~ Pergamon

Omega, Int. J. Mgmt Sci. Vo|. 24, No. 6, pp. 631-647, 1996
Copyright 1996 Elsevier Science Ltd
Printed in Great Britain. All rights reserved
S0305-0483(96)00031-X 0305-0483/96 $15.00 + 0.00
Organizational Innovativeness: Exploring
the Relationship Between Organizational
Determinants of Innovation, Types of
Innovations, and Measures of
Organizational Performance
A SUBRAMANI AN
University of Missouri, St. Louis, USA
S NI LAKANT A
Iowa State University, Ames, USA
(Received September 1995; accepted after revision June 1996)
This research study examines the relationships between innovativencss of firms, their organizational
characteristics, and organizational performance. Previous studies that have examined these
relationships have yielded conflicting results. A fundamental assumption of this research is that these
conflicting results may be due to a narrow definition of the construct of innovativeness. This research
demonstrates that by using a multidimensional measure of innovativeness, the reasons for the
conflicting findings of past research becomes evident. The results of this study show that substantive
relationships do exist between organizational factors, organizational innovativeness, and
organizational performance. These relationships, however, are complex, and can only be detected if
innovativeness is measured as a multidimensional construct. Each of the organizational factors
examined in this study showed significantly different effects on each dimension of two types of
organizational innovativeness - - technical and administrative innovativeness. Further, the results show
that innovativeness does improve organizational performance. However, each dimension of the two
types of innovativeness affects different aspects of organizational performance. Copyright 1996
Elsevier Science Ltd
Key words--innovation, management, management of innovation, organizational studies,
measurement, methodology
1. I NTRODUCTI ON 1.
THE STUDY OF INNOVATIONS is a multidisci-
plinary effort. I nnovation research has been
conducted in disciplines such as anthropology,
sociology, education, etc. Researchers in the
business administration discipline have also
focused efforts in this area of research. In this
discipline two maj or schools of innovation
research can be identified:
631
Researchers in areas such as marketing
are primarily interested in understanding the
causes of innovative behavior of consumers.
In other words, the unit of analysis is the in-
dividual consumer. Consumers who display
a consistent tendency to buy new and inno-
vative products are the target of this research
because it is believed that these consumers
are opinion leaders, and they significantly
influence the buying behavior of other
632 Subramanian, Nilakanta--Organizational Innovativeness
non-innovative consumers [4]. Marketers are
motivated to identify the characteristics of
these innovative consumers so that the
effectiveness of marketing strategies may be
enhanced by focusing marketing efforts on
these innovative consumers.
2. Researchers in areas such as organizational
theory and strategic management use the
organization as the unit of analysis. Research
in this domain is, primarily, interested in the
organizational characteristics of innovative
organizations--i.e, organizations that con-
sistently adopt innovative products and
processes, and the effect of the adoption of
innovations on organizational performance.
This is because it is believed that the adoption
of innovations galvanizes an organization and
leads to better organizational performance.
The implicit assumptions of this body of
research are:
a. Innovation adoptions are organizational
responses to external environmental
changes. Proponents of the contingency
theory believe that an organization's
external environment is uncontrollable. In
order to be successful an organization
must adapt to the changing environmental
conditions by altering its organizational
characteristics such as its structure or its
processes [23].
b. The adoption of innovations by an
organization is a consequence of strategic
initiatives proactively pursued by decision
makers in the organization. Proponents of
the strategic choice theory believe that
organizations do not merely react to
external environmental changes instead
they proactively take strategic actions that
change the environment [6]. Much of the
research in strategic management is based
on this assumption.
c. The adoption of innovations is desirable.
Innovations energize the adopting organ-
izations and enhance their organizational
performance [16].
d. Innovative organizations have identifiable
organizational characteristics that dis-
tinguish them from their non-innovative
counterparts [9].
This study contributes to the second category
of research which employs organizations as the
units of analyses. The first step in all research
studies in this category is the identification of
innovative firms. The categorization of an
organization as innovative or non-innovative
depends on the definition of innovativeness
adopted by the researchers. Thus, some studies
categorize firms as innovative firms if they adopt
an innovation earlier than the majority of their
counterparts in the industry. Hence, the time of
adoption of an innovation determines the
innovativeness of a firm [37]. Other studies view
adopters of innovations as innovative firms and
non-adopters as non-innovative firms. This
rationale is based on the assumption that
any new product or process adopted by an
organization represents an innovation to the
organization, regardless of how many other
firms in the industry have adopted it earlier.
Therefore, the firm that adopts a new product
or process is considered to be innovative [8].
In these types of studies, innovativeness is
determined by the number of innovations
adopted by firms.
The objective of this study is to examine the
relationships between innovativeness of firms,
their organizational characteristics, and organ-
izational performance. Past research that has
examined these relationships, has yielded con-
flicting results. This research is motivated by our
belief that these conflicting results could be due
to weaknesses in the measurement of innova-
tiveness. We believe that a measure that rectifies
these weaknesses, would be able to better
explain the variability in the results of past
research. Specifically, the objectives of this
research are:
1. To reconceptualize innovativeness as a
multidimensional construct. Further, this
study extends previous research by examining
the influence of organizational characteristics
such as organizational size, organizational
structure, and organizational resource slack,
on each dimension of innovativeness.
2. To examine if there are differences in the
influence of the above stated organizational
characteristics on technical innovativeness
and administrative innovativeness. In other
words, to study if the dimensions of technical
innovativeness are influenced by a different set
of organizational characteristics than are the
dimensions of administrative innovativeness.
3. To examine if the above stated types of
innovativeness are associated with different
Omega, Vol. 24, No. 6 633
types of measures of performance. Specifi-
cally, to determine if t he two types of
innovativeness have different impacts on the
effectiveness and efficiency of organizations.
2. PREVI OUS RESEARCH
Innovation adoption research can be divided
into two major categories. One category of
research is concerned with examining the
process of adoption of an innovation. This
category will, henceforth, be referred to as
'innovation process research'. Another category
of research has focused on the association
between innovativeness of firms, their organiz-
ational characteristics, their external environ-
ment, and their organizational performance.
