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International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.

com

A Review on the Role of Managerial Levers in Innovation Management


Suriati Bt Zainal Abidin1 Sany Sanuri Bin Mokhtar2 Rushami Zien Bin Yusoff3 College of Business Universiti Utara Malaysia 06010 UUM Sintok, Kedah Darul Aman, MALAYSIA.
1, 2, 3

ABSTRACT
Managerial levers are essential elements to ensure the synchronization between people and system which would assist in implementing innovation in the organization. Based on the diverse literature, this paper reviews five types of managerial levers: strategy, organization structure, resource allocation, knowledge management and organizational learning and culture. Each lever has its beneficial function to be effectively assist innovation process. Despite the fact that innovation is a dynamic process and involved multi-dimensional factors, the role of managerial levers is considered fundamental building blocks that will shape innovation. This review indicates that managerial levers should be applied side by side in the innovation management in order to ensure that innovation is establish and managed efficiently. Keywords: Managerial Levers, Innovation Management, Innovation Process,

1. INTRODUCTION
Levers are the basic structure of any organization and it must be linked consistently to maximize efficiency (Steward, 2010). It is claimed that seven managerial levers are needed in order to be a strong company: strategy, structure, leadership, information and decision processes, people, culture, reward and incentives (Steward, 2010). In a study of cultivating new mental space for business innovation, managerial levers act as a technique that enable organizations to find new opportunity by adapting to rapid changes (Leibold, Voelpel, & Tekie, 2004). While in a case study of 124 companies in USA, it has shown that structural and skill levers of strategy implementation is proven in building a capable organization (Crittenden & Crittenden, 2008). It has also emphasized that organization need to have a clear understanding of each lever role so that it could really bring impact on organization ability to succeed (Crittenden & Crittenden, 2008).

International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 pp.6-14 Academy of Knowledge Process

Managerial levers facilitate in creating new market or customer, product, service, value chain and capability space (Leibold, et al., 2004) According to Crossan and Apaydin (2010) managerial levers is a

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International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

meta-construct consolidating firm level variables that support innovation. Five types managerial levers used are strategy, structure, resource allocation, organizational learning and knowledge management tool and culture (Crossan & Apaydin, 2010). Innovative organization faced dilemmas such as structure and action, dilemma with opposition of persistence and change or repetition and novelty which appeared as tensions between different time horizons (Chanal, 2004). In this context, managerial levers is used to overcome the innovation dilemmas (Chanal, 2004). The following discussions will describe each of the managerial levers. 1.1Strategy The first managerial lever is strategy. Strategy has been perceived as a continuous management activities (Drejer, 2006; Li, Zhou, & Si, 2010). Indeed, it is an activity the most necessary form of and the foundation for innovation (Ian Steward & Peter Fenn, 2006). Strategy is needed in order to overcome managerial challenge which might arise from potential disruptive with existing resource endowments, capabilities and organizational routines (Blumentritt & Danis, 2006). Strategy is claimed to defined the gaps between the current and desired performance and thus it is vital for innovation in pursuing competitive advantage (Ian Steward & Peter Fenn, 2006). Therefore, the role of innovation and firms innovative target should be linked with the competencies and strategic orientation of particular firm (Blumentritt & Danis, 2006). In fact, a study in manufacturing firms has showed that innovation strategy with formal structure are significant predictors of performance (Terziovski, 2010). Strategy managed to differentiate organizational pattern between the high innovation performance and the less successful ones (Pullen, Weerd-Nederhof, Groen, Song, & Fisscher, 2009). Innovation practices differ among firms with different strategic orientation (Blumentritt & Danis, 2006). For instance, the SMEs firms achieved high innovation performance combine both analyzer (used for incremental innovation) and prospector (used for radical innovation) business strategy (Pullen, et al., 2009).This is because strategy concerned the survival of entire organization and involved large portion of resources and also strategic thinking of tactical level (Drejer, 2006). When discussed the importance of strategy with innovation, Drejer (2006) has come out to define strategic innovation as the ability to create and revitalize the business idea and concept of the company by changing both the market of the company and the competencies and business system of the company. In an empirical study of Taiwanese electronics industry, found that product innovation is strongly related to differentiation strategy while the process innovation was strongly related to differentiation and cost leadership strategies (Liang-Hung & Chun-Hsien, 2008). Empirically, Blumentritt and Danis (2006) indicated that approaches to innovation vary across firms with different strategic orientation and firms strategies played significant role in deciding which to pursue and which to disregard. As mention by Y. Chen and Yuan (2007), a firm needs to seek optimal balance between internal R&D and technology outsourcing when formulating innovation strategy. Innovation which is oriented by strategy is essential in determining organization direction in the long run, generate innovativeness and contribute to the different pattern of innovation orientation (Stock & Zacharias, 2011). For instance, it is found that innovation orientation of strategy contributed high scores to integrated innovator and top-down innovator while scored low to the internally driven and proactive customer innovator type (Stock & Zacharias, 2011). In a case study of Chinese firms, Q. Xu, Liu, and Chen (2002) have argued the use of knowledge strategy to be integrate with technological innovation to ensure companies effective and efficient. This is important due to the fast changing environment and firm need to articulate knowledge strategy to stimulate innovative activities (Xu, et al., 2002). Various elements and measures are used to represent strategy in relation to innovation study. A study of 600 Australian small and medium enterprises of manufacturing sector, the innovation strategy has emphasize on vision or mission, strategic goals, increase in production, customer satisfaction, administrative, employee skill and employee commitment (Terziovski, 2010). While Stock and Zacharias

