antecedents and consequences of consequences of ... · would be interesting to analyze other...

Antecedents and consequences oforganizational innovation andorganizational learning in

entrepreneurshipVıctor J. Garcıa-Morales and Francisco J. Llorens-Montes

Faculty of Economics and Business, University of Granada,Granada, Spain, and

Antonio J. Verdu-JoverFaculty of Social and Juridical Sciences,Miguel HernandezUniversity, Elche, Spain

Abstract

Purpose – To analyze a series of strategic capabilities/factors that affects organizational innovation(OI) and organizational learning (OL) (personal mastery, transformational leadership, shared vision,proactivity and environment) and demonstrate that OL and innovation are positively related toorganizational performance.

Design/methodology/approach – Based on prior research, the paper develops a number oftestable hypotheses. It examines how personal mastery, transformational leadership, shared vision,proactivity and environment influence improvements in performance. The paper uses inter-factorcorrelations matrix and multiple regressions analyses and empirically tests these hypotheses using asample of 408 Spanish organizations.

Findings – Considers OI and OL jointly to promote organizational entrepreneurship and to increasecompetitive advantages. Empirically reflects the need to strengthen different strategic capabilities toachieve an adequate level of both organizational issues and thus improve performance and encourageentrepreneurship.

Research limitations/implications – Survey data based on self-reports may be subject to socialdesirability bias. The external validation of some of the variables from the archival data of a subset ofrespondents increased confidence in self-reports and reduced the risk of common method variance.The paper needs to concentrate on other sectors. Future studies should place greater emphasis onlongitudinal studies and should be based on a larger sample, preferably in more than one country. Itwould be interesting to analyze other strategic activities for entrepreneurship.

Practical implications – Organizations’ managers must encourage the organization’s members toachieve high levels of personal mastery. This environment can be provided by continuallyencouraging personal vision. The style of management must be more transformational. They mustfoster shared vision. The leader must prepare the organization and shape the mental models. Specificactions must be taken to overcome the internal and external obstacles to shared vision. The leader willplay an important role in linking the organization and the environment and generate proactivity.

Originality/value – This paper is fundamental to promote strategy capabilities that are necessary toentrepreneurship (OL and OI).

Keywords Entrepreneurialism, Organizations, Innovation, Transformational leadership

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0263-5577.htm

The author thanks the Spanish Ministry of Science and Research for providing partial fundingfor this research through project SEC 2003-07755.

Antecedents andconsequences of

OI and OL

21

Industrial Management & DataSystems

Vol. 106 No. 1, 2006pp. 21-42

q Emerald Group Publishing Limited0263-5577

DOI 10.1108/02635570610642940

IntroductionEntrepreneurship involves creating new resources or combining existing resources innew ways in order to develop and commercialize new products, move into newmarkets, and/or service new customers (Ireland et al., 2001). It is favored by thepresence of strategic capabilities (learning and innovation) in organizations that allowthe creation of wealth and competitive advantage. Entrepreneurship builds andnurtures organizational learning (OL), which enables the formulation of organizationalinnovation (OI) strategies (Lee and Tsai, 2005; Qingyu et al., 2004; Zhang et al., 2004)that lead to greater performance (Senge et al., 1994).

There is a strong interrelationship between entrepreneurship and OI, where weunderstand OI to be the process of proposing/adopting/developing/implementing anew idea (related to a product/process/policy/practice/behavior/program/service)generated internally or taken from outside (McAdam and Galloway, 2005). OI is a keydimension of an entrepreneurial orientation (Drucker, 1985; Ireland et al., 2001; Millerand Friesen, 1982). In some papers on entrepreneurship, it would be quite possible toreplace the word “entrepreneurship” with “innovation” without challenging the interestof the work. Innovation is the means by which the entrepreneur creates newwealth-producing resources or endows existing resources with enhanced potential forcreating wealth (Drucker, 1985).

The organization that promotes entrepreneurship is an organization capable ofcreating, learning and influencing the environment. OL models are usually appropriatefor the study of organizational entrepreneurship. Entrepreneurial behavior in alearning framework involves search activities such as expending resources on theexploration of alternative possibilities, attempting to understand the relationshipbetween organizational characteristics and outcomes, and determining the viability oforganizational change (Ireland et al., 2001; Lant and Mezias, 1990). We should view OLas a constant process that extends across time, allowing new abilities and knowledgeto be developed (Wild et al., 2002), increasing an organization’s capability to carry outactions and improving organizational performance. It includes organizationalacquisition (cognitive development), dissemination and use of the knowledge(behavioral development) (Senge et al., 1994).

OI and OL are dynamic capabilities that integrate/build/reconfigure competences toaddress rapidly changing environments (Eisenhardt and Martin, 2000). This proposalimplies that OI/OL simultaneously integrate a series of strategic factors/capabilities.Personal mastery, transformational leadership, shared vision, proactivity andenvironment are therefore among the factors most frequently analyzed in therelevant OI/OL literature (Fiol and Lyles, 1985; Senge et al., 1994; Swieringa andWierdsma, 1992). We recognize that some other strategic factors/capabilities might beincluded in this model (Gharavi et al., 2004; Hung et al., 2005; Lin and Tseng, 2005;Wong, 2005); however, it was necessary to limit our model so that we could offerempirical evidence for our arguments. Our main interest was the simultaneous andglobal consideration of relevant antecedents of OI/OL, two dynamic capabilitiesnecessary to promote organizational entrepreneurship.

