Knowledge Generation in Dutch SMEs:
The Influence of Organizational Culture and Organizational Structure.
“For any organization to survive and have a chance of growing, its rate of learning has to be equal to, or greater than, the rate of change in its external environment”
# Karl Wig 1993
“Nam et ispa scientia potestas est” (in and of itself, knowledge is power)
# Francis Bacon, 1597
© 2013 University of Groningen
Knowledge Generation in Dutch SMEs:
The Influence of Organizational Culture and Organizational Structure.
By: Martijn Reitsema Student number: 2213613
July 9th, 2013
University of Groningen, the Netherlands First supervisor: Dr. ir. H. Zhou Second supervisor: Dr. O.A. Belousova
Words: 12,668
ABSTRACT
Purpose – The main aim of this study is to determine what type of organizational cultures and organizational structures influence the level of knowledge generation in small and medium sized enterprises.
Design/methodology/approach – A quantitative research among 92 small business owners and managers, mainly based on research within the fields of knowledge management and knowledge creation.
Findings – We found that the level of family and adhocracy cultures in organizations positively relates to the level of KG. It also appeared that decentralized and centralized structures have a positive effect on the level of KG.
Practical implications – Certain organizational cultures and organizational structures are beneficial for knowledge generation. However, structures and cultures that not facilitate knowledge generation, not necessarily have a negative impact on the level of knowledge generation. Because they can be compensated by other means.
Originality/value – The study is a response to the need for empirical evidence and understanding of the individual items of knowledge creation and it is an elaboration on the article of Song et al. (2006).
ACKNOWLEDGMENTS
I would like to thank some people who were closely involved during this research, in particular:
My supervisor Dr. ir H. Zhou for all support and valuable feedback.
My second supervisor Dr. O.A. Belousova for her valuable feedback.
The small business owners and managers that participated in this research.
My fellow students of the master small business and entrepreneurship for their support.
Finally I would like to use this opportunity to thank Anuschka de Groot who reviewed this thesis and provided me with feedback.
I really hope you enjoy reading my master thesis.
Martijn Reitsema
TABLE OF CONTENT
1. Introduction ... 6
2. Literature and background ... 9
2.1 Knowledge generation ... 9
2.2 Organizational culture, structure and KG ... 9
2.3 Organizational culture ... 10
2.4 Organizational structure ... 14
2.4.1 Division of work and KG. ... 15
2.4.2 Coordination of work and KG. ... 16
2.5 Conceptual model ... 17
3. Methodology ... 19
3.1 Data collection ... 19 3.1.1 Procedure ... 20 3.1.2 Sample ... 20 3.1.2 Method to be tested ... 20 3.2 Measures ... 20 3.2.1 Dependent variable ... 20 3.2.2 Independent variables ... 214. Results ... 24
4.1 Bivarate statistics ... 24 4.2 Hypothesis testing ... 275. Discussion & conclusion ... 28
5.1 Findings ... 28
5.2 Implications ... 30
5.3 Limitations and further research ... 31
5.4. Conclusion ... 32
7. References ... 33
Appendixes ... 38
Appendix A: Questionnaire ... 38
1. INTRODUCTION
The society we live has gradually been turning into a "knowledge society". This is a widely observed and acknowledged phenomenon which is still going on at this particular moment (Toffler, 1990; Dubina et al., 2012). Globalization and other fast changes in industries increased the importance for companies to produce new knowledge in order to stay competitive. Knowledge is proposed as the most important source of competitive advantage and thereby seen as a critical driving force for business success (Song et al., 2006; Spender and Grant, 1996). Knowledge overtook the center role in the firm from the traditional land, labor and capital, therefore understanding the factors influencing knowledge generation is very important to researchers and managers (Song et al., 2006). Thereby the insights can help governments to focus their efforts and policies, on certain groups that are most likely to be successful in generating knowledge.
The growing awareness for the importance of knowledge generation resulted in a wide range of research about this topic. Under its own name as well under the names of absorptive capacity, information processing and market orientation many researches about knowledge generation were conducted (Griese et al., 2012). One of the prominent theories on knowledge generation comes from Nonaka (1994). According to Nonaka (1991), in a changing environment, the only secure source of sustainable competitive advantage is knowledge. Organizations dealing with environmental uncertainty should therefore not only try to use information but also generate new information and knowledge (Nonaka, 1994). It means that knowledge generation is a continuous dialogue between tacit and explicit knowledge rather than simply processing data. In line with Nonaka, Song et al. (2006) state that to keep up with or to stay ahead on competition, knowledge should be constantly improved, as knowledge in itself is static.
the structure of the organization. Organizational structure is seen as a basic mechanism to influence learning and knowledge generation among organizational members (Fiol and Lyles, 1985; Martinez-Leon and Martinez-Garcia, 2011). Although severable studies found structure and culture to be important for the knowledge generation process, few existing studies focus on the roles that culture and structure play in this process. Therefore additional research is needed to gain understanding of the relationship between these constructs (Gray and Densten, 2005; Song et al., 2006; Martinez-Leon and Martinez-Garcia, 2011; Rai, 2011).
