The Effects of Absorptive Capacity and Decision Speed on Organizational Innovation: A Study of Organizational Structure as an Antecedent Variable

By Chen, Shin-Tien; Chang, Bao-Guang | Contemporary Management Research, March 2012 | Go to article overview

The Effects of Absorptive Capacity and Decision Speed on Organizational Innovation: A Study of Organizational Structure as an Antecedent Variable


Chen, Shin-Tien, Chang, Bao-Guang, Contemporary Management Research


ABSTRACT

Following the dimensions of organizational structure and organizational innovation, this paper aims to discuss how organizational structure affects organizational absorptive capacity and decision speed, and subsequently influences organizational innovation. Based on the sample of 260 enterprises with 1282 valid questionnaires, the empirical method, using the Structural Equations Model showed the following. (1) The higher the degree of organizational formalization, the stronger the absorptive capacity of the organization, and then the higher the degree of organizational innovation. (2) The higher the degree of organizational centralization, the lower the absorptive capacity of the organization, and then the lower the degree of organizational innovation. (3) The higher the degree of organizational formalization, the slower the organizational decision speed, and then the slower that degree of organizational innovation. (4) The degree of organizational centralization is irrelative to absorptive capacity and decision speed; and therefore organizational innovation speed is not affected.

Keywords: Organizational Structure, Absorption Capacity, Decision Speed, Organizational Innovation

INTRODUCTION

Innovation is a motive of organizational development. In particular, under a dynamic and complex environment, an organization without continual innovation will very likely become stagnant (Leavy, 1998; Marshall et al., 2009). Therefore, continual innovation is a key to perpetual development. A review of the current literature on organizational innovation indicated the following aspects. (1) Organizational innovation affects organizational performance (Hurley and Hult, 1998; Calantone et al., 2002; Baer and Frese, 2003). (2) A correlation between organizational learning and organizational innovation (Bessant et al., 1996; Baker and Sinkula, 1999; Wang et al., 2010). (3) Organizational structure affects organizational innovation (Miller 1993; Sims, 1996). From the context of the available literature, we found many discussions about organizational innovation, where most studies have used organizational innovation as single interpreting dimension, or interpreted dimension. However, these discussions do not clarify the most important factors that affect or are affected by organizational innovation.

In general, there are many factors affecting organizational innovation. Relevant literature also indicates the significance of organizational learning on organizational innovation. For example, Baker and Sinkula (1999) indicated that organizational learning would promote product innovation; Calantone et al., (2002) indicated that the higher the learning tendency of an organization, the higher its organizational innovation. Hence, organizational learning can affect organizational innovation. What is worthy of mention is that Miller (1993) indicated that rigid organizational structure would generate a phenomenon of organizational inertia, and forms a barrier between knowledge exploration and enterprise reform. This situation also conveys the existence of correlation between organizational structure and organizational innovation. However, past discussions about organizational innovation have focused on the exploration of direction effects of organizational structure on organizational innovation, but have neglected a structural factor affecting organizational learning. Therefore, our first research question of this study is: would organizational structure affect the absorptive capacity of organizational learning and further affect organizational innovation?

There have been studies that have suggested that fast decision speed facilitates organizational innovation (Slevin and Covin, 1995; Jones, Lanctot, and Teegen, 2000; Forbes, 2005). From the viewpoint of organizational structure, it is one of the factors that affects organizational decision speed; i.e. whether organizational structure is centralized or decentralized, or formalized, it would directly affect the speed of organizational decisions, and further effect the degree of organizational innovation. …

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