The first antecedent analyzed is personal mastery. Personal mastery is thediscipline of personal growth and learning. It is the art of managing your mind andlearning. People with high levels of personal mastery are continually expanding theircompetences and abilities. From their quest for continual learning comes the spirit of

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OL/OI. The manager’s perception of personal mastery is fundamental, since he will usehis own personal development to guide others on their professional road and willsupport them in their organizational growth, acting as a mentor/master (Senge, 1990;Senge et al., 1994). Second, encouraging a transformational leadership style thatsupports the organization’s members is necessary to promote learning/innovation.It enables the leader to commit himself openly to learning and innovation, stimulatingthem and doing everything in his power to overcome the internal skepticism andexternal difficulties that prevent learning and innovation from being implemented inthe organization (Ulrich et al., 1993; Van de Ven, 1986; Wick and Leon, 1995).

Third, encouraging OI/OL requires a shared ideal that pools the members’individual energies and points group action in a common direction. Shared vision is theoutcome of a creative orientation and generative conversation closely linked to theability to share a mental image of the future. It encourages a shared commitment to thefuture we wish to achieve (Maani and Benton, 1999; Senge et al., 1994). The managershould be more convinced than anybody of the need to create a vision that is sharedand not imposed and must analyze the strategic components required to create thatvision. Thus, measuring shared vision from the manager’s viewpoint is an interestingoption (Senge, 1990). Fourth, a significant number of researchers who work on theanalysis of OI/OL link them to the organization’s capability to adapt to its environment(adaptive vision) and to promote its own transformation (proactive vision). Therefore,we need to analyze both proactivity and environment. The former can be defined as thefirm’s ability to initiate changes in its strategic policies regardingentrepreneurial/engineering/administrative activity rather than to react to events(Miles and Snow, 1978). It involves taking the initiative in an effort to shape theenvironment to one’s own advantage. Various authors have proposed proactivity as akey dimension to OL/OI (Bahlmann, 1990; McGill et al., 1992; Senge, 1990; Swieringaand Wierdsma, 1992). Fifth, environment facilitates/evaluates/promotes the OI/OLprocesses (Fiol and Lyles, 1985; McGill et al., 1992; Senge, 1990). Firms align with theirenvironment so as to remain competitive and innovative. This alignment shouldcontain the potential to learn/unlearn/relearn/innovate.

The call to pay more attention to factors/capabilities that develop OI/OL to promoteentrepreneurship joins calls for empirical exploration of the effect of OI/OL onperformance (Easterby-Smith et al., 2000; Tsang, 1997). Entrepreneurship createswealth by concentrating on OI/OL. Firms are increasingly recognizing OI’s importanceas a principal capability that allows growth and wealth creation (Ireland et al., 2001).The OI literature includes various empirical studies supporting the relationshipbetween OI and performance (Hurley and Hult, 1998). Likewise, the development ofnew knowledge, derived from OL, reduces the likelihood that a firm’s competencies willbecome outdated, allowing them to remain dynamic and thus favoring performanceimprovements (Argyris and Schon, 1996; Fiol and Lyles, 1985; Ireland et al., 2001;Senge, 1990). Nevertheless, this positive connection between OL and performance mustbe determined empirically, not simply assumed in the definition, as so often occurs(Tsang, 1997).

Finally, we should underline the fundamental role of CEOs. They play a major rolein forming/molding these variables by determining the types of behavior that areexpected and supported. The CEO’s perception both of the environment surrounding


OI and OL

23

the organization and of the resources and capabilities inside it is fundamental forcreating OL/OI and better performance (Porac and Thomas, 1990).

This study analyzes a series of strategic capabilities/factors that affect OI/OL. In thenext section, based on prior research, we develop a number of testable hypothesesconcerning the influence of CEOs’ perceptions of personal mastery-transformationalleadership-shared vision-proactivity-and environment on OI/OL. We also examine howthese factors influence improvements in performance. This section serves as thetheoretical foundation for the paper. The next sections present the researchmethodology and discuss the results. The final section makes some concludingobservations and points out some of the study’s limitations.

Background and hypothesesPersonal masteryPersonal mastery – the fine art of managing your mind and the desire to understandand learn for its own sake – recognizes that organizations advance only throughindividuals who innovate and learn. OI is based on a re-combining of resources, skillsand other existing assets; it is a qualitative re-combining of know-how residing incapital and human assets. Thus, much innovative orientation requires people with agreater creative capacity and a higher degree of personal mastery. People with highpersonal mastery have the capacity to observe the distance between current reality andtheir personal vision and to transform this creative tension into an innovative impulsethat allows reality to be brought closer to this vision (Senge, 1990; Senge et al., 1994).

Personal mastery is related to OL, for it allows the organization’s members to clarifyand improve their personal vision. But this personal mastery cannot remain in theinitial stages; it must be transformed into a discipline, an activity that we integrate intoour lives. People with a high degree of personal mastery are more committed to theirown constant personal development and have a high level of systems thinking,qualities that favor OL. Managers with high levels of personal mastery learn andgenerate learning in others faster, more profoundly and more generatively (McGill et al.,1992; Senge, 1990; Senge et al., 1994). Thus:

H1a. Personal mastery is positively related to OI.

H1b. Personal mastery is positively related to OL.

Transformational leadershipPromoting OI/OL requires transformational leadership to tackle theintellectual-capital-based new economy. Supportive leadership allows theorganization to learn and innovate through experimentation-dialogue-personalmastery-organizational knowledge (Senge et al., 1994). First, the leader plays a keyrole in OI and in creating a climate that encourages the abilities/practices needed topromote OI (Van de Ven, 1986). Analyzing the determinants of innovative conduct inorganizations reveals that leader characteristics and leadership style are essential toencouraging this innovative capability. There is currently broad consensus on the ideathat a transformational leadership style is more likely to encourage OI thantransactional styles of leadership. Supportive leaders create the ideal conditions for OIby bringing together teams of innovative people, promoting mutual trust, risk taking,

IMDS106,1

24

and shared vision among the organization members and minimizing internalcommunication costs (Dess and Picken, 2000; Senge, 1990).

