‘’ How do organizational culture and organizational structure influence the
ability to organize for innovation of service SMEs?’’ The case of K&R
Consultants
ABSTRACT
In recent years, the competitive environment in which service SMEs are participating has grown. Because of that, innovation became extensively more important. A good configuration of organizational culture and organizational structure is necessary in order to organize for innovation in service SMEs. At the moment, there is a lot of research conducted regarding innovation in manufacturing firms, however, literature on innovation in service SMEs has been underdeveloped. By conducting a case study at K&R Consultants, a service SME, I identified which configuration of culture and structure should be created in order to establish an innovative climate for service SMEs. Organizational culture influences the ability to organize for innovation by two traits, namely involvement and adaptability. Next to that, the degree of centralization, autonomy, standardization, and formalization also seems to impact the way a service SME engages in innovation. Implications of these results are discussed.
Key words: Organizational culture, Organizational structure, Innovation
W.F.A. Evers – S2551322
University of Groningen, Faculty of Economics and business, Groningen, The Netherlands MSc BA Strategic Innovation Management
Master Thesis – EBM723B20.2017-2018.1 Word count: 13.950
January 22th, 2017
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INTRODUCTION
In recent years, the competitive environment in which service SMEs are participating has grown. Because of that, innovation became extensively more important (Varis & Littunen, 2012). The ability to organize for innovation of a firm provides itself with promising and potentially lucrative advantages (Kenny & Reedy, 2006). Innovation thus plays a very important role in the competitive ability of a Service SME. By now it is widely assumed that organizational culture, defined as a complex set of values, beliefs, assumptions, and symbols that define the way in which a firm conducts its business (Barney, 1986), is a key to innovation success. Firms that are recognized for their ability to come up with new ideas and exploit them, frequently emphasize their superior organizational culture (Büschgens, Bausch & Balkin 2013). Organizational structure, defined as the way in which firms divide their work into separate tasks, how it is delegated and how it is coordinated in order to achieve the desired organizational goals (Dekoulou & Trivellas, 2017), can be used to foster innovative behaviour which in turn, can increase organizational innovation performance (Dedahanov, Rhee and Yoon, 2017). This means that a well fitting organizational structure is important to be innovative. Firms that do not engage in innovation within their strategy have a higher risk of becoming less competitive and therefore could have a higher risk of failure (Madrid-Guijarro, Garcia & Van Auken, 2009).
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SMEs is at the moment significantly more limited than research conducted in other firms. Literature should emphasize more on service SMEs, considering the enormous impact they have on the economic, social and technological development of countries and firms (Maldonado-Guzmán et al., 2017). The generated evidence on manufacturing firms cannot just be projected on service SMEs because they differ too much in how they engage in innovation and how they are organized (De Jong, Bruins, Dolfsma & Meijaar, 2003). There is also a difference in how service SMEs tend to engage in innovation. According to De Jong et al., (2003) service firms tend to spend fewer resources on patents, and their investments on fixed assets are lower. Taking in mind the literature gap that is described above, it is important to complement the underdeveloped research on the influence of organizational culture, and investigate whether if there is a relationship between organizational culture, organizational structure and the ability to organize for innovation in service SMEs.
By addressing the research gap that I already identified in the section above, the underdeveloped literature on the relationship between organizational culture, organizational structure and the ability to organize for innovation, the limited knowledge about the difference in organizational culture among firm size, and the few studies that document the processes that support innovation in service firms, I have developed the following research question:
‘’ How do organizational culture and organizational structure influence the ability to organize for innovation of service SMEs?’’
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document, called ‘personnel handbook’. To analyze the data, methods as ‘within case analysis’ and ‘triangulation of informants’ were used.
In this study it becomes clear that organizational culture influences the ability to organize for innovation by two traits, namely involvement and adaptability. Next to that, the degree of centralization, autonomy, standardization, and formalization also seems to impact the way a service SME engages in innovation.
The research conducted will contribute to literature by providing a better perspective on the relationship between organizational culture and organizational innovation in service SMEs. These insights could also provide practical implications for organizations, the effect that organizational culture and organizational structure have on the ability to organize for innovation is important to know. Therefore, based on these insights, an organization is in a better position to decide whether to keep their current organizational culture and organizational structure, or if they should attempt to make any changes regarding this in order to have an organization that is better suitable for the generating of new ideas and exploiting them.
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LITERATURE REVIEW
The literature review section will be separated into different sub-sections containing information about subjects that are deemed necessary to understand how organizational culture and organizational structure influence the ability to organize for innovation in service SMEs. First, literature about organizational culture is discussed. Subsequently, organizational structures that also influence the ability to organize for innovation in service SMEs are explained. Thereafter literature about innovation in organizations is provided.
Organizational culture
A lot of literature sees organizational culture as a principal aspect of an organizations’ functioning and as a critical driver of effectiveness (Yilmaz & Ergun, 2008). According to Schein (1983, p. 1), culture can be defined as: ‘a pattern of basic assumptions, invented, discovered, or developed by a given group, as it learns to cope with its problems of external adaption; concerned with how the organization survives and thrives in its environment (Tesluk, Hofmann & Quigley, 2002) and internal integration; a process that is concerned with the facilitating of communication and coordination, linking organizational outcomes to individual ones, the nature of authority and relationship, and allocation of rewards and status’ (Tesluk et al., 2002) that has worked well enough to be considered valid and, therefore is to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.’
