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Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
671955- 1
The Effect of Board of Directors Capital
on Innovation Outputs
Marouen Ben-Jebara and Yaser Alahmad
College of Business and Innovation, University of Toledo
Toledo Ohio, 43607. USA
[email protected], [email protected], 419-530-5690
ABSTRACT
The current study conceptualizes how the Board of Directors’ Depth and Breadth will impact the
firm’s innovation outcomes (types of innovation and degree of novelty). The paper proposes the
firm’s strategic orientation (exploration vs. exploitation) and transformational leadership as
moderators to the relationships between board capital and innovation outcomes.
Key Words: Board of Directors, Board Composition, Innovation, Transformational Leadership,
Exploitation, Exploration.
Purpose: The current study aims to assess how the board of directors of an organization, as a
firm’s resource, will help organizations increase its innovation capability. The study will draw a
parallel design analyzing the impact of board formation (breadth and depth) on innovation
outputs. The relationship between board capital and innovation outputs will be moderated by the
firm’s strategic orientation and transformational leadership.
Research Questions: The study will investigate the impact of board of director’s capital as a
firm’s resource on the innovation capabilities and how it will be reflected in financial
performance. Moreover, we will study the contingency factors of explorative and exploitative
orientations. Finally, this study will draw a parallel structure analyzing board breadth and board
depth impact on innovation.
Research Gap and Contribution: The concept of board capital is relatively new. No prior study
addressed the relationship between innovation as a capability and a board capital as a firm
resource. The study will contribute the existing literature by addressing the research questions.
This will provide more insights about the optimal board composition that will lead to particular
type of innovations.
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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INTRODUCTION
“Innovation distinguishes between the leader and the followers”. Steve Jobs
Innovation has proven itself as the new business religion and main driver of competiveness in
business landscape (The Economist, 1997). Organizations are showing a great emphasis on
innovation as a driver of sustainable competitive advantage. The topic of innovation outcomes is
capturing both practitioners and academic. Innovation’s mechanisms and the resources needed to
insure innovation success are among the questions that always need further research.
Top management commitment to innovation path is important to the success of the any
innovation initiative. In large companies, top management will follow the board member
instructions and directive influencing the firm’s results.
In this paper, we are viewing the board of directors as a firm resource derived from the human
and structural capital. The board of director capital was divided into board depth and board
breadth (Haynes & Hillman, 2010). The firm capital will impact the firm’s strategic decisions.
We propose that the board capital represents an interesting area of research that requires more
detailed research. One venue of research would be how the resources are transformed into
capabilities. In fact, firm’s resources are bundled together creating firm’s specified routines that
will lead to capabilities (Barney, 1991). These capabilities are considered to create and sustain
firm’s competitive advantage. One of these capabilities is innovation outcomes.
Innovation represents the firm’s ability to transfer an idea into useful outcomes. The topic of
innovation was studied for almost a century with multiple perspectives. In this study we will
focus on the nature of innovation (process vs. radical) and the degree of novelty (incremental vs.
radical). The innovation outcome is related to the organization management style and the firm’s
strategic orientation.
Miles at al. (1978) addressed the issue of business strategic orientation. The firm strategic
orientation will influence the firm’s results. This paper will draw on March (1991) work to
conceptualize exploitative and explorative strategic orientation. We will attempt to assess the
contingencies between the strategic orientation and capital board. To our knowledge, no prior
studies examined board capital and innovation capabilities and assessed this issue in the context
of strategic fit.
The current study will attempt to draw a parallel design assessing how the board capital structure
as a resource will impact the innovation outcomes. We will investigate the impact of board of
director’s capital as a firm’s resource on the innovation capabilities and how it will be reflected
in financial performance. Moreover, we will study the contingency factors of explorative and
exploitative orientations. Finally, this study will draw a parallel structure analyzing board
breadth and board depth impact on innovation.
The paper will be presented as follows: the next section will address the conceptual section and
construct definition. Then, we will address the theoretical background and hypotheses building.
Finally, we will provide the future directions of the current research.
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
671955- 3
CONCEPTUAL PART
The following section will focus on the literature review and the conceptualization of the study
constructs. The study will mainly draw on the intellectual capital perspective to better understand
and conceptualize the board capital construct.
Intellectual Capital
Intellectual Capital is defined as the collection of elements of intangible assets that consist of or
utilize human intellect and innovation to create wealth (Johnson, 1999). Researchers have
classified organization intellectual capital as: Human Capital, Structural Capital, and Social
Capital.
