTRA) DOM ¥ LGSIZE INTRA ¥ LGSIZE DOM ¥ GROWTH INTRA ¥ GROWTH

Hypothesis (Expected Sign)

Full Model

H1 (+) H2 (+)

-7.2116*** 1.0296*** 2.4378 0.1336*** 0.0306 -0.0432*** -3.1244*** -0.0201 0.3358 1.5456 9.1414***

H3 (+) H4 (-) H5 (-) H6 (+)

-0.3755 -1.6755*** -4.6072* -4.0032

– Log Likelihood Comparison Model

– Log Likelihood (Comparison Model) Likelihood Ratio (LR) Degree of Freedom (df) P (Model no different from comparison model)

119.3386 Unfitted Model (Ho: All Coefficients = 0) 153.4230 68.1688 14 98%

Notes: *** Significant at 1%; ** Significant at 5%; * Significant at 10%


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statistic indicates that the full model has significant explanatory power. Examining the coefficients of the regressors, we note that four of the eight control variables and three of the six explanatory variables have significant coefficients. It is noted that the coefficient of dominant function diversity is not significant. Thus, H1, that dominant function diversity has a positive impact on innovativeness of firms, is not supported by our sample, even though the coefficient has the predicted positive sign. Whilst this finding runs counter to Bantel and Jackson’s (1989) results that functional diversity does have a positive impact on innovativeness of top management teams, their study focused mainly on administrative innovations in banks. Our results are consistent with those of Pelled, Eisenhardt and Xin (1999) who find no relationship between dominant function diversity and performance in product and process improvement teams. Two of the cross impact variables, dominant function diversity with size and intrapersonal function diversity with growth do not have any significant impact on the number of innovations. Thus, H3 and H6 are not supported. According to Myers and Montgomery (1997), we now re-estimate the equation using the significant variables, plus the insignificant variables that appear in significant interaction terms, in the model denoted ‘Reduced Model’ in Table 2. It is noted that we retained the variables ‘GROWTH’ and ‘DOM’ in the ‘Reduced Model’ as they appear in the significant interaction term ‘DOMxGROWTH’. The likelihood ratio of 0.7990 indicates that this model is not significantly inferior to the full model. Hence, we will use this parsimonious model as a basis of our subsequent discussion. It is noted that intrapersonal function diversity has a positive impact (coefficient = 11.0535, p < 0.01) on innovativeness. Thus, H2 is supported. This is not a surprising finding as SMEs with resource limitations at the top management level requires these managers to have a broad view of different functional areas to achieve the integration necessary for the successful development and introduction of innovations. When the moderating effects of size and growth are taken into consideration, we note that only the effect of intrapersonal function diversity is moderated by size (coefficient = -2.1676, p < 0.01) and the effect of dominant function diversity is moderated by growth (coefficient = -5.4821, p < 0.05). Thus, H4 and H5 are supported. The positive effect of intrapersonal function diversity on innovativeness is diluted by large firm size. Thus, this result is indicative of the decreasing importance of the generalist within top management for innova-

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tion for larger firms who can have a broad range of specialists within their top management team. We also note that dominant function diversity has a negative impact on innovativeness in growing firms. This may not be surprising as growing firms bring with them the attendant issue of managing growth, and with diverse top management, reaching consensus become more difficult (Carpenter & Frederickson, 2001). Management attention is focused on managing conflicts instead of innovation.

Discussion The objectives of this study were to determine how both dominant function diversity and intrapersonal function diversity impact the level of innovation in SMEs, as well as whether these impacts are moderated by firm size and growth. Previous research on top management team diversities and in innovation-related performance, coupled with an understanding of the constraints of top management talents faced by SMEs, led us to develop hypotheses predicting positive impact of both types of functional diversity on innovation. Our model also forecasted a greater impact of intrapersonal function diversity for small and growing firms, and a greater impact of dominant function diversity for large firms with little growth. A test of the six hypotheses on fifty respondents from the SME500 database in Singapore provided support for three hypotheses. The positive impact of intrapersonal function diversity on innovation was supported. Among the hypotheses pertaining to the moderating effect of size and growth, support was found for size negatively conditioning the impact of intrapersonal function diversity and growth negatively conditioning the impact of dominant function diversity. The impact of dominant function diversity and other conditioning effect of size on dominant function diversity and growth on intrapersonal function diversity were not supported. Intrapersonal function diversity was found to be positively related to innovation. This is consistent with our expectations that employees with personal experiences over a diverse range of functional background are able to find common ground for sharing and assimilating a variety of perspectives and ideas. Bunderson and Sutcliffe’s (2002) study shows that intrapersonal function diversity enhances unit performance directly as well as through its positive impact on information sharing. The positive impact on information sharing is especially salient in the context of innovation



whereby uncertainties in development require extensive information sharing for rapid decision-making under a full information context. Though dominant functional diversity is hypothesized to impact innovation positively, our analysis fails to support the hypothesis. The conflicting influences of dominant function diversity on innovation may lead to little real impact on a firm’s innovation performance. On the one hand, Pelled, Eisenhardt and Xin (1999) found that dominant function diversity creates high task conflict, which engenders a greater range of perspectives, leading to superior performance. On the other hand, Knight et al. (1999) found that dominant function diversity amongst top management team cause unhealthy interpersonal conflict and lack of agreement about the firm’s strategic orientation. Thus, the true effect of dominant functional diversity on innovation is not clear-cut and needs further investigation. When the moderating effects of size and growth on the impact of dominant function diversity is considered, it is seen that the moderating impact of size is insignificant. Size per se does not condition whether the positive effect or the negative effect of dominant function diversity will be predominant. However, it is noted that growth has a negative moderating effect on the impact that dominant function diversity has on innovation. High dominant-function diversity firms growing rapidly are likely to have some new top management with diverse views and who are not yet familiar with each other. This lack of tenure longevity on the part of the newcomers can lead to high interpersonal conflict because the shared understanding and the ability to anticipate other managers’ responses are not yet well developed (Pelled, Eisenhardt & Xin, 1999). We next exam how size and growth condition the impact of intrapersonal functional diversity on innovation. Growth has no significant effect on the impact of interpersonal functional diversity. The negative impact from the lack of longevity amongst the top management staff resulting from rapid growth is somewhat mitigated by the larger common ground of understanding on the part of top management with high intrapersonal diversity. The picture is quite different in the case of the moderating effect of size. For larger firms, the impact of intrapersonal functional diversity is reduced; the coefficient of the intrapersonal function diversity and size cross interaction is negative. This may be as a result of two factors. First, as the firm size increases, the number of top managers often also increases and the range of functional expertise needed from each individual manager


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decreases. Second, as the firm size increases, bureaucratic inertia sets in (Chandy & Tellis, 2000) and the opportunity for fast action available from common understanding brought upon by the high intrapersonal function diversity of top management is reduced.

Conclusion Implication for Theory This study contributes to the understanding that the two types of functional diversity, namely, dominant function diversity and intrapersonal function diversity, exert different impacts on innovative performance. Researchers in this field must explicitly consider the type of functional diversity they are examining within the context of their study. Intrapersonal functional diversity has a direct, significant, positive impact on innovation in SMEs, in addition to being conditioned by size, while the effect of dominant functional diversity is only significant in growing firms. Thus, studies using functional diversities must account for firm characteristics such as size and growth in order to fully account for the effect of the diversities. In a more general prospective, this research highlights issues that need to be tackled when one deals with human resources. It is important to go beyond the numbers, and examine the characteristics of a firm’s human resource. These characteristics do guide the interactions amongst the employees which can both enhance and constrain employees’ attitudes, behaviours and contributions that have a direct impact on firm performance. Another issue that is highlighted is the consideration of the rate of firm growth. In certain situations, it is not the size per se that is, important but the rate of growth, and the problems related to rapid growth in SMEs must be taken into consideration in any study relating to human resource management.

Implication for Human Resources Management in SMEs The findings of this study hold some important lessons on the formation, recruitment and management of top management team for SMEs. Whilst smallness is a liability, it was observed that the requirement for top management to assume a variety of roles is supported by recruiting and developing top management and senior professional teams composed of individuals who are functionally broad and have a generalist point of view, rather than being narrowly specialized in a single func-

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tion. This broad functional outlook has two advantages. First, it allows the top management team to consider, in an adequate manner, all functional perspectives necessary for successful innovation. Second, the broad functional perspectives of individuals within the top management team provides substantially overlapping common ground of understanding for the top management team, whereby interpersonal conflicts are reduced and strategic consensus can be facilitated and rapidly implemented. However, as the size of the firm increases, the necessary management system needs to be put in place, and bureaucracy begins to emerge. The advantages of intrapersonal functional diversity are reduced, and the SMEs must then consider approaches to the development of an efficient management system with specialist, rather than generalist managers at the apex. The larger SMEs can no longer rely on the informal system of the smaller SMEs. Whilst it is easy to list the number and types of functions that are required for managing a firm, the study shows that for an SME, the range of functions amongst the top management as measured by dominant function diversity does not have a direct impact on innovative performance. Thus, the concern is not about filling in a job position described by a job title that is usually denoted in terms of functional responsibilities and background. Hence, the SMEs must guard against being fixated with dominant function background of managers. Lastly, growing SMEs who desire to maintain their innovative performance must pay attention to the potential negative impact of introducing too many different functional specialists within its top management ranks in a very short period of time. The lack of time for the development of shared understanding among individuals with different dominant functional specialization can give rise to unhealthy interpersonal conflicts and lack of agreement on strategic consensus, thus causing innovation efforts to be mired in endless turf fights and disagreements. SMEs must either manage the rate of growth to allow time for shared understanding to develop or engage in team-building efforts to facilitate the development of such understanding.