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Organizational structures and innovation
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Centralization. Dedahanov, Rhee and Yoon (2017) stated in their paper that centralization
refers to the extent to which decision-making power is concentrated at the top levels of the organization. When organizations decline their degree of centralization, consequently they concentrate decision-making power at lower levels in the organization, the most common reason is the increasing uncertainty in the environment. Whilst the environment is getting more dynamic, organizations have to be able to respond to changes quickly. Centralization may diminish organizational innovation because when decisions are being made at the top levels of the organization, information flows may be hindered because of the many hierarchical levels it has to surpass (Yang, Zhou & Zhang, 2015). The concentration of power at the top of the organization could withhold an organization from introducing innovative solutions to problems, since centralized decision making is often against the requirements of a creative environment (Caruana, Morris & Vella, 1998). Low levels of centralization encourage innovative behaviour due to the ability to rapidly make decisions, providing incentives for creativity and experimentation (Camisón & Villar-López, 2012). Although, centralization could potentially turn out to improve the performance of organizational innovation due to ameliorated coordination of information flow between organizational units and hierarchical levels (Yang, Zhou & Zhang, 2015).
Autonomy. According to Caruana, Morris and Vella (1998) centralization and autonomy are
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resources and by allowing the employees to have a degree of freedom in conducting their assignments positively influences the chances of finding new opportunities for innovation (Burcharth, Præst Knudsen & Søndergaard, 2017). Scott & Bruce (1994) also stress the importance of having an environment that is characterized by autonomy in order to get higher levels of innovation in the organization.
Formalization. Formalization is defined as the existence of formal rules and regulations and
the organization's efforts to enforce those rules (Dedahanov, Rhee & Yoon, 2017). Pierce and Delbecq (1977) defined formalization (p. 31) as ‘a form of control employed by bureaucratic organizations, it refers to the degree to which a codified body of rules, procedures or behaviour prescriptions is developed to handle decisions and work processing’. They state that a low degree of formalization creates more openness in an organization; this openness is needed in order to come up with new ideas and be innovative. However, whilst formalization can hinder the initiation stage of innovative behaviour, it may also improve the implementation stage of innovation (Caruana, Morris & Vella, 1998). A certain degree of formalization fosters the effectiveness of the organizational innovation process by providing the organization with procedures which are able to stimulate effectiveness and efficiency, however, an overkill of formalization diminishes creativity and thereby innovation (De Jong et al., 2003).
Standardization. According to Wright, Sturdy and Wylie (2012), standardization refers to
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have a positive influence on innovation. Whilst standardization corresponds with the decrease of creativity, it also creates common languages and methodologies for experimentation, and sparks the development of incremental innovations based on previously developed knowledge (Wright, Sturdy & Wylie, 2012). Tassey (2000) states that standardization comes together with the decrease of variety and that this decrease of variety can both have a negative and a positive impact on innovation. Variety reduction enables positive things such as economies of scale, however this mostly influences capital-intensive processes. Next to that, emphasized is that too much standardization in early innovation stages can hinder innovation.
Innovation
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METHODOLOGY
Research Design and Setting
It is argued that a theory-development process is a business phenomenon that is generally recognized in companies (van Aken, Berends & Van der Bij, 2012). Because the literature on how organizational culture and organizational structure influence the ability to organize for innovation is still inconclusive about how they influence each other in general and how they influence SMEs, so, there is still a gap to be filled in the literature; the underdeveloped research on the relationship between organizational culture and organizational structure on the ability to organize for innovation, the limited knowledge about the difference in organizational culture and structure among firm size, and the few studies that document the processes that support innovation in service firms. Therefore, this paper will be of theory-developing nature (van Aken et al., 2012).
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organizational culture and structure on the ability to organize for innovation of SME service firms.
Case Selection and Description
K&R Consultants is a SME consultancy company located in Apeldoorn, the Netherlands. K&R Consultants offers advice to other businesses on both installation technology and the organizational aspects itself. K&R offers the possibility to other business to think together on conceptual level about installation technology, they combine this with their unique knowledge of corresponding investment-and exploitation costs. The company was originally founded in 1995. K&R Consultants is owned by K&R Holding, which also owns K&R Services. K&R Services was founded in 2015, currently there are two employees, and one of those employees is also the director of K&R Services. K&R Services possesses an external workforce which consists of expert freelance workers who can be hired by K&R Consultants. In this way K&R does not have to hire these employees, this decreases their amount of employees and therefore employment costs. K&R Consultants itself has 15 employees; four of them are part of the management team and are shareholders. At the moment K&R is developing fast and attracting new many new employees because of the high work pressure they are currently enduring. Together with these developments, problems are generated over the years regarding the capability of the firm to organize for innovation.
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technological innovations. This makes researching a service SME interesting, since the difficulty to innovate is higher because motivating human capital seems to be an obstacle (Malhotra et al., 2016).