This category of research will, henceforth, be
referred to as 'innovation variance research'.
2.1. Innovation process research
Research studies in this stream, typically,
examine the diffusion of an innovation in an
industry or market [31]. Research in marketing
in the area of new product diffusion has labeled
early adopters as innovators and those who
adopt innovations later as imitators [4]. In the
fields of organizational theory and strategic
management, the focus is on the identification
of organizational characteristics and processes
that distinguish early adopters of innovations
from late adopters. Early adoption has been
found to be associated with aggressive manage-
ment strategies, frequency of communications
with external sources, decentralized structure,
and perceptions of external environmental
uncertainty [26, 41].
2,2. I nnovation variance research
The focus of this stream of research is not on
the process of innovation adoption. Instead,
research in this stream examines the association
between innovativeness of firms and organiz-
ational factors, external environmental factors,
and organizational performance. The strengths
of the associations are determined by the
amount of variance of the dependent variable
that is explained by the independent variables.
Typically, innovativeness is measured by deter-
mining the number of innovation adoptions
across a cross section of firms in an indus-
try[19]. Innovation variance research has
addressed issues in two major areas. These two
areas of variance research form the basis for the
questions addressed in this study. One area of
research has focused on identifying and
examining the organizational determinants of
innovation adoptions. This research stream has
identified several organizational characteristics
that appear to facilitate the adoption of
innovations. The literature in this area is
relevant to objectives 1 and 2. Another stream
of research has concentrated on examining the
effect of innovation adoptions on organizational
performance. This body of research is relevant
to objective 3.
3. THEORETI CAL FRAMEWORK
The following sections discuss the literature
relevant to each of the stated objectives of this
study, and formulate hypotheses based on the
discussions. First, in Section 3.1 the need for a
multidimensional measure of innovativeness is
identified by highlighting the weaknesses of
measures of innovativeness used by innovation
process researchers and innovation variance
researchers. Subsequently, in Sections 3.2 and
3.3, hypotheses about substantive relationships
between organizational characteristics, organiz-
ational innovativeness, and organizational per-
formance are developed based on the
innovation variance literature.
3.1. Dimensions of organizational innovativeness
Innovativeness, by definition, is an enduring
organizational trait. Truly innovative organiz-
ations are those that exhibit innovative behavior
consistently over time. Any valid measure of
innovativeness must, therefore, capture this
temporal dimension of innovativeness.
In previous studies, innovativeness has been
conceptualized as an unidimensional construct.
Innovation process research studies have em-
ployed the time of innovation adoption as a
measure of innovativeness. Innovation variance
research studies have measured innovativeness
by determining the number of innovation
adopted by a firm [11, 12]. These conceptualiz-
ations and measurements of innovativeness,
used in past research, have a number of
shortcomings:
1. Innovation process research, typically, is
concerned with the diffusion of one or a few
types of innovations. Innovativeness is
634 Subramanian, Nilakanta--Organizational Innovativeness
measured by the time of adoption of an inno-
vation. Because this measure is based on the
adoption of a single innovation (or, at best, a
few) the results are not generalizable to other
innovations. If a firm adopted an innovation
earlier than others, it does not necessarily
mean that it will exhibit the same behavior for
all other innovations. Hence, valid measures
of innovativeness must be based on the
adoption of several innovations [9].
2. Studies that have assessed innovativeness
based on the number of innovation adoptions
have not considered the time of adoption of
each of the innovations. This measure, in
essence, regards adopters of innovations as
innovative firms and non-adopters as non-
innovative firms. By excluding the time of
adoption, however, important differences in a
firm's readiness and propensity to innovate
cannot be determined. This may be a
significant shortcoming because past research
in strategic management has shown that 'first
mover' advantages are real, and significant
competitive advantages may accrue to firms
that innovate earlier than others [28, 29, 40].
3. Almost all studies of innovation adoption
have assessed innovativeness at one point in
time. A notable exception is that of
Damanpour and Evan[13] who measured
innovativeness by determining changes in the
mean number of innovation adoptions over
two periods of time. Because the external and
internal environments of an organization
rarely remain unchanged over time, it is
logical to assume (based on the theories of
contingency and strategic choice) that innova-
tiveness will also change over time. However,
if innovativeness is truly an enduring trait,
innovative firms will remain highly innovative
over time--i.e, innovative firms will display a
consistently high level of innovativeness over
time. This consistency in innovativeness has
been ignored by past research.
Thus, it is evident that innovativeness is a
multidimensional construct. First, any valid
measure of innovativeness must be based on
adoptions of several innovations. Second, in
addition to the number of innovations adopted,
the time of adoption of each innovation must
also be considered. Third, the consistency of
adoption patterns over time must also be
measured i.e. the measure must discriminate
between firms that consistently adopt inno-
vations early (or late) from those that are
inconsistent with respect to the time of adoption
of innovations over time. Firms that adopt a
larger number of innovations consistently
earlier than other firms are more innovative
than the other firms. Therefore, the measure of
innovativeness used in this study encompasses
three dimensions, namely, mean number of
innovations adopted over time, mean time of
adoption of innovations, and the consistency
of the time of adoption of innovations.
3.2. Organizational factors and innovation
The first stream of variance research has
examined associations between levels of innova-
tiveness and organizational factors. The under-
lying assumption of this stream of research is
that organizational innovativeness is facilitated
and influenced by organizational characteristics
such as size, degree of centralization, degree of
formalization, resource slack, degree of special-
ization etc. [21, 22]. Centralization refers to
the centrality of location of decision making
authority. Formalization refers to the existence
of formal job descriptions, policies and pro-
cedures for an organization's personnel.
Specialization refers to the existence of person-
nel with specialized skills in various functional
areas of an organization. Slack resources refers
to the existence of surplus resources that are
available for experimenting with innovations.
Statistically significant associations between the
adoption of innovations and organizational
characteristics have been found [41].
