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B u

sin e ss in

A ctio

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o v e e T

h ill S

ix th

E d

itio n

Business in Action

Courtland L. Bovee John V. Thill Sixth Edition

Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world

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ISBN 10: 1-292-02228-0 ISBN 13: 978-1-292-02228-4

Management Roles, Functions, and Skills

the leading function Leading is the process of influencing and motivating people to work willingly and effec- tively toward common goals. Managers with good leadership skills have greater success in influencing the attitudes and actions of others and motivating employees to put forth their best performance.

All managers have to be effective leaders to be successful, but management and leader- ship are not the same thing. One way to distinguish between the two is to view manage- ment as the rational, intellectual, and practical side of guiding an organization and to view leadership as the inspirational, visionary, and emotional side. Both management and lead- ership involve the use of power, but management involves position power (so called since it stems from the individual’s position in the organization), whereas leadership involves personal power (which stems from a person’s own unique attributes, such as expertise or charisma).17

Successful leaders tend to share many of the same traits, but no magical set of personal qualities automatically destines someone for leadership. Nevertheless, in general, good leaders possess a balance of several types of intelligence:

• Cognitive intelligence involves reasoning, problem solving, memorization, and other rational skills. Obviously, leaders need a sufficient degree of cognitive intelligence to under- stand and process the information required for planning and decision making in their jobs.

• Emotional intelligence is a measure of a person’s awareness of and ability to manage his or her own emotions. People with high emotional intelligence recognize their own emotional states and the effect those emotions have on others, they are able to regulate their emotional responses

leading The process of guiding and motivating people to work toward organizational goals

learning oBjective4 Describe the leading function, leadership style, and organizational culture.

Do you have what it takes to be a successful

leader?

Rate yourself on 10 essential attributes of leadership. Go to http://real-timeupdates.com/bia6 and click on Learn More. If you are using MyBizLab, you can access Real-Time Updates within the chapter or under Student Study Tools.

R e a l - T i m e U p d aT e s Learn More by Reading This Article

✓checkpoint learning oBjective 3: describe the organizing function, and differentiate among top, middle, and first-line management.

Summary: The organizing function involves arranging an organization’s resources in the best way possible to help reach its goals and objectives. Top managers grapple with long-range, strategic issues and often must make decisions about events and conditions several years into the future. They also have important communication roles, representing the company to external stakeholders. Middle managers usually have responsibility over individual divisions or facilities and are charged with translating strategic plans into the tactical plans that will allow the company to reach its goals and objectives. First-line managers supervise nonmanagement employees; they have the shortest time horizons and greatest tactical perspective.

critical thinking: (1) Why might a manager need to deemphasize skills honed in previous positions as he or she rises through the organizational hierarchy? (2) Would top managers or first-line managers typically have more or less of the information they’d like to have for the decisions they need to make? Why?

it’S your BuSineSS: (1) Have you ever supervised others on the job or in volunteer work? If so, how would you rate your performance as a manager? (2) If you were suddenly promoted to manage the department you’ve been working in, would you change your “work” personality? Why or why not?

key termS to knoW: organizing, management pyramid, top managers, middle managers, first-line managers

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Management Roles, Functions, and Skills

in order to control or reduce disruptive impulses and moods, and they have a high degree of empathy (the ability to understand others’ feelings).18

• Social intelligence involves looking outward to understand the dynamics of social situations and the emotions of other people, in addition to your own.19 Socially adept managers have a knack for finding and building common ground with people of all kinds. Moreover, leaders, in a sense, “infect” their organizations with their own emotions, positive or negative.20

All three types of intelligence are essential to building the competencies that lead to success. In fact, various studies suggest that in both leadership and life in general, emotional and social intelligence play a far greater role in success than purely cognitive intelligence.21

DeveLOping an eFFective LeaDeRShip StyLe

Leadership style can be viewed as finding the right balance between what the leader focuses on and how he or she makes things happen in the organization. Every manager has a defi- nite style, although good leaders usually adapt their approach to match the requirements of the particular situation.22 Across the range of leadership styles, you can find three basic types (see Exhibit 5). Autocratic leaders control the decision-making process in their organizations, often restricting the decision-making freedom of subordinates. Autocratic leadership generally has a bad reputation, and when it’s overused or used inappropriately, it can certainly produce bad results or stunt an organization’s growth. However, companies

Autocratic leadership:

Manager makes the decisions and issues directives down the chain of command;

subordinates have little or no freedom to make decisions, deviate from

plans, or provide contrary input.

