Leadership and Organisational Climate Effect on Innovation

Access the respective contributions of leadership and organisational climate to promote innovation.

1. Introduction

Now more than ever, companies are putting more attention to innovation that make their products and services more competitive, thereby enable them to survive and flourish in the changeable and challenging global environment. There is vast number of articles and papers supporting that innovation can significantly enhance sustainable competitive advantage (Porter, 1998; Shoham and Fieganbaum, 2002; McEvily et al., 2004). Tidd & Bessant (2009, p.4) also stressed that innovation is regarded as a key driver of competitive advantage in the manufacturing sector.

Innovation is seen by Fagerberg (Fagerberg,et al 2006, p.4) as the first attempt to carry out a new creative idea, and translate it into practice. However, it isn’t easy; it’s a difficult and complex task. According to Tidd and Bessant (2009 p70), there are two primary factors influencing the success of innovation: technical resources (people, equipment, knowledge, money, etc.) and the abilities in the organisation to manage these resources to encourage innovations. However, LAM (Fagerberg,et al 2006 et al 2006, p.115) points out that the latter is the precondition which can place high premiums on innovation.

Organisation is a kind of breeding ground for generating creative idea and capturing new opportunities. According to Tidd and Bessant (2009 p.100), an innovative organisation has several key components: appropriate structure, effective team working, external focus, leadership, key individual, creative climate and etc. All the factors are absolutely essential.

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All innovative organisation needs leadership at every level. Wenger and Snyder (2000) shows that there is a positive relationship between leadership and innovation. There are increasing evidences to prove that unique leadership asserts great importance to innovation efficiently and effectively (Oke et al. 2008). In an organisation, half of the changes in performance are attributable to leadership directly and indirectly (Tidd and Bessant 2009, p.103). Steve Jobs, the CEO of Apple, who has led Apple to become the giant in the technology market with innovative products, is a typical example to illustrate how important and influential of leadership to innovation and creativity, in order to make his organisation a household name within the industry and worldwide alike. Leadership is becoming more and more popular nowadays. There are many articles, discussions and forums in newspapers, TV shows about how a CEO joining a badly performed company makes the company stop losing money and even regain profit in few years time. And with successful leadership, company has successfully developed a new product. Undeniably, leadership capabilities are the paramount element to sustain an organisation to top the innovative rank and achieve remarkable revenue.

‘One of the most important roles that the leaders play within organisation settings is to create the climate for innovation’ (Bessant & Tidd 2009). Organizational climate for innovation is crucial. West (1990) proposed that when in an organization, people’s creative ideas can be presented without worry about the refuse and ridicule, and can be highly valued and supported, and then innovation can be encouraged. The essay will go through to respectively access the contributions of leadership and organizational climate for innovation.

2. What is leadership?

There are many definitions of leadership. Most researchers probably would agree that leadership can be viewed as a group process rather that a role, which is conducted by the group leader through leading and managing his or her followers to influence the process so that they can successfully accomplish their tasks and meet desired common goal (Northhouse 2009, p.3; Jacobs & Jaques 1990, p281).

No matter the size of a company or an organisation, leadership is vital (O’Regan & Ghobadian 2006). With poor or no leadership, an organisation will be chaotic. Plenty of examples show that strong leaderships can reverse the worsening business situation. Apple former CEO John Sculley replaced Steve Jobs as the new Apple CEO in 1985 with a high salary plus big bonuses guarantee. During his tenure, he made a big mistake that was to give Microsoft the authority to use Apple Macintosh graphical user interface in Microsoft’s windows operation system. The wrong decision opened the door to Microsoft’s Windows Vista and Window 7 operation system, for which the graphical user interface is similar to Macintosh’s look and feel, to compete with Apple, and resulting in the latter losing in the lawsuit of plagiarism. Also because of his inaccurate perceptions to Apple’s product line, Apple launched the world first PAD Newton, which produced disastrous sales because of the high price and bad software problems. Under his leadership, Apple’s market share and stock prices continued to slide, and could not recover for several years until the current Apple CEO Steve Jobs took control of the Company again (Hormby 2006). Similarly, 3M is known for years as an innovator. However, several years ago, under the leadership of former CEO James McNerney, 3M shifted its strategy from innovation to quality control by implementing Six Sigma. Thousands of budgets were cut, hundreds of R&D engineers were laid off, and many innovative projects were suspended. Although 3M had had a sound financial balance sheet at the beginning of his tenure, however the long-term damage is detrimental to the whole business. 3M has slided downward from the top rank of innovator ever since (Hindo 2007).