A number of theories have been offered by
researchers to explain the effect of organiz-
ational factors on organizational innovative-
ness. Thus, for instance, there is a widespread
belief that decentralized and informal organiz-
ational structures facilitate innovativeness. The
flexibility and openness of these types of
organizations, is believed to enhance innova-
tiveness by encouraging new ideas. Conversely,
the concentration of power in centralized
organizations is considered to be a major
impediment to the adoption of inno-
vations [I, 5, 36]. High degree of specialization
of individuals within an organization has been
found to facilitate innovation. It has been
hypothesized that a greater variety of specialists
would provide a broader knowledge base in an
organization and increase the cross fertilization
Omega, Vol. 24, No. 6 635
of new ideas [1, 22]. Slack resources are believed
to enhance innovativeness because they enable
organizations to experiment with new products
and processes [32].
This stream of research has, however, come
under criticism because of extreme variances in
the findings of many studies [17, 26]. In a bid to
explain the variation in results, a number of
subtheories of organizational innovation have
been proposed. For example, Daft[7] has
proposed that organizational innovations can
be broadly categorized as technical and
administrative. This is known as the 'dual core'
model of innovations [8, 14]. Swanson [35] in a
recent paper has extended this dual core model
and proposed a 'tri-core' model of innovations.
However, this model is used to describe
information systems innovations. Dewar and
Dutton[15] and Ettlie et al. [18] distinguish
between radical and incremental innovations.
Marino [24] and Zmud [41] distinguish between
the initiation and implementation stages of the
adoption of innovations. A common thread
running through all these subtheories is that all
innovations are not similar, therefore, organiz-
ational characteristics will have different impacts
on different types of innovations. Thus, for
instance, Daft [7] suggests that high formaliza-
tion and centralization facilitates the adoption
of administrative innovations. Conversely, low
formalization and centralization is believed to
facilitate the adoption of technical innovations.
Damanpour[9] found that high levels of
organization resource slack and high levels of
specialization promote the adoption of technical
innovations rather than administrative inno-
vations. Similarly, organizational size has
been found to be significantly correlated with
innovation adoptions. Large organizations tend
to adopt more innovations than their smaller
counterparts [10, 22]. It is believed that this
is because large organizations have greater
resources to expend in the adoption and
implementation of innovations [13].
Consistent with this previous research, this
study proposes that organizational character-
istics such as size, structure, resource slack etc.
may have different effects on organizational
innovativeness. Further, these organizational
characteristics may have significantly different
effects on technical and administrative inno-
vations. As discussed earlier, high degrees of
formalization and centralization are believed to
facilitate the adoption of administrative inno-
vations. Conversely, low degrees of formaliza-
tion and centralization are believed to facilitate
the adoption of technical innovations[8].
Further, past research also suggests that high
levels of organization resource slack, and high
levels of specialization, promote the adoption of
technical innovations, rather than administra-
tive innovations [9]. This leads to the following
hypotheses.
H 1 High levels of centralization and formaliza-
tion will be associated with high levels of
administrative innovativeness.
H2 Low levels of centralization and formaliza-
tion will be associated with high levels of
technical innovativeness.
H3 High levels of specialization will be
associated with high levels of technical
innovativeness.
H4 High levels of organizational slack will be
associated with high levels of technical
innovativeness.
H5 Organizational size will be directly associ-
ated with technical and administrative in-
novativeness.
3.3. Organizational performance and innovation
A second stream of variance research has
examined the associations between levels of
innovativeness and organizational perform-
ance [3]. Compared to the previous stream of
variance research, there are relatively few
studies that have examined the impact of
innovativeness on organizational performance.
These studies have, usually, found that high
levels of innovativeness are associated with high
levels of organizational performance. However,
Damanpour and Evan [13] in their study found
no differences in performance between firms
with different levels of innovativeness. In
another recent study Antonelli [2] found that
late adopters of telecommunications inno-
vations performed significantly better than early
adopters.
In the field of strategic management there are
several studies that have indirectly examined the
impact of innovativeness on organizational
performance. Organizational strategy has been
conceptualized and measured in many different
ways. For instance, Porter [28] has defined three
generic types of strategies--low cost, differen-
tiation, and middle of the road. Miles and
636 Subramanian, Nilakanta--Organizational Innovativeness
Snow [25] have defined four generic types of
strategic orientations adopted by firms--
prospector, analyzer, defender, and reactor.
Venkatraman[39], on the other hand, has
developed a measure of strategy that utilizes an
interval scale variable instead of one that uses
categorical variables to represent strategies.
Regardless of the manner in which strategy has
been conceptualized, innovativeness is con-
sidered to be an integral dimension of
organizational strategy. High levels of innova-
tiveness are representative of aggressive and
creative strategies such as Miles and Snow's [25]
prospectors.
The findings in this area, however, are
equivocal. For instance, Hambrick [20] found
that defenders outperformed prospectors in
innovative as well as non-innovative industries
when cash flow and profitability were used as
measures of performance. When market share
was used as a measure of performance,
prospectors outperformed defenders only in the
innovative industries. Snow and Hrebiniak [34]
found that firms adopting various strategic
orientations can be financially successful.
However, they found that the nature of the
environment affects the relationship between
innovativeness and organizational performance.
Past research studies have employed several
measures of organizational performance. The
dilemma faced by researchers is that no single
measure of performance may fully account for
all aspects of organizational performance [34].
In a bid to address this problem researchers
have resorted to the use of multiple measures of
organizational performance [30]. Some studies
have employed measures such as return on asset
or profitability. However, as noted by Ham-
brick[20], prospectors who are the most
innovative firms in the Miles and Snow
typology, might not have high financial
performance, but are, often, high performers in
the area of market share. Further, past research
has shown that there are distinct categories of
innovations which may have fundamentally
different characteristics e.g. technical and
administrative innovations. These innovations
could affect different aspects of organizational
performance. As organizations become larger,
they may emphasize administrative innovations
more than technical innovations because admin-
istrative innovations enhance coordination [8].
This, in turn, may reduce costs and promote
efficiency. Thus, administrative innovations
may have very different performance impli-
cations than those of technical innovations.
Thus, in summary, organizational perform-
ance has been measured using a variety of
measures. There are no guidelines available to
help researchers choose an appropriate measure
of organizational performance. Even when
multiple measures of organizational perform-
ance have been used, their selection has been
rather arbitrary and without any basis in theory.