Human capital reflects the human capability to solve work related issues and problems. In
advanced manufacturing and technology management literature, human capital is defined as tacit
and explicit knowledge manifested through the technical skill levels of the work force and
relative organizational learning capabilities (Maddocks & Beaney, 2002; Menor, Kristal, &
Rosenzweig, 2007). Hillman and Dalziel (2003) argued that firm’s board of directors represents
a firm human capital by the nature of knowledge and know how it contributes.
Structural Capital is defined as the supportive infrastructure, processes and databases of the
organization facilitating human capital to function (Maddocks & Beaney, 2002). Structural
capital includes tangible assets such as buildings, hardware, software, as well as intangible like
processes, patents, and trademarks. In addition, structural capital includes such things as the
organization’s culture, organization, and information technology capabilities. Some researchers
classified structural capital into organization, process and innovation capital. The board of
directors’ documented inputs during the meeting has a significant impact on the organizational
structure. In this case, the board of directors’ capital does not represent a structural capital on
itself; however, the board of capital input can be viewed as structural capital.
Social capital is an intermediary form of intellectual capital consisting of knowledge resources
embedded within, available through, and derived from networks of relationships (Adler & Kwon,
2002; Nahapiet & Ghoshal, 1998). Recent researches emphasize the importance of social capital
in achieving sustainable competitive advantage. Hillman and Dilzel (2003) argued that the board
of director’s relationships and connections represents a firm’s social capital and therefore a
valuable asset to the firm.
Board Capital
Board capital is conceptualized as the combination of the human and social capital of the board
of directors which is reflected by the board’s ability to provide resources to the firm (Hillman &
Dalziel, 2003). The board of directors has mainly two functions. First, it monitors the work of the
managers in order to preserve the stockholders investment (Dalton, Daily, Certo, & Roengpitya,
2003). Second, the board of directors represents a valuable resource for the firm’s management
team providing strategic and technical advice (Dalton, Daily, Johnson, & Ellstrand, 1999). More
recent studies have built on the previous research to conceptualize the board capital as the
breadth and the depth of the director’s human and social capital (Haynes & Hillman, 2010). This
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
671955- 4
paper will draw on Haynes and Hillman (2010) study and elaborate on the concept of board
capital breadth and board capital depth.
Board Capital Breadth reflects the board member demographics and expertise heterogeneity
which can be drawn from previous research of management team heterogeneity (Pegels, Song, &
Baik, 2000). The management team diversity is reflected by educational and functional diversity
(Pegels, et al., 2000). Haynes and Hillman (2010) extrapolated the concept of heterogeneity to
the board member and created and validated a new construct, Board Capital Breadth. In this
study, board capital breadth is defined as the portfolio of directors’ functional occupational,
social, professional experiences and extra-industry ties. This construct will capture the diversity
of the directors’ human and social capital (Haynes & Hillman, 2010).
Board capital depth reflects the board member embeddedness in the firm’s principal industry.
The board member embeddedness can be reflected through the “industry interlocking
directorates” (Haynes & Hillman, 2010). Interlocking directories happens when members of a
firm board of director serves in multiple corporations (J. Scott, 1997). Interlocking is possible via
three main ways: (1) horizontal—among competing organizations; (Gilmore & Pine 2nd)
vertical—among organizations located in adjacent stages of production; and (3) symbiotic—
among complementary organizations (Pennings, 1980). In this paper, board capital breadth refers
to the embeddedness of directors in the firm’s primary industry through interlocking
directorships, managerial positions, or occupational experience in the primary industry of the
firm. It is also measured by the sum of the directors’ intra-industry human and social capital
(Haynes & Hillman, 2010).
Classification of innovation
For almost 100 years, scholars investigated innovation and defined it in multiple ways
emphasizing different features e.g. (Galunic & Eisenhardt, 2001; Knight, 1967; Schumpeter,
1934). For example, innovation has been defined based on the outcomes (Tushman & Nadler,
1986). Moreover, innovation was identified as the process of transforming ideas into new
outcomes (Baregheh, Rowley, & Sambrook, 2009).