3. Type of Leadership

Leadership may touch on all the employees in an organisation, and can be found in every level (Bass & Riggio 2008). According to Northouse (2009), there are two different forms of leaderships, which are assigned leadership and emergent leadership. The people get the formal position to be a leader in an organisation, such as the team leader, department manager, CEO, etc, which are called the assigned leadership. Nevertheless, those people with nominal position sometimes are not the real leader but a figurehead for the team in some particular circumstances because of the lack of sufficient personal competence. On the opposite, some people who have not been officially assigned to a leader position, but they perform as a leader with the chief characteristics for a real leader, they can take the challenge to fulfil the team goal, and be regarded as a leader by the people in the organisation, which Northouse call them emergent leadership. IBM e-business’ real leader Dave Grossman is an example. When Dave Grossman came to IBM as a programmer, he found the importance of open internet to expand IBM’s business, therefore, he tried to convince IBM top management the bright future of the new e-business. Eventually, IBM accepted his proposal and started opening up their e-business. With his effort, IBM successfully developed its e-business under his leadership, which transformed IBM from a broken up big blue-chip company to a new dot-com company (Tidd & Bessant 2009; Hamel 2000). Dave Grossman was only a programmer, but he has the characteristics that leader should have such as vision and passion. No doubt, Grossman, at the time, was an innovative leader, who had a clear vision and successfully turned around and transformed an underperformed company from its old business model to a brighter future.

4. Characteristics of Innovation Leader

Leadership always has some visions on bringing about the organisation better prospects. In this sense, leaders are necessarily innovators, who facilitate inventions to materialize their visions of better future (Selman 2009). A leader is not necessarily a “great man” or “hero” type of figure, and do not necessarily have university certificate. We heard a number of innovation leaders, who did not graduate from college but still have achieved great successes. Bill Gates, founder of Microsoft, Steve Jobs, CEO of Apple, they both did not finish their college (Although they tried to get degree after their successes). Nevertheless, they have devoted most of their lifetime to pursue their goals, and have secured unprecedented achievement. It’s the passion to their business and success, which keeps driving them.

Although there are no universal characterises that an innovation leader should possess, generally, other than passionate about the business and success, people usually think a good leader should possess good communication skill, administrative and social capability, skills in their task domain, responsibility, and energetic, initiative, flexibile (Tidd & Bessan 2009, pp.104-105).

Importantly, an innovation leader must be a good communicator, who is able to help their followers to fully understand the strategy of the organisation, and make sure all of his or her followers will be able to implement the leader’s strategy correctly. At the same time, this can guarantee that all followers be timely informed of the progress of the organisation and what the progress of each individual. This can ensure the whole process be smoothly and precisely completed task by task and therefore achieve the common strategic objective (Zerfass & Huck 2007).

Internally, a innovation leader should administrate well the process of implementation of each task, and make sure the team can complete the task in time and meet all requirements. Externally, the leader should take the responsibility to build up a social network that can promote the product or service on behalf of the company, so that the product and service can be developed and commercialized successfully, which requires the social skill of the leader. (Storiti 2006). Therefore, a innovation leadership should be a good communicator, a good administrator, and a good social swinger.

To lead an innovative team, innovation leaders should have substantial knowledge of his given domain. Yuki (2006) points out that expertise can be taken as a power by leader to influence their followers. Other than expertise, cognitive-processing skills are crucial factors to an innovative leader. Combination of expertise and cognitive-processing skills can allow leaders to communicate more clearly with their followers, to better understand the exact needs from their followers, and provide them with prompt and correct support (Tidd & Bessant 2009, p.105). Outside, the expertise leaders can present their team more effectively. We can look back to the earlier example of the Apple former CEO John Sculley, his inability to Apple’s product line is the big reason of his failure.

