The influence of leadership on product and process innovations in China: The contingent role of knowledge acquisition capability
Introduction
Innovation is widely regarded as a powerful driver of competitive advantage and business growth (Ar and Baki, 2011, Dess and Picken, 2000), particularly in markets characterized by rapid technological change, dynamic uncertainty and intense competition (Hult, Hurley, & Knight, 2004). Firms seek to survive and grow through innovation, especially in emerging economies (Iyer, LaPlaca, & Sharma, 2006). The fact that the Chinese government considers innovation-oriented development as a key strategy to modernize its economy underscores the importance of innovation in China. Effective leadership facilitates innovation and competitiveness, and is regarded as an important driver of sustainable business growth in emerging markets (Chen, Lin, Lin, & McDonough, 2012). In Chinese firms, leaders play a critical role in the success of their organizations because they are more autocratic and powerful than business leaders in developed countries (Casimir & Waldman, 2007). Therefore, it is important to examine how leadership influences business innovation in China.
Existing studies have examined the antecedents of innovation primarily through three theoretical lenses: leadership quality by the upper echelon theory; managerial factors by the dynamic capability theory; and the business process by process theory (Crossan & Apaydin, 2010). A close examination reveals several limitations in this literature on innovation.
First, existing studies are mainly focused on identifying the determinants of product or service innovation (Atuahene-Gima, 1995, Zhou and Wu, 2010). Despite the fact that a firm's competitive advantage over time depends on both product and process innovations, less attention has been given to the dynamics of process innovation (Damanpour & Gopalakrishnan, 2001). Product innovation refers to the new products or services introduced into the market for the purpose of satisfying customers' wants and needs (Barras, 1986), while process innovation refers to new elements (e.g. new management approaches, production methods and new technologies) introduced into organizations' production and management operations (Ettlie and Reza, 1992, Gopalakrishnan et al., 1999). As the outcome of process innovation is less tangible and less visible to customers, firms tend to overlook the critical role of process innovation (Gopalakrishnan et al., 1999). However, process innovation is just as important to an organization's success as product innovation. On the one hand, process innovation enhances a firm's ability to exploit, maximize, and reconfigure resources and capabilities (Gopalakrishnan et al., 1999), which makes it a critical source of competitive advantage. On the other hand, both product and process innovations have significant implications on a firm's marketing strategy (Gopalakrishnan et al., 1999). While product innovation supports market differentiation strategies, process innovation reduces costs and enhances production efficiency. Given the importance of both types of innovation, we employ a comprehensive perspective by simultaneously examining product innovation and a relatively under-researched form of innovation, process innovation.
Second, although both transformational and transactional leadership enhance innovation (e.g., Eisenbeiss et al., 2008, Elenkov and Manev, 2005, Gumusluoglu and Ilsev, 2009, Howell and Avolio, 1993), their effectiveness on product and process innovations may differ. Transactional leaders attempt to enhance innovation and manage leader–follower relationships by focusing on exchanges and contingent reward behavior, and by paying close attention to deviations, mistakes, and corrective actions (Bass, 1985, Waldman et al., 2001). Transformational leadership is a style of leadership in which leaders aim to inspire followers by appealing to their high-level needs for self-actualization (Bass, 1985, Vaccaro et al., 2012). Therefore, transformational leadership may stimulate product innovation more effectively than transactional leadership because employees working under a rewards-and-punishment regime (transactional leadership) tend to pursue short-term goals while overlooking the long-term benefits of innovation (Jansen, Vera, & Crossan, 2009). However, transactional leadership may more effectively enhance process innovation by creating an environment of open communication and by increasing employees' compliance with decisions (Elenkov and Manev, 2005, Yukl and Heaton, 2002). Previous studies focus mainly on the effect of transformational leadership on organizational innovation (Chen et al., 2012, García-Morales et al., 2012). This study adopts a comparative approach and clarifies the relative contributions of the two types of leadership on product and process innovations.
Third, both transformational leadership and transactional leadership motivate employees to innovate, with the former stimulating creative behavior (Gumusluoglu and Ilsev, 2009, Jung, 2001) and the latter encouraging compliance behavior (Elenkov & Manev, 2005). Despite the significant influence of leadership on innovation, the single lens of upper echelon theory cannot fully explain the dynamics of innovation (Crossan and Apaydin, 2010, West, 2002). New ideas and knowledge generated by employees are necessary but may not be sufficient for innovation, as successful product development also relies heavily on critical knowledge from the external environment to interpret, deploy, and perfect the existing knowledge base (Verona, 1999). An organization's ability to obtain and utilize external knowledge plays an important role in influencing strategy and performance in an emerging market (Aragón-Correa, García-Morales, & Cordón-Pozo, 2007), because firms in emerging markets often lack the experience or knowledge base to create new knowledge internally. As Ellonen, Jantunen, and Kuivalainen (2011) point out, the ability to innovate is idiosyncratic and firms with stronger capabilities are better able to make use of external knowledge in their internal operations and innovation activities. We thus investigate the role of knowledge acquisition capability, a firm's ability to acquire external knowledge, as a moderator of the leadership-innovation link (Crossan & Apaydin, 2010).