Data Collection
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themselves as more open than closed. Other documents which were in possession of K&R Consultants deemed not to be contributing to this research.
Table 1: Data collection
Characteristic Type Description Duration Date
Exploratory interview M1 Partner/Manager 1 hour, 15 minutes 31-10-2017
M2 Partner/Manager 1 hour, 5 minutes 1-11-2017
M3 Partner/Manager 1 hour, 7 minutes 7-11-2017
Semi structured interview E1 Project Assistant 45 minutes 21-11-2017
E2 Project Assistant 35 minutes 21-11-2017
E3 Project Assistant 50 minutes 28-11-2017
E4 Office Manager 50 minutes 30-11-2017
E5 BIM-Modeller 30 minutes 30-11-2017
E6 Engineer 30 minutes 30-11-2017
E7 Project Assistant 45 minutes 30-11-2017
Document analysis Personnel handbook Written desired behaviour 2 hours 26-11-2017 Manager Check-up
interview MCU Partner/Manager 30 minutes 22-12-2017
Data Analysis and Coding
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2004). I made use of triangulation of informants in order to make sure that the gathered information has been processed the right way and that no false conclusions were being reached.
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culture by management. The interviewees agreed with this, as they mention during the interviews that the organizational culture is indeed loose, but that there also is a sense of fixedness when work pressure gets higher.
RESULTS
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Culture
First, the results about the culture will be discussed. The culture of K&R Consultants has changed over the years. The changing of the culture is mainly due to the increase and decrease of the workforce over the years. The managers described the growth in workforce since the start of K&R Consultants in 1994. K&R was founded by two people. Shortly after this period 2 employees were hired. Present day 15 people are employed. In 2014 however, a decline in workforce took place, which meant that most employees were fired. The reason firing these people was due to the culture that was present at that time. As one manager (M2) described: ‘In the past most employees were working on separate islands’. This meant that the employees had no good image of what their colleagues were doing. They had their own projects and communication was not going well. Due to the lack of communication, the efficiency of projects was hampered. As the manager (M3) described: ‘we then fired the
employees, or they went away themselves. We were going in the wrong direction at that time’.
After 2014 K&R radically changed their culture and started hiring people mostly with a university degree. These people were hired because management thought that they were more capable of thinking about the bigger picture whilst working on a project. As the manager (M3) described in the interview: ‘As K&R Consultants we have stated that we only hire
people who possess the broader perspective that is needed and who can really add value to the company. We need employees that are analytically strong and are able to organize and communicate well’. Since K&R started acting like this, communication and thus project
efficiency increased.
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‘We have a very open culture, internal it is very informal, as a team we are very
close’. (Employee, E4)
‘Our flat organization makes working together more easy, I can walk into any office
without hearing complaints, in the two years that I have worked here I have never felt that I could not ask a question to a colleague’. (Employee, E1)
‘Our organization is very open and flat, people interact well with each other. I have
the feeling that I can ask anyone anything, if time allows it. When work pressure gets higher it becomes a little bit more conservative.’ (Employee, E2)
‘We have a very open culture, my colleagues are very transparent to each other.
Employees are there for their colleagues, the togetherness is high, and people have a high sense of responsibility. We also lunch together every day.’ (Manager, M3)
Results show that the thoughts of employees at K&R Consultants about the organizational culture are on the same level. Most employees defined the culture of K&R as a very open and warm one. Several interviewees mentioned that they did not want to see any changes in the present culture, which indicates that they are content with how things are going right now considering the culture.
‘No changes are needed in the current culture, I like how it is at the moment.’ (Employee, E2)
‘If it were up to me, the culture does not need any change.’ (Employee, E4)
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describes the ‘average and wanted behaviour of employees at K&R.’ ‘However, it has to be applied situational.’ In this document, the cultural dimensions of Hofstede (2016) are being discussed. The desired position of K&R within these dimensions is also explained. The first dimension is about the focus on process versus results. The document states that without results, there is no sustainable viability for K&R. However, too much focus on results leads to short-term thinking and this is also threatening the viability of K&R, so a balance has to be found. The second dimension is about being people or task oriented. Again, the document states that a balance has to be found. The quality of our work is the most important condition to survive as an organization, although production would not be possible without the people behind this work. The third dimension focuses on organization-related versus professionalism. K&R wants its employees to tend to the professionalism side, because goals would otherwise not be reached, according to the document. The fourth dimension of Hofstede discusses openness versus being closed-minded. The document indicates that K&R should be more open. This because openness is important for the creation of trust. Next to that, it also improves transparency because openness means that an employee can talk about anything, including mistakes that have been made. The fifth dimension is about a loose versus a fixed organizational culture. The document states that when an organizational culture is too loose, budgets will be exceeded and deadlines will not be achieved. However, too fixed is not intended, a balance has to be found. The last dimension of Hofstede (2016) corresponds with a normative culture versus a pragmatic culture. Also here, a balance has to be found. Too much focus on the normative side would imply that there is stagnation. However, too much focus on the pragmatic side gives short-term successes but declines a sustainable viability.