One way to address this problem is to view
measures of organizational performance as a
dichotomy. Thus, organizational performance
may be measured using measures of efficiency
and/or measures of effectiveness. Measures of
efficiency have a cost-benefit focus--they
usually comprise a ratio of some inputs and
outputs. Financial ratios such as return on
assets, return on equity etc. are measures of
efficiency [30]. Measures of effectiveness have a
revenue generation focus--and are measured by
variables such as market share, sales etc. This is
the approach adopted in this study.
This research proposes that there is a substan-
tive relationship between types of measures of
organizational performance and different types
of innovations. Using the dichotomy of
technical and administrative innovations, this
research proposes that technical innovations
and administrative innovations will lead to
improvements in fundamentally different types
of performance measures. Because administra-
tive innovations are believed to enhance
organizational coordination, it is expected that
high levels of this type of innovativeness will
lead to high levels of organizational efficiency.
Technical innovations, on the other hand, are
designed to make an organization more
competitive in the market, hence, high levels of
technical innovativeness are expected to lead to
high levels of organizational effectiveness. This
leads to the following hypotheses.
H6 There will be a direct association between
administrative innovativeness and organiz-
ational efficiency.
H7 There will be a direct association between
technical innovativeness and organiz-
ational effectiveness.
However, because this research has intro-
duced a new multidimensional measure of
Omega, Vol. 24, No. 6 637
organizational innovativeness, there is no prior
research to guide the formulation of specific
hypotheses about substantive relationships
between each dimension of organizational
innovativeness, organizational characteristics,
and measures of organizational performance.
Thus, for instance, because there is no prior
research about the effects of organizational
formalization and centralization on the consist-
ency of innovation adoptions, any hypotheses in
this area will lack a theoretical basis. Hence, due
to the absence of relevant prior research, this
part of the research is exploratory in nature.
4. RESEARCH METHOD AND VARIABLES
The data for this study were collected using a
questionnaire based survey (see Appendix). The
domain of the sample was the banking industry,
specifically, banks in the mid-west region of the
United States. Approximately 350 banks were
contacted to participate in this study. In order
to ensure that the most appropriate respondent
answered our questionnaire, we first contacted
the CEO, or a high ranking executive in each
bank, and obtained their support for the
project. This individual examined our question-
naire and selected one or more respondents who
were considered to be the most qualified to
answer our questionnaire. The respondents
were, mainly, senior bank managers. Seven-
hundred questionnaires were mailed out and
200 responses were received. However, there
were missing data in some questionnaires which
were eliminated from the analyses. The final
sample comprised 143 responses. There was one
respondent from each bank, with the exception
of two banks, which had two respondents. Thus,
the data represented 141 banks. Bank perform-
ance data were collected from the accounting
information for banks compiled by Shesunoff
and Co. [33]. A more detailed description of the
operationalizations of the variables used in this
study is given below.
4.1. I nnovativeness
We adopted the 'dual core' typology of
innovations in our study. A list of technical and
administrative innovations in the banking
industry was compiled using a literature search.
This list was then pre-tested using a panel of
banking industry executives. We distinguished
between the two types of innovations using the
following criteria stated by Damanpour et al .
([14], p. 588).
"Administrative innovations are defined
as those that occur in the administrative
component and affect the social system of
an organization. The social system of an
organization consists of the organizational
members and the relationships among
them. It includes those rules, roles,
procedures, and structures that are related
to the communication and exchange
between organizational members. Admin-
istrative innovations constitute the intro-
duction of a new management system,
administrative process, or staff develop-
ment program. An administrative inno-
vation does not provide a new product or
a new service, but it indirectly influences
the introduction of new products or
services or the process of producing them.
Technical innovations are defined as those
that occur in the operating component
and affect the technical system of an
organization. The technical system con-
sists of the equipment and methods of
operations used to transform raw ma-
terials or information into products or
services. A technical innovation, therefore,
can be the adoption of a new idea
pertaining to a new product or service, or
the introduction of new elements in an
organization's production process or ser-
vice operations."
This distinction between the two types of
innovations was also conveyed to the panel
of bank executives. After several iterations of
pre-testing and consolidation, a final list of 8
technical and 14 administrative innovations was
compiled and incorporated in the questionnaire.
The questionnaire was used to collect data
about the time of adoption of each innovation,
if the innovation was adopted and implemented
by a firm. The three dimensions of innovative-
ness were derived in the following way:
4.1.1. Mean number of innovation adoptions.
The total number of innovations adopted by
each firm was determined. The majority of the
technical innovation adoptions occurred during
the 1980-87 time period, and the administrative
innovations spanned the 1970-87 time period.
638 Subramanian, Nilakanta--Organizational lnnovativeness
Damanpour and Evan [13], in their study, used
data spanning 5 years because they believed that
a 5-year time period was sufficiently long to
manifest the effects of innovations on organiz-
ational performance.
The mean number of innovation adoptions
for each firm was computed in the following
manner: First, the number of years between the
adoptions of the first and last innovations was
determined. Second, the total number of
innovations adopted by the firm over this time
period (time period between the first and last
innovation adoptions) was determined. Finally,
the mean number of innovation adoptions was
computed by dividing the total number of
innovation adoptions by the number of years
between the first and last innovation adoptions.
4.1.2. Mean time of innovation adoption. This
variable was used to measure the time of
innovation adoption of each firm relative to the
other firms. For each innovation, the adoption
time of the last adopting firm was determined.
The time of adoption of each innovation, for
each firm, was computed by adding one to the
last year of adoption of each innovation, and
subtracting the year of adoption of that
innovation. For example, in the case of the
ATM innovation--if firm ' X' adopted ATMs in
1984, and if the last adopter of ATMs adopted
it in 1987, then the time of adoption of firm 'X'
was computed by subtracting 1984 from 1988
(1987 + 1). If, however, another firm adopted
ATMs in 1986, then its time of adoption would
be computed by subtracting 1986 from 1988
(1987 + 1). Thus, early adopters would have
higher scores on this dimension than late
adopters and the last adopter of each inno-
vation would have a score of 1. In addition,
those firms that did not adopt an innovation
were assigned a score of zero. Thus, non-
adopters of innovations were treated as very late
adopters--their scores were lower than those of
the actual last adopters. The mean time of
adoption was then computed, for each firm, for
all its innovations.