Democratic leadership:

Manager shares decision-making

authority, seeking input and inviting subordinates

to participate in a coordinated planning process; group can

encourage a change of course if needed.

Laissez-faire leadership:

Manager acts as advisor and supporter, offering input when asked but

generally letting subordinates chart

and adjust their own course toward meeting agreed-upon goals and

objectives.

autocratic leaders Leaders who do not involve others in decision making

Find out why great leaders are made,

not born

Explore the factors that produce great leaders and get advice on how to become one yourself. Go to http://real-timeupdates .com/bia6 and click on Learn More. If you are using MyBizLab, you can access Real-Time Updates within the chapter or under Student Study Tools.

R e a l - T i m e U p d aT e s Learn More by Listening to This Podcast

exhibit 5 Leadership Styles

Leadership styles fall on a continuum from autocratic (manager makes the decisions) to democratic (manager and subordinates make decisions together) to laissez-faire (subordinates make decisions on their own). Each style has strengths and weaknesses, and effective managers often adapt their style to suit specific situations.

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Management Roles, Functions, and Skills

can find themselves in situations where autocratic leadership is needed to guide the firm through challenging situations or to bring uncooperative units in line.

Democratic leaders, in contrast, delegate authority and involve employees in decision making. Also known as collaborative leaders, these managers invite and seek out input from anyone in the organization who can add insight to the decision-making process. For example, after Salesforce.com installed an internal social networking application that gave everyone in the company the chance to share information, CEO Mark Benioff began monitoring the flow of insights and realized that some of the most valuable information about customers was coming from employees whom upper management didn’t normally communicate with. Inspired by that discovery, he opened the annual strategic planning meeting to the entire company via social networking.23 This style is often called participative management.

The third leadership style takes its name from the French term laissez-faire, which can be translated roughly as “hands off.” Laissez-faire leaders such as Danny Wegman take the role of supporters and consultants, encouraging employees’ ideas and offering insights or opinions when asked. After the overall strategic direction and priorities are in place, they emphasize employee empowerment—giving employees the power to make decisions that apply to their specific aspects of work. As Wegman puts it, “Once you share a common set of values, you can go and be yourself.”24

cOaching anD MentORing

Leaders have an important responsibility for education and encouragement, which may take the form of coaching and mentoring. Coaching involves taking the time to meet with employees, discussing any problems that may hinder their ability to work effectively, and offering suggestions and encouragement to help them find their own solutions to work- related challenges. (Note that the term executive coaching usually refers to hiring an outside management expert to help senior managers.)

Mentoring is similar to coaching but is based on long-term relationships between senior and junior members of an organization. The mentor is usually an experienced man- ager or employee who can help guide other managers and employees through the corporate maze. Mentors have a deep knowledge of the business and can explain office politics, serve as role models for appropriate business behavior, and provide valuable advice about how to succeed within the organization. Mentoring programs are used in a variety of ways, such as helping newly promoted managers make the transition to leadership roles and helping women and minorities prepare for advancement.

Managing change

Change presents a major leadership challenge for one simple reason: Many people don’t like it, or at least they don’t like being told they need to change. They may fear the unknown, they may be unwilling to give up current habits or benefits, they may not trust the motives of the people advocating change, or they may simply have experienced too many change initiatives that didn’t yield the promised results.25 To improve the chances of success when the organization needs to change, managers can follow these steps:26

1. Identify everything that needs to change. Changes can involve the structure of the organization, technologies and systems, or people’s attitudes, beliefs, skills, or behaviors.27 One particular challenge for managers advocating change is understanding the ripple effect the change will have throughout the organization.28

2. Identify the forces acting for and against a change. By understanding these forces, managers can work to amplify the forces that will facilitate the change and remove or diminish the negative forces.

3. Choose the approach best suited to the situation. Managers can institute change through a variety of techniques, including communication, education, participation in decision making, negotiation, visible support from top managers or other opinion leaders, or coercive use of authority (usually recommended only for crisis situations). When managers engage people in the change, asking for their input and advice so they

democratic leaders Leaders who delegate authority and involve employees in decision making

participative management A philosophy of allowing employees to take part in planning and decision making

laissez-faire leaders Leaders who leave most decisions up to employees, particularly those concerning day-to-day matters

employee empowerment Granting decision-making and problem-solving authorities to employees so they can act without getting approval from management

coaching Helping employees reach their highest potential by meeting with them, discussing problems that hinder their ability to work effectively, and offering suggestions and encouragement to overcome these problems

mentoring A process in which experienced managers guide less- experienced colleagues in nuances of office politics, serving as a role model for appropriate business behavior, and helping to negotiate the corporate structure