There are thousands of reasons to determine how innovation leaders should be responsible for their task and willing to take the responsibility for all the actions during the innovation process. To get respect and trust from the followers, the most important thing to do is to give them the credit for all achievements and successes, and take the responsibility for any fallings or mistakes. Therefore, followers will be motivated and will be more willing to be led. Due to the dot com bubble in 2001, Cisco had suffered a lot, sales has plunged largely and stock price fells down sharply, more severe, the employee has became very anxious and lost their desire. During the rough time, Cisco CEO John Chambers, took this as his responsibility, requested to reduce his salary to one dollar annually without any bonus until the recovery of company performance. Urged on by his behavior, employee has cheered up and work harder so that Cisco could return to profitability by 2004.

5. Innovation Leadership and Doing the ‘right things’

Leadership is very important in every step of innovation process (Waldman and Bass,1991). Although some innovations are created by the employees, who are not in the positions as nominal leaders or anyone in the management board, generally speaking, almost all the innovations emerge from a clear strategy and all-around support from the leadership. By assessing the right things a leadership should do such as making long-term strategy, dealing with turbulence and uncertainty, serving and supporting their followers, etc (Isaksen & Tidd, 2006, p136), we can generate an outline that explains how leadership contributes to the promotion of innovation.

Mapping out a visionary strategy is the fundamental task for an innovative leader to guide the followers to think and behave in a right direction and thus complying with the organisation’s specific goal. Creative teams have clear and common goals (Tidd and Isaksen 2006, p186). Although freedom is one of the most important part to creativity, which is an essential part of innovation, generally, creativity stems from people’s reaction to a specific goal rather than waiting for people’s affective appeal (Jaussi & Dionne 2003). Goal-setting has been viewed as a motivational technique to creativity (Locke & Latham 1990). Firstly, it gives the followers a general framework of what kind of idea that will be appreciated and applicable in the organisation in a specific time; Secondly, Gladstein (1984) found that in an organisation, a common goal can make all the members work more closely that can enhance the communication in organisation and facilitate information sharing so as to ignite the spark of creativity and innovation.

As Lazonick (Fagerberg,et al 2006, p.20) mentioned, there are many uncertainties in innovation process. An effective leader should have the ability and sight to forecast and preview possibilities that may occur during the process. As for the existing uncertainties and turbulence, leadership can solve these problems by several strategies including buffering, smoothing, adapting, and rationing’, at the same time, the leadership can give followers some directions, encouragement and trust to motivate them, so that the process can operate as efficiently as possible in every aspect (Gemin & Tarondeau 1982). A great leader understands the perspectives of uncertainty and turbulence as full of opportunities and as the outcome of innovation. In 2001, after dotcom bubble busted, Apple’s CEO Steve Jobs launched hard disk based iPod, with a high storage of 1000 music songs, and entered the “much crowded” MP3 player market. This was viewed by many as bad entry timing. Previously, this market sector was dominated by flash memory based MP3 players from Sony and many small manufacturers around the world, with 512MB storage much less than iPod. iPod was a user-friendly, click-wheel interface driven by a powerful marketing campaign overseen by Jobs personally. Jobs’s vision was realized in 2003 when Apple opened its first iTunes store, selling licensed music tracks to consumers. This demonstrates that Jobs understood the competitive edge of his iPod and launched it in the aftermath of crash of dotcom bubble. The success of iPod and iTunes has shown a great example of the combination of innovation and strategy at work. Of course, it further enhances the position of Jobs being the leader of innovative product in IT world even at the time of uncertainty.

Robert Greenleaf (Isaksen & Tidd 2006, p133) proposed the concept of servant leadership which means the leaders firstly should serve and help their followers, and understand their needs and provide the support, which is essential for innovation. For example, in order to gain market place through innovative products, an organisation must commit strategic resources, which are controlled in the hands of top management, in another word, the leadership. This is obvious that when a leadership is reluctant to commit resources, innovation can hardly be nourished. We can see the release of Betamax in 1970s, the first generation of video cassette recorder, was the strategic initiative of Akio Morita, the late founder and chairman of Sony Corp at the time. Akio dedicated resources to the R&D team for the Betamax development (Oke et al. 2008).