4.1.3. Consistency of the time of adoption.
This variable was used to measure the
consistency with which firms adopted inno-
vations early (or late). This variable was
operationalized for each firm by determining the
coefficient of variability of the times of adoption
of each innovation. The coefficient of variability
is a normalized measure. It is computed by
dividing the standard deviation of a set of scores
by the mean value of that set of scores. Thus,
firms that adopted innovations consistently
earlier (or later) than others would have lower
coe~cients of variability than firms which were
relatively inconsistent in their times of adoption.
4.2. Organizational performance
Past research has employed several measures
of organizational performance. Unfortunately,
it is also well known that no single measure of
performance may fully account for all aspects of
organizational performance [34]. Many studies
have employed measures such as return on
assets or profitability. In this study two
measures of organizational performance were
utilized. Organizational efficiency was measured
by return on assets. Organizational effectiveness
was measured by the share of deposits for each
bank. Because banks compete with each other
for customer deposits, 'deposit share' may be
viewed as a measure of market share in the
banking industry. The data were obtained from
accounting information on banks compiled by
Shesunoff and Co. [33] for the year 1987.
4.3. Organizational characteristics
Five organizational characteristics were uti-
lized in this research--degree of centralization,
degree of formalization, degree of specializ-
ation, amount of organizational slack resources,
and organizational size.
The extent of centralization, formalization,
and specialization were measured by multiple
items in the questionnaire. Mean scores were
used as measures of centralization, formaliza-
tion and specialization. Table 1 shows the
reliabilities of the items used to measure these
factors. All items show acceptable levels of
reliability.
The amount of organizational slack resources
was measured by net income because it
represents resources that are available for the
development and adoption of innovations [9].
Organizational size was measured by the
Table 1. Reliabilities of organizational measures
Organizational characteristics Inter-item correlation (reliability)
Centralization 0.89
Formalization 0.91
Size not applicable ~
Slack not applicable ~
Specialization 0.87
'Size and slack were measured using objective ratio scaled measures.
Omega, Vol. 24, No. 6 639
Share of
Deposits
Retum on
Assets
Mean Number
of Innovation
Adoptions
Mean Time
of Innovation
Adoptions
Consistency of Time
of Innovation
Adoptions
Centralization
Formalization
Size
Slack
Specialization
Fig. 1. Research model,
number of employees in the organization. The
data on organizational slack and size were
obtained from Shesunoff and Co. [33]. All these
data about organizational factors were collected
in 1987.
5. RESULTS
5.1. Test o f hypot heses H1 - H5
Path analyses were performed on the data
using the research model depicted in Fig. 1. Two
separate path analyses were conducted for the
two types of innovations. The results of the two
path analyses are shown in Figs 2 and 3 which
depict the statistically significant path co-
efficients between the relevant variables.
Past research has suggested that organiz-
ational characteristics such as centralization,
formalization etc. are correlated. Therefore, in
our path models we specified the organizational
characteristics to be correlated. Furthermore,
we also specified the three dimensions of
innovativeness to be correlated. These corre-
lations, however, are not depicted in Figs 2 and
3 in the interests of clarity. Table 2 (a) and (b)
depict the correlations among all the relevant
variables. The results relevant to hypotheses
H1-H5 are displayed in Tables 3 and 4.
For the administrative innovations, central-
ization, formalization, size, and specialization
were significantly associated with innovative-
ness. High levels of centralization were associ-
ated with early and consistent adoptions.
High levels of formalization were significantly
associated with consistent adoptions. Large
organizations adopted a larger number of
administrative innovations than their smaller
counterparts. Finally, organizations with high
levels of specialization adopted administrative
innovations late and inconsistently. Thus,
overall, hypotheses H1 and H5 were supported.
The negative association between specialization
and administrative innovations, however, was
an unhypothesized (although not surprising)
result. It suggests that an organization with a
large number of specialists may find it harder to
adopt and implement administrative inno-
vations than one with fewer specialists.
For the technical innovations, centralization,
size, specialization, and organizational slack
were significantly associated with innovative-
ness. Centralization was negatively associated
with the number of innovation adoptions and
the time of adoptions. Organizational size
was significantly associated with the time of
adoptions. Specialization and organizational
slack were significantly associated with all three
640 Subramanian, Nilakanta--Organizational Innovativeness
dimensions of innovativeness. Thus, overall,
hypotheses H2-H5 were supported. Hypothesis
H2, however was only partially supported be-
cause there was no statistically significant nega-
tive association between formalization and any
of the dimensions of technical innovativeness.
Overall, the results show that organizational
characteristics did not have a uniform relation-
ship with each dimension of innovativeness.
Furthermore, organizational factors had differ-
ent affects on the adoption of the two types of
innovations. High degrees of centralization and
formalization, together, affect all three dimen-
sions of administrative innovativeness. Organiz-
ational size directly affected the number of
administrative innovations that were adopted.
Organizational specialization actually hindered
early and consistent adoption of administrative
innovations. When technical innovations were
adopted, however, high organizational special-
ization and the availability of organizational
slack positively affected all three dimensions of
technical innovativeness. Large organizations
adopted technical innovations early. Finally,
high degree of centralization negatively affected
the number of technical innovations adopted
and also hindered early adoptions of technical
innovations. These results, overall, are consist-
ent with the findings of previous research.
5.2. Tests of hypotheses 1-16 and H 7
The results of the path analyses also show the
associations between organizational perform-
ance and innovativeness. These results are
reported in Tables 5 and 6.
Administrative innovativeness was signifi-
cantly associated with organizational efficiency
measured by ROA. Specifically, organizations
that adopted a larger number of administrative
innovations performed more efficiently than the
others. Thus, hypothesis H6 was supported.