Limitations of This Research and Future Directions Although the results of this study were insightful, there were a number of limitations. First, the sample is a convenience sample where the respondents are self-selected

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instead of selected randomly from the whole database. This is to be expected for study of this nature, as there is neither any incentive nor legislation to compel firms to respond. Thus, these firms are more likely to be those that are more progressive and eager to learn compared to the non-respondents. Second, the sample size of fifty firms from a number of industries and sectors was too small for segmentation into various specific industries for analysis. Thus, it is not possible to identify any potential industry confounding effects. It would be expected that the specific dynamism and growth rate of the individual industries may be salient and should be considered in future studies. A deeper analysis within single sectors or contextual factors (rivalry, market stability) could bring up some new insights on the actual impact of intrapersonal functional diversity between two competitors. Third, whilst this study focused on the effect of functional diversity on innovative performance, control variables such as culture and use of information communication tools among others are employed. These are predominantly qualitative variables that are measured on Likert scales, and hence difficult to evaluate consistently across companies. A potential improvement to overcome this limitation would be to carry out a study of the impact of functional diversities on innovation performance across a number of teams in a single organization, such that all teams experience the same culture and similar level of use of information communication tools. Fourth, the limited sample size restricts the study to looking at size and growth as moderators. There are potentially a number of other moderators that may condition the impact of the functional diversities on innovation performance. For example, Bunderson and Sutcliff (2002) looked at information sharing as a mediator between intrapersonal diversity and team performance. Other moderators could be identified in future studies. Lastly, this study provides evidence of the importance of intrapersonal diversity. However, since the focus was not on the process of attaining this diversity, the SMEs must look elsewhere for guidance. A potential future study topic may be on the process of how firms can assess the candidates on these aspects as well as the human resource policies that must be in place to facilitate the development of intrapersonal diversity.

Conclusion Organizational innovation literature suggests that functional diversity within managerial



teams can foster innovation. Functional diversity of a management team can be found in the collection of either a large number of individuals with narrow functional specializations or a smaller number of individuals, each with a broad range of functional expertise and experience. Small and medium-sized enterprises with limited human resources must make a trade-off between hiring specialized managers or broad generalists. In order to help SMEs make this trade-off, this empirical study considered the two different concepts of functional diversity – dominant function diversity and intrapersonal functional diversity – and analysed their impact on the firm innovative performance, taking into account the firms’ size and growth. This study sheds light on the relative importance of intrapersonal function diversity over dominant function diversity in facilitating innovation in SMEs. Being broadly generalist is a more useful trait for SMEs, but such usefulness is reduced in the larger firms. Such a dynamic view of the evolution of the importance of intrapersonal function diversity would not have been possible without consideration of the moderating effect of size. A different dynamic is at work when growth is considered. The potential conflict and lack of shared understanding among different specialists that are new to each other render the presence of a high level of dominant function diversity a hindrance to innovative performance in a growing SME.

References Allison, P.D. (1978) Measures of inequality. American Sociological Review, 43, 865–880. Bantel, K.A. and Jackson, S.E. (1989) Top management and innovations in banking: does the demography of the top team make a difference? Strategic Management Journal, 10, 107–124. Barney, J.B. (1991) Firm resources and sustained competitive advantage. Journal of Management, 17, 99–120. Blau, P.M. (1977) Inequality and heterogeneity: A primitive theory of social structure. Free Press, New York. Bunderson, J.S. and Sutcliffe, J.M. (2002) Comparing alternative conceptualizations of functional diversity in management teams: process and performance effects. Academy of Management Journal, 45, 875–893. Carpenter, M.A. and Frederickson, J.W. (2001) Top management teams, global strategic posture, and the moderating role of uncertainty. Academy of Management 44, 533–546. Caloghirou, Y.,Kastelli, I. and Tsakanikas, A. (2004) Internal capabilities and external knowledge sources: complements or substitutes for innovative performance? Technovation, 24, 29–39.


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Cameron, A.C. and Trivedi, P.K. (1998) Regression analysis of count data. Cambridge University Press, Cambridge. Chandy, R. and Tellis, G. (2000) The incumbent’s curse? Incumbency, size, and radical product innovation. Journal of Marketing, 64(3), 1–18. Chiesa V., Coughlan P. and Voss, C.A. (1996) Development of a technical innovation audit. Journal of Product Innovation Management, 13, 105–136. Evans, D.S. (1987) Tests of alternative theories of firm growth. Journal of Political Economy, 95, 657– 674. Finkelstein, S. and Hambrick, D.C. (1996) Strategic leadership: Top executives and their effects on organizations. West Publishing Company, New York. Frohlich, M.T. (2002) Methodological note. Techniques for improving response rates in OM survey research. Journal of Operations Management, 20, 53–62. Hambrick, D.C., Cho, T. and Chen, M. (1996) The influence of top management team heterogeneity on firms’ competitive moves. Administrative Science Quarterly, 41, 659–84. Hausdorf, P.A. and Duncan, D. (2004) Firm size and internet recruiting in Canada: A preliminary investigation. Journal of Small Business Management, 42, 325–334. Heneman, H.G. III and Berkley, R.A. (1999) Applicant attraction practices and outcomes among small businesses. Journal of Small Business Management, 37, 53–74. Heneman, R.L., Tansky, J.W. and Camp, S.M. (2000) Human resource management practices in small and medium- sized enterprises: unanswered questions and future research perspectives. Entrepreneurship Theory and Practice, Fall, 2000. Hii, H. (1999) Innovative capacity of firms, unpublished PhD thesis, Queen’s College, Cambridge. Hornsby, J.S. and Kuratko, D. (1990) Human resource management in small business: Critical issues for the 1990s. Journal of Small Business Management, 28, 9–18. Huergo, E. and Jaumandreu, J. (2002) How does probability of innovation change with firm age? Facultad de Ciencias Sociales y Jurídicas, Madrid. Johnson, M. (1996) Finding creativity in a technical organization. Research Technology Management, September–October, 9–11. Justensen, S.L. (2000) A study of the dynamics inherent in the relationship between innovation and diversity. Masters thesis in intercultural management, Copenhagen Business School. Knightm D., Pearce, C.L., Smith, K.G., Olian, J.D., Sims, H.P., Smith, K.A. and Flood, P. (1999) Top management team diversity, group process, and strategic consensus. Strategic Management Journal, 20, 445–465. Lumpking, G.T. and Dess, G.G. (1996) Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review, 21, 135–172. Martins, E.C. and Terblanche, F. (2003) Building organizational culture that stimulates creativity and innovation. European Journal of Innovation Management, 6, 64–74.

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Michel, J.G. and Hambrick, D.C. (1992). Diversification posture and top management team characteristics. Academy of Management Journal, 35, 9–37. Morris, M.H. and Lewis, P.S. (1991) Entrepreneurship as a significant factor in societal quality of life. Journal of Business Research, 23, 21–36. Murray, A.I. (1989) Top management group heterogeneity and firm performance. Strategic Management Journal, 10, 125–141. Myers, R.H. and Montgomery, D.C. (1997) A Tutorial on Generalized Linear Models. Journal of Quality Technology, 29, 274–291. Nahapiet, J. and Ghoshal, S. (1998) Social capital, intellectual capital, and organizational advantage. Academy of Management Review, 23, 242–266. Nonaka, I. (1991). The knowledge creating company. Harvard Business Review, November– December, 96–104. Nonaka, I. and Kenney, M. (1991) Towards a new theory of innovation management. Journal of Engineering and Technology Management, 8, 67–83. Pelled, L.H., Eisenhardt, K.M. and Xin, K.R. (1999) Exploring the black box: An analysis of work group diversity, conflict, and performance. Administrative Science Quarterly, 44, 1–28. Penrose, E. (1995). The theory of the growth of firms. Oxford University Press, Oxford. Raghuram, S. and Garud, R. (1996) The Vicious and Virtuous Facets of Workforce Diversity. In Ruderman, M.N., Hughes-James, M.W. and Jackson, S.E. (eds.) Selected Research on Work Team Diversity. American Psychological Association, Washington. Read, A. (2000) Determinant of successful organizational innovation: a review of current research. Journal of Management Practice, 3, 95–119. Riedle, K. (1989) Demand for R&D activities and the trade off between in-house and external research: A viewpoint from industry with reference to large companies and small-and medium-sized enterprises. Technovation, 9, 213–225.