Second, the presence of transformational leadership capability has been describedas one of the most important ways to develop OL (Slater and Narver, 1995; Wick andLeon, 1995). A transformative leader would be a catalyst/mentor/facilitator/trainer inlearning capability. OL occurs when the managers not only generate ideas but arecapable of sharing them and of achieving a commitment to learning among members(Ulrich et al., 1993). A leader not committed to learning will trigger a wave oforganizational cynicism (Maani and Benton, 1999). Thus:

H2a. Transformational leadership is positively related to OI.

H2b. Transformational leadership is positively related to OL.

Shared visionShared vision implies a common commitment to a desired future and a common sense ofthe organizational purpose. It gives strength to innovate and learn (Maani and Benton,1999; Senge, 1990; Senge et al., 1994; Wang et al., 2004). The mere fact that someone in aposition of authority is individually open to innovation, initiates it and makes thedecision to innovate is not enough. Because people support what they help to create,there must be a shared vision and commitment by all organization’s members. Lack ofshared vision interferes with individuals’ ability to find innovative solutionscollectively, for each individual is more committed to his own posture. Shared visionwill enable us to better understand OI and to become committed to it (Clarke, 1994).

Shared vision is especially important for OL (Maani and Benton, 1999; Senge et al.,1994) because it pushes organizational members to work the same way to obtaincommon objectives (Slater and Narver, 1995). Therefore, shared vision has beensystematically highlighted as “a necessary but not a sufficient condition for thedevelopment of an organization that can learn, adapt, and respond effectively to arapidly changing competitive environment” (Dess and Picken, 2000, p. 22). Theabsence of shared vision has been analyzed as one of the most important causes offailure for the processes of OL (Fahey and Prusak, 1998). However, imposing instead ofsharing the vision will breed not OL but apathy, complacency and even resentment(Maani and Benton, 1999; Senge et al., 1994). Thus:

H3a. Shared vision is positively related to OI.

H3b. Shared vision is positively related to OL.

ProactivityMiller and Friesen (1982) distinguish between conservative and enterprisingorganizations in terms of the role OI plays in each firm’s strategy. In the first group,OI occurs only in response to challenges and threats; it only occurs when needed.The second group accepts OI as a vital central element of strategy. If we focus on OI,innovative organizations not only react to the environment but also create it. They takea proactive attitude, shaping both the forces and the conditions that affect theorganization. Organizations should aspire to control their environment, not simplyadjust to it, for this aspiration encourages a greater innovative spirit. One of the


OI and OL

25

essential components of innovative strategy is thus the presence of proactivity (Milesand Snow, 1978).

Numerous authors associate OL with the presence of the capability to transform andchange by oneself (Bahlmann, 1990; McGill et al., 1992; Swieringa and Wierdsma,1992). Because proactivity is geared toward modifying the environment and not simplyadapting to it, it favors generative learning (learning that not only allows existingerrors to be detected but also changes the values of thetheory-in-use/strategies/assumptions). OL provides the firm with the potential toexpand its learning capability, promoting its development and growth (Senge, 1990).Firms become proactive systems in that change comes from within the organizationitself, not from external environmental pressures. Thus:

H4a. Proactivity is positively related to OI.

H4b. Proactivity is positively related to OL.

EnvironmentEnvironmental changes define the radicalism required in new products/services inorder to stay competitive. Organizations distinguished by having created theconditions for sustained OI have a general in-depth knowledge of their environment,which constitutes the main source of opportunities and threats (Clarke, 1994). Theliterature is full of statements advancing the thesis that the environment and changesin it are challenges that encourage OI (Clarke, 1994; Starkey and McKinlay, 1988).However, studies of the influence of an organization’s environment on adoptinginnovation are few. Some empirical research links the growing levels of OI toenvironmental uncertainty (Damanpour, 1996).

Thus, organizations align with their environments to remain competitive andinnovative. This “alignment implies that the firm must have the potential to learn,unlearn, or relearn” (Fiol and Lyles, 1985, p. 804). OL allows organizations tounderstand and interpret the environment, creating adequate strategies with which toconfront it. The environment is thus one of the main elements influencing learning, byproviding, evaluating and promoting the learning process and level of learning. Thetype of learning depends on the type of environment the organization must confront. Ina relatively stable environment, adaptive learning (instrumental learning concernedabout how best to achieve existing objectives while keeping performance within therange specified by existing values/norms that remain unchanged) may be adequate,since it enables existing competences to be improved (Lant and Mezias, 1990; McGillet al., 1992). Using this adaptive learning when the environment is turbulent reducesthe likelihood, however, that managers perceive the need to change underlying valuesand thus also reduces the ability to adapt to the new context (Levitt and March, 1988).When the environment is perceived as becoming more ambiguous/hostile/complex,generative learning comes to the forefront, since it allows the firm to restructure thenorms/strategies/assumptions needed to tackle this context (Argyris and Schon, 1996).Thus:

H5a. Environment is positively related to OI.

H5b. Environment is positively related to OL.

IMDS106,1

26

PerformanceThe more valuable, imperfectly imitable and rare OI are, the higher performance willbe. Those organizations with greater innovation will achieve a better response from theenvironment, obtaining more easily the capabilities needed to increase organizationalperformance and consolidate a sustainable competitive advantage (Hurley and Hult,1998). Not promoting innovative projects and activities will have a negative effect onorganizational performance (Loof and Heshmati, 2002). The OI literature includes bothempirical studies supporting this relationship (Hurley and Hult, 1998) and studies thatuse econometric methods to demonstrate it (Loof and Heshmati, 2002). Although someresearch establishes a direct relationship between different aspects of innovation(innovation speed-design, innovation-flexibility) and performance rather than betweeninnovation and performance, most of these aspects are positively linked toorganizational improvement (Danneels and Kleinschmidt, 2001).