Knowledge generation and knowledge management used to be viewed from the perspective of large firms. Frey (2001) shows the increased importance for small and medium sized enterprises to manage and generate knowledge as it affects the organizational performance (Salojarvi et al., 2005). SMEs play considerable roles in development of employment (Henrekson and Johansson, 2010). Sixty percent of the jobs in the Netherlands are within SMEs and as much as ninety-nine percent of all Dutch companies is small or medium sized1. Managing knowledge is an important capability for SMEs to master as it is their most critical resource. As a matter of fact the success of SMEs can be linked to how well they manage their knowledge. Companies who can leverage their knowledge successful often witness increased efficiencies in activities, more successful innovations and better foresee trends and patterns in the market place (Nonaka and Takeuchi, 1995; Desouza and Awazu, 2006). So firms can compensate a lack of land, labor and capital by using their knowledge. This is especially advantageous for SMEs as they usually have few financial resources to spend on developing resources as land labor and capital (Desouza and Awazu, 2006).
We analyze knowledge generation within SMEs by examining the role of organizational culture (family, adhocracy, market and hierarchy culture) and structure (specialization, decentralization, standardization and formalization) in the generation of new knowledge. This study elaborates on knowledge generation as discussed by Song et al. (2006) and knowledge generation is viewed from an overall perspective (i.e. companywide). The main question is formulated as follows:
What kind of organizational cultures and organizational structures relate to the level of knowledge generation within SMEs?
1
This main question is explored by dealing with the following sub questions: 1. What kind of organizational cultures exist?
2. How do these different cultures relate to the level of knowledge generation in comparison to each other?
3. What are the types of organizational structure?
4. How do these types of organizational structure relate with the level of knowledge generation?
2. LITERATURE AND BACKGROUND
2.1 Knowledge generation
As mentioned, knowledge is critical for firm success. We define knowledge in accordance with Nonaka (1994) – one of the big names in the field of knowledge - who states: “information is a flow of messages” and knowledge is: generated and organized information, anchored on the commitments
and beliefs of its holder. Human action is an essential aspect of knowledge because, that is where
knowledge is generated. Firms have to deal with increasing environmental complexity. In order to deal with this complexity, firms - or actually it’s employees - should not only try to use information but also generate new information and knowledge (Nonaka, 1994). Firms should try to achieve a sustainable competitive advantage by generating knowledge on a continuous base (Nonaka and Takeuchi, 1995). As we saw in the introduction, knowledge generation (KG) can be a corporate characteristic of firms, but it can also be a consequence of individual characteristics and skills of firm members. A broad concept of KG should involve management of knowledge processes as well individual actions, behavior and intensions of organizational members (Lane et al., 2006). In this study KG is defined as: “the enlargement of the knowledge of individuals, and especially the
organization-wide generation of new knowledge pertaining to current and future organizational needs” (Song et al.,
2006).
Useful knowledge not only recedes within the firm, knowledge generated through relationships can provide beneficial findings about: customers, new markets, trend and opportunities, new business approaches and ways to organize processes (lane and Lubatkin, 1998; Rindfleisch and Moorman, 2001). With this information firms gain insight into potential innovations, find new approaches and develop employees which can enhance product development and success (Griese et al., 2012). Therefore, all the relationships firms have with customers, suppliers and intermediaries can be considered as an important source to learn from and to obtain valuable knowledge (Griese et al., 2012). Previous research on KG was criticized because of the strong focus on the internal organization (Lane et al., 2006; Foss et al., 2010). Questions of Alcorta et al. (2009) for instance, are especially internal focused. The question of Song et al. (2006) pay attention to internal and especially the external information gathered. Their questionnaire is concise and the questions are easy to read and understand. In other researches (e.g. Kao et al., 2011) KG is divided in severable areas. In this study we look at KG from a more general perspective.
2.2 Organizational culture, structure and KG
mention the importance of organizational members. The organizational members are key because, they interpret the information, place it into a context and accordingly preserve it as knowledge.
In the following paragraphs we discuss organizational culture (OC) and organizational structure (OS), which are both used to influence and control employee behavior (Zheng et al., 2009). OC by influencing employees norms, beliefs and values, which has a high impact on the actions taken (Vries and Miller, 1984; Zheng et al., 2009). OS influences employee behavior by shaping patterns and frequencies of communication between employees, by determining where decisions are made and by effecting efficiency and effectiveness of new idea implementation (Zheng et al., 2009). So OS is more about shaping the environment where KG has to take place. We therefore expect OC and OS to influence the employees behaviour towards KG and therewith the level of KG in the organization. The following paragraphs go deeper into OC and OS, starting with OC.
2.3 Organizational culture
OC is defined in many different ways (Kroeber and Kluckhohn, 1952; Shiu and Yu, 2007). However, a distinction between two main perspectives can be made. On the one hand, the sociological point of view, sees culture as an attribute, possessed by the organization. Differences between cultures can be identified and cultures can be measured and changed. On the other hand, the anthropological point of view states that organizations are cultures. Culture is seen as a metaphor that describes what organizations are and culture should be explained independently of other aspects (Cameron, 2004). Most research on this topic agrees with the sociological point of view (Cameron and Ettington, 1988; O’Reilly and Chatman, 1996; Schein, 1996). In this study culture is seen as “how things are in an organization” or the ideology that recedes in employees their mind. Culture is defined as: “the values,
beliefs and hidden assumptions that organizational members have in common” (Cameron and Quinn,
1999; Naranjo-Valencia et al., 2011).