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K&R Consultants did not do well at the time. In the years from 2014 until now, new people were hired in order to be able to respond to the changes in the environment and increase project efficiency. A cultural change was necessary in order to achieve this. At first the culture of K&R could be described as closed, employees were only focused on their own projects, communication was not going well, and the employees did not possess the bigger perspective that is needed in order to keep the organization running. At the moment, employees described the culture of K&R Consultants as a very open, transparent. Next to that, they described their team as being very close. Employees describe that they think communication is going well and that working together is easy. The ‘personnel handbook’ complements the data retrieved from interviews: it states that the organizational culture of K&R Consultants should be more open, because this increases the amount of trust and transparency, interestingly enough, this is how most employees experience the expressed culture.
Innovation
In this subsection the data on innovation in K&R Consultants is being discussed. During the interviews several questions were asked about how K&R Consultants is coping with innovation. The interviewees discussed multiple aspects of innovation during the interview: (1) radical innovation, (2) incremental innovation, (3) product innovation, (4) process innovation, (5) openness to innovation, (6) project evaluations, and (7) employee creativity.
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‘Survival is more important for us than being innovative, this should not be the case because
then you can easily overlook radical changes in the environment and risk missing out on them. However, we are cautious and don’t want to radically innovate at the cost of less revenue.’ (Manager, M1)
‘Currently we are focusing more on incremental innovation, this has not worked till so far. In
order to truly innovate you have to dare to be at the edge of bankruptcy.’ (Manager, M1) ‘We really have to start focusing on radical innovations, currently we are trying to organize our firm in a way that the employees could manage radical innovations’ (Manager, MCU)
In multiple interviews that were conducted, product and process innovation came up. Questions were asked about which product innovations were present and how process innovations were developed.
‘Product development includes things as the updating of several cost estimation tools, the
adjustments made in standard documents. These improvements help us to deliver even more value to the customer.’ (Manager, M2)
‘We try to optimize our processes in order to lower work pressure and to improve the quality
of our work. When this is done right, we are able to take on more assignments.’ (Employee,
E2)
The degree of openness to innovation also came up in the interviews, most of the interviewees thought that K&R is proactively engaging in innovation.
‘Our choice to innovate is made by ourselves. However, there are several factors that are
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developments we have to keep an eye on and participate in it, in order to stay profitable. ’
(Manager, M1)
‘In my opinion K&R wants to innovate on its own initiative, however, this is not always the
case. I think it will be good to appoint an innovation manager which will be responsible for the gathering of information and the development of innovation strategies’ (Employee, E1)
‘We as an organization are absolutely thinking about possible innovations, currently the work
pressure is high and that diminishes the time available to discuss it. In periods with lower work pressure we think about it more. ’ (Employee, E3)
One manager stated that the drive to innovate came from the environment.
‘The demand for change comes from the environment. In short-term nothing has to be
changed, in the long run we have to change as an organization in order to cope with the network economy.’ (Manager, M3)
Also the employees at K&R mentioned the fact that they conduct project evaluations in which is discussed what should have gone better and what was done right for separate projects. These project evaluations help K&R in order to improve their processes and innovate internally. However, currently project evaluations are not used to full extend.
‘The project evaluations should be presented to the full team of K&R, this in order to prevent
others making the same mistakes. Also it is a nice opportunity to learn about the good things that came from a project. At the moment not all project evaluations are being presented and this hinders the progress of K&R.’ (Employee, E4)
‘Project evaluations also come with possible innovations. Together we think about what went
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discuss this with the entire team, then we will keep this in our minds and apply these optimizations on future projects.’ (Managers, M2)
During the interviews, the ability of the workforce to generate new ideas has been discussed. The ability to generate new ideas is important for innovation.
‘In my opinion, idea generation is both coming from management and employees.’ (Employee, E6)
‘I try to bring up new ideas or perspectives about processes or products. At K&R Consultants
it is very important that you try to think about improvements. I’ve also brought up ideas that are being implemented right now that make our internal processes more efficient. I think that most of the ideas are generated by the employees, however, the most defining new ideas are being generated by management.’ (Employee, E2)
‘Especially the new employees, who have a fresh perspective on the organization, come up
with many good ideas and points for improvement.’ (Employee, E2)
‘New ideas are mostly initiated by management. This is not intended. Every employee can
bring up new ideas when they have a specific development or improvement in mind. I rather see more ideas from employees, so I will be trying to realise this more in the future.’
(Manager, M1)
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The ‘personnel handbook’ states that the organizational culture should be balanced in between the pragmatic culture and the normative culture. At the moment however, this seems not the case. It looks like K&R Consultants is currently more pragmatic, the focus is on increasing their profit margin. Time for brainstorming about innovations is currently not available because profit goals have to be reached first. During the project evaluations, as mentioned by the managers, possible improvements of the business processes come forward. These are mostly minor changes and therefore seem to relate more to incremental innovation. It seems that K&R is proactively searching for possible ways to innovate, and that they are responsive towards the environment but that there is currently not a lot of time to put these insights into practice due to the high work pressure. K&R consultants’ organizational culture seems to stimulate idea generation among its employees. The employees are of the opinion that they can contribute by bringing up improvements to make processes more efficient and that these improvements are actually implemented.