Simons, T., Pelled, L.H. and Smith, K.A. (1999) Making use of deference: diversity, debate, and decision comprehensiveness in top management teams. Academy of Management Journal, 42, 662– 673. Sengenberger, W., Loveman, G. and Piore, M.J. (1990) The re-emergence of small enterprises: industrial restructuring in industrialised countries. Imprint Geneva, International Institute for Labour Studies, Geneva, Switzerland. Sessa, V.I., Jackson, S.E. and Rapini, D.T. (1995) Work force diversity: The good, the bad and the reality. In Ferris, G.R., Rosen, S.D. and Barnum, D.T. (eds.) Handbook of Human Resource Management. Blackwell Business, Oxford. Shapero, A. (1985) Creativity and the management of creative professionals. Research Technology Management, March–April, 39–45. Stock, G.N., Greis, N.P. and Fischer, W.A. (2002) Firm size and dynamic technological innovation. Technovation, 22, 537–549. Tan, W.L. (2002) SMEs in competitive markets. Asia Productivity Organization, Tokyo pp. 281–294. Tang, H.K. (1998) An integrative model of innovation in organizations. Technovation, 18, 297–309. Tang, H.K. (1999) An inventory of organisational innovativeness. Technovation, 19, 41–51. Tether, B.S. (1997) Growth diversity amongst innovative and technology-based new and small firms: an interpretation. New Technology, Work and Employment, 12, 91–107. Tidd, J., Bessant, J. and Pavitt, K. (1997) Managing innovation: integrating technological, market, and organizational change. Wiley, New York. Van de Ven, A.H. and Polley, D. (1992) Learning while innovating, Organization Science, February, 3, 92–116. Wright, P.M., Snell, S.A. (1998) Toward a unifying framework for exploring fit and flexibility in strategic human resource management. Academy of Management Review, 23, 756–772.

Appendix: Questionnaire 1. How many years have you been working (fulltime)? ........ Year(s) 2. How many years have you spent in each of the following functional categories, in your current and previous companies? If during a period of time you have worked in several functions, please split it into several periods according to the proportion of your time spent in each function. The sum of the number of years spent in each function should therefore be the length of your entire career. Where necessary, please approximate to the nearest half-year (e.g. 3.5 years). General administration (e.g.: CEO, Managing Director, and support staff to CEO) Sales or marketing Finance or accounting Human resources management (include training) Research and development Purchasing Legal Quality assurance Equipment maintenance / management

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........

Year(s)

........ ........ ........ ........ ........ ........ ........ ........

Year(s) Year(s) Year(s) Year(s) Year(s) Year(s) Year(s) Year(s)



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Distribution / Logistic chain management / Production planning Production / Manufacturing Others (please specify): ...........................................................................

........ ........ ........

Year(s) Year(s) Year(s)

3. Please indicate your education level and disciplines. A Level or Below Diploma Arts Law Business Science, Engineering Others (please specify): ................

Bachelor or equivalent

Master or equivalent

PhD

4. What is your age? (circle one) 20 or less 21–25 26–30 31–35 36–40 41–45 46–50 51–55 56+ 5. How many years have you spent with this company? ........ Year(s) 6. How many employees are there currently in the company? ........ were there two years ago in the company? ........ were there four years ago in the company? ........ 7.a What is the percentage of employees having a status equivalent to either one of the followings: Director, Manager, Senior Professional? ........ % 7.b Are you part of this category of employees? Yes No 8. How many product innovations have been introduced during the past two years? ........ Product innovation is considered as the introduction of a new or significantly improved product or service to the market. A product which has both product and service elements should be considered as two innovations. 9. How many process innovations have been introduced during the past two years? ........ Process innovation is considered as the adoption of a new or significantly improved production or service delivery process for the company. These adoptions usually lead to improvements in cost reduction, quality improvement, cycle time reduction etc.

10. Your company’s strategy is to compete by introducing new products and processes. 11. In your company, employees are encouraged to share knowledge within and outside the organization. 12. In your company, employees are encouraged to debate ideas. 13. In your company, employees are encouraged to learn and keep knowledge and skill up to date. 14. In your company, the generation of ideas is recognized and rewarded. 15. In your company, employees are encouraged to take controlled risks. 16. In your company, mistakes are tolerated and perceived as learning opportunities. 17. In your company, conflicts are handled constructively.


Strongly agree

Agree

Disagree

Strongly disagree

Neither agree or disagree

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18. In your company, you spend most of your time on generating, sharing and experimenting new ideas or solutions. 19. In your company, the information communication technologies (ICT) are readily available to communicate and exchange ideas. 20. In your company, ICT are broadly used to communicate and exchange ideas.

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Strongly agree

Agree

Disagree

Strongly disagree

Neither agree or disagree


Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005.June 2005142191204ARTICLESTHE CREATIVE EVOLUTION OF STERIACREATIVITY AND INNOVATION MANAGEMENT

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Case Study: The Creative Evolution of Steria: From French Venture to European Leader without Loss of Entrepreneurial Spirit and Control (1969–2004) Pier A. Abetti This case study discusses the five stages of growth of Steria, separated by four crises, and show how these crises were resolved through the creativity and statesmanship of the founderCEO and his successor. It analyses the key factors that contributed to the success of Steria and conclude by showing that the continuing innovative family-like culture and creative leadership were the underlying forces that drove Steria’s evolution.

Introduction Entrepreneurial growth through crises

M

any successful new ventures are founded by creative entrepreneurs with innovative technical and business ideas. These ideas, when embodied in a vision and a strategy for the profitable growth of the company, are a prerequisite for success. However, there is always the danger that the venture will not realize its full business potential because of hyper growth, as a result of management hubris and overconfidence (Kao, 1989), or stifled growth, because of loss of innovativeness, bureaucratization and mismanagement. A typical example of hyper growth and overconfidence is Osborne Computers, a ‘shooting star’ that went bankrupt after a short period of spectacular growth (Osborne, 1984). Examples of stifled growth because of bureaucratization and mismanagement abound, from once dominant companies such as AT&T (Hitt, Ireland & Hoskisson, 2004) to new ventures such as Iridium (Riezenman, 2000). Even if a company avoids the pitfalls of hyper growth or stifled growth, and continues to grow rapidly and profitably, it will inevitably encounter several crises during the evolution, from the first sale to hundreds of millions of euros in revenues, from a few founders © Blackwell Publishing Ltd, 2005. 9600 Garsington Road, Oxford OX4 2DQ and 350 Main St, Malden, MA 02148, USA.

to tens of thousands of employees (Greiner, 1972). These crises may be of external origin, such as the collapse of the IT market in 2001, or of internal origin, such as dissensions in the executive team of MapInfo (Abetti, 2001a). Whatever the origins, these crises can only be overcome if the CEO develops an innovative solution that will overcome the crisis and prevent further recurrences. More creatively, a visionary CEO will foresee such crises and take appropriate measures, even if painful, before the crisis erupts and jeopardizes the future of the company (Greiner, 1972).

Objectives and Plan The objectives of this case study are: 1. To analyse the creative evolution of Steria through crises from a new venture of eight founders to a European leader in IT systems and services, with 2005 estimated sales of €1,100 million and 9,500 employees. 2. To present the root causes of the crises and the creative solutions developed by the CEOs to resolve the crises and propel Steria to the next stages of growth. 3. To determine the key success factors, external and internal, that contributed to Steria’s success and to analyse how these factors evolved during 36 years.

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4. To show that the unique innovative familylike culture of Steria and the psycho-dynamic creative leadership of the two CEOs were the underlying forces that drove Steria’s evolution. Accordingly, this case study first describes the five stages of growth of Steria, separated by four crises. The next two sections discuss in detail how the two major crises, the first ‘revolt of the barons’ and the offer by Bull to sell its service companies, were creatively resolved by the CEOs. In the fourth section, we present the anatomy of the successful integration of the opposite cultures of Steria and Bull. The last section discusses the key factors of Steria’s success. We conclude by showing that, while the success factors naturally evolved with time and changes in the environment, the underlying driving forces, namely innovative culture and creative leadership, continued to shape Steria’s evolution over 36 years.

Methodology Fifty years ago, in 1955, the author developed the first integrated management information system for General Electric’s Transformer Division. In 1957, Jean Carteron, a young French engineer, spent two weeks with the author for training, and they became life-long friends. Jean Carteron founded Steria in 1969 and the author, thanks to frequent visits to France and meetings in the United States, was able to follow the progress of Steria to the IPO in 1999, the acquisition of the Bull service companies in 2001–2, and the completed integration in 2004. The case is based on in-depth mining of all available sources (Yin, 1994), primarily from site visits in France and Sweden and interviews over three years, plus library and Internet research. Twenty-four formal in depth interviews, lasting from one to three hours, were held in May 2000 in Paris with ten Steria managers and employees, in May 2003 in Stockholm, and in June 2003 in Paris with nine Steria and three ex-Bull executives, managers and employees. The rank of those interviewed was from CEOs to new employees, in order to obtain a broad spectrum of views and opinions. All those interviewed answered the author’s questions openly and professionally, and volunteered additional valuable information and insights. Confidentiality was assured by obtaining permission to quote interviewees, before publication. Everyone interviewed, their original affiliation with Steria or Bull and the dates of interviews are listed in the Appendix.

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Internal Steria documents, the annual reports of Steria and Bull, websites, press releases and articles in periodicals and trade journals were consulted and abridged. The text of this case was submitted to Steria’s headquarters for review of the accuracy of the dates and of financial information. The author alone is responsible for the reconstruction of the events, the analysis and conclusions.