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Management Roles, Functions, and Skills

can help design the changes, they’ll be much more likely to embrace the new way of doing things.29

4. Reinforce changed behavior and monitor continued progress. Once a change has been made, managers need to reinforce new behaviors and make sure old behaviors don’t creep back in.

buiLDing a pOSitive ORganizatiOnaL cuLtuRe

Strong leadership is a key element in establishing a productive organizational culture (sometimes known as corporate culture)—the set of underlying values, norms, and prac- tices shared by members of an organization (see Exhibit 6). Culture can be a negative or a

organizational culture A set of shared values and norms that support the management system and that guide management and employee behavior

exhibit 6 creating the ideal culture in your company

You can’t create a culture directly, but you can establish the behaviors and values that in turn do create a culture. Use this list of questions to explore the many ways you can foster a positive culture—and avoid the growth of a negative culture.

company values

• Have you articulated a compelling vision for the company?

• Have you defined a mission statement, based on that vision, that employees understand and can implement?

• Do employees know how their work relates to this vision?

• Is there a common set of values that binds the organization together?

• Do you and other executives or owners demonstrate these values day in and day out?

People

• How are people treated?

• Do you foster an atmosphere of civility and respect?

• Do you value and encourage teamwork, with all ideas welcomed?

• Do you acknowledge, encourage, and act upon (when appropriate) ideas from employees?

• Do you give employees credit for their ideas?

• Have you shown a positive commitment to a balance between work and life?

community

• Have you clarified how the company views its relationship with the communities it affects?

• Do your actions support that commitment to community?

communication

• Do you practice and encourage open communication?

• Do you share operating information throughout the company so that people know how the company is doing?

• Do you regularly survey employees on workplace issues and ask for their input on solutions?

• Is there an open-door policy for access to management?

employee Performance

• Do you handle personnel issues with fairness and respect?

• Do employees receive feedback regularly?

• Are employee evaluations based on agreed-upon objectives that have been clearly communicated?

Sources: Adapted from Andrew Bird, “Do You Know What Your Corporate Culture Is?” CPA Insight, February, March 1999, 25–26; Gail H. Vergara, “Finding a Compatible Corporate Culture,” Healthcare Executive, January/February 1999, 46–47; Hal Lancaster, “To Avoid a Job Failure, Learn the Culture of a Company First,” Wall Street Journal, 14 July 1998, B1.

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Management Roles, Functions, and Skills

positive force in an organization, and managers set the tone by establishing expectations, defining rules and policies that shape behavior, and acting as role models. When employees at Wegmans see Danny Wegman enthusiastically embrace the challenges of the day and treat customers and colleagues with respect, that positive energy radiates throughout the culture. As employee Elaine Danar puts it, “I have an incredible sense of pride to represent this company.”30

Positive cultures create an environment that encourages employees to make smart decisions for the good of the com-

pany and its customers. At companies with legendary corporate cultures, such as Wegmans, Nordstrom, and Southwest Airlines, employees routinely go the extra mile to make sure customers are treated well. In contrast, negative, dysfunctional cultures can lead employees to make decisions that are bad for customers and bad for the company.

controlling The process of measuring progress against goals and objectives and correcting deviations if results are not as expected

Leading with Luv at Southwest airlines

See how Southwest Airlines’s unique organizational culture helps it win raves from customers—and consistent profits. Go to http://real-timeupdates.com/bia6 and click on Learn More. If you are using MyBizLab, you can access Real-Time Updates within the chapter or under Student Study Tools.

R e a l - T i m e U p d aT e s Learn More by Watching This Video

✓checkpoint learning oBjective 4: describe the leading function, leadership style, and organizational culture.

Summary: Leading is the art and science of influencing and motivating people to work toward common goals. Leaders can exhibit a range of styles in what they choose to focus on (strategic versus operational matters) and how they make things happen (forcing versus enabling). Three specific leadership styles are autocratic, democratic, and laissez-faire. Organizational culture is the set of underlying values, norms, and practices shared by members of an organization.

critical thinking: (1) Are management and leadership the same thing? If not, why not? (2) Can a single individual be an autocratic, a democratic, and a laissez-faire leader? Why or why not?

it’S your BuSineSS: (1) What is your natural inclination in terms of the three basic leadership styles—autocratic, democratic, or laissez-faire? Think about times in school, at work, or in social situations in which you played a leadership role. How did you lead? (2) Does leadership experience in school activities such as student government and athletics help prepare you for business leadership? Why or why not?