Organizational Structure
Several topics came up in the interviews regarding the organizational structure of K&R Consultants. The topics that were discussed are: (1) degree of centralization, (2) standardization, (3) formalization, (4) autonomy, and (5) external workforce.
Degree of centralization. Regarding the decision making process of K&R Consultants,
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‘Strategic decisions have to be made by the management of K&R, however, it could be good
to sit together with the entire team in order to discuss the strategy that we have planned out for K&R and receive feedback.’ (Manager, M3)’
‘Decisions that are being made happen decentralized. Business decisions are taken by us
four. Currently we don’t receive much feedback from our employees, we would like to see this more in the future.’ (Manager, M1)
‘Regarding projects, many decisions are being submitted by junior project managers, later
this will be communicated with the project managers. Some decisions I take on my own, however, when I feel the need to discuss a decision I will do that.’ (Employee, E1)
Still, there was also an employee that deemed the decision making process of K&R consultants centralized.
‘In my opinion most decisions are made by management. I can contribute to that decision by
giving feedback in team consultations.’ (Employee, E5)
Standardization. Taking in mind the fact that a high degree of standardization often does not
improve an organization’s ability to innovate, questions were asked about the degree of standardization at K&R Consultants.
‘In a way there is a standard procedure for doing our work, this is because our projects
mostly have the same structure. Within this structure an employee has a lot of freedom to deliver a good result.’ (Manager, M1)
‘Every project is unique. Though, there are products that we use more often on different
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The employees agree on the fact that standard products have been developed and used. Next to that, they stress the fact that within these standards there is a lot of room for creativity because every project requires a different approach.
‘We are working within a certain framework, nonetheless there are possibilities to bring in
your own ideas. The standard framework is only twenty or thirty percent, the rest are choices that you make on your own. ’ (Employee, E1)
Formalization. Formalization has also being discussed during the interviews, questions were
asked about strict rules or procedures that have to be followed. Generally all employees at K&R Consultants agreed that there was a low degree of formalization.
‘Within our organization we have no strict rules or policies, if you as an employee possess the
basic professional values, such as meeting deadlines, communicating clearly, and being honest, the rules will not be strict. If an employee does not possess these values, the rules will get stricter for him or she and this will also imply a loss of autonomy.’ (Employee, E1)
‘Our organization is mostly built upon trust, for example, nobody checks the hours that you
make every week.’ (Employee, E2)
One employee also agreed that there was low formalization but stressed the importance of being dressed representatively.
‘I do not think that there are any strict rules or procedures that we have to follow. You
have to be neatly dressed, beyond that you can do what you like whilst keeping in mind that as an employee you have to be open and honest.’ (Employee, E6)
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rules that employees should take into account. However, they did mention that these rules are basic and common sense for most people.
‘We have a guideline in which the desired behaviour is drawn up, however this does not mean
much. The morality is present among the employees, if one of them does not behave like this, it will be discussed.’ (Manager, M1)
‘Our employees have to develop themselves, if there is no progress we have to be strict and
this will have consequences. Eventually they could be fired. At K&R Consultants an employee gets a lot of chances, but if an employee does not function the way we want him or her to we have to be strict in order to protect the employee and his or her colleagues.’ (Manager, M3)
Also, the company document entails information about how to behave as an employee at K&R Consultants. In the company document 6 rules have been drawn up: respond quickly to customers, be approachable, work together based on trust and act transparently, act honestly, be fair and equitable, and, you shall not do politics. Next to that there is written that an employee has to be dressed representatively both intern and extern.
Autonomy. Another aspect of the organizational structure that has been discussed in the
conducted interviews autonomy. Most employees emphasized the fact that they get a lot of responsibilities in a relative short period and that they enjoy this as well. Also, some interviewees explain that have a lot of freedom in how they want to cope with their work and working hours, as long as they meet their deadlines.
‘Since I started working at K&R consultants I have been thrown into the deep end, I find this
accommodating since I get a lot of freedom and this way I think I learn quicker and more.’
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‘In my opinion I get a lot of freedom in how I want to conduct my tasks. No one is watching
what I am doing as long as I deliver the required work. I think that the management team only knows 40% of what I am doing, the rest is grey area for them I assume.’ (Employee, E4)
One employee explained that the amount of freedom he or she received was not accommodating.
‘There is no guideline of how to do your job, I have a lot of freedom to do my job how I think
it is best. I also have a lot of responsibilities, sometimes I like this and sometimes I do not. I would rather be supported a little bit more at certain times.’ (Employee, E7)
External workforce. Over the past years, K&R Services developed an external workforce.
This external workforce exists of several independent technicians that are hired by K&R consultants when needed. The use of this external workforce has reduced the amount of employees that have to be hired full-time by K&R Consultants. The external workforce has proven to be useful according to the management, although the amount of people in this external workforce has to grow. Also the flexibility of this workforce is not what K&R Consultants wants it to be. One of the managers mentioned that the work that is being done by those externals is not value adding.
‘Currently we are working with externals. Sometimes working with these externals creates
problems because they are not as flexible as we would like them to be. The amount of people in this external workforce also has to grow in order for it to become more flexible.’ (Manager,
M2)
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The employees discussed the fact that they are now able to just buy the technical knowledge and expertise and that it is no longer necessary to have those technicians or engineers internally. In their opinion the amount of good externals that could be possibly hired should grow in the future.