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International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

(2011) has used strategy that is first to entry product and services into the market and product offering that will increase the performance. Blumentritt and Danis (2006) used business strategy type (marketing, R&D, project based, new lines of product or service, deal with competitors, managing procedures and firm activities). In a study of different innovation outcome between radical and incremental, Ettlie, Bridges and O'Keefe (1984) utilized the organization strategy to describe the innovation process. Technology Policy is the strategy measure for radical innovation and market dominated growth, diversification and organization size are strategies for incremental innovation (Ettlie, et al., 1984). Sahu (2004), revealed the use of strategy focused product innovation process through several process such as product mobilization through leadership, product development, aligning product design and development into product innovation, make product innovation strategy in every engineers job and as continuous process. Liang-Hung and Chun-Hsien (2008), indicates the use of corporate strategy (differentiation and cost leadership) used to enhance innovation process. In this context, differentiation strategy focus on creating new market by providing new products while cost leadership strategy focused on low cost and efficient production (Liang-Hung & Chun-Hsien, 2008). 1.2Organization Structure The second managerial lever is structure. The structure of an organization concerned about the way employee are grouped and work and thus organization should provide sufficient freedom for creativity, control to manage innovation efficiently (Adams, Bessant, & Phelps, 2006). According to the organizational theory, it is about distribution of tasks, responsibilities and power to determine organizations standardization, complexity and the extent of centralization role (Shen, Xu, & Shu, 2010). Structure can be modified to impact innovation inside organization and it assists to set balance between idea generation and implementation (Prakash & Gupta, 2008). Structure relates the way of various parts of organization are configured with organizations ability to manage innovation (Smith, Busi, Ball, & Meer, 2008). An organizational structure can differentiate between innovative and non innovative organizations (Adams, et al., 2006). Innovative firms should transform the organizational structure to motivate employee creativity, boosting innovative culture and set a standard base on innovation process (Wichitchanya, Durongwatana, & Vadhanasindhu, 2012). Conceptually, organizational structure influence the ability to manage innovation through its direct relationship with employee (Smith, et al., 2008). This is done through an organized formality of teamwork with collaborative organizational culture (Smith, et al., 2008). It is found that internal organizational structure conditions of centralization and connectedness facilitate the innovation at firm level (Chang, Hughes, & Hotho, 2011). Structure and system factors comprise of the administrative intensity of the organization (Damanpour, 1991). Among them are specialization and centralization, formalization and type of innovation (Damanpour, 1991) . In a study of the role of organizational structure towards product innovation capabilities, the effect of radical product innovation capability on new product performance is insignificant under a formal structure, while the effect is positive under the informal structures (Menguc & Auh, 2010). However, incremental product innovation has a positive effect in the formal structure and negative effect in informal structures (Menguc & Auh, 2010). Empirical evidence by the work of Terziovski (2010) indicates that a formal structure combined with innovation strategy are significant predictors to organization performance. Several items used to measure this formal structure stressed on the allocation of resource within the cross functional teams, monitoring system by the employees, facilitation of formal communication by managers, procedures and flat structures (Terziovski, 2010). This is indeed supported that by the evidence that organizational formalization accelerate the positive effect of bottom-up learning on the incremental innovation because employee focus more on the dynamic change of the job (Wei, Yi, & Yuan, 2011). While Stock and Zacharias (2011) revealed that the structure of innovation orientation in an organization depended on a specific unit who in charge of innovation have the competencies, sufficient resource and clearly regulated.