key termS to knoW: leading, autocratic leaders, democratic leaders, participative management, laissez-faire leaders, employee empowerment, coaching, mentoring, organizational culture

the controlling function Controlling is the management function of keeping a company’s activities on track toward previously established goals. The nature of control varies widely, from directly intervening in a process to modifying policies or systems in a way that enables employees to reach their objectives.

the cOntROL cycLe

A good way to understand managerial control is to envision the control cycle, a four-step process of (1) establishing performance standards based on the strategic plan, (2) measuring performance, (3) comparing performance to standards, and (4) responding as needed (see Exhibit 7). Of course, the specific steps taken in any situation depend on the industry, the company, the functional area within the company, and the manager’s leadership style. In

learning oBjective5

Describe the controlling function, and explain the four steps in the control cycle.

162

HRM/bovee_bia6_inppt05.ppt

Business in Action 6e Bovée/Thill

Forms of Ownership

Chapter 5

Learning Objectives

Define sole proprietorship and explain the six advantages and six disadvantages of this ownership model

Define partnership and explain the six advantages and three disadvantages of this ownership model

Define corporation and explain the four advantages and six disadvantages of this ownership model

5-*

Learning Objectives

Explain the concept of corporate governance and identify the three groups responsible for ensuring good governance

Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks

Define strategic alliance and joint venture and explain why a company would choose these options over a merger or an acquisition

5-*

Forms of Business Ownership

5-*

Sole Proprietorships

Sole proprietorship

A business owned by a single person

Unlimited liability

A legal condition under which any damages or debts incurred by a business are the owner’s personal responsibility

5-*

Advantages of Sole Proprietorships

Simplicity
Single layer of taxation
Privacy
Flexibility and control
Fewer limitations on personal income
Personal satisfaction

5-*

Disadvantages of Sole Proprietorships

Financial liability
Demands on the owner
Limited managerial perspective
Resource limitations
No employee benefits for the owner
Finite life span

5-*

Partnerships

Partnership

An unincorporated company owned by two or more people

Limited liability

A legal condition in which the maximum amount each owner is liable for is equal to whatever amount each invested in the business

5-*

Partnerships (cont.)

General partnership

A partnership in which all partners have joint authority to make decisions for the firm and joint liability for the firm’s financial obligations

Limited partnership

A partnership in which one or more persons act as general partners, run the business, and have the same unlimited liability as sole proprietors

5-*

Partnerships

Master Limited Partnership (MLP)

A partnership that is allowed to raise money by selling units of ownership to general public partnerships and can bring together business professionals with diverse skill sets and perspectives.

5-*

Partnerships

Limited Liability Partnership (LLP)

A partnership in which each partner has unlimited liability only for his or her own actions and at least some degree of limited liability for the partnership as a whole

5-*

Advantages of Partnerships

Simplicity
Single layer of taxation
More resources
Cost sharing
Broader skill and experience base
Longevity

5-*

Disadvantages of Partnerships

Unlimited liability
Potential for conflict
Expansion, succession, and termination issues

5-*

The Partnership Agreement

A partnership agreement should address investment percentages, profit-sharing percentages, management responsibilities and other expectations of each owner, decision-making strategies, succession and exit strategies, criteria for admitting new partners, and dispute-resolution procedures.

5-*

A partnership agreement should address investment percentages, profit-sharing percentages, management responsibilities and other expectations of each owner, decision-making strategies, succession and exit strategies (if an owner wants to leave the partnership), criteria for admitting new partners, and dispute-resolution procedures (including dealing with owners who aren’t meeting their responsibilities).

Corporations

Corporation

A legal entity, distinct from any individual persons, that has the power to own property and conduct business

Shareholders

Investors who purchase shares of stock in a corporation

5-*

Corporations

Private corporation

A corporation in which all the stock is owned by only a few individuals or companies and is not made available for purchase by the public

Public corporation

A corporation in which stock is sold to anyone who has the means to buy it

5-*

Advantages of Corporations

Ability to raise capital
Liquidity
Longevity
Limited liability

5-*

Advantages of Corporations

Liquidity

A measure of how easily and quickly an asset such as corporate stock can be converted into cash by selling it

5-*

Disadvantages of Corporations

Cost and complexity
Reporting requirements
Managerial demands
Possible loss of control
Double taxation
Short-term orientation of the stock market

5-*

Special Types of Corporations

S Corporation

A type of corporation that combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership

5-*

Special Types of Corporations

Limited Liability Company (LLC)

A structure that combines limited liability with the pass-through taxation benefits of a partnership; the number of shareholders is not restricted, nor is members’ participation in management

5-*

Special Types of Corporations

Benefit Corporation

A profit-seeking corporation whose charter specifies a social or environmental goal that the company must pursue in addition to profit

5-*

Corporate Structures

5-*

Corporate Governance

Board of directors

A group of professionals elected by shareholders as their representatives, with responsibility for the overall direction of the company and the selection of top executives

5-*

Corporate Governance

Corporate governance

Describes all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise

Also refers to the responsibilities and performance of the board of directors specifically

5-*

Corporate Governance (cont.)