‘An improvement could be the growth of the network of externals to decrease our internal work pressure.’ (Employee, E6)
‘At the moment we no longer need to have a lot of technical knowledge internally, we can buy
this knowledge via our external workforce.’ (Employee, E1)
To conclude, currently a low level of centralization is present at K&R Consultants, both managers and most of the employees are of the opinion that employees are able to contribute to important decisions being made in the organization. During the interviews with the employees it became clear that a high level of autonomy was present at K&R Consultants, employees got a lot of responsibilities and freedom in a relatively short period. Regarding standardization the organizational members mentioned that their work was not standardized, there were certain formats or documents in place that have to be followed. However, this only accounts for a minimal amount of their job, the rest is to fill in by themselves. Within K&R Consultants a low level of formalization seems present. Organizational members did not feel that any strict rules or procedures were in place as long as a person possesses the basic professional values. K&R Consultants’ external workforce creates more freedom to think about innovation because work pressure is decreased by structuring the organization in a way that externals carry out work that is not value adding.
Employee Development
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this was coming from, the managers said that this was due to the high amount of new employees that were hired. Most of the current employees are working at the organization for approximately two years.
‘Currently we are very busy with reaching our intended profit margin, therefore implementing
new ideas is not easy right now. Especially with the learning path the employees are currently undergoing. In the future I hope that they will keep the organization running so that we as management can think and implement innovations.’ (Manager, M1)
‘When the learning path of our employees has been completed we will have more time and resources to think about innovation, so after this development we could try to radically innovate.’ (Manager, M2)
‘We have to understand that our employees are going through a development process at this
moment, they do not understand everything yet. We have to make the assignments more complex for our employees in order for them to learn. However, they cannot be too complex.’
(Manager, M3)
Management also undertook action in order to provide more guidance during the employee development process.
‘Currently we have decided that I will be working more at the office instead of being at
customers. I will take on the task of guiding the new employees until the organization is back on its feet. I expect that this will take a year approximately.’ (Manager, M1)
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path, which indicates that management currently has the time consuming task of guiding this process. Therefore K&R Consultants is now focusing on reaching the intended profit margin and does not have much time available for the generation or implementation of new ideas. The learning process of the employees is estimated to take about 2 years. After that the new employees should be able to keep the organization running and work pressure will be lower. So, the lack of developed employees indicates that the organization is in an early stage at the moment. This influences the ability to generate new ideas and implement innovations.
DISCUSSION & CONCLUSION
This study examined how organizational culture and organizational structure influence the ability to organize for innovation in service SMEs. The literature indicated that there were several important influential factors in this construct. In the discussion section the research question will be answered following the reasoning of both the theory section and the results section. The research question corresponding with this paper was:
‘’ How do organizational culture and organizational structure influence the ability to organize for innovation of SME service firms?’’
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Innovation in SME service firms
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however mostly minor improvements which imply incremental innovation. De Jong et al., (2003) indicate that it is difficult for front workers in a service firm to innovate, especially in smaller service firms because the day-to-day job of the employees has to be continued at the same time, this implies that employees can only partially think about potential developments or innovations because they have to focus on their jobs. In the case of K&R Consultants this is also the fact. Multiple respondents indicated that as an organization they were absolutely thinking about possible innovations, however, the current work pressure is very high and that diminishes the time available to generate innovations and implement them. It seems that the organizational culture is preventing K&R consultants from organizing in such a way that they can produce radical innovations, since have a more pragmatic culture (Hofstede, 2016) that implies that results are the highest priority, not the way the results are reached. Minor improvements or incremental innovations are less dangerous because employees can introduce those whilst conducting their day-to-day jobs (De Jong et al., 2003) and therefore better fitting.
Proposition 1: Incremental innovations have a better fit with the organizational culture of SME service firms than radical innovations.
Organizational Culture and Innovation
37
and the implementation of those ideas (Denison & Mishra, 1995). Adaptability corresponds to the ability to redefine the character of the organization as a reaction to a influential change, to succeed as an organization, norms have to be developed in order to support the capability of receiving and understanding signals from the environment and process these signals into changes if necessary (Denison & Mishra, 1995).
K&R Consultants started hiring people who possess the needed broader perspective and who can really add value to the company. As the results point out, most of the employees saw the organization as very open and flat. This way, employees are able to interact a lot with each other and can ask everything they want. The short communication lines enable K&R Consultants to react fast. These derivatives of the present organizational culture make that K&R Consultants has become a flexible firm. This flexibility is needed in to adapt to the turbulent environments and gain and sustain a competitive advantage (Zhou & Wu, 2010).
38
K&R Consultants really focuses on innovating its business. The organization is in front of their competition because they are probing into the future more. K&R Consultants is proactively trying to look for possible trends in the market. The data revealed that the organization is taking things into account as the network economy and BIM, they clearly see that things have to change at their firm. This implicates that the organization is responsive. Understanding environmental changes and picking up potential signals positively affects organizational innovation (Jayaram, Oke & Prajogo, 2014).