The literature also emphasizes the importance of OL for a company’s survival andeffective performance (Argyris and Schon, 1996; Fiol and Lyles, 1985; Inkpen andCrossan, 1995; Senge, 1990). However, empirical analysis of this relationship has beenlimited, due to difficulties such as ambiguity or the time delay between the two (today’slearning will affect tomorrow’s performance) and the possibility that the results oflearning are disguised by exogenous factors (Inkpen and Crossan, 1995). Some recentworks have begun to support this positive relationship (Bontis et al., 2002; Bose, 2004;Schroeder et al., 2002). Thus firms that show a greater breadth/depth/speed of OL havegreater performance levels (Hurley and Hult, 1998). Further, organizations that learnand learn quickly gain a greater strategic capability that enables them to hold on to aposition of competitive advantage and improve long-term performance (Senge, 1990)(Figure 1). Thus:

H6a. OI is positively related to organizational performance.

H6b. OL is positively related to organizational performance.

Figure 1.Proposed model


OI and OL

27

MethodologySampleWe initially carried out interviews with a number of CEOs/consultants/academicsinterested in entrepreneurship/OL/OI. After the interviews, we drew up a structuredquestionnaire to better understand how CEOs tackle these issues. We surveyed CEOsbecause they were the informants most able to observe and determine the impacts of thestudied variables on the rest of the organization’s activities. CEOs’ perceptions concerningstrategic factors/capabilities have an impact on the generation of OI/OL. The same typesof informant were chosen so as to maintain a constant level of influence among theorganizations, increasing the validity of our variables’ measurement (Glick, 1985).

The population for this study consisted of companies experiencing the highestturnover in Spain in the four sectors we examine (food-farming/manufacturing/construction/services), according to the Dun and Bradstreet Spain (2000) database.We randomly drew a sample of 900 organizations from this source. About 900questionnaires were sent out, of which 408 valid questionnaires were returned. We didnot find significant differences between the respondents and the sample, between earlyand late respondents or between the types of business. Furthermore, since all measureswere collected using the same survey instrument, the possibility of common methodbias was tested using Harman’s one-factor test (Scott and Bruce, 1994; Konrad andLinnehan, 1995). A principal components factor analysis of the questionnairemeasurement items yielded six-factors (eigenvalues . 1.0, 73 percent total variance).Since several factors, not one single factor, were identified and since the first factor didnot account for the majority of the variance, a substantial amount of common methodvariance does not appear to be present (Podsakoff and Organ, 1986).

MeasurementPersonal masteryWe drew up a five item scale that includes three-items from Edmondson (1999) and twoitems based on theory to evaluate this variable. We developed a confirmatory factoranalysis to validate our scales, which required deletion of item 2. This procedureallowed us to choose four items with high validity and reliability (a ¼ 0.845).

Transformational leadershipBased mainly on the scale designed by Podsakoff et al. (1996) for diverse aspects oftransformational leadership, we established a scale of five items. We developed aconfirmatory factor analysis to validate our scales and showed that the scale had highvalidity and reliability (a ¼ 0.850).

Shared visionBased on the previous scales (Oswald et al., 1994; Tsai and Ghoshal, 1998) we drewup a six item scale to measure this aspect. We developed a confirmatory factoranalysis to validate our scales, which required deletion of item 6. This procedureallowed us to choose five items with a high validity and reliability (a ¼ 0.907).

ProactivityUsing the strategic typology of Miles and Snow (1978) in a way similar to thatused by Shortell and Zajac (1990), we took three items to measure the

IMDS106,1

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business/technological/administrative dimensions. The lowest values (1) correspond tothe attributes of the reactive firms and the highest (7) to the protective firms. We developeda confirmatory factor analysis to validate our scales, which required deletion of item 3.This procedure allowed us to choose two items with high validity and reliability(a ¼ 0.610).

EnvironmentBased on Dess and Beard (1984) and Tan and Litschert (1994), we adapted six items inthe questionnaire. These items attempted to measure the dimension of thedynamism-complexity-diversity-heterogeneity-munificence/hostility of theenvironment. We developed a confirmatory factor analysis to validate our scales,which required deletion of items 5-6 and showed that the final scale had a high validityand reliability (a ¼ 0.664).

Organizational innovationWe based our scale on Miller and Friesen’s (1983) work and defined OI for respondents.We asked them to evaluate OI in products/services and new methods ofproduction/delivery of services and to compare their firms with competitors withregard to OI over the last three years. The three item scale showed high validity andreliability (a ¼ 0.777). We included questions through which the managers couldprovide precise quantitative data on OI. We calculated the correlation betweenobjective and subjective data, and these were high and significant.

Organizational learningOwing to the fact that there is a closer link with our research, that they reflected thedifferent prior trends well and that the scale’s validity was verified in detail, we usedthe first two items from the scale developed by Kale et al. (2000) and added two itemsbased on Edmondson (1999). We developed a confirmatory factor analysis to validateour scales and showed that the scale of four items had a high validity and reliability(a ¼ 0.919).

Organizational performanceHaving reviewed how performance is measured in different works of strategic research(Homburg et al., 1999; Iyer et al., 2005; Venkatraman and Ramanujan, 1986), we drewup a scale that included eight items to measure performance. Managers were asked torespond to different questions about their firm’s performance for the last three years,taken as profits over assets, as profits over own resources and as profits over sales andsales growth in the main products/services and markets. They were also asked toevaluate these questions in comparison with their principal competitors, reflectingwhich were above the mean. This is one of the most widely used practices in recentstudies (Steensman and Corley, 2000).