Figure 1 Levels of culture
Severable frameworks for analyzing organizational culture are developed (e.g. Goffee and Jones, 1998; Trompenaars and Hamperden, 1998; Alvesson, 2002), but there is hardly any consensus regarding a general theory for organizational culture (Rai, 2011). One of the most recent and comprehensive frameworks of OC comes from Alvesson (2002), who analyzed the literature and identified eight underlying dimensions – exchange regulator, compass, social glue, affect regulator, sacred cow, disorder, world-closure and blinders. We however chose to use the CVF in this paper as the CVF is one of the most significant and extensively used models for constructing organizational structure profiles (Cameron and Quinn, 1999). Other studies with respect to culture and knowledge also used this framework (e.g. Gray and Densten, 2005; Rai, 2011). Another advantage of the CVF is that it provides a comprehensive structure instead of only describing separate characteristics of structure. The CVF (figure 2) can help individuals to identify underlying cultural dynamics that exist in their organization. The framework contrasts two extremes: 1) flexibility, dynamism and discretion versus stability, order and control and 2) internal orientation with a focus on integration, collaboration and unity versus external orientation with a focus on differentiation, rivalry and competition (Cameron and Quinn, 1999). These two dimensions frame four different cultures namely, the family, adhocracy, market and hierarchy culture (figure 2). The CVF is based on six underlying dimensions which determine the organizational culture: 1) the different dominant characteristics, 2) different types of leaders, 3) different ways of managing their employees, 4) different kinds of “glue” that hold the organization together, 5) different strategic emphasis and 6) different ways of determining the organizations success.
Artifacts
Values
Basic assumptions
Visible structures and processes (hard to decipher)
Strategies, goals and philosophies (espoused justifications)
Flexibility and discretion Internal focus and integration External focus and differentiation
Stability and control
Figure 2: Competing Values Framework
Family culture
When an organization scores high on family culture, the workforce has a high level of trust and collaboration and low level of conflict (Fong & Kwok, 2009; Tseng, 2009). As one can imagine, this makes that employees more likely share their knowledge and as a result knowledge generation takes place (DeLong and Fahey, 2000). In addition, the family culture is typified as a friendly place to work where people share experiences, closely collaborate and teach each other. The family culture is therefore suitable for KG (Tseng, 2009). It is comparable with an extended family and best friends at work climate. The leaders can be seen as parent figures and coaches. In the organization there is an atmosphere of loyalty, tradition, and collaboration. The organization emphasizes teamwork, participation, and consensus. In such a work environment, people are stimulated to generate knowledge as there is high interaction among employees (Tseng, 2009). Furthermore, status differences between organization members and leaders are low. According to Bendersky (2012), status differences may lead to conflict and less trust and therefore reduces KG within organizations.
The family culture is characterized by high employee commitment, which is one of the most important conditions for KG (Song et al., 2006). Commitment makes employees agree with organizational goals and that also enlarges KG (Pitt, 1990).
On the other hand, one should be aware, that when family culture dominates the business, group thinking may arise (McCauley, 1989). All heads are in the same direction and as a consequence, although knowledge will be shared and generated, it may give a one-sided view. Organizational members discuss less alternatives when making decisions and that likely decreases KG. In line with
Family culture
Organizations succeed because of human resources therefore the aim is to achieve employee satisfaction
and commitment.
Adhocracy culture
Change stimulates creation or gathering of new resources. Innovation, by being creative and
taking risks, is the main aim.
Hierarchy culture
Roles are clearly defined and behaviour of organizational members is predictable and in
accordance with goals. This promotes efficiency, timely and
smooth functiong of the organization.
Market culture
Achievement focus causes competition and aggresiveness. Which in their turn cause productivity
and shareholder value. The main aim is to beat competition, increase market share, productivity, quality
this theory Kao et al. (2011) found that family cultures might have a positive effect on KG, however this knowledge is especially focused on management performance and not on product and manufacturing knowledge. Nevertheless, we expect that:
H1: There is a positive relationship between family culture and knowledge generation.
Adhocracy culture
Adhocracy cultures are typed as dynamic, entrepreneurial and creative workplaces. Additionally, employees in this culture are often typed as risk takers and challenge seekers. Cultures where members are willing to undertake fast changes and to takes risks have higher levels of KG (Kao et al., 2011). The adhocracy culture is also typed by high levels of knowledge sharing, which enlarges the individual KG (Tseng, 2009).
The emphasis in this culture is on being at the leading edge of new knowledge, services and/or products. To gain this knowledge, better services and better products innovation and experimentation are necessary. The commitment to innovation and experimentation is what holds the organization together (Cameron, 2004). Experimentation implies there is room to make mistakes, which allows employees to engage in innovative and knowledge generating activities (Naranjo-Valencia et al., 2011). Innovation processes (e.g. product and process improvements) are highly dependent on inputs of new knowledge (Nonaka and Takeuchi, 1995; Gülcan et al, 2010). In summary, adhocracy cultures are innovation oriented and they need new knowledge as an input for innovation. Thereby the adhocracy culture stimulates employees to involve in knowledge generating activities. Thus, we expect:
H2: There is a positive relationship between adhocracy culture and KG.
Market culture
Phan and Peridis (2000) suggest that KG most likely takes place in turbulent environments. The market culture, in contrast, is characterized by stability and control and it emphasizes competitiveness and results-orientation (e.g. productivity and market share). A negative relation between the market culture and KG could therefore be expected. On the other hand in this culture one is willing to improve processes to become more efficient, generation of manufacturing and processes knowledge often occur in these cultures (Kao et al., 2011).