5-*

Shareholders

Proxy

A document that authorizes another person to vote on behalf of a shareholder in a corporation

Shareholder activism

Activities undertaken by shareholders to influence executive decision making in areas ranging from strategic planning to social responsibility

5-*

Corporate Officers

Corporate Officers

The top executives who run a corporation

Chief Executive Officer (CEO)

The highest-ranking officer of a corporation

5-*

Mergers and Acquisitions

Merger

An action taken by two companies to combine and perform as a single entity

Acquisition

An action taken by one company to buy a controlling interest in the voting stock of another company

5-*

Mergers and Acquisitions (cont.)

Hostile takeover

Acquisition of another company against the wishes of management

Leveraged buyout (LBO)

Acquisition of a company’s publicly traded stock, using funds that are primarily borrowed, usually with the intent of using some of the acquired assets to pay back the loans used to acquire the company

5-*

Advantages of Mergers and Acquisitions

Increase their buying power as a result of their larger size
Increase revenue by cross-selling products to each other’s customers
Increase market share by combining product lines
Gain access to new expertise, systems, and teams of employees

5-*

Disadvantages of Mergers and Acquisitions

Executives have to agree on how the merger will be financed
Managers need to decide who will be in charge after they join forces
Marketing departments need to figure out how to blend product lines, branding strategies, and advertising and sales efforts
Companies must often deal with layoffs

5-*

Types of Mergers

5-*

Strategic Alliances and
Joint Ventures

Strategic alliance

A long-term partnership between companies to jointly develop, produce, or sell products

Joint venture

A separate legal entity established by two or more companies to pursue shared business objectives

5-*

Applying What You’ve Learned

Define sole proprietorship and explain the six advantages and six disadvantages of this ownership model

Define partnership and explain the six advantages and three disadvantages of this ownership model

Define corporation and explain the four advantages and six disadvantages of this ownership model

5-*

Applying What You’ve Learned (cont.)

Explain the concept of corporate governance and identify the three groups responsible for ensuring good governance

Identify the potential advantages of pursuing mergers and acquisitions as a growth strategy, along with the potential difficulties and risks

Define strategic alliance and joint venture and explain why a company would choose these options over a merger or an acquisition

5-*

HRM/journl.pdf

182

A study of Organizational Citizenship Behaviours, Organizational Structures and

Open Innovation

M. Muzamil NAQSHBANDI*

Dr. Sharan KAUR

Deptt of Business Strategy and Policy

Faculty of Business and Accountancy

University of Malaya, Kuala Lumpur, Malaysia- 50603

E-mail: [email protected]*

Abstract

With increasing technological advances, the need to create not only innovations but faster innovation has

become a part of sustaining or gaining competitive advantage. Open innovation paradigm answers this need

by utilizing larger resources and expertise that firms involved in the open innovation process offer. Given the

recency of the concept of open innovation, the factors that influence the creation of open innovation are hazy.

Most of the research on open innovation looks at the “hard” aspects of organizations, while the soft issues

stand less researched. This conceptual paper draws attention to two such aspects of organization:

organizational citizenship behaviour and organizational structure. This paper proposes that practicing

organizational citizenship behaviours by the employees enhances the chances of creation of open innovation

while not doing so can botch up the whole exercise particularly during the infancy stage. It is also proposed

that informal organizational structures favour creation of innovation in the open innovation paradigm more

than the rigid formal structures. It is further argued that besides proper citizenship behaviours and informal

structures, firms need to achieve strategic resonance with suppliers and customers to create successful open

innovation. Propositions are developed, managerial implications underscored and future research directions

highlighted.

Keywords: open innovation, OCB, organizational structures, strategic resonance.