Many researchers have used managers’ subjective perceptions to measure beneficialoutcomes for firms. Others have preferred objective data (e.g. return-on-assets). Intheory, objective measures show greater validity, although the literature has widelyestablished that there is a high correlation and concurrent validity between objectiveand subjective data on performance, which implies that both are valid whencalculating a firm’s performance (Homburg et al., 1999). We included questions


OI and OL

29

involving both types of assessment in our interviews, but managers were more open tooffering their general views than to offering precise quantitative data. We calculatedthe correlation between objective and subjective data, and these were high andsignificant. We developed a confirmatory factor analysis to validate our scales andshowed that the scale had high reliability (a ¼ 0.889). We used a Likert-type 7-pointscale (1 “totally disagree”, 7 “totally agree”) and the variables listed previously(except proactivity) for managers to express their level of agreement or disagreement.All the scales were unidimensional and are shown in the Appendix.

SizeAs the control variable, we used size in terms of number of employees. Considerableresearch has been devoted to the question of whether large or small firms are moreconducive to OI/OL. Empirical research has produced ambiguous answers to thisquestion. Little consensus on the magnitude or direction of the relationship exists inacademic circles (Damanpour, 1992; McGill and Slocum, 1993; Tsang, 1997).

Table I shows the items selected, checking the existence of validity and reliability ofthe measurement scales. With respect to the quality of the measurement model for thesample, the constructs display satisfactory levels of reliability, indicated by compositereliabilities ranging from 0.79 to 0.98 and shared variance coefficients ranging from0.54 to 0.85. Convergent validity can be judged by looking at both the significance ofthe factor loading and the shared variance. The amount of variance shared by aconstruct should be greater than the amount of measurement error (sharedvariance . 0.50). All the multi-item constructs meet this criterion, with eachloading (l) significantly related to its underlying factor (t-values . 12.61) in supportof convergent validity. Likewise, a series of chi-square difference tests on the factorcorrelations showed that discriminant validity is achieved among all constructs(Anderson and Gerbing, 1998).

Results and discussionIn this section, we present and discuss the main research results. Table II shows theinter-factor correlations matrix to evaluate the significance level of the existingrelationships. There are significant and positive correlations between the strategicvariables analyzed and OI/OL and between these capabilities and organizationalperformance. We analyzed a series of tests (tolerance, variance-inflation-factor) foreach regression model, which revealed the non-presence of multicolinearity.

Second, Table III shows the results obtained after performing multiple regressionanalyses to determine the effects the strategic variables (personalmastery-transformational leadership-shared vision-proactivity-environment-size)have on OI/OL. For the first multiple regression analysis, the dependent variablewas OI, while the predictive variables considered were the strategic variables. Thedetermination coefficient (R 2) was 0.360 (F ¼ 33.164, p , 0.001), with significantt-student values for personal mastery (t ¼ 3.053, p , 0.01), transformationalleadership (t ¼ 2.031, p , 0.05), shared vision (t ¼ 2.186, p , 0.05), proactivity(t ¼ 7.278, p , 0.001) and environment (t ¼ 3.470, p , 0.001). In the second multipleregression analysis, the dependent variable was OL and the predictive variables werethe strategic variables mentioned. The determination coefficient (R 2) was 0.390(F ¼ 38.636, p , 0.001), with significant t-student values for the cases of personal

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mastery (t ¼ 3.837, p , 0.001), transformational leadership (t ¼ 2.007, p , 0.05),shared vision (t ¼ 3.979, p , 0.01), proactivity (t ¼ 5.952, p , 0.001) and environment(t ¼ 3.421, p , 0.001). The parameter related to size obtained no significant value ineither of the two multiple regression analyses.

The results indicate that sufficient development of personal mastery exerts apositive influence on OI/OL. Encouraging the capability of personal mastery anddevelopment is essential for boosting both dynamic capabilities, since personalmastery is the fundamental principle of these business competences. Thus, promotinga climate favorable to personal mastery will encourage constant OI/OL through thegeneration and maintenance of organizational creative pressure (Senge, 1990;Senge et al., 1994). Hypotheses H1a/H1b are supported.

Validity-reliability-internal consistencyVariables Items l a R 2 AM

Personal mastery Mastery1 0.86 * * *(32.77) 0.75 A ¼ 0.845Mastery3 0.91 * * *(37.75) 0.82 CR ¼ 0.936Mastery4 0.94 * * *(34.88) 0.88 SV ¼ 0.786Mastery5 0.83 * * *(34.12) 0.70

Transformational leadership Leader1 0.75 * * *(22.75) 0.56Leader2 0.73 * * *(16.96) 0.54 A ¼ 0.850Leader3 0.80 * * *(27.19) 0.64 CR ¼ 0.876Leader4 0.72 * * *(12.61) 0.52 SV ¼ 0.586Leader5 0.82 * * *(22.22) 0.68

Shared vision Vision1 0.86 * * *(39.19) 0.74Vision2 0.95 * * *(57.48) 0.91 A ¼ 0.907Vision3 0.90 * * *(49.11) 0.80 CR ¼ 0.934Vision4 0.83 * * *(36.81) 0.70 SV ¼ 0.740Vision5 0.75 * * *(25.40) 0.56

Environment Environm1 0.78 * * *(16.03) 0.60Environm2 0.64 * * *(13.64) 0.40 A ¼ 0.664Environm3 0.79 * * *(20.26) 0.62 CR ¼ 0.828Environm4 0.75 * * *(19.78) 0.56 SV ¼ 0.547

OI Innova1 0.76 * * *(15.84) 0.57 a ¼ 0.777Innova2 0.81 * * *(15.73) 0.65 CR ¼ 0.798Innova3 0.70 * * *(15.25) 0.48 SV ¼ 0.570

OL Learn1 0.91 * * *(46.52) 0.82Learn2 0.88 * * *(30.80) 0.78 a ¼ 0.919Learn3 0.87 * * *(32.30) 0.77 CR ¼ 0.926Learn4 0.82 * * *(25.84) 0.67 SV ¼ 0.759

