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Organizational wisdom practices and firm product innovation

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Abstract

The manner in which organizational wisdom-related variables or practices (e.g., reasoning, intuition, virtue, prudence, and aesthetics) are related to firm product innovativeness, and financial performance is rarely addressed empirically in the management literature. By studying 202 Turkish firms and employing both structural equation modeling analysis and fuzzy set qualitative comparative analysis, this study demonstrates that (a) aesthetic practice is a core antecedent of firm product innovativeness, (b) intuitive practice has an inverted U-shaped relationship with firm product innovativeness, and (c) different combinations of organizational wisdom practices are indeed related to firm product innovativeness. This study also shows the mediating role of product innovativeness partially based on the relationship between wisdom practices and firm financial performance. In addition, this study demonstrates that environmental uncertainty is positively associated with virtuous and prudent practices.

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Notes

  1. In their conceptual study, after reviewing the individual-level wisdom (psychology) literature and philosophical arguments, McKenna et al. (2009) suggest that individual (managerial) wisdom can be evaluated using five principles. We modified their recommendations by transforming these principles into practices, which as a principle is not a variable. Here, practice refers to established systems and behaviors that people have developed over time to be able to do their jobs/duties in the organization (Morita and Flynn 1997). We also renamed some of these principles to fit them into a business context. For instance, practicality principles (or phronesis) are mostly called prudence in the business literature. Further, we used functional interpretations rather than homomorphic conceptualizations of these principles at the organizational practice level. For example, even though individual and organizational intuitiveness have certain common properties, each variable does have a different definition and operationalization process.

  2. Here, we illustrate the difference between stocks and flows using Dierickx and Cool’s (1989) “bath tub” metaphor. When considering research and development (R&D), they mention that the amount of water in the “tub” (a metaphor) shows the stock of know-how at a specific moment in time (i.e., knowledge), whereas current R&D spending is demonstrated by the water flowing in through the tap, while depreciated know-how over time is represented by the degree of flow of water leaking through a hole in the tub. While flows can be adjusted promptly (i.e., wisdom), stocks (i.e., knowledge) cannot. It takes a consistent pattern of flows of resources to accumulate a desired change in strategic asset stocks (e.g., organizational capability). Within this perspective, a firm’s current strategy involves choosing optimal time paths for flows (i.e., wisdom, or wisdom as an organizational competence), whereas the firm’s competitive position and hence potential profitability are determined by the level of the stock (i.e., knowledge).

  3. In the literature, the term “aesthetics”, as influenced by art, is defined as that set of principles concerned with the nature and appreciation of beauty (Strati 1999). At the organizational level of analysis, the term mostly relates to the sensory knowledge and the felt meaning of objects/artifacts (a firm’s visual output viewed in the form of packaging, logos, trade names, company uniforms, and buildings) and experiences (e.g., a deliberate marketing strategy, such as the extent to which a company’s products are styled and made fashionable) (Dickinson and Svensen 2000). However, some researchers have avoided relegating the aesthetic idea to only the concept of beauty or organizational artifacts (a created design, product, or process) (Ramirez 1996). In particular, some researchers, being influenced by the post-modern view of management, have indicated that the aesthetics is concerned with questions, such as what is enjoyable and why, and linking design and art to objects, structures, experiences, and even “language” (Thyssen 2010). These researchers are interested in the ways in which aesthetic considerations can be instrumental when designing better organizational processes and practices, as well as crafting beautifully designed communication. Thus, art involves the aesthetics, but it also involves actual interactions (Ramirez 1996), or conversations with others (Adler 2011).

  4. In the POS literature, researchers have argued that the concept of organizational virtuousness as “a capacity, an attribute, and a reserve in organizations that lead to the demonstration of positively deviant behavior” (Cameron and Caza 2002, p. 35). Here, positive deviance moves an organization from focusing solely on profit, efficiency, and reliable performance to extraordinary, flawless, generous, and benevolent behaviors that can benefit all stakeholders and the entire community (Cameron and Caza 2002). In a sense, organizational virtuousness examines how organizations do become exceptional and virtuous rather than only emphasizing their deficiencies (Cameron and Caza 2002). Aside from the POS perspective, the concept of virtue has also been argued from the ethical and justice perspective, a view that fits the organizational wisdom context due to its philosophical roots (Cugueró-Escofet and Fortin 2014). From this perspective, people will behave responsibly and engage in pro-social behavior based on the ethical concerns (Batson et al. 1995) that the POS literature has mostly ignored. Also, in this view, people focus on “doing good” in a continuous manner, as found in Aristotelian virtue ethics (Fowers 2003), unlike the organizational virtuousness in the POS literature that fosters certain actions because they are “the right thing to do” (Bright et al. 2006), but without developing a substantial or precise concept of what is good.