Hypothesis H7 which stated that technical
innovativeness would be associated with organ-
izational effectiveness was also supported.
However, the results indicate that technical
innovativeness is directly associated with both
return on assets (organizational efficiency) and
deposits share (organizational effectiveness).
Specifically, early adoptions of technical inno-
vations enhanced organizational effectiveness.
In addition, organizational efficiency was
enhanced by adopting more technical inno-
vations and adopting them in a consistent
manner. This suggests that administrative
innovativeness leads to significant improve-
ments in organizational efficiency. Technical
innovativeness, on the other hand, improves
organizational efficiency and effectiveness.
Share of
Deposits
Return on
Assets
0/
/
Mean Number
of Innovation
Adoptions
Moan Time
of Innovation
Adoptions
Consistency of Time
of Innovation
Adoptions
0 j 7
Fig. 2. Administrative innovations,
Centralization
Formalization
Size
Slack
Specialization
Omega, Vol. 24, No. 6 641
Share of
Deposits
Return on
As s et s
Mean Number
of Innovation
Adoptions
Mean Time
of Innovation
Adoptions
Consistency of Time
of Innovation
Adoptions
Cent ral i z at i on
Formal i zat i on
Size
Slack
Spec i al i z at i on
Fig. 3. Technical innovations.
6. DISCUSSION
There is a large body of research on the
adoption of innovations. Although research
studies in this area are motivated by many
different objectives, there is a common thread
that runs through all of them--the identification
of innovative firms. The identification of
innovative firms is closely linked to the manner
in which innovativeness is measured. A variety
of measures of innovativeness have been
employed in past research studies. However, as
discussed earlier, the conceptualization of
innovativeness as a unidimensional construct is
inappropriate. Innovativeness refers to an
enduring trait that is consistently exhibited by
truly innovative firms over a period of time.
This study has proposed and used a multidimen-
sional measure of innovativeness that incorpor-
ates three dimensions:
1. Mean number of innovation adoptions
over time.
2. Mean time of innovation adoption over
time.
3. Consistency of the time of innovation
adoption.
As stated in Sections 3.2 and 3.3, past
research studies examining the relationships
between organizational innovativeness and
organizational characteristics have yielded equi-
vocal results. Some researchers have concluded
that this is because there are various types of
innovations that have fundamentally different
characteristics. Thus, for instance, it is believed
that technical and administrative innovations
have different relationships with organizational
characteristics. Similarly, research examining
the impact of innovativeness on organizational
performance has also yielded mixed results.
Furthermore, a variety of performance
measures have been utilized, thus making it
difficult to draw any generalizable conclusions
from this body of research.
One of the motivations for this research was
our belief that these conflicting results could be
due to weaknesses in the measurement of
innovativeness. We believed that a comprehen-
sive measure, that recognized and incorporated
the temporal nature of organizational innova-
tiveness, would be better able to explain the
variability in the results of past research.
Our belief has been borne out by the results
of this study. For example, it was found that
high degrees of organizational centralization
and size were associated with high levels of
administrative innovativeness--a result that
supports past research. However, centralization
and size do not affect all three dimensions of
642 Subramanian, Nilakanta--Organizational Innovativeness
Table 2. Correlation matrix
Mean Time Consist
1.0000
0.1803 1.0000
0.1286 0.0605 1.0000
-0.0151 0.3133 -0. 3262
0.2814 0.1801 -0. 3366
0.1901 0.2104 -0. 0902
0.0015 0.1223 -0. 0757
-0. 0053 -0. 0001 0.0067
0.0224 0.1591 0.0669
0.2174 -0. 0594 0.0031
(a) Administrative innovations
Cent Form Size Slack Spec Depsh ROA
1.0 0 0 0
0.3964 1.0000
0.0668 0.2085 1.0000
0.0676 0.0927 0.6243 1.0000
0.5178 0.4272 -0. 0733 -0. 0770 1.0000
0.0152 0.1511 0.2503 0.3307 - 0.0511 1.0000
-0. 0431 -0. 0031 -0. 0476 -0. 0123 -0. 0326 -0. 0172 1.0000
(b) Technical innovations
1.0000
0.1930 1.0000
0.3410 -0. 0326 1.0000
--0.0439 -0. 0744 -0. 0028
0.0573 0.0415 0.0008
0.0974 0.5395 -0. 1127
0.2321 0.5581 -0. 2291
0.1450 0.1622 -0. 1871
0.1472 0.2153 0.0750
0.3781 -0. 0333 --0.0601
1.0 0 0 0
0.3964 1.0000
0.0668 0.2085 1.0000
0.0676 0.0927 0.6243 1.0000
0.5178 0.4272 -0. 0733 -0. 0770 1.0000
0.0152 0.1511 0.2503 0.3307 -0.0511
-0. 0431 -0.0031 -0. 0476 -0. 0123 -0. 0326
1.0000
- 0 .0 17 2 1.0 0 0 0
Mean = mean number of innovation adoptions
Time = mean time of innovation adoptions
Consist = consistency of time of innovation adoptions
Cent = centralization
Form = formalization
Size = size
Slack = slack
Spec = specialization
Depsh = share of deposits
ROA = return on assets
administrative innovativeness equally. High
degrees of centralization lead to early and
consistent adoptions, however, they do not have
any effect on the number of administrative
innovations adopted. Organizational size, on the
other hand, significantly influences the number
of administrative innovations adopted. This may
be due to the fact that centralization of
decision-making results in quicker decisions
because fewer individuals are involved than in a
decentralized organization. Also, when the same
set of individuals makes decisions, the decisions
may be more consistent than when different
individuals are involved in each decision.
Although the centralization of decision-making
results in consistently early adoptions, it need not
necessarily lead to a large number of adoptions.
The number of administrative innovations
adopted is a function of the coordination needs
of the organization. Large organizations have a
greater need for coordination than smaller ones.
As a result, organizational size determines the
number of administrative innovations adopted.
Thus, the difference in the impact of organiz-
ational centralization on each dimension of
innovativeness sheds light on the inconsistent
findings of previous research. If administrative
innovativeness had been measured based only on
the mean number of adoptions, such as in past
research, no significant relationships would have
been found between centralization and innova-
tiveness. However, if administrative innovative-
ness were measured based on the time of
adoption, one would find a significant associ-
ation between centralization and administrative
innovativeness.