Leadership is about transformation and has largely to do with challenging the way business have been achieved so far. They usually do things differently, rather than do things better. Transformational Leaders will have the encouragement to rebel the stereotypes, and spend time to ‘thinking out of the box’. Beside, they like to ‘taking thoughtful risks and building strong teams of people to work across boundaries. By doing things differently or unconventionally, distinguishes innovative leader from ordinary leader.

6. Organisational Climate

As mentioned earlier, the other crucial factor the innovative leadership needs is to create an organisational climate for innovation. Klein and Sorra(1996) stressed that organisational climate is a key factor in innovation implementation. Building up an innovative climate or culture in an organisation is one of the important tasks of an innovative leadership. At the same time, creative organisational climate is one of fundamental elements that leads to success of innovation. Doing so successfully will certainly further secure and strengthen the leadership, which initiates innovative climate in the first place. This success will also bind more followers to the leadership because of its respective contributions for innovation, or in another word future success. A leadership should have a quality and skills to manoeuvre the internal environment of an organisation to create a favourable climate for innovation.

Ashkanasy et al (2000) maintained that although there is no direct influence between organisational climate and innovation, a favourable climate can naturally drive people to seek innovation. Schneider (1990) stressed that organisational climate is generally defined as employee’s affection to their working environment and the anticipation of what kind of behaviour can be rewarded. Climate more concerned to the individual’s feeling, behaviour and attitude in an organisation, however, it has been regarded as an attribution of the organisation (Ekvall, 1996). It can influence the communication, problem solving, decision making and the way of learning (Isaksen & Tidd 2006, p.328). Unlike the culture, which is concerned with deeper and more enduring values, norm and beliefs, the climate is easier to be observed and changed(Isaksen & Tidd 2006, pp.308-309)

There have been many dimensions of organisational climate such as trust and openness, challenge and involvement, idea time and support, conflict and debate, risk taking and freedom, which have been identified as the most critical factors for supporting creativity and change (Isaksen & Tidd 2006, p329).

We will look into the following aspects of climate for innovation and their interactions with leadership contributions

1. trust and openness in an organisation
2. challenge and involvement
3. support and space of ideas
4. conflict and debate
5. risk taking
6. freedom

6.1 Trust and Openness

Trust and openness concern more about the emotional level. Trust can increase resource-exchange and combination between business units, which contribute to produce innovation (Fagerberg,et al 2006). Ewicki et al (1998) contested that trust can be treated as a fundamental ingredient for the organisation to collaborate with each other; consequently, the collaborative climate can nurture innovation (Ruppel and Harrington, 2001). With strong level of trust and openness, people in the organisation will feel safe so that they can speak out their minds and raise some divergent points. They don’t fear their ideas will be stolen. If employee feels that the management and leadership always are there to criticize new idea or comment, employee wound not take the risk to put forward their new ideas. For Instance, in order to avert such fear, in 3M, they have set up the Genesis Grants for people who have proposed new ideas even though these ideas are deemed not suitable to his or her current work division or office department. In doing so, this has encouraged employees to present their thoughts and ideas freely. At the same time, to take balance between useful ideas, and unwanted, wild cat and time wasting ideas, 3M has the 15 percent rule that can uphold employee to explore new idea by doing the project they are interested in. Furthermore, with openness, the employee can learn from other’s experience so as to avoid some unnecessary attempts or mistakes which may save a great deal of time and money; at the same time, employee can get some clues from the other’s mistake and generate some new ideas. What 3M does here, is to provide a safety net for staff to freely express their ideas and comments, whilst keeping certain degrees of control over the commentary process of avoiding intentional or unintentional abuse of the trust and openness between leadership and staff, or among fellow staff and their peers.