Steria’s Stages of Growth and Intervening Crises The 36-year history of Steria (1969–2004) can be subdivided into five stages of growth, separated by four crises, as shown in Table 1. The first phase from the founding (1969) to the IPO (1999) corresponds to the French culture and entrepreneurial leadership of the founder and first CEO, the ‘family father’, who was driven by the entrepreneurial control imperative (Abetti, 2003). The second phase (since 2000) corresponds to the continuing entrepreneurial culture, now international, and to the ambitious leadership of the second CEO, the ‘statesman’, who was driven by the European expansion imperative.

Jean Carteron and the Entrepreneurial Control Imperative The Founding of Steria In 1963, Jean Carteron, a brilliant engineer and pioneer of French information technology, created the first ‘systems engineering’ company in France, SACS, a subsidiary of SEMA, a leading French consulting and service company. Over the next six years, SACS grew and prospered, and Carteron was promoted to manager of the entire information systems activities at SEMA. Then lightening struck: a US company, Leasco was planning to acquire SEMA! This ‘precipitating event’ (Timmons, 1999) motivated Carteron to become an entrepreneur. As the grandchild and child of independent business owners, Carteron must have been imbued with the desire to be his own boss. This spirit of independence had been sublimated by Carteron’s belief that France should have its own computing capabilities – hardware, software and systems – so that it would not be dependent on foreign suppliers. In fact, at the request of the French government, he and other experts had prepared a ‘white paper’ on this subject. Working for an American company would have been contrary to his convictions and longer-range plans. Therefore,



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Table 1. The Five Stages of Growth and the Four Crises of Steria Date

Key event or crisis

Stage of growth

Resolution of crisis

1969 founding *1983 revolt of the ‘barons’

entrepreneurial management managed growth compromise; issuance of stock for new employees *1997 stagnation and bureaucracy economic recession; lack of change of successor to profitability Carteron *1998 second revolt of the ‘barons’ resumed growth successful fight against takeover by CS 1999 IPO exponential growth *2001 stock market crash, doubling of sales, while transition from French to acquisition of Bull European maintaining profitability European company service companies * crisis.

Carteron decided to resign from SEMA, without any job prospects or specific plans. He soon came to the conclusion that the only way to become independent was to create his own information systems company, which he named Steria. However, to remain independent and master of his own destiny, he decided that Steria should be controlled by the founders and employees. This creative decision differentiated Steria from all other European IT companies that did not grant stock to its employees, and from American IT companies that granted stock options (not actual shares) only to managers. Of the initial equity of FrF400,000 (€80,000), Carteron held 26%, the other seven founders (six engineers and the secretary) 25%, two banks the remaining 49%. The 51% of shares of the eight founders were held by the holding company, Soderi, of which Carteron was still president in 2005, 36 years after incorporation. All employees were encouraged to become stockholders in Soderi, after a waiting period (Carteron, 1999).

The Revolt of the ‘Barons’ Thanks to Carteron’s vision, the technical excellence of his team and the dedication of employees of all ranks, Steria prospered, and in 1976 reached sales of €15 million, profits of € 380,000 and 540 employees. While smaller than the main competitors, Steria was considered the technical leader in France, the first to introduce innovative IT systems for government, industry, transportation, energy and merchandising. However, contrary to Carteron’s expectations, only a few employees were Steria stockholders. There were two main reasons:


1. In France at that time buying shares in startups was considered a speculation for the rich. Most Steria employees were young and starting their families. They preferred to invest surplus funds in their homes or government bonds. 2. When stockholders left the company their shares were sold to the others in proportion to their participation. Carteron’s original plan was to decrease his participation in Soderi from 51% to 20%. Instead he had to buy back a major amount of shares and he still owned 45% of Steria in 1976. Similarly, the principal stockholders saw their participation in Steria’s ownership increase with time. The evolution of the French IT industry structure from relatively small start-ups to divisions of large industrial and financial corporations split apart the Soderi stockholders. A minority group remained faithful to the original vision and wanted to maintain Steria’s independence at all costs. The majority were looking for faster and higher profits for themselves and eventually to the sale of Steria to a larger company, French or foreign. Therefore, the majority blocked any capital increases from 1979 to 1982 in order to maintain their participation and control. The first crisis came in 1983 when Steria was asked by the government to participate in CODIS, the French plan for the development of strategic industries, which would require a major increase in Steria’s capital. All Soderi stockholders agreed that Steria should join CODIS. The majority wanted to reserve the majority of Soderi shares for the current 40 stockholders, the ‘barons’ as they were called by the ‘good people’, the other employees of

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Steria. The ‘good people’ would have limited access to the stock and would remain a second-class minority. Carteron and a small number of stockholders wanted to open the new stock to all employees. Of course, this would entail a dilution of the ownership of the ‘barons’. Carteron’s proposal was rejected in a first straw vote before adjournment on a Friday evening. Back home, Carteron considered leaving Steria, but he realized that the majority’s alternative would destroy the company and all the values that had been built over 13 years. He decided to fight it out (Abetti, 2003). After two weeks of hiking in the French Alps, Carteron developed a creative solution for increasing the capital of Steria by €5 million over the next three years, with €2.6 million (51%) funded by Soderi. Soderi’s funds would be obtained through the new enterprise savings plan, which allowed employees to participate and entailed significant tax savings. The ‘barons’ were guaranteed 25% participation in Soderi, which compensated them for the dilution of their participation. The number of shareholders increased from 35 to 260 once the government approved the new plan. Carteron concludes: Two lessons may be drawn from this episode. The first testifies to the great attachment of our team to the company. If, finally, there had not been, from all of us, a deep feeling of solidarity, Steria could have exploded . . . The second lesson was definitely personal. Through this crisis, I understood that the true base of power is not in the majority of shares or voting rights, but in the trust of one’s coworkers, and that this trust must be deserved every day. I have never forgotten this lesson. (Carteron, 1999)

Changes in Management and the IPO The second crisis occurred in 1997, and was caused by increasing stagnation and bureaucracy in Steria, which led to a missed budget and a loss for the year. Jean Carteron fired the general manager, his designated successor, who had been recently hired from a large company and was considered an ‘outsider’. Carteron promoted François Enaud, who was only 35 years old, to President of Steria and moved up to CEO of the holding company. Enaud was the son of a classmate and close family friend of Carteron, had joined Steria when he was 24, and was definitely an ‘insider’. The third crisis occurred one year later. As a result of the economic recession and poor financial performance, Steria was targeted for takeover by CS, a conglomerate with little experience in information systems. The

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company approached a group of dissatisfied retired ‘barons’ who agreed to sell their shares, which represented 17% of Steria. Carteron fought back and persuaded all other stockholders (mostly employees) to disregard the CS offer. In fact, not a single share was sold to CS! In June 1999, the stock market for IT companies was booming worldwide and Steria, having regained profitability, was ready for an Initial Public Offering (IPO) on the Paris Bourse. Shares were initially quoted at €13. The demand was six times higher than the offering, and prices rose to €70. In order to fulfill the entrepreneurial control imperative, Steria reserved 160,000 shares, which were enthusiastically acquired by 1,300 employees. After the IPO, the employees owned 47% of Steria, but controlled the voting rights through a complex legal structure (Societé en Commandite). In May 2000, Steria’s market capitalization reached €800 m, 10,000 times the initial equity in 1969!

François Enaud and the European Expansion Imperative Steria in 2001 In 2001, Steria was considered one of the four leading French companies in information systems and services, with sales of €509 m, operating profit of €36 m (7.1% of sales) and 5,200 employees. The two main lines of business, systems integration and information services (mainly outsourced data processing) were approximately equal. Sales were predominantly in France (82%) and relatively low (18%) outside of France. At the end of 2000, stockholders’ equity was €96 m and total operating debt €18 m corresponding to a debt/equity ratio of 19%. Therefore, in spite of the crash of the IT stock markets, Steria was still profitable and very strong financially. After Steria went public, it became clear that international expansion was imperative for the following reasons: 1. The French market, representing 82% of Steria’s revenues, would peak in 2000. 2. Steria’s major French customers were operating across Europe. 3. European unification was progressing at a faster pace, with the gradual removal of customs and trade barriers and transition to the euro effective 1 January 2002. Therefore, one of Enaud’s major objectives had been the internationalization of Steria, with the goal of attaining revenues from outside France corresponding to 35% of total revenues



in 2002. However, the ratio of 18% in 1998 was still the same in January 2001 and there was no clear strategy and plan for doubling this ratio in less than two years. The fourth ‘crisis’, actually a ‘precipitating event’ (Timmons, 1999), occurred at this time.