H3: There is a negative relationship between market culture and KG.
Hierarchy culture
The hierarchy culture is a formalized and structured place to work. Managers in this culture are ought to be coordinators, organizers and efficiency experts. The organizational goals in this culture are stability, predictability and efficiency. As a consequence of that, changes are likely to encounter resistance and there is less interaction with the external environment, what means less KG (Fiol and Lyles, 1985; Quinn and Spreitzer, 1991). Furthermore this culture is kept together by formal rules and policies and that decreases KG (Martinez-Leon and Martinez-Garcia, 2011). The rules and regulation (formalization) and the extreme authority and poor commitment of members (centralization) in this culture, limits the capabilities of the members to involve in innovative activities (Naranjo-Valencia et al., 2011). According to Phan and Peridis (2000) KG rather takes place in organizations with tensions between individuals than in companies which are efficiency oriented and thus tension avoiding. In addition, the only form of KG in this culture is internal KG about management performance (Kao et al., 2011). Thus, we can expect a negative relation between the hierarchy culture and KG.
H4: There is a negative relationship between hierarchy culture and KG.
2.4 Organizational structure
As soon as a firm hires its first employees, some kind of structure develops. The design of this structure comes from the diverse choices that are made as well from unconsciousness and emergent developments (Meijaard et al., 2005). The development of an organizational structure is important as it is expected to be an important determinant of firm performance (Mintsberg 1979; Athey and Roberts, 2001) and as well of organizational learning (Fiol and Lyles, 1985; Leon and Martinez-Garcia, 2011). According to Huber (1991) the purpose of the organizational learning process is generation of knowledge. Mahmoudsalehi et al. (2012) also prove relations between organizational structure and knowledge generation.
2.4.1 Division of work and KG.
The work within companies is divided by use of specialization and decentralization. In this paragraph we elaborate on these two types of OS and thereby we formulate the expectations we have regarding the influence of these two structural types on the level of KG.
Specialization
Specialization is determined by specialization of tasks and specialization of skills. Specialization of tasks is also known as functional specialization (Robbins, 1990) and is closely related to job rotation (Dewar et al, 1980). Specialization of skills relates to “specialized” and “non-substitutable” employees (Robbins, 1990; Mintzberg, 1983). As mentioned, functional specialization is very much related to job rotation. Important to note is the negative nature of this relation, meaning that more job rotation implies less specialization. Job rotation is the planned shift of workers through different tasks and different departments (Bobbit et al., 1978). By generating knowledge and information through their work experiences, employees add value to their organization (Bird, 1994). This process is shaped by job rotation and can be used to serve the organization’s information needs. Miner and Robinson (1994) state that new and more varied knowledge will be gained through job rotation. Moving across different layers of the organization and from one activity to another, increases the knowledge, expertise and global vision of employees and thereby changes their perspective. This contributes to organization learning but especially to individual learning (Martinez-Leon and Martinez-Garcia, 2011). Specialization implies less job rotation and therefore limits the generation of knowledge. Because of this, we expect a negative relation between specialization and KG.
H5: There is a negative relation between specialization and KG.
Decentralization
it mainly comes down to is that a higher level of decentralization enhances the interaction between departments, and that is essential for KG (Tseng, 2009). Thus we expect:
H6: There is a positive relation between decentralization and KG.
2.4.2 Coordination of work and KG.
The work within companies is coordinated by use of standardization and formalization. In this paragraph we elaborate on these two types of OS and we again enounce our expectations regarding the influence of these two structural types on the level of KG.
Standardization
Standardization can be defined as: the deliberately shaped routines of activities (Mintzberg, 1983). Besides standardization of work, output and skills there is standardization of behavior, attitudes, norms and values (Jagers en Jansen, 1997; Meijaard et al., 2002). In this study we focus on standardization of activities and goals. Main reason for this is that the other forms of standardization have overlap with the concept of formalization, discussed hereafter. One of the major benefits of standardization is that predictability arises. This, in its turn, improves the coordination of activities (Meijaard et al., 2002). Standardization also facilitates the identification of observed irregularities that point to underlying structural conditions that deserve attention. For this reason standardization directly contributes to organizational learning (David and Rotwell, 1996). This implies that standardization facilitates KG by clarifying the aspects that deserve extra attention.
On the other hand standardization can reduce discussions about how things should be done. Without these interactions between organizational members the organization might miss opportunities to improve business (Sivadas and Dwyer, 2000; Tseng, 2009). Then again, the advantage of standardization is that knowledge can be distributed efficiently among the whole organization (Alavi and Leidner, 2001). Thus, it is expect that:
H7: There is a positive relation between standardization and KG.
Formalization
distribution of knowledge through the organization (Alavi and Leidner, 2001), implying individual KG.
However, formalization creates an environment of control and therewith decreases flexibility in KG. When members have greater freedom in dealing with the demands of their relative tasks and there are less formal procedures and rules, they more discuss alternatives and there will also be more frequent interactions (Sivadas and Dwyer, 2000; Robbins and Decenzo, 2001). This in its turn leads to more KG. Therefore organizations that want to generate knowledge should strive for less formalized structures (Chen and Huang, 2007, Martinez-Leon and Martinez-Garcia, 2011). Thus we expect:
H8: There is a negative relation between formalization and KG.