1. Introduction

The pressures of globalization have forced firms around the world to change the way they innovate. For years,

firms have relied on the closed innovation model to be competitive and bring new product and services to the

market (Chesbrough, 2006). While the traditional model of innovation has led to myriad innovations, it

involved a very limited interaction with the external environment (Lichtenthaler, 2008a). In the present times,

however, with rapid technological changes taking place, sticking to the traditional closed innovation model

can lead to loss of competitive advantage for a firm while, on the other hand, embracing an open innovation

model can result in important strategic innovations providing firms with competative advantage (Chesbrough,

2003a). In the open innovation paradigm, as the boundaries become porous, there is more interaction between

partner firms that results in greater technology acquisition and exploitation (Chesbrough, 2006). Consequently

there is a greater amount of resources and expertise at hand than expected in the closed innovation model.

This has many benefits, one of which is faster innovations.

The open innovation process starts with identifying the knowledge sources and then exploiting them. This

stage can usually be accompanied by lack of resources either because the project is still new or because the

output of the project is not trusted. Or sometimes managers may not be able to foresee all contingencies or

fully anticipate the activities that they may desire or need employees to perform (Katz & Kahn, 1978; Organ,

1988). Therefore, Organizational Citizenship Behaviours (OCBs) shown by the employees may go a long way

in ensuring success of the open innovation projects. In addition to the practice of OCBs, the outcome in open

innovation paradigm may be determined by the organizational structure. An informal organizational structure,

in contrast to a formalized organizational structure is characterized by openness in the system which is a

necessary precondition for idea initiation in the innovation process (Shepard, 1967). Further, an organization

may possess all other right ingredients for open innovation, however, strategic resonance 1 or lack of it can

determine to a large extent whether or not its capabilities will lead to successful open innovation. Looking at

all these organizational aspects, this article makes two main contributions. Firstly, it studies the effect of

organizational citizenship behaviour and organizational structure on the creation of open innovation.

1 Steve Brown, who has done considerable amount of work in this field, defines strategic resonance as “an on-going,

dynamic, strategic process whereby customer requirements and organizational capabilities are in harmony and resonate”

(Brown, 2000).

mailto:[email protected]

International Journal of Business and Social Science Vol. 2 No. 6; April 2011

183

Secondly, we propose the moderating influence of largely external condition, strategic resonance, on creation

of open innovation. Understanding these conditions in the context of open innovation may help firms to avoid

systematic mistakes in managing knowledge, and it may deepen our understanding of corporate knowledge

and alliance strategies. The remainder of this paper takes the following structure. The second section provides

a detailed definition of open innovation, its significance and characteristics. In the third section, we discuss

Organizational Citizenship Behaviour and Organizational Structure in relation to open innovation. The fourth

section relates Strategic Resonance – the proposed factor that moderates the relationship between OCBs and

organizational structure and the creation of open innovation. In the last section, conclusion is provided,

managerial implications are underscored and future research directions highlighted.

2. Literature Review 3. 2.1 Open Innovation

Open innovation has emerged as an alternative model of innovation wherein firms commercialize both

external and internal ideas and technologies and use both external and internal resources. In an open

innovation process, projects can be launched from internal or external sources and new technology can enter

at various stages. Besides traditional sales channels, projects can go to the market in different ways, such as

through out-licensing or spin-off ventures (Chesbrough, 2003c). In one of his definitive articles, Chesbrough

(2003a) lists down the contrasting principles of closed innovation and open innovation. According to

Chesbrough, firms in the closed innovation model assumes that: a) the smart people in our field work with us,

b) to profit from, R&D, we must discover, develop and ship ourselves, c) if we discover it ourselves, we will

get it to the market first, d) If we are to commercialize an innovation, we will win, e) if we create the most

and the best deals in the industry, we will win and, f) we should control our Intellectual Property so that our

competitors do not profit from our ideas. On the other hand, firms operating in the open innovation paradigm

assume that: a) not all smart people work in-house and thus there is a need to tap into external knowledge, b)

external research and development can generate significant value to us, c) research does not need to originate

from our internal work to be profitable for us, d) a strong business model is more important than bringing

products to the market first, e) internal as well as external ideas are essential to win and, f) we can capitalize

on our own IP and we should buy others' IP when needed

Chesbrough et al., consider the open innovation model as the antithesis of the traditional, vertically integrated

model wherein internal research and development (R&D) efforts of a firm lead to products developed

internally and distributed thereafter (Chesbrough, Vanhaverbeke, & West, 2006). One of the limitations of the

closed innovation model is that monolithic organizations that carry out business in isolation develop

fragmented linkages and poor interfaces (Govindarajan & Trimble, 2005).Open innovation incorporates

explicitly the business model as the source of value creation and value capture, helping a firm sustain its

position in the industry while at the same time sharing the task of value creation across industry value chain

(Chesbrough, et al., 2006). In an Open Innovation paradigm, valuable ideas may come from inside or outside

the company and can go to market from inside or outside the company as well. This approach places external

ideas and external paths to market on the same level of importance as that reserved for internal ideas and paths

to market during the Closed Innovation era (Chesbrough, 2003c). The open innovation model, on the other

hand, regards R&D as an “open system” in which ideas can come from both inside and outside of the

organization and can go to the market through similar channels (Chesbrough, et al., 2006).