The Bull Offer In January 2001, CEO François Enaud was called on the phone by a casual acquaintance, the Chief Financial Officer (CFO) and second in command of Bull, France’s oldest and largest computer company and Steria’s major competitor in the service business. After requesting maximum confidentiality, the Bull CFO told Enaud that Bull had decided to divest its service business and had selected Steria as the most suitable potential acquirer because of Steria’s excellent professional reputation, industry leadership and financial strength. The offer included all of Bull’s service companies, in France and Europe, as an indivisible package. Enaud was surprised and flattered by this unexpected call. The acquisition of Bull’s service activities would triple Steria’s sales and personnel. Even more important, it would propel Steria into becoming a truly European company, with subsidiaries in ten countries and 40% non-French income. Thus, Enaud’s vision of Steria as an international enterprise would be fully realized. On the other hand, Enaud was worried. Bull was always short of cash and had been ‘peeling the onion’ by selling-off peripheral businesses. This time, however, Bull was cutting the onion in half and offering it to Steria! It was rumoured that large multinational service companies, such as EDS, were interested in acquiring Bull’s service companies. Maybe this was a trap, with Bull using Steria to improve its negotiating position with other, larger potential acquirers.

Bull Bull1 was one of the oldest and largest European computer companies, comparable to IBM in the United States. However, Bull could not compete in technology and market development with American companies and ran out of cash. Therefore in 1964, Bull became, with Olivetti’s Electronics Division, General Electric’s affiliate in Europe.2 Unable to compete 1

For the details of the tumultuous history of Bull, see http://www.Bull.com, ‘Bull computers chronological history’. 2 In 1965, the author was Manager- Large Computer Systems for GE in Europe and his office was at Bull’s headquarters in Paris. After his return to the USA, he continued to work with Bull until 1970.


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with IBM, GE sold the entire computer equipment business, including Bull, to Honeywell in 1970. Bull continued to flounder with major cash problems. For political reasons, the French government could not allow Bull to go bankrupt, and took over a majority of Bull’s shares in 1975 with some participation from Japanese companies. In 1996 the French government decided on a partial privatization of Bull. In 1997, Guy de Panafieu was appointed CEO. In response to the worsening cash shortage, he started selling Bull piece by piece. Following the example of Gerstner’s restructuring of IBM (Austin & Nolan, 2000; Gerstner, 2002), Bull’s service business was split from the equipment business into a separate company, Integris, with affiliates in each country, thereby making it ready for sale. At this point, the CFO of Bull offered to sell all the Integris companies to Steria. To summarize, Bull was in serious financial trouble and in dire need of cash, which could only be raised through a major divestment. In spite of the collapse of the stock market, Steria was profitable, growing and financially healthy. However, Bull had a major European presence, while Steria’s was negligible.

The Acquisition of Bull’s Service Companies The acquisition of Bull’s service companies (Integris) by Steria would have meant approximately tripling Steria’s revenues and personnel. Steria had about 5,000 employees, Integris 10,000. On the other hand, 82% of Steria’s revenues originated in France, while Integris revenues were 50% from France. The merged company’s revenue would be approximately 60% from France, and 40% international. This 40% ratio was higher than the 35% ratio that President Enaud had set as a target for 2002. However, there would be very serious difficulties in merging the service activities of the two companies in France, including customer problems and reductions of personnel of the order of 1,000 employees, with the resulting social conflicts. Bull’s unions were very politicized and militant, and would fight any personnel reduction. There were major cultural differences between the two companies, although both had high-quality professional employees. Bull was a hierarchical, formal, bureaucratic company with ‘functionaries’ similar to French civil servants, who were more interested in maintaining the status quo than innovating. Survival was the driving force of the business rather than profitability. Steria was still a young, entrepreneurial company, controlled by the employees, and the driving forces were profitability and growth, in addition to

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technical excellence and innovation. In line with the family spirit jealously maintained by the founders, all employees were considered equal. For instance, there were no reserved parking spaces. Everybody, including Enaud and Carteron parked wherever space was available!

The Challenges to President Enaud and His Creative Solutions President Enaud was at the crossroads. On the one hand, he realized that this was a unique opportunity, perhaps the only one, to Europeanize Steria. On the other hand, he also realized that the merger of Steria and Bull in France was not feasible, and would never be approved by the Steria Board of Directors. Therefore, he decided that the only possible solution was to acquire only the European subsidiaries of Bull/Integris. To achieve his goal, Enaud had to overcome three major obstacles: 1. Convince the Steria board that the acquisition of the non-French Integris companies was attractive, with acceptable risk. 2. After obtaining approval to negotiate, convince Bull to sell to Steria only the nonFrench companies. 3. Obtain exclusivity for two months, to freeze out other potential acquirers. Enaud devised highly creative solutions to meet these challenges.

Convincing the Steria Board Persuading the Steria board would be difficult, because of their distaste for Bull, and the poor financial status of the companies to be acquired. Consequently, if Enaud presented his plan directly to the board there was a high probability of outright rejection. Enaud thus decided on a two-step approach to obtain the board’s consent. First, he would propose a complete acquisition plan that could be rejected, and then propose the real plan for approval.3 He was aware that the board was satisfied with his performance and would not want to disappoint or even lose him by rejecting his vision of a European Steria. Enaud requested a special meeting of the board in February 2001. Following his strategy, he first presented the opportunity of acquiring all of Integris. As he expected, the

reaction was unanimously negative. Enaud then presented his alternative proposal to buy only the Integris foreign subsidiaries, all located in Europe. The board agreed to look carefully at this alternative and authorized Enaud to proceed with negotiations.

Convincing Bull In order to persuade Bull to split the sale, Enaud decided to propose another acquirer of Integris-France. Enaud visited de Panafieu and told him I am authorized to negotiate only the acquisition of Integris international business, but I have a proposal for France: 1. Steria acquires 100% of Integris International, in exchange of Steria shares. 2. Steria will be the leader of a syndicate of investment banks and venture capitalists that acquires Integris France. Steria participates with 10%. De Panafieu answered ‘I do not like it, it is too complicated but we will continue discussions’. He added: ‘Your chances are low, because EDS is interested in buying all of Integris’.

Obtaining Exclusivity of Negotiations Enaud was lucky. The stock market in the USA was crashing and EDS wanted to delay negotiations with Bull. Therefore Enaud asked that Steria be granted exclusivity of negotiations for two months, ostensibly to maintain secrecy and avoid speculation in the French stock market. He knew that de Panafieu had a tough choice: either accept Steria’s half solutions, or wait for an EDS solution that might never come. Following the French proverb ‘Un tien vaut mieux que deux tu l’auras’,4 de Panalieu signed the agreement with Steria in May 2001.

The Anatomy of Negotiations Enaud now had two months of ‘pre-duediligence’ meetings for gathering information necessary to make a final offer by the end of August 2001. The objective of these meetings was to review the status and prospects of each subsidiary, but Enaud also had a hidden agenda: to ‘sell’ the Steria solution to all country managers. Thanks to his charming and open personality this was not too difficult. The managers knew their companies were for sale and

3

A similar two-step opportunistic approach is used in Machiavelli’s famous comedy ‘La Mandragora (The Mandrake)’ (Machiavelli, 1518).

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4 Equivalent to the English proverb, ‘A bird in the hand is worth two in the bush’.



were frustrated with the mismanagement of Bull’s headquarters. In the meantime, potential investors in France had become nervous about the worldwide market crisis and the worsening financial results of Bull and Integris France. Undeterred, Enaud told de Panafieu that all his foreign managers wanted to go ahead with Steria, stating ‘We cannot stop a process that is already working well. I pledge to find another solution for France’. De Panafieu was again in a difficult position. He had committed to sell Integris and he could not pull back. EDS had disappeared, and other potential French acquirers were furious with him, because they had believed the ‘all-or-nothing’ terms of the sale. By the end of August, Steria made a binding offer for Integris international, but only a ‘best effort’ verbal offer for France. Bull accepted and a memorandum of understanding was signed, setting up two due-diligence task forces, one for financial, accounting and legal matters, and one for operations. Based on the due-diligence findings, the final offer in October was two million Steria shares quoted at €35 and €21 m for debt, corresponding to €91 m in total and a €6 m investment in Integris France. The boards of Steria and Bull would meet in December 2001 for final approval of the transaction, effective 1 January 2002. Enaud, president of the Steria Group and Carteron, president of the holding company Soderi signed the agreement with de Panafieu, who was happy to have fulfilled his commitment. It almost looked too good to be true!

Bull Reneges The French government controlled Bull de facto. For political reasons, including pressure from the unions, the government was becoming increasingly dissatisfied with the policy of selling-off the ‘crown jewels’ of Bull, and the increasing losses with negative cash flows. Two weeks after the Bull–Steria agreement was signed, de Panafieu was fired and replaced with Pierre Bonelli, former head of SEMA, a major competitor of Steria. He was close to leading politicians, and promised to stop the dismemberment of Bull, resume growth, achieve profitability and restore Bull to its former glory as a leading European Company. In return, the French government promised Bull a subsidy of €450 m that was reluctantly approved by the EEC (European Economic Community) headquarters in Brussels. According to sources close to Bonelli, he was never informed about the agreement with Steria. When he found out, he was furious and


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stated that if he had known this he would never have taken the job. For three weeks, all contacts with Steria were forbidden. Finally, Bonelli called Carteron, with whom he was acquainted, and proposed a secret meeting. Carteron refused to see him without Enaud. A meeting was arranged in a small hotel at 10 pm on a Sunday evening. After the first secret meeting, negotiations continued nightly from 5 pm until 5 am, because of the 31 December deadline. In early December, Steria and Bull finally agreed to the following conditions: 1. Italy would revert to Bull. 2. Steria would not acquire 9.1% of Integris France, because Bonelli wanted to rebuild Bull by himself. 3. The agreement would be signed the next day and a joint press release issued, stating that the final documents would be signed on 28 December 2001. On 19 December 2001, Bull’s Board gave approval. On 28 December, Steria called a special meeting of stockholders, who approved the acquisition of Bull’s service activities in nine European countries (Great Britain, Germany, Spain, Switzerland, Belgium, Luxembourg, Sweden, Norway and Denmark) for two million shares, quoted at €30, and €10 m in cash, payable over two years. The final price was now €70 m, plus about €100 m of reserves for restructuring. The official signing of the sale documents took place the next day. Enaud, Carteron and their staff gave a sigh of relief. Their well-deserved holidays would be short, because their major task for 2002 was to integrate the nine subsidiaries into Steria, while maintaining profitability in a rapidly worsening economic depression.