2.5 Conceptual model
3. METHODOLOGY
A quantitative approach is used to find whether and how the organizational determinants affect KG. One of the reasons for choosing a quantitative research approach was that Song et al. (2006) emphasised the limited number of quantitative studies in the field of knowledge and on KG in particular. In addition a quantitative approach is more suitable to test the propositions in this study. Furthermore the time frame of this study was relatively short and a quantitative approach allowed us to gather the data faster and more efficient than with use of a qualitative approach. This empirical study makes use of a questionnaire that is sent by email to small business owners and manager in the Netherlands. The questionnaire first measures the OS, secondly the level of KG, thirdly the strategic position or the organization and fourth the OC. Questions for these subjects were subsequently derived from Meijaard et al. (2005), Song et al. (2006), Slater and Narver (2000) and Cameron (2004). The questions are part of well tested multi-item scales that have proven to be reliable and valid by these authors. The following sections describe these variables and items.
3.1 Data collection
The small business owners and managers were mainly identified through the authors network and networks of his family and friends. This produced a total of 200 Dutch companies with 2 to 250 employees. We not have the intention to generalize the results of this group to a certain population. Because the list with identified companies was relatively small, all companies were approached. The target response was set at 100 (with a minimum of 80) completely filled in questionnaires.
3.1.1 Procedure
One week after sending the first 100 emails with a link to the questionnaire we received 39 completed questionnaires. In the week after the other companies were sent an email and the first companies were sent a reminder. This yielded another 32 responses. To higher the response rate we contacted the business owners and managers personally by phone or we spoke to them in person. This time we received another 27 responses and this was decided to be sufficient. In total 92 questionnaires out of the 98 questionnaires were usable, which is 94 %. These 92 questionnaires can be used to answer the research questions. Three respondents not filled in the questions about the culture of the organization and therefore the questions about OC are answered based on 89 respondents. The effective response rate is 46% (92/200) which is quite high for a questionnaire sent by email. According to Borgue and Fielder (2003) and de Vaus (2002) a response rate between 10% and 20 % is normal for an online questionnaire. The most obvious explanation for the high response rate is that most of the respondents are known by the author and the other way around, therefore they are more willing to cooperate.
3.1.2 Sample
Responding companies were mainly active in the service sector (29%), trading sector (22%), production sector (17%) and tourism and catering industry (14%). Industry is included in the analysis to control for industry biases. The response group consist for 50% of companies with 25 or less employees, 25% has 26 to 100 employees and 25% has 101 to 250 employees. Possible biases due to the large group of companies in the 2 to 25 employees group are overcome by including size as a control variable. The table in appendix B contains all questions of the questionnaire and some descriptive statistics.
3.1.2 Method to be tested
The average scores of the variables were used for analysing the data. A higher average score on a particular scale indicates a higher presence of the corresponding variable in the organization. Hypothesis are tested with a multiple regression analysis. The eight control variables, the industry control variable, the log size control variable and the independent variable(s) were included in the analysis. Hypothesis of culture were put together in the same analysis as we want to compare the different cultures with each other. The determinants of structure have to be considered separately and therefore the structure variables are tested independently.
3.2 Measures
3.2.1 Dependent variable
applicable to their company. Specific items are inter alia: (1) ”We do a lot of in-house KG”, (2) “Intelligence on our competitors development is generated independently by severable departments” and (3) “We are slow to detect fundamental changes in our industry”. The reliability and validity of these items are tested and confirmed by the authors. We used a subjective measurement for KG, the advantage of this subjective measurement is that small business owners and managers can answer the questions specifically for their firm. In every question they take the importance of KG for their firm into account and the frequency in which knowledge should be generated. For companies without separate departments, question four of the questionnaire (see example 2 above) was inapplicable and thus deleted. This question is about “whether knowledge is generated in severable departments”. KG in companies with departments is therefore based on six questions and for companies without different departments it is based on five questions. The Cronbach’s alpha are 0,84 and 0,81, respectively. Furthermore, question five (see example 3 above) was framed in the opposite direction and therefore this question is recoded. The item scores were combined and their average forms the level of KG. The questions were translated, by a professional agency, during the research of Song et al. (2006). We therefore were able to use a reliable translated Dutch version of the questions.
3.2.2 Independent variables
Organizational culture. This variable was measured with “The Organizational Culture Assessment Instrument©” (OCAI) developed by Cameron and Quinn. The OCAI consists of 6 subjects, of which each is covered by four statements that represent the four cultures. Specific items included: (1)“The organization is a very special place. It is like an extended family. People seem to share a lot of themselves” and (2)“The organization is a very formalized and structured place. Bureaucratic procedures generally govern what people do”. According to Cameron and Quinn (1999), the OCAI is a reliable an valid instrument to measure organizational culture. They refer to severable studies, including Quinn and Spreitzer (1991) and Zammuto and Krakower (1991).
Table 3.1 Cronbach’s alpha for all cultural types (Cameron and Quinn, 1999). Quinn and Spreitzer Zammuto and
Krakower This study Family culture 0,74 0,82 0,94 Adhocracy culture 0,79 0,83 Market culture 0,73 0,67 0,84 Hierarchy culture 0,71 0,78 0,90
Note 1. It appeared that family and adhocracy cultures are highly correlated, in order to prevent unreliable results these cultures are combined.