6.2 Challenge and Involvement

Challenge and involvement means the degree that people are involved in daily operations, long-term goal and visions (Tidd & Bessant 2009), which can emotionally influence the people’s enthusiasm for their work which can contribute to the success of the organisation. During the stickiness to a same task, people may feel dull and lack of interest, however, certain challenge such as a new task or a new position which can inspire people to exert their capability on creative thinking and intrinsic motivation. 3M CEO have applied the mechanism ‘renewal’ to encourage the innovation. Under such circumstances, new businesses are branched out from old or existing businesses. New management teams are then assigned to new business units. As a result, these new units are able to grow quickly. When these new businesses are under new managements, the newly established business unities have to develop new products and find new markets to achieve their growth objectives to make up for contributions from the old or existing businesses, which they have become segregated from. As stated by Carmeli and Schaubroeck (2007), creative work involvement is important to employee to create achievements and innovation. Involvement in a task can make people think that they are important, they will have the sense of commitment and ownership, therefore, they will delegate more to the task. In 3M, the role of employee is valued as a strategic partner, everyone has the responsibility for leadership and can empowered to act on the vision of the organisation, which have given the employees a sense of commitment that can, to a great extent, stimulate the them to work hard and be more innovative too.

6.3 Support and Space for Ideas

Innovation is a time-consuming process (Fagerberg,et al 2006, p 349). Idea time and space give the people amount of time to think, plan, discuss or even test before having an action, which, to a great extent, foster new ideas within the working period. In a supportive climate, people can gain enough resources such as people, time, and money for innovative ideas. At the same time, they may realize there are values and respond to their creative potential and contributions so that they may exhibit higher levels of creative performance (Madjar et al 2002). Oldham and Cummings (1996) showed that supportiveness can significant enhance the creativity and contribute to the number of patent. A key strategy in 3M to allocate resources that allows staff to play with ideas with their own space and time. The 15 percent rule provides the staff in 3M with certain time and space in activities, which are not related to their current core business tasks. Some activities are curiosity-driven, which have sometimes resulted in breakthrough products such as the ever-popular Post-it®, which is the typical product initiated from the 15% rule. The development process in Google has a 70-20-10 rule. Google staff must spend 70% in the core business, the other 20% allow staff to roam free to encourage creativity—where all the most interesting products emerge. The rest 10% is for crazy and radical ideas that might not work out but feel worth pursuing.

6.4 Conflict and Debate

Conflict concern more about the relationships between people in an organisation, and debate focused on issues and ideas (Tidd & Bessant 2009). Some researchers such as Moscovici (1980) and Nemeth & Nemeth-Brown (2003) have stressed the value of conflict in that it can provoke people to think and find out creative or new viable solutions. More creative ideas can be stimulated by encouraging debates or even criticisms (Nemeth et al, 2004). Adequate conflict and debate can help company to create new capabilities by gathering diverse ideas that reflect multiple opinions to generate new options which could help company out of the old practices (Mitchell 2009). In a conflicting climate, people may be driven to strive finding the argument to support his or her own position, therefore, they need to concern the all-around of his or her opinion, or otherwise, they will lose their argument. However, the conflict and debate only can be effective in an organisation with open and collaborative climate; otherwise, the conflict and debate will generate negative effect such as personal insult and attack (Tidd & Bessant, 2009). 3M has recognized the utility of conflict in organisation can help creative thinking. In 3M, once an innovative idea came out, a conflict-free gestation and critical discussion are necessary before it is turned into an actual business product.

6.5 Risk Taking

Risk taking refers to the tolerance of uncertainty and unknown situation in an organisation (Tidd & Bessant, 2009). Risking-taking is one of the important ways to creative performance, because it can make good use of the opportunities for creativity-relevant resources on experiments, without experimenting things, there will be no inventions. In an organisation with high risk-taking culture, people will be rather free to try their new ideas without fear of the possible failure and they are more willing to express their new ideas freely in the first place (Tidd & Bessant, 2009). 3M explicitly implements the strategy to encourage risk-taking and accept mistakes. They value employees who take wise and reasonable risks that helps to keep 3M business viable. 3M encourages employees to focus on solutions rather than placing blame. Under the risk-taking valued climate supported by the leadership, many employees are taking the initiatives, which constantly contribute to the boost of business growth of 3M. Dave Girouard, the President of Enterprise of Google, concedes that not every idea may bear fruit, but says there is an internal formula to assess new ideas. Google has a 70/20/10 model, which is 70 per cent of staff efforts are to be focused on core business, 20 per cent of staff efforts should be focused on related but new areas, and the rest of 10 per cent of staff efforts should reserve for radical ideas, some of which may turn into great advancements and many of which may not even be workable at all.