Anatomy of Integration The New Steria Steria’s executive team led by President Enaud had created, at a very reasonable price, a new high-potential IT services company, among the top ten in Europe. The new Steria was now well structured, with balanced revenues: 1. Geographically: France 40%; rest of Europe 60% (UK 30%, Scandinavia 10%, other 20%) 2. By type of business: systems integration 40%; managed services, including outsourcing 50%; consulting 10% 3. By markets: government services 35%; banks and financial institutions 20%; telecoms 15%; industry and transportation 30% 4. Recurring contracts (services, government) 50%; non-recurring new contracts 50%.

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The Different Cultures of Steria and Bull However, Steria and Bull had extremely different backgrounds, with opposite cultures, management systems and work processes. Steria was a 32-year old entrepreneurial company, which had been ‘built to last’ (Collins & Porras, 1997) with a stable management team and only two CEOs, Jean Carteron (1969–1997) and Francois Enaud (since 1998). It was controlled by employees of all ranks, and was proud of its egalitarian culture. This culture promoted creativity, autonomy with full responsibility, experimentation and an engineering ‘can do’ attitude. Bureaucracy and office politics were strongly discouraged. The drive for growth – physical as well as intellectual – was the guiding force, while at the same time maintaining the highest quality standards. However, Steria was a typically French company, run by a technical élite, with no foreign managers at its headquarters. In contrast, Bull was a 70-year old company, a pioneer in electronic computing with a turbulent history of ownerships, still heavily dependent on the French government for subsidies and orders, and highly subject to political influences and militant unions. The Bull engineering culture was stifled by the politicized executives, who were unable to select good managers. The foreign subsidiaries were frustrated by the bureaucracy at headquarters. For instance, they submitted detailed monthly reports but seldom received feedback, let alone support.

The Reactions of Bull Employees Since the split of the Bull service business, the Integris employees knew that they were ‘for sale’ and wondered where they would end up.

Thus when the sale to a French company was announced, they gave a sigh of relief, although the majority had never heard of Steria. Their reaction was cautiously optimistic. The reactions of the French and non-French Integris employees to the proposed sale were quite different, as summarized on Table 2. These differences support the wisdom of Enaud’s decision not to acquire Integris France. In summary, Steria was lean, innovative in all functions, service-minded and customer-driven, while Bull was innovative only in technology, hardware-minded, highly structured and hierarchical.

The Task Force Steria’s first objective was to replace the Bull culture with the Steria culture. The Integris task force was called Carlos, after the famous executive who successfully integrated Nissan when it was acquired by Renault. It consisted of a team of ten people from Steria headquarters, reporting directly to the Group General Management. The task force visited all Bull executives and all the country managers, and consulted with the Steria Group executives. The experience of Tommy Nelson, former CEO of Integris-Scandinavia and now CEO of Steria-Scandinavia, is typical of the integration process. After his company had passed the due-diligence approval, Nelson had two bosses from September to December 2001. Bull headquarters wanted him to ‘dress the bride’ by maximizing profits before the sale, and questioned all his expenses and reserves. At the same time he was required by Steria to prepare a realistic but aggressive business plan and budget for 2002. One-day and two-day integration workshops were first organized at the operations

Table 2. Reactions of Bull Employees to the Proposed Sale of Integris to Steria Inside France

Outside France

1. We know Steria 2. Steria is a competitor

1. Steria? Who are they? 2. Steria is French, with little European business 3. Steria is an expert in services, with a good reputation 4. Steria has a good track record of profitability and growth 5. It will be a logical strategic fit

3. They are presumptuous, a little guy trying to buy us 4. Steria does not have enough funds to finance the acquisition 5. It will be difficult to integrate an entrepreneurial and a bureaucratic company 6. What is going to happen to Integris headquarters staff?

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6. It will be great to join a service-focused company with a positive future.



level, and then at the management level. Since most of the work had already been done, as of 1 January 2002, it was more a cultural change than an organizational change. In contrast to Bull’s CEOs, Enaud reacted quickly to Nelson’s requests. There were weekly one-hour conference calls attended by country managers, President Enaud, Vice President Hayat (in charge of Industrial Relations), financial and other staff. The mindset about getting things done changed fundamentally. Bull had business reviews once or twice a year, and deviations from the budget were accepted if planned to be fixed by year-end. Steria, in contrast, had adopted ‘real time’ management with monthly reviews, demanding that operations be back on track within the following month. Beginning in January 2002, two hundred ex-Bull managers came to Paris in groups of twenty to attend a practical training course given by Steria instructors. The results of the well-planned integration were better and faster than expected. The plan was that the acquired subsidiaries would operate at breakeven after six months, and achieve return on sales (ROS) of 2% during the second semester of 2002. The actual ROS was 1% during the first semester, and 5% during the second. In France, the results were lower than expected. In 2002, ROS was 5% compared to 7.5% in 2001. This decrease was attributed to the economic depression, but also to the fact that Steria’s top management had been occupied in negotiations and integration during the previous 18 months. By summer 2002, the integration process was completed, all the new area managers were in place and all key processes had been unified: marketing, sales, delivery of projects, time management, billing and accounting and so on. As a result, ROS for the Steria group increased from 2% in the first half of 2002 to 4% in the second half, and 3% for the year.

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3.

4.

5.

6.

Swedish, Norwegian, German and Spanish managers who spoke English, not French. English is now the language to be used whenever a person is present who does not speak French. As a result of the economic recession and redundancy, total Steria employment was cut back from 9,500 to 8,500 in 2002, and to 8,200 in 2003. While most of the reduction was outside France, some occurred in France, the first time in Steria’s history. A new Steria logo, in English and French, replaced the old logo, which was conventional and outdated. The new logo represents a mobile ornament with the slogan ‘balance is born from movement’. Two colourful posters in English with the new corporate mission statement and core values (simplicity, creativity, independence, respect and openness) are now prominently displayed in all Steria’s offices across Europe. Some of the older employees lamented the loss of the ‘Steria family feeling’. The founder, Jean Carteron was the French ‘family father’, while President Enaud was the international ‘statesman’, driven by the European expansion imperative. On the other hand, the younger employees, such as middle managers, project managers and engineers, prefer to work in an expanding international company. This made recruiting high-quality personnel easier. The reaction of French customers was favourable, since many large companies, for instance EdF (the French power board), the petroleum company Total and France Telecom had significant international activities.

Key Success Factors The Three Success Factors of A New Venture

The Effect on the French Employees The effect of the integration on Steria France was also strong; indeed it amounted to an unexpected culture shock: 1. Before the acquisition, France contributed 82% of revenues, after the acquisition only 40%. France was no more the ‘essential’ of Steria, and could not expect that executives should dedicate the majority of their time and efforts to France. 2. Steria’s executives had now to accept English as the world’s business language, and learn it fast. Before the acquisition, the ten top managers of the Steria Group all spoke French, but now there were English,


According to Timmons (1999), the potential for growth and profitability of a venture is expressed by the formula P=E¥O¥R where P is the potential value of the new venture, in terms of sales and profits, E is the level of entrepreneurship, the skills and the relevant experience of the lead entrepreneur and his/ her team, O is the attractiveness and durability of the opportunity and R is the commitment of the required resources. This simple formula has the obvious but vital implication that, to maximize the potential of the venture, it is necessary to maximize all three factors. We will discuss these three

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success factors in turn, and how they evolved with time.

The Two Entrepreneurs and the Successful Succession Process Jean Carteron had all the required social, psychological and personal characteristics, plus the knowledge and skills required for becoming a successful entrepreneur (Baron & Shane, 2005). As Roberts has shown, about half of the founders of the first Route 128 companies had self-employed parents (Roberts, 1991). In fact, Carteron’s grandparents and parents owned and operated their small businesses. Also, Carteron, as a proud Frenchman and a graduate of the Ecole Polytechnique, the school that trained the French technical élite, was motivated to create his own independent company, to be owned by a team of French entrepreneurs and by the employees. Carteron, was known as one of the leading experts in France in IT systems, and was able to assemble an entrepreneurial team of engineers, plus a secretary, who owned 51% of Steria. As related above, Carteron successfully maintained the independence of Steria, and kept alive the entrepreneurial spirit. In 1998, Carteron was 73 years old and was planning to retire gradually. When he realized that his designated successor was a bureaucrat, Carteron replaced him with François Enaud, who also had the social, psychological and personal characteristics of an entrepreneur, and had attended the Ecole Polytechnique. His father owned and managed his own company and suggested that François seek employment with Steria rather than IBM. Carteron hired Enaud in 1984, and watched him grow with almost paternal satisfaction. The transition of power took four months, and Enaud took full responsibility for the annual results in January 1998. This was a difficult decision for Carteron, who stated ‘I take full responsibility for this decision, which I took almost alone in front of my conscience, and at that time did not receive unanimous support’.5 Succession is not always followed by success, because the retiring CEO is often reluctant to hand over full authority and responsibility to the successor. This problem is particularly acute in family companies and in entrepreneurial companies (Butler et al., 1998; Phan et al., 1999). Carteron was and still is the principal shareholder of Steria, the President of the holding company Soderi, and continues 5 Letter from Jean Carteron to Pier Abetti, 4 August 2003 (translated by the author).