1300 respondents (Cameron and Quinn, 1999: 183 - 184). The items were set on a scale from 1 (totally disagree) to 5 (totally agree) and appeared to be reliable. This can be seen in the last column of table 3.1, which shows the Cronbach’s alpha of this study. The Cronbach’s alpha are quite high, what means that the questions of the individual variables highly correlate to each other. This means that the questions measure the constructs properly. However, the questions of the family and adhocracy culture variables were highly correlated mutually. This implies that we not know whether the questions measure family or adhocracy culture. Therefore the validity (whether an instrument measures what is intended to measure) of the OCAI in this study might be doubted (Tavakol and Denninck, 2011). The Dutch version of the questions was retrieved from van Muijden et al. (1996).
Organizational structure. The four dimensions of organizational structure were measured by use of the research instrument of Meijaard et al. (2002), whom have developed a concise questionnaire with many aspects of organizational structure. Specific items included: (1)“Employees fulfil multiple jobs/functions”, (2)”there is a high work variety in jobs/functions” and (3)”Non-managerial employees have influence on strategic decisions”. Example 1 and 2 are statements of specialisation. These statements were framed in a negative way and therefore had to be recoded. Meijaard et al. (2002) state that the constructs have acceptable Cronbach’s alpha (>0,6) and scales are direct sums of the set of significantly contributing items per component. In other words they argue that this measurement instrument is reliable and valid. Their research was based on 1411 respondents.
Table 3.2 Cronbach’s alpha for all structural types.
In this study
Decentralisation 0,84
Specialization 0,65
Standardization /
Formalization 0,85
Note 1. Standardization is based on one question, thus the Cronbach’s alpha cannot be calculated. Note2. For specialization 2 questions had to be deleted to get an acceptable Cronbach’s alpha.
Control variables. To control for possible organizational and industry influences ten variables were included, measured by eleven questions. Eight of the variables were retrieved from Slater and Narver (2000) and Song et al. (2006). To start with buyer power, which measures the extent to which customers of the firm are able to negotiate about lower prices; supplier power, is used to measure the extent to which the company itself is able to negotiate with suppliers about lower prices; seller
concentration is the market share of total sales of the four largest companies in the market based on
competitor in that market; relative costs is used to measure the SMEs total average operating costs in comparison to those of their largest competitor in the primary market. Specific items included: (1)”The extent to which customers can negotiate about lower prices is...” and (2)”comparing to the largest competitor in our primary market our turnover is...”. The applicability of the nine statements on the industry or the company, were rated on a scale from 1 (very low) to 5 (very high). Relative size was measured by two questions, the average of these two questions is taken to form this control variable. These control variables are also used by Song et al. (2006) in their research on KG.
4. RESULTS
In this section the outcomes of the data analysis are presented. First the bivarate statistics are presented and accordingly the results of the multiple regressions concerning the average level of KG.
4.1 Bivarate statistics
Table 4.1 Descriptive statistics and research variable intercorrelations. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 1. Knowledge generation 2. Specialization -,094 3. Decentralization ,327** -,238** 4. Standardization ,415** ,171 -,026 5. Formalization ,141 ,197 -,060 ,523** 6. Family and adhocracy
Table 4.2 Regression analysis: level of knowledge generation as dependent variable
Variable Hyp. Model 1
Control variables Model 2 Culture Controls Industry .04 (.04) .025 (.035) Buyer power -.125** (.094) -.160* (.076) Supplier power .059 (.101) .075 (.082) Seller concentration .287 (.076) .142* (.065) Ease of entry .084 (.093) -.005 (.077) Market growth .117 (.084) .016 (.070) Technological change .107 (.08) .029 (.066) Relative size -.042 (.107) -.083 (.090) Relative costs -.031 (.084) .007 (.071) Size Main effects .08 (.077) .161* (.063)
Family (adhocracy) culture H1 .515** (.094)
Market culture H3 .135 (.1)
Hierarchy culture H4 .143 (.092)
F-value 3.16 7.16
R2 .28 .55
Adjusted R2 .19 .48
Notes. N=92; unstandardized regression coefficients are presented; ** P < 0.01 (2-tailed); * P < 0.05 level (2-tailed).
Table 4.3 Regression analysis: level of knowledge generation as dependent variable
Variable Hyp. Model 3
Specialization Model 4 Decentralization Model 5 Standardization Model 6 Formalization Controls Industry .016 (.044) .013 (.043) .03 (.041) .041 (.043) Buyer power -.101 (.093) -.106 (.091) -.130 (.09) -.128 (.094) Supplier power -.014 (.106) .067 (.098) .032 (.098) .058 (.101) Seller concentration .310** (.077) .234** (.076) .265** (.074) .279** (.075) Ease of entry .066 (.092) .080 (.091) .088 (.090) .089 (.094) Market growth .114 (.083) .100 (.082) .087 (.080) .114 (.085) Technological change .109 (.079) .075 (.079) .056 (.079) .102 (.082) Relative size -.008 (.106) -.039 (.104) -.020 (.103) -.038 (.094) Relative costs -.016 (.083) -.012 (.082) -.037 (.081) -.034 (.085) Size Main effects .104 (.077) .105 (.076) .204 (.075) .068 (.084) Specialization H5 -.182 (.093) Decentralization H6 .239* (.099) Standardization H7 .204** (.075) Formalization H8 .031 (.080) F-value 3.3 3.58 3.78 2.86 R2 .31 .33 .34 .28 Adjusted R2 .22 .24 .25 .18
Table 4.4 Summary of results
Hypothesis Predicted direction Support
H1 Family (adhocracy) culture KG + Strong
H3 Hierarchy culture KG - No H4 Market culture KG - No H5 Specialization KG - No H6 Decentralization KG + Moderate H7 Standardization KG + High H8 Formalization KG - No
4.2 Hypothesis testing
Table 4.2 contains the regression results for testing hypothesis concerning organizational culture and KG. Table 4.3 also contains regression results, but then for the organizational structure hypothesis. The tables contain the unstandardized regression coefficient B, which indicates as well the size as direction of a possible relation. The related significance level (i.e. the p-value) indicates the probability that this effect emerges by chance. It is assumed that a relation is not based on coincidence when this significance level is lower than 5%. Finally table 4.4 provides a summary of all the outcomes concerning the hypothesis. Support was found for hypothesis 1 (2), 6 and 7.