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International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

In a study to explore relationship between organization structure and perceived innovation of India manufacturing sector, five components of structure are use as the measures: vertical complexity, horizontal complexity, formalization, centralization, concentration of authority and participation indecision making (Prakash & Gupta, 2008). A positive relationship were established between horizontal complexity, formalization, participation in decision making and innovation, however negative relationship between centralization structure and innovation (Prakash & Gupta, 2008). In order to increase the number of innovations, Prakash and Gupta (2008) suggested to focus on the participation in decision making, decentralization through staff empowerment and informal network within the organization. Similarly, in the logistic service innovation, the decentralization and formalization structure showed a positive relationship whereas the specialization structure showed negative relationship (Daugherty, Chen, & Ferrin, 2011). Due to the rapid development of information technology and to recapture competitiveness in serviceenhance manufacturing firm, Shen, et al., (2010) has proposed four dimensions for its organizational structure: self-management, interdependence, centralization of power and boundary infiltration. This new dimension is proposed because it is argued that production based is no longer a traditional manufacturing companies and thus, they need to change the new organizational structure to meet the new economy (Shen, et al., 2010). Nevertheless, the role of organizational structure is open for arguments. It is noted that competitiveness issue is also related to the environment factor. Therefore, organizational structure need to balance the demands for efficiency and flexibility in the high technology firms where it is needed to facilitate innovation and adapt the dynamic change of environment (Sholes, Barnett, & Utley, 2011). Organization that is operated in a stable environment in terms of demand, competitors, low level product change is best suited by centralized decision making, formal job description and, emphasis on chain of command and well process control (Sholes, et al., 2011). On the other hand, decentralize structure is suited for the dynamic, complex technologies and competitive instable environment (Sholes, et al., 2011). Since decentralized structure focus on goal specification to allow increase in rates and intensity, its promotes proactive adaptability and innovation. The situations also differ from the perspective of innovation types. For instance, technological innovation which is more complex process is affected by the R&D level, managerial ability and investment need a structure that have rules and regulation that encourage creativity, self-directed work and learning, few layers of hierarchical to enable quick response, high level of horizontal integration to increase knowledge transfer, decentralized decision making and high level of vertical and horizontal communication to ensure action (Shi & Xin, 2006). Although few layers hierarchical is better, organization also need to flat organization so that it could made close contact among employees, department and top management (Wichitchanya, et al., 2012). 1.3Resource Allocation Consequently, the third managerial lever is resource allocation which is also important in innovation management. According to Lau, Yam and Tang (2010), resource allocation capability is referred to firms ability to mobilize and expand its technological, human and financial resources in the innovation process. It is found that resource allocation has improve the performance rate of new product which contribute to the technological innovation capabilities of an organization (Lau, et al., 2010). Besides, resource allocation is also interdependence with business models and knowledge creation and this has made the innovation knowledge-intensive environment is depended upon resource allocation as one of the important lever (Grand, Krogh, Leonard, & Swap, 2004). The importance of resource is proven by a study conducted in small medium enterprise in Malaysia where firm resource drive product innovation performance (Bakar & Ahmad, 2010). 1.4Knowledge Management and Organizational Learning The fourth managerial lever is knowledge management and organizational learning. Knowledge management is identified as an important antecedent of innovation (Darroch & McNaughton, 2002). Knowledge management is closely related to organizational learning initiatives (Mundra, Gulati, &