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to work in his office at Steria headquarters. Nonetheless, Carteron decided to turn over the full authority and responsibility to Enaud after only four months. He stated ‘I voluntarily relinquished my activity in managing Steria because of realism towards a man 24 years younger than I whom I could trust. However, I continued to follow what was going on, giving advice whenever it appeared to me to be necessary, but it was always in the role of advisor’.6 Even though the transition of power from his predecessor had been smooth and rapid, Enaud, as a true entrepreneur, had a strong ‘need for achievement’ (McClelland & Boyatzis, 1982; McClelland & Winter, 1964) that would enable him to assert his leadership. There was also a more subtle reason. Until 2002, Enaud had shared the glory and rewards of the IPO with Carteron. Perhaps, subconsciously, he was now ready to leave the shadow of his former chief and step into the light. To achieve this, he had complete a second coup comparable to the IPO, this time completely on his own initiative and responsibility. The acquisition of Integris European subsidiaries was congruent with Steria’s strategic plan and objectives and, even if risky, would fulfill Enaud’s personal ambitions. Emotionally, Carteron was still the ‘father of the family’, proud to see his children grow up successfully. He had chosen Enaud as his successor, with little support from his staff. This was Carteron’s opportunity to prove to the world that he had made the right choice. As Leonardo da Vinci states, ‘Poor is the disciple who does not do better than his master’ (1510).

The Entrepreneurial Spirit Independently of the personal characteristics and the motivations of the two leaders, the success of the Bull acquisition depended on the full co-operation and enthusiasm of the personnel of all ranks, which in turn was motivated by the entrepreneurial spirit of the company. Steria was founded by entrepreneurs who fought hard to co-opt all employees by giving them ownership and control of the company. One of Steria’s basic tenets was that all employees should act as entrepreneurs, responsible for the fulfillment of contracts, from marketing and selling to implementation and follow-up. This entrepreneurial spirit was transmitted by the founders to the second generation of managers and employees. When Steria’s executives dedicated 80% of their time and effort over a year and a half to the Bull 6

Ibid.



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acquisition and merger, the next level of managers and staff took over more responsibilities and were able to maintain the momentum with less control from the top. While profitability fell somewhat because of the recession, the French managers had learned to be more self-confident and independent. This was a necessary development because after the merger, France represented only 40% of Steria revenues, and Enaud and his staff continued to dedicate the majority of their efforts to business outside France. Coupled with the euphoria following the rise of Steria shares, there might have occurred a ‘thermidorian’7 reaction, with slackening of the work ethics and loss of the entrepreneurial spirit. To revitalize internal entrepreneurs of all levels, in 2004 President Enaud set a new major challenge for Steria: to double sales in three years (Steria, 2004).

cally, the collapse of the IT market benefited Steria in two ways. First, the effects on Bull, a poorly managed inflexible company, were more severe than on Steria. Bull’s continuing cash shortage gradually worsened and de Panafieu had no choice but to agree to the sale of only the foreign subsidiaries of Integris. Similarly, Bonelli wanted to disown the negotiations or drag them out forever in the law courts but, when faced with €253 m in losses in his first year as CEO, had to reluctantly agree. In addition, the fall of the value of Steria shares had no negative effects on the acquisition since the entire transaction was in Steria shares, except for the debts of the subsidiaries that Steria assumed, after rejecting the faulty ones.

The Evolving Opportunity

While the attractiveness of the IT market decreased, a new opportunity arose for Steria, the accelerated expansion of the European Economic Community (EEC). Founded in 1953, its development and expansion over the past fifty years has been slow and is still not complete. Steria thus had ample time for transitioning to a European company. Even now, two of Steria’s subsidiaries are in rich countries that are not part of the European Union, Switzerland and Norway. In addition, three other financially strong countries of the European Union, Great Britain, Sweden and Denmark, have not adopted the euro. This gives Steria still more time to become fully European and to adopt English as its primary language, as has been done by ABB (Taylor, 1991) and Nokia (Steinbock, 2001). However, the adoption on 1 January 2002, of the euro, by France, Germany, Belgium, Spain and other countries where Steria is now active, is a strong signal of European unity. From this point of view, the timing of the acquisition of Integris subsidiaries by Steria, effective that same day, was perfect.

When Steria was launched, the IT industry was still in its infancy, but was growing at a spectacular rate. The hardware and software industry were dominated by American multinationals. Carteron realized that the only market segment where France could compete successfully was in IT systems and services. He first targeted large French business and government organizations that did not want to entrust their proprietary data to foreign suppliers. Four French IT systems companies already served this growing market, but they acted most as consultants, selling their expertise rather than taking systems responsibility, as desired by the clients. In contrast, Steria was guided by the strategy of being fully responsible for the successful implementation of the entire cycle: plan, build, run. As true entrepreneurs, all Steria project leaders were personally responsible for marketing, selling, implementation, training and operation (in the case of turnkey systems) and for follow-up.

Development of the European Economic Community

The Collapse of the IT Market The attractiveness and durability of the opportunity changed drastically with the bursting of the Internet bubble in 2001–2002. The ensuing collapse of the stock market created havoc in the worldwide IT industry, but Steria was affected to a much lower degree. Paradoxi7 The French revolution in the month of August (Thermidor) 1793 moved from the ‘terror’ to a period of relaxation and profiteering that eventually led to the rise of Napoleon. To a much lesser extent, this happened in General Electric after the retirement of CEO Jack Welch (Abetti, 2001b).


The Marshalling of Resources New ventures are generally short of financial resources (Baron & Shane, 2005; Timmons, 1999). The situation was much worse 36 years ago, especially in France, where venture capital did not exist, and the banks only gave loans against collateral. In 1969, Carteron had no employment and was responsible for supporting his spouse and four children. Nonetheless, as a true entrepreneur, he was willing to take the risk of investing €21,000 of his modest savings in Steria.

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The other seven entrepreneurs were in similar situations and could invest €20,000. This total of €41,000 was half the sum required to launch Steria. Fortunately, a major French bank had heard that Carteron was unemployed and wanted him to manage all their IT activities at a very substantial salary. During the interview with the bank executives, Carteron declined the offer, explaining that he wanted to start Steria. He also mentioned that he was looking for funds. The bank executives offered to finance Steria for €49,000 in exchange for 49% equity. To the surprise of the bankers, Steria became profitable within the first year and financed further expansion from advances on contracts and retained earnings. To maintain entrepreneurial control, Steria did not seek other investors, and delayed the IPO until 1999. Steria’s competitors grew faster and had earlier IPOs, but were also targets for acquisition, as happened to SEMA in 2001. As we have seen, Steria’s financial position in 2001–2002 was still very strong. Therefore Steria had no problem in obtaining the additional resources (shares and cash) required for the Bull/Integris acquisition. Since Bull was to be paid in Steria shares, the Steria Board authorized a first expansion of capital with a road show, and a second expansion privately negotiated with large investors.

stated ‘Chance favours the prepared mind’ (Vallery-Radot, 1923). Steria’s executives, led by Enaud, had done their homework, recognized the unique opportunity of fulfilling the European expansion imperative, seized it with a bold stroke and earned their success.

Luck!