Thus open innovation also refers to the innovation process in which the boundaries of the firm are porous

(Chesbrough, 2003c). This is often a result of an alliance or collabration or any such agreement between

firms and since the knowledge is distributed, the innovation process is also distributed among the players

involved in this process (Acha & Cusmano, 2005). As the boundaries become porous, there is more

interaction between partner firms that results in greater technology acquisition and exploitation (Chesbrough,

2006). As a result there is a greater amount of resources and expertise at hand than expected in a closed

innovation model. This has many benefits, one of which is faster innovations. Organizations adapt to global

change by focusing on their core competency and looking outside to rely on other companies to provide

complementary capabilities (Hagel & Brown, 2005). In their seminal work, Chesborough et al., (2006) divide

open innovation into two conceptually different dimensions: inbound or outside-in open innovation and

outbound or inside-out open innovation. Outside-in open innovation refers to the use of discoveries of others

and involves opening up to, and establishing relationships with external organisations with the purpose to

access their technical and scientific competences for improving the firm‟s innovation performance. On the

other hand, the inside-out dimension implies that companies can look for external organisations with business

models better suited to exploit and commercialise a particular technology than just depend on internal paths to

market (Chesbrough, et al., 2006). The aim however remains to exploit better innovation opportunities.

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Dahlander et al., (2010) place the idea behind openness on a continuum, ranging from closed to open,

covering varying degrees of openness. Dahlander et al., (2010) show through a review of 150 papers

published on open innovation in the ISI database that there are two types of open innovation: out-bound and

in-bound open innovation. The out-bound innovation involves two processes which are revealing and selling

while the inbound innovation also entails two processes termed sourcing and acquiring. Revealing as the name

suggests refers to how internal resources are revealed to the external environment without the firm hoping for

any immediate financial rewards and seeking indirect benefits only. Selling implies how firms accrue befefits

by commercialising their inventions and technologies through selling or licensing out to other firms. On the

other hand, sourcing refers to how firms can use external sources of innovation after they scan the external

environment for possible ideas and technologies. Acquiring is defined as acquiring inputs to the innovation

process through the market place. This can happen through licensing-in and acquiring expertise from the

external environment. While sourcing and revealing are non-pecuniary in nature and may not bring any direct

financial benefits to a firm, selling and acquiring are pecuniary in nature and undertaken for direct profit to the

firm (Dahlander & Gann, 2010).

4. 2.2 Reasons for Open Innovation

In his book, "Open Innovation - The new imperative for Creating and Profiting from Technology" (2003),

Chesbrough explains how in the 20 th century firms profited from innovations that were outcomes of heavy

investments in internal research and development of firms. However with the changing times towards the end

of the 20 th century, a number of factors combined together to cause the closed innovation process to break up

in the United States. The two main such factors were: 1) Rise in the number and mobility of knowledge

workers and 2) growing availability of private venture capital. While the increase in the number and mobility

of knowledge workers made it difficult for companies to control their proprietary ideas and expertise, the

increased availability of private venture capital helped finance new firms and commercialize new ideas that

would otherwise be found useless or less useful in corporate research labs. This paved the way for more open

innovation (Chesbrough, 2003a). Given the urgencies of the global markets, it becomes imperative on the

organizations and new entrants to regenerate their core strategies and reinvent their industries by developing

sustainable core competencies (Prahalad & Hamel, 1994). Organizations that sense the changing environment

create focus on the right metrics, align and mobilize the entire organization, implement quickly, and create a

generative learning environment to stay competitive (Pietersen, 2001).