Model 1 in table 4.2 provides the results of the regression for the control variables on the average level of SMEs KG. The control variables alone explain around 28 percent (19% adjusted) of the total variance of the average KG level. Model 2 in table 4.2 presents the outcomes of the regression for culture on the average level of KG. In line with our expectations (H1/2), family (adhocracy) culture appears to have a positive influence on KG (B = .52, P < .01). This means that the more a company culture looks like a family/adhocracy culture the higher the level of KG in that particular company. Neither market culture nor hierarchy culture predicts the average level of KG. Thus respectively, hypothesis 3 and 4 are not supported.
5. DISCUSSION & CONCLUSION
5.1 Findings
With this research we gained insight into the effects of organizational culture and organizational structure on the generation of knowledge within SMEs. Organizational culture is divided into four different subcultures and for organizational structure we looked at four different types of structure. It was suggested that family and adhocracy cultures and decentralized and standardized structures would lead to a higher level of KG. Whereas high scores on hierarchy and market cultures and specialized and formalized structures would lead to lower levels of KG. A multiple regression analysis was used to test this model and the results supported four out of eight hypothesis.
First, the findings suggest that the family and adhocracy culture have the greatest impact on the level of KG (H1, H2). There is a high intercorrelation between family and adhocracy culture which might indicate that these cultures are dominant cultures in the same organizations. Narver and Slater (1990) and Kohli and Jaworski (1990) underline the importance of as well an external orientation as an internal orientation for KG. The external and internal focus are complementary and enhance each other. Kao et al. (2011) found that the family culture is suitable for KG of management performance and the adhocracy culture is especially suited for generation of product and manufacturing knowledge. This confirms that the family and adhocracy culture complement each other. Both cultures emphasise the importance of employees (e.g. offer them room to make mistakes and establish employee commitment and loyalty). Human capital is very important for KG and this might explain why these cultures positive relate to KG (Ranft and Lord, 2000). Although there is found a positive relationship one should be aware of group thinking - which is likely to occur in the family culture - and its negative impact on KG. Group thinking namely might align visions of members and as a consequence reduces different point of views (McCauley, 1989).
market cultures about manufacturing. This implies that these cultures might not have high general levels of KG but might have outliers on specific areas.
Third, the results also reveal a positive relation between decentralization, reflecting the distribution of information and decision making power throughout the organization, and the level of KG (H6). This is in line with previous studies which found that decentralization has by far the highest effect on the intensity of knowledge sharing (Kasper et al., 2006) and that decentralization has a positive effect on knowledge generation (Martinez-Leon and Martinez-Garcia, 2011). This implies that when you involve employees more with the organization, by giving them more information and decision making power, the organization generates more knowledge than when these employees are not involved. This is in line with Ranft and Lord (2000) who argue for the importance of human capital in KG. On the other hand it might be true that organizations that involve employees in this way are involved in more knowledge intensive industries. These employees might have a higher educational level as they are hired to deal with complexity. This would mean that decentralization not necessarily has a positive influence on KG for all industries. So, it is not clear whether decentralization leads to KG, whether the organization uses decentralization to deal with the complex environment or maybe a combination of both.
Fourth, there is found to be a positive relation between standardization, reflecting the deliberately shaped routines of activities and goals, and KG (H7). This is in line with existing studies. Martinez-Leon and Martinez-Garcia (2011) state that the socialization process in an organization socializes new organizational members to acquire organizational norms, values and behavioral patterns (i.e. to “fit in” the OC). This process aligns organizational members and therefore enhances interaction between individuals. As a result the transfer of learning from individuals to other organizational members is enhanced (Von Kroch, 1998). Important to note is that standardization comes along with risks. Standardization for instance means more efficiency (Jones, 2010). However, if that efficiency goes at the cost of interaction between individuals, it might cause that the organization misses opportunities to improve the business and therefore gets behind on competitors (Tseng, 2009). Another example is that standardized processes and organizations have more difficulties in adapting to sudden changing circumstances (Jones, 2010). This implies that one should deliberately choose what processes are standardized.
be this is an explanation for not finding a negative relation between specialization and KG as well. Besides, we have to take into account that specialization was measured by two questions which were about specialization of tasks. The two questions about employee specialization were not taken into account due to the low Cronbach’s alpha of the four questions together. This means that specialization more or less represents task diversity and when diversity of task was low this indicated specialization. This means that monotonous work was categorized as specialized work, while this kind of work can be assembly line work where KG not really is an issue. This would mean that specialization was not validly measured in our study and actually more represents task diversity.