Table 3. Administrative innovations
Organizational characteristics
Innovativeness Centralization Formalization Size Slack resources Specialization
Mean number of i nnovat i on adopt i ons - 0 . 10 0.33' 0.23" - 0 . 17 - 0. 09
Mean ti me of i nnovat i on adopt i ons 0.39 ~ 0.09 0.17 - 0 . 0 4 - 0 . 23'
Variability (consistency) of time of innovation adoptions b -0. 37" -0. 35" 0.04 - 0. 02 0.35'
'Statistically significant at a = 0.05
bA negat i ve associ at i on between variability of time of adoption and organizational factors implies a posi ti ve associ at i on between consi stency
of time of adoption and organi zat i onal factors.
Omega, Vol. 24, No. 6
Table 4. Technical innovations
643
Organizational characteristics
Innovativeness Centralization Formalization Size Slack resources Specialization
Mean number of innovation adopt i ons - 0 . 29 ~ 0.14 - 0 . 0 9 0.31' 0.25 ~
Mean time of innovation adopt i ons - 0 . 32' - 0 . 0 1 0.34' 0.40" 0.39"
Variability (consistency) of time of innovation adopt i ons b 0.13 0.06 0.02 --0.28" --0.30"
"Statistically significant at ~t = 0.05
bA negative association between variability of time of adopt i on and organizational factors implies a positive association between consistency
of time of adopt i on and organizational factors.
Table 5. Administrative innovations
Innovativeness
Organi zat i onal Mean number of Mean time of innovation Variability (consistency) of time of
perf ormance innovation adopt i ons adoptions innovation adopt i on s
Deposit share - 0 . 0 1 0.16 0.06
Ret urn on assets 0.24 ~ - 0 . 1 - 0 . 0 2
"Statistically significant at ct = 0.05
~A negative association between variability of time of adopt i on and organizational perf ormance implies a positive association between
consistency of time of adopt i on and organizational perf ormance.
Another interesting finding was the statisti-
cally significant negative association between
the degree of organizational specialization and
two dimensions of administrative innovative-
ness--namely, time of adoption, and consist-
ency of time of adoption. Technical specialists
are brought into organizations to handle
complex technical functions. They, typically,
have decision-making authority in their area
of expertise. As a result, the introduction
of administrative innovations in an area
requires the cooperation of the relevant
specialists. The task of obtaining cooperation
may become complex and slow if a large
number of technical specialists are involved.
This may lead to slow and inconsistent patterns
of administrative innovation adoptions. Once
again, these results help explain the inconsisten-
cies in the findings of prior research. If
administrative innovativeness were measured
using onl y the mean number of innovation
adoptions, as in previous research, one would
conclude that organizational specialization has
no affect on administrative innovativeness.
However, if administrative innovativeness were
measured using the time of innovation adop-
tion, one would find a statistically significant
relationship between the degree of organiz-
ational specialization and administrative inno-
vativeness.
From our results and the above discussion it
is evident that organizational factors have
significantly different influences on each dimen-
sion of organizational innovativeness. Some
factors facilitate the adoption of a large number
of innovations, others facilitate early adoptions,
and some others promote consistency in the
pattern of adoption. Consequently, we believe,
past research studies that have employed
various unidimensional measures of innovative-
ness have obtained conflicting results.
Similar reasoning can be extended to the
relationships between innovativeness (technical
and administrative), and organizational per-
formance. It was found that the adoption of a
large number of technical and administrative
innovations leads to greater organizational
efficiency. If, however, innovativeness were
measure based only on the time of adoption,
one would conclude that early adoptions of
Table 6. Technical innovations
Innovativeness
Organizational Mean number of Mean time of innovation Variability (consistency) of time of
perf ormance innovation adoptions adoptions innovation adoption "
Deposit share 0.09 0.2 ~ 0.05
Ret urn on assets 0.48 ~ - 0.13 - 0.23"
' Statistically significant at ~t = 0.05
bA negative association between variability of time of adoption and organizational perf ormance implies a positive association between
consistency of time of adopt i on and organizational performance.
644 Subramanian, Nilakanta--Organizational lnnovativeness
innovations have no effect on organizational
efficiency. Similarly, it was also found that the
time of adoption of technical innovations
significantly affects an organization's effective-
ness. Once again, if technical innovativeness
were assessed based only on the number of
technical innovations adopted, one would
conclude that the number of innovations
adopted has no affect on an organization's
effectiveness.
In addition to explaining the inconsistencies
of past research, this study provides other
interesting insights. For instance, our results
describing the effect of levels of technical and
administrative innovativeness on organizational
performance show that both types of innova-
tiveness promote organizational efficiency.
Specifically, organizational efficiency is facili-
tated by the adoption of large numbers of both
types of innovations. Equally important was the
finding that firms that were consistent in their
time of adoption performed more efficiently
than firms that varied their time of adoption.
Thus, efficiency gains can be achieved by
adopting a large number of innovations, and
having a consistent strategy of adoption. It is
generally believed that innovation adoption
facilitates organizational learning [38]. There-
fore, frequent and consistent adoption of
innovations could make a firm more efficient in
its performance than its rivals. This consistency
in innovativeness has been ignored by past
research. Our results suggest that firms that
adopted a strategy of consistent innovation
adoption may have progressed faster on the
'learning curve', and consequently, become
more efficient than others [27, 38].
Another interesting result was the relation-
ship between organizational effectiveness and
the two types of innovativeness. Our results also
indicate that firms that adopted technical
innovations early, were more effective in gaining
market share than those that were late adopters.
Thus, administrative innovations do not en-
hance organizational effectiveness. Technical
innovations, however, significantly improve
organizational effectiveness only if the inno-
vations are adopted early. This reinforces past
findings that there are inherent 'first mover'
advantages [16]. Innovative firms can signifi-
cantly outperform their competitors by adopt-
ing technical innovations early. The adoption of
a large number of technical innovations, or the
existence of a consistent pattern of adoption,
does not make an organization significantly
more competitive.