Steria: A Company ‘Built to Last’

Timmon’s formula above does not include a fourth factor, which although elusive and hard to quantify, may be very important for the success of a new venture: luck! There is no question Steria was lucky. The first stroke of luck was when de Panafieu decided to facilitate divestment by spinningoff the service business into Integris. The second was when other potential acquirers, many better known and stronger than Steria, pulled out for various reasons, including the reluctance of the French government to sell to American multinationals. De Panafieu needed cash fast, and Steria was ready to buy half of Integris. The third stroke of luck was that Bonelli turned down the offer to become CEO of Bull in 1997, which was then offered to de Panafieu. Bonelli, who had dreams of glory for Bull, would have never agreed to the divestiture of Integris. When he finally became CEO in 2001, a binding memorandum of agreement had been signed, and Bull was in much worse shape than in 1997. These lucky breaks do not diminish by any means the merits of Enaud, his staff and their mentor, Carteron. Louis Pasteur, the great French innovator and benefactor of mankind,

Collins and Porras (1997) compared pairs of successful visionary companies with their less successful competitors, for instance General Electric and Westinghouse, and deduced unique characteristics of the visionary companies, all of which were ‘built to last’. The three main characteristics of the successful sample of companies are a clear vision, an enduring culture and continuity of leadership. Steria was founded with the clear vision of being the most advanced IT systems engineering and services company in France, owned by the employees and therefore independent from the government influences and multinational foreign corporations. Steria was led by pragmatic idealism, striving for more than just profits and resisted successfully two internal revolts and a hostile acquisition attempt. Later the vision evolved to encompass all of Europe. The Steria culture was systematically enforced by Carteron and the founders by ‘evangelizing’ all new employees, encouraging them to become owners and admitting them to the family. Carteron was the archetype of the ‘family father’, always concerned with the psychological satisfaction and material welfare of all employees. However, Carteron

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Conclusion: the Driving Forces of Steria’s Evolution We reviewed above the changing factors that have contributed to Steria’s success in the past 36 years: the two entrepreneurs, the evolving market opportunity, the acquisition of resources and finally, luck. The real test was the collapse of the Internet bubble in 2000– 2003, when most IT companies suffered major decreases in market value. For instance, HP’s market value fell by two thirds from $146 billion in 2000 to $48 billion in 2003, while Steria’s market value of €530 m in 2000 fell to €226 m in 2002 and rebounded to €532 m in 2003. Therefore, the question arises: what were the enduring driving forces underlying the successful evolution of Steria during these turbulent and highly challenging times? We posit that the two major driving forces were the entrepreneurial family-like culture of Steria and the creative leadership of the two CEOs.



was a strict father and maintained a strict separation between being a stockholder and the responsibilities of working for the company. In fact, he removed for cause, without indemnities, a few employees who owned a significant amount of shares. After the IPO and the European expansion, the ownership of Steria by employees fell to 31% in 2004. Nonetheless, Carteron is still revered as the ‘family grandfather’, the final arbiter with whom it would be unthinkable to disagree. The original culture and family spirit was essentially French, and Enaud had to superimpose a European culture and spirit. He achieved this by adopting English as the second official language of Steria, by adding several non-French managers to his staff, by frequent visits to the foreign subsidiaries and major customers, by interchange of personnel between France and other European countries and by annual business and social meetings of Steria’s 300 leading employees. He also created a new logo and colourful posters in English with Steria’s new corporate mission statement and core values. The logo and posters are now prominently displayed in all Steria’s offices, worldwide. Now that Steria is an international company, the family spirit is still kept alive at headquarters through practices and symbols of the early Steria, such as simple functional offices, one cafeteria for all employees and no reserved parking. While continuity of culture does ensure continuity of management, it may also stifle the creativity and effectiveness of the leaders. IBM is a classical example. The inbredness of the leaders led to bureaucratic gridlock, infighting, inefficiency and major losses. Therefore, an outsider had to be hired to ‘teach the elephants to dance’ (Gerstner, 2002). In contrast, the two CEOs of Steria have demonstrated their creative leadership by their continuous adaptation of Steria’s strategy to the challenging environment and by their response to the crises they encountered. Carteron overcame the two ‘revolts of the barons’, the first through a creative solution that satisfied both the barons and the new employees, the second by appealing to the loyalty of all employees. Enaud developed three creative solutions to overcome the internal and external obstacles that would have prevented the European expansion of Steria. Through creative leadership in planning and implementation, he was able to integrate the ex-Bull personnel into the Steria family without loss of profitability and momentum, and has already taken the next step for further expansion. In conclusion, the Steria case reinforces the belief that innovative entrepreneurial ventures can successfully challenge the leadership of


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established corporations, create new high value-added jobs, promote exports and international expansion, and contribute to the world competitiveness of their home countries.

Acknowledgements This research was sponsored by the John Broadbent Endowment for research in entrepreneurship. The author wishes to thank the President and CEO of Steria, François Enaud, for his support in organizing interviews with key persons in Stockholm, Oslo and Paris in 2000, and 2003 and Jean Carteron, founder of Steria and President of the holding company, for sharing his experiences during 36 years. The author wishes to thank Lindsay Evans for reviewing and editing the manuscript.

References Abetti, P.A. (2001a) Accelerated growth: Helping companies get and stay on the fast track. International Journal of Manufacturing Technology Management, 3(1/2), 15–30. Abetti, P.A.. (2001b) General Electric after Jack Welch: Succession and success? International Journal of Technology Management, 22(7/8), 656–669. Abetti, P.A. (2003) The entrepreneurial control imperative. A case history of Steria (1969–2000). Journal of Business Venturing, 18, 125–143. Austin, R.D. and Nolan, R.L. (2000) IBM Corporation Turnaround. Harvard Business School Case 9-600098. Baron, R.A. and Shane, S.A. (2005) Entrepreneurship, Thomson South – Western, Mason, Ohio. Butler, J.E., Phan, P.H., Saxberg, B.O. and Lee, S.H. (1998) Entrepreneurial management succession, firm growth and performance. Frontiers of Entrepreneurship Research, 18, 360–361. Carteron, J. (1999) Steria: 30 Ans de Création Continue (Steria: 30 Years of Continuos Creation). Le cherche midi éditeur, Paris (in French). Collins, T.C. and Porras, I.I. (1997) Built to Last. Harper Business, New York. Gerstner, L.V. Jr. (2002) Who Says Elephants Can’t Dance? Harper Business, New York. Greiner, L.E. (1972) Evolution and revolution as organizations grow. Harvard Business Review, 50, July–August, 37–46. Hitt, M.A., Ireland, R.D. and Hoskisson, R.E. (2004) Strategic Management (cases)(6th edn). ThomsonSouth-Western, Mason, OH, C23–35. Kao, J. (1989) Entrepreneurship, Creativity & Organization. Prentice Hall, Englewood Cliffs, NJ pp. 180–185. Leonardo da Vinci (1510). Scritti (Writings). Editrice Bietti, Milan, Italy (1929). (in Italian). Machiavelli, N. (1518). La Mandragora (The Mandrake). Florence, Italy. McClelland, D.C. and Boyatzis, R.E. (1982) Leadership motive pattern and long-term success in

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management. Journal of Applied Psychology, 67, 737–743. McClelland, D.C. and Winter, D.G. (1969). Motivation and Economic Achievement. Free Press, New York. Osborne, A. (1984) Hypergrowth: The Rise and Fall of Osborne Computer. Idthekettan, Berkley, CA. Phan, P.H., Butler, J.E., Lee, S.H. and Saxberg, B.O. (1999) A multinational examination of the impact of succession planning on SME performance. Proceedings of the Academy of Management, Entrepreneurship Division ENT, 9. Academy of Management, Chicago, IL (August). Riezenman, M. (2000) Iridium: Were terrestrial cell phones really the problem? IEEE Spectrum, 37, May, 10–11. Roberts, E.B. (1991) Entrepreneurs in High Technology, Oxford University Press, New York. Steinbock, D. (2001) The Nokia Revolution. Amacom, New York. Steria (2004) Annual Report 2003. Steria, Paris. Taylor, W. (1991) The logic of global business: An interview with ABB’s Percy Barnevik. Harvard Business Review, 69(2), 90–105.

Timmons, J. (1999) New Venture Creation (5th edn). Irwin, Boston MA. Vallery-Radot, R. (1923) The Life of Louis Pasteur. Doubleday, Garden City, NJ. Yin, R.K. (1994) Case Study Research: Design and Methods (2nd edn). Sage Publications, Thousand Oaks, CA.

Pier A. Abetti holds a PhD in Electrical Engineering from Illinois Institute of Technology. Prior to joining Rensselaer Polytechnic Institute in 1982, he worked for 32 years for the General Electric Company (USA) in charge of major innovative projects in extra-high voltage transmission and telephone switching systems. He was manager of General Electric’s Europe Strategic Planning Operation from 1974 to 1980. Professor Abetti is the author of more than 150 technical and management papers in five languages.

Appendix: Subjects Interviewed Person

Title

Date(s) of interview

François Enaud Jean Carteron Severin Cabannes Jacques Bégué Philippe Tournaud

President and CEO Founder, CEO of holding company Soderi Former member of the Board, General Manager Chief Operations Officer General Manager, Telecommunications Industry, Energy and Public Sector Founder, Vice President Director of Tel’x, subsidiary for remote turnkey information systems Marketing and Sales Manager, Banking and Financial Division Solution Manager, Corporate Management and Services Operations Director of Steria Group Director of the Bordeaux Region Director of European subsidiaries Marketing Director Director of Strategy Former Director, Bull Norway; Human Resources Director Director of Communications Financial Director Former Director of Bull Benelux Companies; Financial Manager, Mergers and Acquisitions Former CEO, Bull/Integris Scandinavia; CEO, Steria Scandinavia

2000, 2003 2000, 2003 2003 2003 2000, 2003

Eric Hayatt Marc De Vitry Emanuelle Mari Catherine Destritaux Jean-Bernard Rampini Eric Spirau Jacques Bachelart Laurent Payet Yves Rouilly *Geir Haugstvest Antoine Pernod Claude Lacour *John Moran *Tommy Nelson

2000 2000 2000 2000 2000 2000 2000 2003 2003 2003 2003 2003 2003 2003

Note: * Bull employees before the acquisition by Steria.

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