Scholars have studied innovation from a content perspective and as a process. The content
perspective is reflected by the type of innovation (product, process, organizational…) and the
nature of innovation (radical, incremental, modular, and architectural) (Damanpor, 1996;
Henderson & Clark, 1990). The process perception includes the generation, development,
adoption, implementation, and eventual termination of a new idea or behavior. The majority of
the studies emphasized the content perspective: type of innovation, breadth of innovation, depth
of innovation time to market (Argyres & Silverman, 2004). The current study focuses on content
aspect (product and process) and the degree of novelty (incremental vs. radical) as a part of the
firm capability or outcome. In fact, this study focuses on the transformation of resources into
capability and therefore we view the firm’s ability to innovate as a capability that can be
measured by the outcomes.
Radical product innovation is defined as the introduction of new products (services) with
significant technological difference from the existing products. On the other hand, incremental
product innovation is defined as the introduction of products (services) with minor
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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improvements to the existing product (Chandy & Tellis, 1998; Herrmann, Gassmann, & Eisert,
2007; Valle & Vázquez-Bustelo, 2009).
Radical process innovation refers to the introduction of new or significantly improved practices
into the firm’s operations aiming to reduce the cost of operations and/or improve the quality of
products (services). In contrast, incremental process innovation reflects the implementation of
minor practices with the goal to achieve lower cost and/or improved quality of product (services)
(Ettlie, 1983; Gatignon, Tushman, Smith, & Anderson, 2002; Kim, Kumar, & Kumar, 2012;
Reichstein & Salter, 2006).
Firm’s Strategic Orientation
The firm strategic orientation interested scholars who attempted to identify different approaches
to assess and measure the strategic orientation. Organizations are identified as prospector,
defender, analyzer, and reactor (Miles, Snow, Meyer, & Coleman, 1978). Miles et al.
classification reflects the firms’ aggressiveness in the market. Other than the aggressiveness, the
firm’s strategic orientation is reflected in the firms’ intentions (Venkatraman, 1989).
Organizations are required to maintain a balance between exploration and exploitation is a
primary factor in system survival and prosperity (Levinthal & March, 1993; March, 1991). The
concept of exploration and exploitation is widely researched in multiple for the past two decades.
Exploitation and exploitation was mainly assessed as a firm’s competence. The concept of
exploitation and exploration was after moved into different context other than learning. More
recent studies approached the exploitation exploration area of research from strategic point of
view (Kristal, Huang, & Roth, 2010; Yalcinkaya, Calantone, & Griffith, 2007). In fact,
exploitation and exploration can be view as strategic decision that firms will adopt.
Exploitative and Explorative Strategies
Previous researches did not provide a clear definition of exploitative strategy. However, drawing
from similar studies, we can define exploitative strategy as the firm’s deployment of the
resources (material and non-material) to improve continuous improvement of the operations. The
resources can be investment on material aiming to improve the processes or extensive employee
training aiming to improve their current tasks. In contrast, we will define exploratory strategic
orientation as the firm’s deployment of resources (materiel and non-material) to seek new ways
of operations and enhancing the organizational external know how. For example, firms’ with
strong exploratory strategic orientation will invest in employees cross training so they can
acquire new competencies. The strategic orientation will also be manifested in the firm’s general
guidelines and employees’ job description.
Transformational leadership
Many scholars consider leadership as one of the most important aspects determining
organizational learning and organizational success (Bryant, 2003). Most leadership literature has
focused on leader traits, style, behavior, power, transactional leadership, and transformational
leadership (Northouse, 2012). Transformational Leadership began with Burns (1978) when he
tried to find relationships between leadership and followership amongst political leaders (Burns,
1982) . Then his work was expanded by (Bass, 1985) who considered the first scholar to apply
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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TL theory in business. Bass labeled transformational leaders those who are successful in
managing their organizations via radical changes (Bass, 1985).
Transformational practices can increase employees’ trust in the leaders and this trust leads to
improved individual performance (Ismail et al., 2010). Transformational leaders try to make
changes that reach and increase performance and organizational effectiveness. The existence of
this kind of leadership is reflected in subordinates who are enthusiastic about the leader’s
opinions and ideas (Schermerhorn, 2008).
Transformational Leadership consists of four elements. First, idealized influence: transformation
leader acts as role model and display charismatic personality that influences others to want to
become more like the leader. Second, Inspirational motivation: refers to the leader’s ability to
inspire, confidence, motivation, and a sense of purpose in his followers. Third, Intellectual
stimulation: is when the leaders encourage the followers to try new approaches. Fourth,
Individualized consideration: the degree, to which the leader attends to each follower's needs,
acts as a coach to the follower and listens to the follower's needs. These four behavioral patterns
positively affect followers by elevating them to the best they can be, motivated by achievement
and self-development (Bass, 1985).