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International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

Vashisth, 2011). This is because an organizational learning process involved high degree of parallelism and depended on the knowledge based of organization (Weerd-Nederhof, Pacitti, Gomes, & Pearson, 2002). According to Garca-Morales, et al., (2006), organizational learning and innovation is positively related to organizational performance. Even, in a study of cultural organization, learning orientation influences innovativeness and performance (Garrido & Camarero, 2010). Due to the broad process of innovation, the learning has enables the implementation of new idea, product and process, new management styles in communication and marketing, organizational structure and relations with clients (Garrido & Camarero, 2010). The impact of learning orientation is studied through three dimensions: commitment to learning, an open mind and a shared vision. Similarly, Phromket and Ussahawanitchakit (2009) has also found that organizational learning have positive effect on innovation outcome and export performance. In the study, organizational learning comprise of unique knowledge establishment, useful knowledge integration, holistic knowledge expansion and effectively knowledge utilization (Phromket & Ussahawanitchakit, 2009). Four processes integrally linked organizational learning : Information acquisition, information distribution, information interpretation and organizational memory used as tool for improvement (WeerdNederhof, et al., 2002). In a study to foster innovation, organizational learning is found to be a significant antecedent effect on performance (Jimenez-Jimenez, Vall, & Hernandez-Espallardo, 2008). According to this author organizational learning is a process to develop new knowledge and insight from people common experiences within organization and it also include four processes such as knowledge acquisition, information distribution, information interpretation and organizational memory (JimenezJimenez, et al., 2008). Plessis (2007), defined the value proposition of knowledge management in innovation process as assist in creating tools, platform and processes for tacit knowledge creation and sharing, converting tacit knowledge to explicit knowledge, facilitates collaboration in the innovation process, ensures the accessibility of both tacit and explicit knowledge in innovation process, flow of knowledge, integration of organizations knowledge base, identify gaps in the knowledge, building competencies, provide organizational context, gathering explicit and tacit knowledge and provide knowledge-driven culture. As noted in the previous section, innovation process involved a dynamic form of activities. Therefore, knowledge management is much needed in this phase such as knowledge creation and knowledge sharing on the innovativeness of the firm (C.-J. Chen, Huang, & Hsiao, 2010). The study showed empirical evidence that knowledge management is positively related to firm innovativeness; however it is moderated by organizational structure. Employees are incline in managing knowledge and translated new knowledge when the structure is less formalized, less centralized and more integrated (C.-J. Chen, et al., 2010). Apart from being direct influence on innovation, knowledge management is crucial as mediating role when examined the relationship between social interaction and innovation performance (Jing-Wen Huang, 2009). However, the dimensions only focus on knowledge acquisition, knowledge sharing and knowledge application (Jing-Wen Huang, 2009). According to Adams, et al., (2006) , there are three areas within the knowledge management that is important for innovation management: idea generation, knowledge repository (including implicit and explicit knowledge), and information flows (information gathering and networking. Besides, knowledge management orientation comprise of knowledge acquisition, knowledge dissemination and responsive to knowledge (Darroch & McNaughton, 2002). In a study to examine the relationship between knowledge management practices and types of innovation, it has postulated that incremental innovation came from firms that sensitive to information about marketplace and responded to knowledge about technology. While radical innovation came from firms developed innovation that change consumer behavior (Darroch & McNaughton, 2002).