Proposition 2: An organizational culture focused on involvement and adaptability can improve the ability to organize for innovation of service SMEs.
Figure 1. The influence of organizational culture on the ability to organize for innovation of service SMEs
Organizational Structure and Innovation
Centralization and Autonomy. Yang, Zhou and Zhang (2015) emphasized that
39
centred at the top-level of the organization. Employees felt that they could contribute even to the business or strategic decisions that were being made by management. The results pointed out that employees have the power to make decisions early on in the project.
With respect to SME service firms it seems more likely that a low level of centralization will benefit the firm more since the present workforce is not enormous. In the case of incumbents, centralization could indeed foster organizational innovation because otherwise the coordination of information flows becomes very difficult.
Proposition 3A: A low level of centralization fosters the ability to organize for innovation of SME service firms.
Regarding the degree of autonomy, Burcharth, Præst Knudsen and Søndergaard (2017) stated that employees are provided with skills and resources and allowing employees to feel free in conducting their work has a positive effect on the chances of finding new opportunities for innovation because employees get the change to try assignments their own way. The employees of K&R consultants perceived that the degree of freedom that they received is very high. They indicated that they are being thrown into the deep end and most of them find this a positive thing since this way they are able to learn quicker and more.
Following the same reasoning as with centralization; with respect to SME service firms it is better to have a high degree of autonomy. Currently the amount of employees is not very high and therefore daily processes stay manageable with a high degree of autonomy. If the amount of employees was as big as an incumbent’s workforce, an organization most certainly would have more problems keeping daily business manageable.
40
Formalization. De Jong et al., (2003) stated in their paper that when a firm has many rules
and procedures, this will decrease creativity and therefore hinders innovation. However a certain degree of formalization fosters the execution speed of the organizational innovation process by providing the organization with guidelines which are able to stimulate effectiveness and efficiency. The results show that K&R has certain rules and policies in place, but not too much. The managers described that employees get a lot of chances to prove themselves, however when an employee does not function the way he or she is supposed to K&R Consultants has to be strict and impose rules and procedures regarding the employee in order to protect the colleagues of this employee. The employees that are currently working at K&R consultants were not under the impression that there were strict rules or procedures. As the results stated, employees were of the opinion that if an employee possesses the basic professional values, such as meeting deadlines, communicating clearly, and being honest, there will be no strict rules or procedures. This implies that at K&R there is a balanced degree of formalization, since most employees are currently not aware of the fact that there are any rules or procedures in place. However, management indicated that there were indeed formalized rules and procedures when necessary.
Proposition 4: A balanced degree of formalization seems to fit SME service firms the best with respect to the ability to organize for innovation.
Standardization. In the article of Wright and Wylie (2012) the influence of standardization
41
hinders the development of new and decisive ideas. This is due to a low level of variety in work, people keep doing their work the same way and see less chances of improvement.
In the case of SME service firms, a low level of standardization fits better because service firms most of the time do not have capital intensive processes in place. Also the benefits of economies of scope do not account for SME service firms.
Proposition 5: Standardization of work within SME service firms will decrease the amount of organizational innovation conducted.
External workforce. The results section revealed the importance of the external workforce
K&R Consultants has at its disposal, though there is still room for a lot of improvement. The network of externals provides K&R Consultants with the ability to buy in expert knowledge. In this way those people do not have to be hired full-time. Also the results section showed that the work that is been conducted by those externals does not add value. At K&R Consultants only value adding activities are being executed. In the past, employees of K&R Consultants were doing the job the externals currently do themselves. These activities are very time consuming and this implied less time for thinking about organizational innovation.
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Figure 2. The influence of organizational structure on the ability to organize for innovation of service SMEs
Implications
This study contributed to literature by showing how organizational culture influences the ability to organize for innovation of service SMEs. Evidence is provided that two traits of organizational culture are able to influence the ability to organize for innovation, namely involvement and adaptability. Involvement, which increases the organizational commitment and quality of decisions made by employees, and adaptability, which implies the ability to change as a reaction to signals in the environment, are able to produce an organizational climate for innovation (Denison & Mishra, 1995).
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standardization, such as economies of scope (Tassey, 2000), do not apply for service SMEs. A balanced degree of formalization within a service SME proves to be the best way to engage in innovation, since a low degree creates openness in the organization needed in order to be innovative, and a high degree fosters the execution speed of innovations. Both are deemed to be necessary.
Subsequently, the possession of an external workforce seems to be extremely useful for service SMEs in the achievement of an innovative climate. Due to the external workforce, which could be hired when needed, employees are able to spend less time on their day-to-day activities (De Jong et al., 2003) and spend more time on idea generation and implementation.
The most important managerial implication is that this research enables managers to make decisions regarding the organizational structure they want to put in place in order to be innovative as an organization, they know where they should position their organization on centralization, autonomy, formalization, and standardization. Next, this research provides managers with the knowledge of which traits of organizational culture could help creating an innovative climate in a service SME, namely involvement and adaptability. Also, the creation of an external workforce could provide to be very useful to managers. This way managers can outsource activities that are not value adding in order to decrease the work pressure of the employees that are employed full time. This implies that the employees have more time to generate ideas and implement those ideas.