Firm’s Performance
Firm’s ultimate goal is generating profit and satisfying its stakeholders. The studies investigating
firm’s financial performance are numerous and have investigated the firm’s financial
performance from multiple facets. Firms’ performance can be evaluated from long term results
versus short term. For example, the firm’s financial performance was conceptualized in term of
growth and profitability (Venkatraman, 1989). The growth dimension reflects the performance
trend of the business in terms of sales gains and market share gains, while profitability dimension
reflects an efficiency view of current performance. This conceptualization fits perfectly in our
framework of assessing the exploration exploitation tandem.
THEORETICAL DEVELOPMENT
The paper mainly assesses the classical transformation of resources into capabilities. In this case,
we have conceptualized the board capital as a firm specific asset composed of human and
structural capital. The resource based view of the firm is adequate theory strengthening the link
among the constructs.
Resource Based View of the Firm
The resource based view (RBV) of the firm suggests that organizations compete and create value
on the basis of resources that are unique, rare, valuable, and not easily imitable or substitutable
(Barney, 1991). Firm Resources is defined as set of “... all assets, capabilities, organizational
processes, firm attributes, information, knowledge, etc. ...” that a firm controls and that facilitates
the implementation of strategies that create value for the firm (Barney, Wright, & Ketchen Jr,
2001). Capabilities are developed when these resources are combined to create a firm specific
ability. Therefore, a capability is the firm’s ability to deploy resources to create a capability. The
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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organization board represents a firm specific resource that can be deployed in an effective way to
lead to capability. The board capital in fact provides the organization with the strategic
orientations which will influence the firm’s output.
In this paper, we will focus on the innovation as firm capability. The resource based view of the
firms helps understand the transition from resources to capabilities (Board capital into innovation
outcomes). Therefore, we will argue that RBV is the main driver for the translation of board
capital into innovation.
Contingency Theory
Contingency theory is widely used in the Management of Information System field and its
impact on innovation capabilities (Weill & Olson, 1989). The contingency theory however was
the subject of multiple debates and generates numerous critiques about its validity. The
contingency theory was developed first at the organization level in the middle of the 20th century
to explain the relationship between the different components of the organization. “The
contingency approach attempts to understand the interrelationships within and among
organizational subsystems as well as between the organizational system as an entity and its
environments. It emphasizes the multivariate nature of organizations and attempts to interpret
and understand how they operate under varying conditions.”(Kast & Rosenzweig, 1973). In the
case of this paper, both board of directors and strategic orientation are considered as subsystems.
Board of director structure and firm’s strategic orientation must have proper fit to ensure
organizational success.
The contingency theory has been widely criticized by scholars because the variables used in a
study are small compared to all the factors that might influence the firms’ performance (Weill &
Olson, 1989). Because of the narrowed scope of the study (Innovation outcomes), the theory can
be adopted to justify some of the theoretical linkage between the variables.
PROPOSITIONS DEVELOPMENT
Board Capital and Innovation Type
Board capital depth implies a greater understanding of the firm’s industry. The board member
will show high knowledge of the industry practices. Previous study showed that the board capital
depth will lead to less strategic change and more focus on incremental improvement (Haynes &
Hillman, 2010). The board depth will favor more incremental changes and will make the firm
strategic position more as a defender. Drawing on Miles and Snow (1978) typology, we can
argue that the board depth is tightly related defenders strategy. In fact, more “deep” board will
promote activity aiming to improve firm’s effectiveness by focusing mainly on the practices
available on the firm’s acting industry. Therefore, we expect that firms with high capital depth
will lead to more process innovation inside the organizations in comparison with product
innovation.
In contrast, the board breadth will lead to more strategic change such as expanding in new
markets or diversifying the available product and services offered (Haynes & Hillman, 2010).
The diverse background and expertise as shown in the board members will provide firms with
different perspectives as targeting different markets. Moreover, drawing on the strength of weak
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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ties perspectives (Granovetter, 1973), board breadth will reflect the diversity of resources such as
different industry backgrounds or diversified expertise. Tin fact, the strength of weak ties states
that a relationship made of two or more entities that are different will represents a source of extra
knowledge and will make the relationship more beneficial. The same logic can be applied to the
board member made of people with different backgrounds and expertise. The board will be
expected to generate more diversity will help the company explore more opportunities. Previous
studies associated the relationship between explorative depth will impact exploration potential
which will lead to product innovation (Bryant, 2003). Therefore, we expect that board capital
breadth will create more product innovation in comparison with process innovation.