The above examples of tolerance of wasting company resources on innovative activities, are considered to be successful only with the full supports by innovative leadership, otherwise, a company will never justify wasting resources on non-workable ideas. Only when the leadership is willing to take such risk, then those innovative processes will be allowed in an organisation in the first place.

It should be emphasized that risk-taking has to be performed in a climate with full extent of openness and trust, where staff dare to try new things without the fear of punishment for the failure, or possible defeats and wastes (eg. money, time) during the risk-taking process.

6.6 Freedom

Ashforth and Humphrey (1995) state that freedom means allowing people to use their own consideration to evaluate and respond to particular event and situation during the activities of product and process developments. The freedom in an organisation, concerns whether an organisation can allow its people to decide the process to achieve the specific objectives. Creativity is a result of people where they are free to decide what technique they will use to reach the particular task. This will encourage a sense of motivation to create an ownership of what has been created. Larry Page and Sergey Brin, co-founders of Google Inc, fundamentally believethat staff working on what they choose to work on, what they’re passionate about, have higher productivity than someone, whom is being directed and told what to do. It is a very central motto of innovation at Google.

7. Conclusion

Just as the Apple CEO Steve Jobs said, ‘innovation is about the people…and how you’re led…”. People are the key assets to an innovative organisation. No matter the size of a company, leadership is vital. Without a good leadership, an organisation will fall into chaos. Poor leaderships will have adverse effects on an organisation. Talent is scarce and creative people are highly in demand. Innovative leadership integrates innovation processes with talented people, in another word, to change organisation climate and deploy people to facilitate innovation in organisations through behaviours of leadership, by various leadership styles, or leadership priorities. Being visionary is a typical behaviour of an innovative leader. Innovation leader always has some visions of lifting up prospects of an organisation. In this sense, innovative leaders are necessarily innovators, who facilitate inventions to materialize their visions of better prospect of an organisation. Creating visionary strategy is the fundamental task for an innovative leader that can guide the followers to think and behave in the right direction and can give the organisation a specific goal to achieve. It is up to the innovative leader to set clear and common goals. The defined goals must be unequivocally presented to the followers. An innovative leadership should have a quality of communication and more skills to manoeuvre within an organisation to create a favourable climate for innovation to strengthen the leadership itself. In other words, an innovation leader must be a good communicator, who can get his message across to his/her followers and motivate them to achieve common objectives through some creative processes. To promote innovation within an organisation, the leadership has to facilitate innovations among its people based on trust, support, openness, and risk taking. Since everyone has freedom to express ideas, it is unavoidable to have conflict between leadership and employees. Innovative leadership should be capable in turning debates to stimulation of innovative ideas and thoughts, at the same time, preventing and protecting employees from personal abuses. By doing things differently or in an unconventional way, an innovation organisation truly differs from other ordinary organisations. It is an encouragement for the followers that if the leader’s behaviour is innovative. Within a group of people, most people imitate the behaviours of their leaders. The linkage between the role model and follower’s creativity is that the more creative behaviours the leader performs, the more creative their follower can produce in return. The successful innovations will also bind more followers to the leadership because of its respective contributions for innovation, or in other words, to encourage the innovation leadership and the innovative organisation to seek more innovative successes in the future. This cycle will further enhance intrinsic organisational climate for more innovations in order to facilitate competitive advantage and sustainable growth for the innovative organisation.

References:

Ashforth, B.E., & Humphrey, R.H.,(1995). Emotions; Organisational-behavior; a reappraisal, Human Relations 48 (1995), pp. 97-125

Ashkanasy, N.M., Wilderom, C.P.M., & Peterson. M.F. (2000). Handbook of Organisational Culture & Climate. London, Sage publications, Inc.

Bass, B. M. & Riggio, R. E., (2008). Transformational leadership. New Jersey, Lawrence Erlbaum Associates, Inc

Carmeli, A., & Schaubroeck, J., (2007). The influence of leaders’ and other refer