Limitations and Future Research
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however this implicates that these results are not generalizable and therefore could not be applied to any other service SME. To address this limitation, more case studies should be conducted on this subject in order for the results to be conclusive. Another limitation is the short duration for which some of the interviewees are currently employed at K&R Consultants. This could imply that these employees do not possess sufficient knowledge about the organizational culture of K&R Consultants and how the organization behaves regarding innovation. Future research could focus on service SMEs which have a larger and more experienced workforce than the case studied in this research. A larger and more experienced workforce could imply that the employees have a better understanding of how their company engages in innovation and they could have a better perspective on their organizational culture. Third, additional research is needed on the relationship between organizational culture and innovation in service SMEs. In this study, the relationship between culture and innovation is influenced by two organizational traits namely, involvement and adaptability. In order to understand more about this relationship future research could focus on other traits of organizational culture that can be of influence on the ability to organize for innovation.
Conclusion
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Acknowledgements
I would like to express my thanks to I. Estrada Vaquero, and acknowledge the suggestions and comments made on previous drafts of this paper. Also, I would like to thank the interviewees employed at K&R Consultants for their support, making time to provide me with the valuable information of their company, and enriching me with their perspectives.
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APPENDIX A. CODING SCHEME
Category Code Definition Source
Organizational Culture Organizational Culture ‘a pattern of basic assumptions, invented, discovered, or developed by a given group, as it learns to cope with its problems of external adaption.
Schein, E. H. (1990). Organizational culture (Vol. 45, No. 2, p. 109). American Psychological Association.
Feedback Structure Feedback is defined as a dynamic communication process occurring between two individuals that convey information regarding the receiver’s performance in the accomplishment of work-related tasks.
Baker, A., Perreault, D., Reid, A., & Blanchard, C. M . (2013). Feedback and Organizations: Feedback is Good, Feedback-Friendly Culture is Better. Canadian Psychology, 54(4), 260-268. doi:10.1037/a0034691
Innovation Innovation Organizational innovation refers to the introduction of any new
product, process, system, organizational structure, or new managerial approaches into an organization.
Azar, G., & Ciabuschi, F. (2017). Organizational innovation, technological innovation, and export performance: The effects of innovation radicalness and extensiveness. International Business Review, 26(2), 324-336.
Radical Innovation Radical innovations are revolutionary changes in technology that represent clear departures from existing practices. They have the potential to transform a technology field and fundamentally improve a firm’s competitive position.
Xu, C., & Yan, M . (2014). Radical or Incremental Innovations: R&D Investment Around CEO Retirement. Journal Of Accounting, Auditing & Finance, 29(4), 547-576.
Incremental Innovation Incremental innovations have lower technological and economic potential, but are characterized by quicker payoffs and lower cash flow uncertainty.
Xu, C., & Yan, M . (2014). Radical or Incremental Innovations: R&D Investment Around CEO Retirement. Journal Of Accounting, Auditing & Finance, 29(4), 547-576.
Employee Creativity Employee Creativity Employee creativity refers to the creation of valuable, useful new products, services, ideas, procedures, or processes by individual workings working together in a complex system.
Woodman, R., Sawyer, J. & Griffin, R., 1993. ‘Toward a Theory of Organizational Creativity’. Academy of Management Review, 18 (2), pp. 293-321.
Employee Development Employee Development Employee Development refers to the extent in which employees have completed their learning path.
Evers, W.F.A., (2017). ’ How do organizational culture and organizational structure influence the ability to organize for innovation in serivce SMEs? The case of K&R Consultants.’
Organizational Structure Organizational Structure Organizational structure indicates an enduring configuration of tasks and activities.
Zheng, W., Yang, B., & M cLean, G. N. (2010). Linking organizational culture, structure, strategy, and organizational effectiveness: M ediating role of knowledge management. Journal of Business research, 63(7), 763-771.
Centralization Centralization refers to the extent to which decision-making power is concentrated at the top levels of the organization.
Caruana, A., M orris, M . H., & Vella, A. J. (1998). The effect of centralization and formalization on entrepreneurship in export firms. Journal of Small Business M anagement, 36(1), 16. Formalization Formalization refers to the existence of formal rules and regulations
and the organization's efforts to enforce those rules.
Caruana, A., M orris, M . H., & Vella, A. J. (1998). The effect of centralization and formalization on entrepreneurship in export firms. Journal of Small Business M anagement, 36(1), 16. Standardization Standardization refer to rules which imply similarity, uniformity and
continuity of behaviour, actions or beliefs.
Wright, Sturdy & Wylie, 2012. M anagement innovation through standardization: Consultants as standardizers of organizational practice. Research Policy, 41(3), 652-662.
Autonomy Autonomy is defined as the extent to which a job is perceived to allow freedom, independence, and discretion to schedule work, make decisions, and choose the methods used to perform tasks .
Hackman, J. & Oldham, G., 1975. ‘Development of the Job Diagnostic Survey’. Journal of Applied Psycholog,. 60 (2), pp. 159-170.
External Workforce External Workforce is defined as a group of external people that can be hired when more capacity is needed.