In the light of the previous paragraphs, we formulate the following:
P1a: Board Depth will be more associated with process innovation in comparison with
product innovation.
P1b: Board breadth will be associated with product innovation in comparison with
process innovation
Board Capital and Innovation Novelty
Our second set of propositions will relate to the relationship between board capital and the
degree on innovation novelty. In the conceptual section, we have mentioned that we will address
incremental and radical innovation as main novelty typology.
Board capital depth will favor exploitative activities as they seek to improve the firm’s current
practices and will be reluctant to strategic change (Haynes & Hillman, 2010). Exploitative
activity is by nature tied with more incremental change (Bryant, 2003). The level of expertise
and embeddedness to the focal industry will manifest in a continuous emphasis in small
incremental improvement. This aspect will lead to incremental innovation. On the other side, the
board breadth will provide the company with more diverse perspectives. The explorative aspect
will call for more openness to the external world. The firm will increase its knowledge capital
diversity making it more likely to innovate radically. Therefore, we propose the following:
P2a: Board Depth will be more associated with incremental innovation in comparison
with radical innovation.
P2b: Board breadth will be associated with radical innovation in comparison with
incremental innovation
Moderating Effect of Strategic Orientation
Moderating relationships are very interesting since they provide organizations with factors that
influence the strength of the relations. In this study, we will attempt to assess the impact of
firm’s strategic orientation on the innovation capability formation. Board depth has an impact on
the firm’s process and incremental innovation. In case the organization has an exploitative
strategic orientation, we expect that the relationship will be stronger. Analogically, we expect
that exploratory strategic innovation will strengthen the relationship between broad breadth and
radical and product innovation. The rationale behind these relationships is derived from
contingency theory. The strategic orientation will provide a “fit” to the nature of resources
provided by the board of directors and the expected innovation capability.
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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P3a: Exploitative strategic orientation will moderate the relationship between BC depth
and process innovation and the relationship between BC depth and incremental
innovation.
P3b: Explorative strategic orientation will moderate the relationship between BC breadth
and product innovation and the relationship between BC breadth and radical innovation.
Moderating Effect of Transformational Leadership
According to Scott and Scott and Bruce (1994), organizational climate is a crucial factor for
innovation. Organizational climate when the employees' perceptions of the extent to which
creativity is encouraged at the workplace and the extent to which organizational resources are
allocated to supporting innovation influence innovation performance (S. G. Scott & Bruce,
1994). An employee's perception of an innovative climate encourages risk taking, and the
challenge to use creative approaches at work. Transformational Leadership will create a climate
promoting innovation. The board of director focus and strategic decision will be craven by the
leader’s transformational spirit. Paulsen et al. (2009) argued that Transformational leader who
can use inspirational motivation and intellectual stimulation is necessary for organizational
innovation. Such leaders have the vision to motivate their employee’s, set increasing challenges,
overcome crises, and stimulate innovation. The stimulation will not be limited at the employee
level, but it will also be reflected at the board of directors. For example, Apple Inc. though Steve
Jobs leadership was be apple to put its self as innovative firm and embedding the innovative
culture inside the organization.
Organization with leadership focusing on changes and promoting initiative as reflected in the
transformational leadership will have greater chances in achieving higher innovation outcomes.
Haynes and Hillman (2010) emphasized the role of CEO power in implementing strategic
changes inside organizations. Drawing on this, we can argue that the transformational leadership
level will play a moderating role in transforming the firm’s resources (board of director capital)
into capabilities (innovation outputs).
The following propositions can be formulated:
P4: Transformational leadership will positively moderate the relationship between BC
capital (depth and breadth) and innovation outputs (type and novelty)
Innovation Capabilities and Performance Outcomes
We have conceptualized outcomes from growth and profitability point of view. Process and
incremental innovation are generally small improvement aiming mainly the reduction of costs
and better utilization of the existing firm’s capital. Therefore, we expect that this will impact the
firm’s profitability. In contrast, product innovation helps meet existing customers demand and
attract more customers. For example, apple’s innovative products and continuous product
improvement helped the company increase its customers and therefore its sales. Moreover,
radical innovations are associated with high technological newness and high customer fulfillment
(Chandy & Tellis, 1998). Radical innovation is characterized by high investment making it not
profitable on the short term. However, it improves the firm’s financial growth (Sorescu, Chandy,
& Prabhu, 2003).