7. CONCLUSION
Past research studies that have examined
the organizational determinants of innovation
adoptions, and the effect of innovations on
organizational performance have delivered
inconclusive findings. This study was based on
the assumption that the mixed results were due
to the narrow and parochial view of innovative-
ness employed by past research studies.
The results obtained in this study show that
substantive relationships do exist between
organizational factors, organizational innova-
tiveness, and organizational performance. These
relationships, however, are complex, and can be
detected only if innovativeness is measured as a
multidimensional construct. Each of the organ-
izational factors examined in this study showed
significantly different effects on each dimension
of the two types of organizational innovative-
ness. Further, the results show that innovative-
ness does improve organizational performance.
However, each dimension of the two types
of innovativeness affects different aspects of
organizational performance.
Although the results are interesting and
promising, they must be viewed with caution
because there are limitations in this research.
As mentioned in the literature review, some
researchers have distinguished between inno-
vations based upon the 'radicalness' of the
innovations [15, 18]. In our research we have
chosen to distinguish between innovations
based on their primary purpose (technical vs
administrative). Thus, we have implicitly as-
sumed that the innovations are similar with
respect to their 'radicalness'. Future research in
this area can extend this line of research by
distinguishing between radical (and incremen-
tal) technical innovations and radical (and
incremental) administrative innovations. Fur-
ther, even though the reliability of the
instrument used to measure organizational
factors is acceptable, it must be pointed out that
it is a non-validated instrument. Future research
efforts in this area should be conducted using
validated measures of organizational factors.
Finally, because the organizational performance
measures were obtained at the end of
Omega, Vol. 24, No. 6 645
the relevant time period, they may also be
affected by f actors ot her t han the innovations
adopted.
I n conclusion, the reconceptualization of
innovativeness as a multidimensional construct
proposed in this study helps explain the mixed
results of past research. I t empirically validates
substantive relationships suggested by past
research. Fut ure research in the area of
i nnovat i on adopt i ons must utilize comprehen-
sive measures of innovativeness such as the one
proposed in this study. Finally, the substantive
relationships explored in this research show
evidence of compl ex interactions between
various dimensions of theoretical constructs.
Conclusive and generalizable results can emerge
if researchers recognize the multidimensional
nature of theoretical entities in this domai n of
research, and focus their efforts on underst and-
ing the complexity of the relationships between
these theoretical entities.
APPENDIX
This Appendi x reproduces the questionnaire
used in the research reported in the paper.
I NNOVATI ONS
Pl ease indicate (a) i f your bank offers or uses
the fol l owi ng services (whichever is applicable),
and (b) the year in which these services were first
adopted by your bank.
Type of Service Service Year of
offered Adoption
Discount brokerage Yes No
service
Full service brokerage Yes No ....
service
Cash management Yes No
accounts
Automated Teller Yes No
Machines (ATMs)
Debit cards Yes No
Point of Sale (POS) Yes No
terminals
Electronic Yes No
communication to
customers
Lease financing Yes No
Pl ease indicate whether your bank has adopted
the following administrative mechanisms. I f yes,
please indicate the year in which each of these
mechanisms were first adopted.
Type of Mechanism Mechanism Year of
adopted Adoption
Automated personnel Yes No
records
Formal strategic Yes No
planning
Management by Yes No
objectives
Zero-based budgeting Yes No
Continuing education Yes No
programs for employees
Job rotation Yes No
Flex-time Yes No
Special task force for Yes No
ad-hoc problems
Incentive/reward Yes No
systems for officers
Incentive/reward Yes No
systems for non-officers
Formal feedback Yes No
systems for customers
Customer information Yes No
files
Database management Yes No
systems
Facsimile transmissions Yes No
ORGANI ZATI ONAL CHARACTERI STI CS
The following items measure some structural
characteristics of your organization. Pl ease
answer by selecting the alternative that best
describes your organizational characteristics.
Formalization. Compar ed to other banks in
your area, the use of written j ob descriptions f or
all classes of employees is:
a. limited b. moderat e
c. extensive d. written descriptions do not exist
Compared to other banks in your area, the use
of written policies and procedures to guide the
actions of bank employees is:
a. limited b. moderat e
c. extensive d. written policies/procedures do
not exist
Centralization. When an operating department
produces results which deviate from its plans, the
instructions to take appropriate corrective actions
usually come from:
a. Top management
b. The operating depart ment itself
c. Uncertain; sometimes the t op manage-
ment, and other times the operating
depart ment
Consider a recent proj ect undertaken by your
bank that required setting up a special task force.
646 Subramanian, Nilakanta--Organizational Innovativeness
There may have been situations when this task
force encountered deviation from what was
planned. During these situations, the instructions
to take corrective action usually came from:
a. Top management
b. The oper at i ng depar t ment itself
c. Uncer t ai n; somet i mes the t op manage-
ment , and ot her times the oper at i ng
depar t ment
Specialization. Organizations differ in their
willingness and ability to transfer employees
among different departments. Employees may be
hired and trained to handle only specific tasks in
specific departments, or they may be hired and
trained to handle a variety of tasks across
different departments. Please indicate which of
the following best characterizes your bank.
a. We sel dom t ransf er empl oyees across
depar t ment s
b. We of t en t ransf er empl oyees across de-
par t ment s
c. Some of ou r empl oyees are sel dom
t ransf erred across depar t ment s while some
are of t en t ransf erred
d. We do not really have a pol i cy on
empl oyee t ransf ers
Please indicate which of the following best
describes your criteria for hiring employees
a. We select i ndi vi dual s t hat f ully meet our
r equi r ement s f or specific t echni cal skills i n
each f unct i onal area
b. We select i ndi vi dual s wi t h general skills
and t hen t rai n t hem i n-house i n f unct i onal
areas
c. We define a mi ni mu m set of skills and
select i ndi vi dual s t hat meet our mi ni mu m
set of t echni cal skill r equi r ement s
d. We do not have a well def ined pol i cy or
criteria f or hi ri ng empl oyees
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