Drawing upon the limitations and the unique characteristics of the Chinese marketplace and commercial organizations in China, we develop a conceptual framework (see Fig. 1) that depicts the interplay between leadership and organizational knowledge acquisition capability. Based on the upper echelon (Hambrick & Mason, 1984) and dynamic capability theories (Teece, Pisano, & Shuen, 1997), we first distinguish between process and product innovations and test the impacts of leadership on them independently. Then we examine the relative effectiveness of transactional and TC leadership on the two types of innovation. Finally, we assess whether the effects of leadership on innovation are contingent on an organization's knowledge acquisition capability. Taken together, this study offers deeper understanding of organizational innovation by examining the relative effectiveness of the two types of leadership and by delineating the boundary condition of their influences on product and process innovations.
Section snippets
Literature review
Schumpeter defined innovation as “the reflection of novel outputs of a new good, a new method of production, a new market, a new source of supply, or a new organizational structure” (Schumpeter, 1934), and suggested that innovation can be classified as product, process or business model innovation. Recently Crossan and Apaydin (2010) developed a comprehensive typology for innovation and refined the definition of innovation as “production or adoption, assimilation, and exploitation of a
Transformational-charismatic (TC) leadership and innovation
Leadership is considered to be one of the most important factors affecting innovation because leaders not only influence organizational characteristics such as culture, strategy, structure, reward systems, and resources (Mumford, Scott, Gaddis, & Strange, 2002), but also motivate creativity in their followers (Gumusluoglu and Ilsev, 2009, Jung, 2001). Moreover, leaders can help create a supportive environment for creativity and innovation and increase creative performance through compensation
Data collection procedures
We chose manufacturing firms in China as our empirical setting. China provides a rich context for this study for two reasons. First, the country's complex and dynamic transitional environment forces innovation to take place at an unprecedented pace (De Luca and Atuahene-Gima, 2007, Zhou and Wu, 2010). To survive and maintain a competitive advantage, firms must not only exploit their existing knowledge base but also continually integrate and develop new knowledge (Li et al., 2009, Zhou and Wu,
Analysis and results
Because the proposed model contains interaction terms between leadership and knowledge acquisition capability, we used hierarchical moderated regression analyses to test the hypotheses. In order to cope with the potential threat of multicollinearity in the regression models, we mean-centered all independent variables and the moderator to create interaction terms (Aiken and West, 1991, Belsley, 1984). The use of the mean-centering technique in reducing essential collinearity in moderated
Discussion
Leadership has been heralded as an important ingredient for organizational revitalization and has been identified as one of the most influential determinants of business innovation (Aragón-Correa et al., 2007, Jung et al., 2003). This study takes a comprehensive approach to examining two types of leadership (i.e., TC and transactional leadership) on two different kinds of innovation (i.e., product and process innovations). We found that TC leadership has a stronger effect on product innovation
Managerial implications
Our study sheds lights on the differing effects of TC leadership and transactional leadership on product and process innovation. In China, leadership is one of the most important factors that drive innovation and business strategies. During an interview, a CEO of a fingerprint lock company in China noted that if a leader does not show any interest in innovation, employees will not be motivated to make changes or to innovate. Leaders are not only role models for employees, but they also create
Limitations and future research
There are several limitations to this study. First, it looks at the effects of two different kinds of leadership on product and process innovation. However, additional organizational and top-management (TMT) characteristics may contribute to different types of innovation. For example, upper echelon theory has identified that TMT's cognitive-based values, career experience, socio-economic roots, education, and group identities have significant influence on a firm's strategic choices, e.g.,
Acknowledgments
We sincerely thank two anonymous reviewers and guest editor Ruby Lee for their insightful comments on earlier versions. The study was supported by a Strategic Research Grant from City University of Hong Kong (Project No. 7008146).
Jeanine Chang is a doctoral candidate at the Marketing Department at City University of Hong Kong. Her main research area is marketing strategy, innovation and corporate social responsibility. Her dissertation examines innovation and channel member cooperation in marketing channels. She has published in Journal of International Marketing and Asia Pacific Journal of Management and she has presented her work at AMA and ANZMAC Conferences.
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Cited by (0)
Jeanine Chang is a doctoral candidate at the Marketing Department at City University of Hong Kong. Her main research area is marketing strategy, innovation and corporate social responsibility. Her dissertation examines innovation and channel member cooperation in marketing channels. She has published in Journal of International Marketing and Asia Pacific Journal of Management and she has presented her work at AMA and ANZMAC Conferences.
Xuan Bai is a lecturer in the School of Business Administration at Southwestern University of Finance and Economics in China. Her research interests include corporate innovation, governance mechanisms, and corporate social responsibility. Her research has appeared in Asia Pacific Journal of Management, Journal of International Marketing, and several academic journals in China such as Management Word, Science Research Management, China Industrial Economics, and China Soft Science Magazine. Dr. Bai is also a frequent presenter at international academic conferences, including AMA and SMS.
Julie Juan Li is a Professor at the Department of Marketing, City University of Hong Kong. Her research interests include interorganizational relationships, international marketing, and knowledge management, with a particular focus on China. She has published in the referred journals such as Journal of Marketing, Strategic Management Journal, Journal of International Business Studies, and Journal of the Academy of Marketing Science.