Performance Perform1 0.94 * * *(52.57) 0.89Perform2 0.96 * * *(56.32) 0.92Perform3 0.90 * * *(43.57) 0.81Perform4 0.86 * * *(45.08) 0.75 a ¼ 0.889Perform5 0.92 * * *(53.76) 0.84 CR ¼ 0.978Perform6 0.92 * * *(57.99) 0.84 SV ¼ 0.850Perform7 0.92 * * *(49.65) 0.85Perform8 0.95 * * *(51.57) 0.91

Notes: l a ¼ standardized structural coefficient (t-students in brackets); R 2 ¼ reliability; a ¼ alphaCronbach; CR ¼ compound reliability; SV ¼ shared variance; AM ¼ adjustment measurement;†p , 0.1; *p , 0.05; * *p , 0.01; * * *p , 0.001 (two-tailed)

Table I.Validity, reliability andinternal consistency of

scales


OI and OL

31

Var

iab

les

Mea

nS

D1

23

45

67

89

Per

son

alm

aste

ry5.

498

0.84

51.

000

Tra

nsf

orm

atio

nal

lead

ersh

ip5.

220

0.94

30.

489

**

*1.

000

Sh

ared

vis

ion

5.36

61.

147

0.41

3*

**

0.40

4*

**

1.00

0P

roac

tiv

ity

4.73

11.

553

0.20

2*

**

0.29

8*

**

0.23

4*

**

1.00

0E

nv

iron

men

t4.

950

1.05

90.

163

**

*0.

015

0.01

20.

215

**

*1.

000

OI

4.67

01.

190

0.36

5*

**

0.38

7*

**

0.35

2*

**

0.46

2*

**

0.26

8*

**

1.00

0O

L5.

372

1.14

50.

431

**

*0.

473

**

*0.

464

**

*0.

403

**

*0.

247

**

*0.

586

**

*1.

000

Per

form

ance

4.83

81.

020

0.35

9*

**

0.45

6*

**

0.45

3*

**

0.32

4*

**

0.08

3†0.

319

**

*0.

343

**

*1.

000

Siz

e3.

437

1.68

10.

075

20.

068

20.

003

20.

083

0.11

2*

0.07

12

0.01

00.

009

1.00

0

Notes:

†p,

0.1;

* p,

0.05

;*

* p,

0.01

;*

** p

,0.

001

(tw

o-ta

iled

)

Table II.Correlations

IMDS106,1

32

Further, the function of this kind of leader is not to know everything but to create astructure and strategy to foster entrepreneurship by generating OI/OL. We musttherefore reconceptualize our perspective of leadership so that the leader acts as acatalyst for OI/OL, overcoming internal skepticism and external difficulties (Wick andLeon, 1995). Management must have a strong commitment to disseminating theprocesses of OI/OL to all levels of the firm (Swieringa and Wierdsma, 1992). The resultssupport H2a/H2b.

The greater the manager’s perception of the need to create a shared vision, the moreinvolved he will be in forming a vision in which people are connected and moved by acommon aspiration. Shared vision raises people’s aspirations. Work becomes part ofpursuing a larger purpose embodied in the organization’s products or services,accelerating OI/OL (Senge et al., 1994). The results obtained in this research show thatif many people become committed to a shared vision because it reflects their ownpersonal vision, this will promote OI/OL. This finding supports H3a/H3b.

Likewise, to nurture these dynamic capabilities requires proactive rather thanreactive strategies, as the former encourage change in the organization and itsenvironment. Managers who perceive and promote proactive strategies will helpgenerate a process of analyzing and questioning how the organization currently works.This leads in turn to a process of OI/OL (Bahlmann, 1990; Swieringa and Wierdsma,1992). The results support H4a/H4b.

It is clear that factors outside the organization determine both capabilities. The roleplayed by the environment in sparking OI/OL is generally accepted (Damanpour, 1996;McGill et al., 1992), enabling our study to support such relations empirically. As wementioned previously, many organizations fail to innovate or learn because theirmanagers have a rigid vision of the organization itself as an entity apart from itsenvironment. Hypotheses H5a/H5b are supported. The previous hypotheses are alsofulfilled if we consider as a sample (Table IV) 84 of these firms where intellectualcapital is central to their competitive advantage (e.g. software companies,biotechnology companies).

Dep. variablesIndep. variables OI OL

Personal mastery 0.152 * * (3.053) 0.185 * * * (3.837)Transformational leadership 0.131 * (2.031) 0.124 * (2.007)Shared vision 0.132 * (2.186) 0.231 * * (3.979)Proactivity 0.338 * * * (7.278) 0.266 * * * (5.952)Environment 0.155 * * * (3.470) 0.146 * * * (3.421)Size 0.065 (1.501) 0.017 (20.406)R 0.600 0.625R 2 0.360 0.390R 2 adjusted 0.350 0.380F 33.164 * * * 38.636 * * *

Std. error 0.966 0.896

Notes: †p , 0.1; *p , 0.05; * *p , 0.01; * * *p , 0.001 (two-tailed); t-students in brackets below thevariables

Table III.Multiple regression

explaining OI and OL


OI and OL

33

Third, we have established different models to analyze the influence of OI/OL onorganizational performance. Size is analyzed as a control variable (Table V). If weconsider only OI in organizational performance (model 1), the determination coefficient(R 2) is 0.260 (F ¼ 64.836, p , 0.001), with significant t-student values for the variableof OI (t ¼ 11.386, p , 0.001). If we take only OL in organizational performance (model2), the determination coefficient (R 2) is 0.238 (F ¼ 59.138, p , 0.001), with significantt-student values for the variable of OL (t ¼ 10.874, p , 0.001). Considering OI and OLtogether (model 3) yields a determination coefficient (R 2) of 0.307 (F ¼ 54.260,p , 0.001), with significant t-student values for the variables of OI (t ¼ 6.565,p , 0.001) and OL (t ¼ 5.032, p , 0.001). From the results, we deduce that OI/OL arepositively related to organizational performance, thus supporting H6a/H6b. This alsooccurs if we consider only intellectual organizations (Table VI).