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Appendix: Measures

Appendix: Measures

Organizational wisdom

Reasoning practice (New; developed from Michaels et al. 2006; Rooney and McKenna 2007, 2008; Miller and Lin 2015).

RP1: People are able to formulate and understand logical arguments based on sound propositions about business, the environment, and organization-related issues and activities in our organization.

RP2: People question the knowledge inherent in propositions about business, environment, and organization-related issues and activities in our organization.

RP3: People are occasionally skeptical of the “facts,” orthodoxy, and “common sense” related to business, environment, and organization-related issues and activities in our organization.

RP4: People focus at the right level or aspect by choosing what “facts” are most salient in a given situation in our organization.

RP5: People filter and interpret the noise within our organization and determine the salient points on which to act.

RP6: People use reason and careful observation about business, environment, and organization-related issues and activities in our organization.

RP7: People make careful observations to establish facts and logical deductive explanations about business, the environment, and organization-related issues and activities in our organization.

RP8: People evaluate the salience and the truth-value of logical propositions about business, the environment, and organization-related issues and activities whenever applying reason to decision-making in our organization.

Intuitive Practice (New; developed from Sinclair and Ashkanasy 2005; Rooney and McKenna 2007, 2008; McKenna et al. 2009).

IP1: People use insight, imagination, and foresight to reach a consensus on what the facts and the evidence are in our organization.

IP2: Sensate or “gut” level intuition is perceived as valuable when making judgments in our organization.

IP3: People are able to draw on wisdom traditions by reflexively considering issues from a cultural-historical perspective in our organization.

IP4: People acknowledge the sensory and visceral as important components of decision-making and judgment in our organization.

Virtuous practice (New; developed from Batson et al. 1995; Rooney and McKenna 2007, 2008; McKenna et al. 2009).

VP1: People are concerned about the role of ethics and virtue in our organization.

VP2: People have an ethical mindset in our organization.

VP3: People demonstrate ethical judgment in our organization.

VP4: People see others’ actions as noble and worthwhile.

VP5: People are concerned about others, are thoughtful and fair, admit their mistakes, and learn from them in our organization.

VP6: All organizational processes are infused with value that goes beyond the technical requirements of the task at hand in our organization.

VP7: People produce virtuous and tolerant decisions in our organization.

Prudent practice (New; developed from Nonaka and Toyama 2007; Rooney and McKenna 2007, 2008).

PP1: People acknowledge that decision-making is contingent and rarely involves applying absolute principles in our organization.

PP2: People know when and how to apply absolute principles to any complex and fuzzy reality in our organization.

PP3: People have rich factual knowledge about their areas in our organization.

PP4: People are able to deliberate well about what is good and expedient for themselves in our organization.

PP5: People and their actions are practical and oriented toward everyday life while at work.

Aesthetic practice (New; developed from Gagliardi 1996; Rooney and McKenna 2007, 2008).

ACP1: People can articulate their insights to others in our organization.

ACP2: People have communication skills in our organization.

ACP3: People have sensitivity and an ability to interact with others all the time and continually pick up clues and new meaning from these interactions.

ACP4: People are be able to relate to other people in a way, so they can better apprehend and comprehend another person’s often unarticulated beliefs, attitudes, values, knowledge, and understanding, as well as their capacities and incapacities.

Firm product innovativeness (Adopted from Wang and Ahmed 2004).

Our new products and services are often perceived as very novel by our customers.

New products and services in our company often put us up against new competitors.

Our company has introduced more innovative products and services during the past five years when compared to our competitors.

Our company is faster at bringing new products and services to market when compared to our competitors.

Our company has a higher success rate in new product and service launches when compared to our competitors.

Firm financial performance (Adopted from Ellinger et al. 2002; York and Mire 2004).

When compared to our competitors, we have greater:

Market share.

Sales.

Profitability (%).

Earnings.

Environmental uncertainty

It is hard to know our customers’ needs.

It is hard to understand our competitors’ strategies.

It is hard to predict our competitors’ product announcements.

It is difficult to acquire technology.

Marker variable—psychological resources (New; developed from Hannah et al. 2009)

To what extent do people have the belief that “we have capacity” and “capacity makes a difference” in your organization.

To what extent do people in your organization have beliefs and trust in your capabilities.

To what extent does your firm highlight the importance of hope feel optimism about your activities and behaviors.

To what extent do your people have the capacity to adapt and survive by changing their non-essential attributes and rebuilding themselves when exposed to a shock or stress in your organization.

To what extent do your people have the ability to mobilize their motivation, cognitive resources, and courses of action when needed to meet the key situational demands of your organization.

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Akgün, A.E., Keskin, H. & Kırçovalı, S.Y. Organizational wisdom practices and firm product innovation. Rev Manag Sci 13, 57–91 (2019). https://doi.org/10.1007/s11846-017-0243-2

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