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International Journal of Contemporary Business Studies Vol: 3, No: 6. June, 2012 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

1.5Culture The final managerial lever is culture. Organizational culture includes shared vision where clearer vision would act as effective facilitator to innovation (Adams, et al., 2006). In fact, culture brings values and beliefs, attitudes and experiences which is shared by personnel in organization (Kanchan & Gupta, 2009; Martins & Terblanche, 2003). In order to influence creativity and innovation, culture is influenced by several determinants such as strategy, structure, support mechanisms, behavior, and open communication (Martins & Terblanche, 2003). Culture also reflect a degree to which values, norms and artifacts support the organizations innovativeness (Stock & Zacharias, 2011). Thus, it is noted that organizational culture will push organizational members towards creating innovation mentality (Stock & Zacharias, 2011). According to Ahmed (1998), culture has multiple elements which could enhance of exhibit tendency to innovate. He pointed that culture should not be isolated and need to match with organizational context. Thus, balance and understanding of context is important because culture with strong drive towards innovation could lead to problems when market circumstances and customer requirements demand predictability and conforming to specifications (Ahmed, 1998). Implementing innovation in the organization would accommodate risk of failure and uncertainty, Therefore, Kanchan and Gupta (2009) has suggested to change the corporate culture which is important to have a set of understanding that people of an organization share in common. In this context, several criteria have been highlighted to change corporate culture include: committed in becoming innovative organization through informed decision and investment, consistent communication, physical and organizational support, stimulating environment, encouragement for innovation and compensation (Kanchan & Gupta, 2009). These criteria shared similar arguments by previous scholar, Madan (2000), which added the importance of the leadership role of top management values, attitudes and leadership style. There is also other approach to indicate that culture is an operating mechanism to support innovation. For instance, culture field concept is proposed to promote innovation through climate style management entity (Qingrui, Ling, & Zhangshu, 2003). In this approach, firm need to cultivate employee individual innovative ability so that their firm will form core competencies in all elements of innovation (Qingrui, et al., 2003). An empirical findings on innovation in SMEs has proven that general organization culture and specific organization culture with regards to innovation projected good impact on innovation levels (Kenny & Reedy, 2006). General organization culture is the familiarity of mission statement and R&D aspects of the company while specific culture of innovation were the innovation strategy, type of innovation engaged, drivers and constrains of innovation (Kenny & Reedy, 2006). It is noted most authors have stress on the importance of innovative culture due to the innovation activities as a method of competitive differentiation and ways of customer value creation. For that matter, Dobni (2008) has empirically presented innovation culture constructs based on seven factors: innovation propensity, organizational constituency, creativity and empowerment, market orientation, value orientation and implementation context. In a study of product innovation, it is found that companies should foster cultures with external and flexibility orientation and culture is also act as determinant to innovation strategy (Julia C. Naranjo Valencia, Valle, & Jimenez, 2010). Thus, hocratic cultures (emphasizes flexibility and change) could enhance the development of new products or service while hierarchical cultures inhibit product innovation (Julia C. Naranjo Valencia, et al., 2010). Organization that implemented both radical and incremental innovation is found to have culture that cultivate learning and knowledge sharing contributed significant relationship into innovation (Lin & Edward F. McDonough III, 2011). Besides, innovation culture which is promoted in the organization would depended on the right types norms which is widely shared and activate creativity (Ahmed, 1998). These norms include challenge and belief in action, freedom and risk taking, dynamism and future orientation, external orientation, trust and openness,

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debates, cross functional interaction, myths and stories, leadership commitment, rewards, innovation time and training, corporate identification and unity and organizational structure (Ahmed, 1998).

2. CONCLUSION
In conclusion, the above reviews have showed that managerial levers is one of the important essentials in determine the success of innovation implementation. Five managerial levers (strategy, organization structure, resource allocation, knowledge management and organizational learning and culture) as mentioned earlier have their own strength in assisting innovative performance in organization and it seems that those five are interrelated and supported each other (Smith, et al., 2008). For instance, structure configured organization to operate effectively and strategy is implemented through the structure (Crittenden & Crittenden, 2008). In fact, culture has acted as the key factor of innovation management because it impact other levers and also impacted by changes of other levers (Smith, et al., 2008). In fact, the role of knowledge management and also organizational learning is also related to each other. Thus, this paper proposes, the task of those levers would drive the innovation process of organization. Furthermore, the use of managerial levers would be in line with the theoretical perspective as innovation process interlink with the resource view and capability view (Muller, Valikangas, & Merlyn, 2005).

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