The study demonstrates that the need to innovate is an essential requisite forimproving organizations and making them more competitive. These results arecoherent with those established both in previous theories and in prior empirical studies(Hurley and Hult, 1998; Loof and Heshmati, 2002). Our research also shows that OLshould focus on increasing performance and thus supports various theoretical studies

Dep. variablesIndep. variables OI OL

Personal mastery 0.155 * * (2.754) 0.151 * * (2.750)Transformational leadership 0.138† (1.910) 0.157 * (2.251)Shared vision 0.110† (1.640) 0.225 * * * (3.467)Proactivity 0.336 * * * (6.195) 0.255 * * * (4.888)Environment 0.140 * * (2.674) 0.131 * * (2.604)Size 0.037 (0.737) 20.023 (20.484)R 0.592 0.615R 2 0.350 0.378R 2 adjusted 0.360 0.365F 24.527 * * * 28.350 * * *

Std. error 0.956 0.903


Table IV.Multiple regressionexplaining OI and OL inintellectual organizations

Indep. variables Model 1 Model 2 Model 3

Size 20.024 (20.524) 0.013 (0.300) 20.011 (20.251)OI 0.510 * * * (11.386) 0.352 * * * (6.565)OL 0.488 * * * (10.874) 0.269 * * * (5.032)R 0.509 0.488 0.554R 2 0.260 0.238 0.307R 2 adjusted 0.256 0.234 0.301F 64.836 * * * 59.138 * * * 54.260 * * *

Std. error 0.877 0.894 0.850


Table V.Regression results onperformance

IMDS106,1

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published previously (Argyris and Schon, 1996; Fiol and Lyles, 1985; Inkpen andCrossan, 1995) and the few empirical works that have provided evidence for this idea(Bontis et al., 2002; Bose, 2004; Schroeder et al., 2002). OL develops a process shared bythe organization’s members and focused on building resources and capabilities toimprove the organization’s performance. Finally, as previously mentioned, size has notturned out to be significant in our analyses. This finding is coherent with the theory(Damanpour, 1992, 1996).

Conclusions and management implicationsOur study proposes considering OI/OL jointly to promote organizationalentrepreneurship and to increase competitive advantages. First, organizations mustinnovate as a necessary requisite to obtaining high performance levels. Understandingand managing the OI process becomes a vital capability that organizations must learn.Second, OL processes must be carried out to provide firms with a series of mechanismsthrough which to achieve advantages that the competition finds difficult to imitate,generating higher performance.

We empirically reflect the need to strengthen different strategic factors/capabilitiesto achieve an adequate level of both organizational capabilities and thus improveperformance and encourage entrepreneurship. More specifically, personal mastery,transformational leadership, shared vision, proactivity and environment help anorganization to become more innovative and encourage learning more.

Organizations’ managers have an important job to do, creating the conditionsthat facilitate the development of these strategic factors/capabilities. First, they mustencourage the organization’s members to achieve high levels of personal mastery,since this development will enable them to take more initiative, to broaden anddeepen their sense of responsibility for their work and to learn and innovate faster.They must work to foster a climate in which the principles of personal mastery arepracticed. Nothing is more important to an individual committed to his own growththan a supportive environment. This environment can be provided by continuallyencouraging personal vision. Second, the style of management must be moretransformational. Only so will consciousness and acceptance of the organization’sproposals and mission grow, creating a shared vision and enabling the formulationof organizational strategies and structures that enable the firm to confront thechallenges of the knowledge society.

Indep. variables Model 1 Model 2 Model 3

Size 0.020 (0.388) 0.001 (0.042) 0.013 (0.255)OI 0.485 * * * (9.376) 0.268 * * * (4.408)OL 0.461 * * * (8.867) 0.333 * * * (5.460)R 0.485 0.461 0.532R 2 0.235 0.212 0.283R 2 adjusted 0.230 0.207 0.276F 43.960 * * * 39.309 * * * 37.450 * * *

Std. error 0.906 0.918 0.879


Table VI.Regression results of

performance inintellectual organizations


OI and OL

35

Third, an organizational commitment to personal mastery and transformationalleadership would be naive and foolish if organizational leaders lacked the capability ofbuilding a shared vision. The leader must prepare the organization and shape the mentalmodels. Without an effective awareness of the changes needed and a deep, genuinecommitment by top management, moving toward this vision would be impossible. Thefirm’s strong and weak points must be analyzed and its environment examined in orderto question the firm’s future and develop the strategy to reach it. Specific actions must betaken to overcome the internal and external obstacles to shared vision. Four, the leaderwill play an important role in linking the organization and the environment, from whichthe organization must achieve acceptance and support for its OI/OL. One must be readyto seize the opportunity for OI and OL, and opportunity usually favors ready minds.Leaders can do a lot to prepare the organization’s minds. They can create a context thatlegitimates innovative behavior and allocates resources to innovation and learning, acontext whose structure/culture nurtures the development and implementation of bothcapabilities. Five, an organization that is inward-looking and unable to tackle changes inthe environment proactively would not survive, despite the sophisticated knowledgeand technology it possesses. The managers’ proactivity perception of the environmentwill determine the organization’s innovation and learning tasks.

Thus, management must know and manage practically the strategicfactors/capabilities that affect OI/OL and that lead to improvements inorganizational performance. The essence of organizations is their ability not only tomake themselves competitive but also to maintain their competitive position throughinnovation and learning. An organization that promotes entrepreneurship will learnand innovate, encouraged by the presence of key preexisting internal/externalattributes that enable it to change, renew and reinvent itself.