Based on the previous assumptions, we propose the last two propositions
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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P5a: Process and incremental innovation will positively impact the firm’s profitability.
P5b: Product and radical innovation will positively impact the organization growth.
Figure 1: Conceptual Model
METHODOLOGY
The set of hypotheses will be tested using secondary data from S&P 500 companies. A list of
companies will be identified as primary targets. These companies will be from industries that are
innovation concentrated such as high tech companies and pharmaceutical firms. The board of
director depth and breadth will be measured by assessing the board of directors’ criteria as
shown in table 1. The innovation outcome will be measured by coding the firm’s patented
innovation and decided whether they are product or process and the incremental or radical. We
plan to have 3 to 5 coders from the industry and the academia to help us code the patents.
Board Capital
• BC Depth
• BC Breadth
Innovation Novelty
• Incremental
• Radical
Firm’s Performance
• Profitability
• Growth
Innovation Type
• Process
• Product
Strategic Orientation
Exploitative
Explorative
Transformational
Leadership
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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CONSTRUCTS DEFINITIONS AND MEASUREMENT ITEMS
Table 1: Constructs Definitions and Measurement Items
Constructs Definition Metrics Reference
Board Capital
Depth
The embeddedness of directors in the
firm’s primary industry through
interlocking directorships, managerial
positions, or occupational experience in
the primary industry of the firm, and is
the sum of the directors’ intra-industry
human and social capital.
Depth and linkage to the industry
(Haynes &
Hillman, 2010)
Industry embeddedness
Industry expertise
Years of expertise in the focal Industry
Board Capital
Breadth
The portfolio of directors’ functional
occupational, social, professional
experiences and extra-industry ties and
captures the heterogeneity of the
directors’ human and social capital.
Functional heterogeneity
(Haynes &
Hillman, 2010)
Occupational heterogeneity
Occupational heterogeneity
Heterogeneity of interorganizational linkages
Product
Innovation
The introduction of new product lines
satisfy existing or new customer needs
Product differentiation
(Kim, et al.,
2012)
Product innovation frequency
Frequency of product innovation in
comparison with competition
Reputation for product innovation
Product innovation contribution to sales
Process
Innovation
The implementation of new processes
aiming cost reduction and/or quality
improvement.
Process differentiation
(Kim, et al.,
2012)
Process innovation frequency
Frequency of process innovation in
comparison with competition
Reputation for process innovation
Process innovation cost reduction/quality
Radical
Innovation
The adoption of new technologies to
create a demand not yet recognized by
customers and markets.
Seeking new technologies for improvement
purpose (Jansen, Van
Den Bosch, &
Volberda,
2006)
Exploring external resource for innovation
purpose
Radical Innovation as part the innovation
outcomes
Incremental
Innovation
Minor changes of existing technologies
in terms of design, function, price,
quantity, and features to meet the needs
of existing customers.
The use of existing technologies for
improvement purpose
(Jansen, et al.,
2006)
Exploiting existing resource for innovation
purpose
Incremental innovation as part of the
innovation outcomes
Firm
Performance
The firm’s financial performance in term
of growth and profitability (long and
short term)
Sales growth position relative to competition
(Venkatraman,
1989)
Market share gains relative to competition
Net profit position relative to competition
ROI position relative to competition
Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation
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CONCLUSION
This conceptual paper aims to provide a grounding work on assessing the relationship between
organization resources or inputs as manifested on the board of director capital and how it can
lead to capabilities shown by innovation outputs. The study also aims to explore the moderating
effect of the firm’s strategic orientation and the level of transformational leadership in
moderating the relationship. Finally, we are looking into the impact of innovation on the
financial performance at the short run (profitability) and the long run (market positioning). We
are currently working on data collection and coding part to measure the different constructs.
One of the limitations that we are facing is the difficulty to capture process innovation.
Analyzing the patents, it was hard for us to capture as much process innovation as product. We
are afraid that the number obtained will not help us support our hypotheses. Second,
transformational leadership is mainly measured via primary data through questionnaire. Using
secondary data to assess the transformational leadership of a company might be hard to realize
given that some contradictive assessment of leader are available in the press.
The future steps of this paper will be to refine the results obtained and attempt to find more
adequate measure for the moderating variables. We also intend to put the study in cultural
context by addressing some difference between western and eastern society and how this might
affect the model. Another area of future assessment is to capture the level of ambidexterity inside
the board of directors. Can a board of director balance both explorative and exploitative activity
and how this might affect the organization’s performance?
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