Finally, formalization is not found to be related to KG (H8). According to Mintsberg (1983) formalization is commonly used in large firms to control and predict employee behaviour. Extensive formalization of communication can minimize or even stop collaboration of different areas, which is problematic because this collaboration is necessary to find innovative solutions to problems (Martinez-Leon and Martinez-Garcia, 2011). This means that large innovative companies must have routines that go around the limits of formalized organizational structure. For instance the separated R&D department we just discussed. This implies that formalization alone, not necessarily tells something about the level of KG. When we look at previous studies that researched a relation between formalization and KG we can see disunity. Several studies support a relation between formalization and KG (e.g. Alavi and Leidner, 2001; Vivas and Peris, 2004) while others argue that there is no relation between them (Vivas and Santonja, 2007; Martinez-Leon and Martinez-Garcia, 2011). So, whether formalization constraints an organization in the generation of knowledge might depend on the actions taken by the firm to circumvent negative aspects of a formalized structure. Therefore we suggest that this variable is not critical in determining KG.
5.2 Implications
This study has some implications for researchers, policies and managers. First, this research can be used to improve research to the understanding of KG. Research in the small business field should take into account that firms can compensate for deficiencies in their culture and structure with respect to their level of KG.
addition, the OS should be standardized and decentralized to enhance KG. Firms can for instance standardize daily activities based on the most efficient way of working. Decentralization can be achieved by delegating activities and responsibilities from managers to their subordinates.
We not have the intention to generalize these results to a larger population. The study is exploratory in nature and results can be used for further research. Although the results cannot be generalized to a larger population they are at least applicable to the companies that participated in this research.
5.3 Limitations and further research
Coming to the end of this paper the main limitations of this study have to be addressed. To start with the sample which contained only ninety-two respondents of which fifty percent had twenty-five or less employees. Data reflects on the company as a whole, therefore differences between departments - concerning organizational structure, organizational culture and KG - are not taken into consideration. Furthermore respondents mainly represented the: service, trading, production, tourism and catering industries. Further research might include differences between departments and differences between companies in different industries. This study was based on Dutch companies only, future research could also look at companies in other countries.
5.4. Conclusion
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APPENDIXES
Appendix A: Questionnaire
Culture (5 point liker scale)
Family culture
1. The organization is a very special place. It is like an extended family. People seem to share a lot of themselves.
2. The leaders of the organization are generally considered to be mentors, facilitators, or parent figures.
3. The management style in the organization is characterized by teamwork, consensus and participation.
4. The glue that holds the organization together is loyalty and mutual trust. Commitment to this organization runs high.
5. The organization emphasizes human development. High trust, openness and participation persist. 6. The organization defines success on the basis of development of human resources, teamwork, and
concern for people.
Adhocracy culture
1. The organization is a very dynamic and entrepreneurial place. People are willing to stick their necks out and take risks.
2. The leaders of the organization are generally considered to be entrepreneurs, innovators, or risk takers.
3. The management style in the organization is characterized by individual risk-taking, innovation, flexibility, and uniqueness.
4. The glue that holds the organization together is orientation toward innovation and development. There is an emphasis on being on the cutting edge.
5. The organization emphasizes acquiring new resources and meeting new challenges. Trying new things and prospecting for new opportunities are valued.
Market culture
1. The organization is very production oriented. A major concern is with getting the job done. People are very competitive and achievement oriented.
2. The leaders of the organization are generally considered to be hard-drivers, producers, or competitors.
3. The management style in the organization is characterized by hard-driving competitiveness, goal directedness, and achievement.
4. The glue that holds the organization together is the emphasis on production and goal accomplishment. Marketplace aggressiveness is a common theme.
5. The organization emphasizes competitive actions and achievement. Measurement targets and objectives are dominant.
6. The organization defines success on the basis of market penetration and market share. Competitive market leadership is key.
Hierarchy culture
1. The organization is a very formalized and structured place. Bureaucratic procedures generally govern what people do.
2. The leaders of the organization are generally considered to be coordinators, organizers, or efficiency experts.
3. The management style in the organization is characterized by careful monitoring of performance, longevity in position, and predictability.
4. The glue that holds the organization together is formal rules and policies. Maintaining a smooth running organization is important.
5. The organization emphasizes permanence and stability. Efficient, smooth operations are important. 6. The organization defines success on the basis of efficiency. Dependable delivery, smooth
scheduling, and low cost production are critical.
Appendix B: Description table.
Table: Variables and survey questions (n = 92)
Item Questions Mean (SD) Range of values
Knowledge generation 3.45 (.95)
KG 1 We do a lot of in-house knowledge
generation
3.41 (1.36) 1-5
KG 2 We often poll end users at least once a year to assess the quality of our current products and services.
3.64 (1.44) 1-5
KG 3 We periodically collect industry
information through informal means (e.g., lunch with industry friends, talks with trade partners)
3.36 (1.36) 1-5
KG 4 Intelligence on our competitors’
development is generated independently by several departments
3.07 (1.19) 1-5
KG 5 We are slow to detect fundamental shifts in our industry (R)
3.85 (1.04) 1-5
KG 6 We periodically review the likely effect of changes in our business environment (e.g., regulation) on the direction of our company development
3.39 (1.24) 1-5
Organizational culture Total fam. 3.19 (1) adh. 3.26 (.87) mar. 2.9 (1.06) Family culture