This study has several limitations. First, survey data based on self-reports may besubject to social desirability bias (Podsakoff and Organ, 1986). However, an assuranceof anonymity can reduce such bias even when responses relate to sensitive topics(Konrad and Linnehan, 1995). The low risk of social desirability bias in this study wasindicated by several managers who commented that it made no sense at all for theircompanies to go beyond regulatory compliance. However, to confirm the validity of theinformation provided by the CEOs, we obtained additional information from variousorganizations’ members in several firms. We then used different tests to contrast theseresults with those obtained from the CEOs for these organizations and confirmed thenon-presence of significant differences in the variables studied. Second, the externalvalidation of some of the variables (e.g. performance-OI) from the archival data of asubset of respondents increased confidence in self-reports and reduced the risk ofcommon method variance. Further, the possibility of common method bias was testedusing Harman’s one-factor test. It does not appear to be present (Konrad and Linnehan,1995; Scott and Bruce, 1994).

Third, the conclusions established by our study should be interpreted with carewhen generalizing, since we have concentrated on four sectors. In firms from othersectors the results may be different. Fourth, the cross-sectional nature of the researchinto a series of dynamic concepts only allows us to analyze a specific situation in timeof the organizations studied, not their overall conduct throughout time. This problem isattenuated in our research, since the items reflect dynamic characteristics. However,future studies should place greater emphasis on longitudinal studies.

IMDS106,1

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Finally, other variables related to the subject studied here (e.g.creativity-flexibility-culture) could provide material for additional research anddiscussion. Likewise, it would be interesting to analyze other strategic activities forentrepreneurship (e.g. networks-internationalization-growth). Futures studies shouldbe based on a larger sample, preferably in more than one country.

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AppendixIndicate the degree of your disagreement or agreement with each statement by circling a numberfrom 1 to 7 (1 “totally disagree”, 7 “totally agree”).

Personal masteryOrganization’s members

1. Tend to feel increase in self-esteem when a job is done correctly.

2. Tend to feel great personal satisfaction with a job well done.

3. Perform a job that helps them to satisfy their personal aspirations.

4. Achieve the growth and development of their personal competences, skills and abilities,both professional and human.

Transformational leadership

1. The firm’s management is always on the lookout for new opportunities for theunit/department/organization.

2. The firm’s management has a clear common view of its final aims.

3. The firm’s management succeeds in motivating the rest of the company.

4. The firm’s management always acts as the organization’s leading force.

5. The organization has leaders who are capable of motivating and guiding theircolleagues on the job.

Shared vision

1. There is cohesion of vision in the organization’s different units.

2. Management in the organization has a shared vision of the organization’s future.

3. Our organization agrees on what is important to the firm.

4. A high degree of the changes proposed by the shared vision are achieved.

5. Our organization has a clear vision of the objectives and missions that guide ourbusiness strategies.

IMDS106,1

40

Proactivity

If the lowest values (1) correspond to the response on the left and the highest (7) to the response

on the right, respond to the following statements :

Environment

1. There are few changes in the sector that could affect the organization.

2. The changes in the sector have been easily predictable.

3. The sector’s evolution depended on multiple factors.

4. The factors that affect the sector’s evolution differ greatly from each other.

Organizational innovationIndicate your degree of agreement or disagreement with the following statements (1 “totallydisagree”, 7 “totally agree”). In the last three years:

1. The rate of introduction of new products or services into the organization has grownrapidly.

2. The rate of introduction of new methods of production or delivery of services into theorganization has grown rapidly.

3. In comparison with its competitors the organization has become much more innovative.

During the last three years:

a. How many new products or services has your organization introduced?

b. How many new methods of production or delivery of services has your organizationintroduced?

c. How many new systems or programs have been introduced in your organization?

d. How many new markets has your organization entered?

Organizational learning

1. The organization has learned or acquired much new and relevant knowledge over thelast three years.

2. Organizational members have acquired some critical capacities and skills over the lastthree years.

3. The organization’s performance has been influenced by new learning it has acquiredover the last three years.

4. The organization is a learning organization.

1. The products/services developed by the firm are:Few and similar. We prefer tooperate in familiar fields 1 2 3 4 5 6 7

Many and highly varied. We arewilling to enter new fields when newopportunities are detected

2. The main technological concern is:To find cost-reducing technologies 1 2 3 4 5 6 7 To have flexible innovative technologies


OI and OL

41

Organizational performancePlease answer the following questions (1 “totally disagree”, 7 “totally agree”). In the past threeyears:

1. The organization has obtained high profitability measured by profits over assets(economic profitability).

2. The organization has obtained high profitability measured by profits over ownresources (financial profitability).

3. The organization has obtained high profitability measured by profits over sales(percentage of profits over billing total).

4. The organization has obtained high sales growth in the main products/services andmarkets.

In relation to your main competitors, please answer the following questions (1 “totally disagree”,7 “totally agree”). In the last three years:

5. The organization has obtained profitability measured by profits over assets (economicprofitability) higher than that of competitors.

6. The organization has obtained profitability measured by profits over own resources(financial profitability) higher than that of competitors.

7. The organization has obtained profitability measured by profits over sales (percentageof profits over billing total) higher than that of competitors.

8. The organization has obtained sales growth in its main products/services and marketshigher than that of competitors.

Indicate the following, taking into account the situation of your firm in the last three years:

a. The profitability of the firm measured by profits over assets.

b. The profitability of the firm measured by profits over own resources.

c. The profitability of the firm measured by profits over sales (percentage of profits overbilling total).

d. The firm’s market share in its main products and markets.

e. Growth of sales in the main products and market.

Size

1. Number of employees in the organization.

Corresponding authorVıctor J. Garcıa-Morales is the corresponding author.

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