Hence to lead in the global markets, organizations must think outside their own business units and leverage

resources of a coalition of companies (Prahalad & Hamel, 1994). Ever-changing markets and cost of doing

business force organizations to look beyond their organizational structure for competencies (Parise &

Henderson, 2001). This is one of the main aims of entering into strategic alliance or collaborations whereby

firms form inter- and intra-organizational relationships to engage partners in collaborative behaviour and to

tap into resources exterior to the firm (Love, Irani, Cheng, & Li, 2002). Complex environments that are a

result of increased collaborations between different players have in many ways necessitated the shift from

closed to open systems that facilitate informal behaviour to match situational and contextual factors

(Brodbeck, 2002). Globalization has in some ways further necessitated the need to collaborate with external

players in the open innovation process. The effects of globalization in terms of increased competition,

increased mobility of skilled workers, shorter product life cycles, higher risks and lower profit margins have

forced the firms to spread risk and develop new products and services quickly and efficiently (Chesbrough,

2003c).

Furthermore, Dahlander et al., (2010) came up with four reasons for the currency of open innovation. Firstly,

open innovation reflects social and economic changes in working patterns with professionals seeking portfolio

careers rather than a permanent job-for-life with a single employer. Hence firms need to tailor their approach

in order to access talent that may not be ready for direct and exclusive employment. Secondly, globalization

has expanded the extent of the market that allows for an increased division of labour. Thirdly, improved

market institutions such as intellectual property rights, venture capital, and technology standards allow for

organization to trade ideas. Fourthly, new technologies allow for new ways to collaborate and coordinate

across geographical distances (Dahlander & Gann, 2010). Open innovation incorporates explicitly the

business model as the source of value creation and value capture, helping a firm sustain its position in the

industry while at the same time sharing the task of value creation across industry value chain (Chesbrough, et

al., 2006). In an Open Innovation paradigm, valuable ideas may come from inside or outside the company and

can go to market from inside or outside the company as well. This approach places external ideas and external

paths to market on the same level of importance as that reserved for internal ideas and paths to market during

the Closed Innovation era (Chesbrough, 2003c).

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Recent research has shown that open innovation may also be a result of the internal weaknesses of a firm,

specifically, impediments to innovation (Keupp & Gassmann, 2009). These impediments could be

information- and capabilities-related impediments or risk-related. Keupp et al., (2009) show that these internal

impediments to innovation influence the width and depth of open innovation – width being the number of

sources or external actors a firm uses for its open innnovation activities and depth meaning the intensity of

collaboration with each source (Laursen & Salter, 2006). Findings suggest that firms whose internal

innovatory activities are confronted with information- and capabilities-related impediments or risk-related

impediments to innovation are more likely to use open innovation with more intensity in both width and depth

(Keupp & Gassmann, 2009).

5. 2.3 Why open Innovation?

Organizations create value externally by acquiring skills and knowledge from partners to complement the

internal capabilities of their organizations (Love et al., 2002). Some of the reasons for firms to enter into

collaborative relationships are to improve innovation, increase speed to market, and reduce the costs of

internal vertical integration. When the partner firms share information, it improves their efficiency and helps

them focus on joint opportunity recognition (Moffat & Archer, 2004). If the partner firms have compatible

goals and they pool their resources, it creates increased value for the partner organizations as well as the

customers (Kesler, 2002). This joining of hands finally provides for the potential for improved designs,

shorter lead times, and greater customer value (Ragatz et al., 2002). Such collaborations can result in

engagements of different forms with suppliers, customers, competitors, complementors, or even partners

outside the industry (Parise & Henderson, 2001). Similarly different forms of such alliances may have varied

objectives. For instance, alliances may be formed to support a specific project (Love, et al., 2002). To gain

valuable market insight and an intimate understanding of the customer, environment, culture, situation

dynamics and create value, firms may enter into relationship-specific alliances (Subramani, 2004). Sometimes

firms may engage in cooperative alliances to enhance their portfolios of capabilities as well (Taylor, 2005).

As a result of collaboration efforts of the partnering firms, a heady mix of talent and expertise from people

working together in new ways often stimulates innovation. This has further been made easier by the advent of

information technology that has enabled better coordination of alliance partner value chains and greater

integration as demanded by the new global market forces (Shaw, 2000). Research has shown that effective

collaboration with external partners, like buyers, suppliers and other organizations is one of the important

factors for innovation (Faems et al., 2005; Ritter & Gemünden, 2004). Learning to access and partner with

organizations who bring resources and capabilities creates value in unprecedented ways (Palmisano, 2006).

Through networks and alliances, open innovation gives a flip to the human and social capital. The value of the

organizations is linked to the current and prospective engagements with the tangible and intangible influences

of the other organization (Lev & Zambon, 2003).

Many firms have realised the benefits of engaging in open innovation in several spheres. Vanhaverbeke et al.,

(2008) looked at the advantage of working in open innovation style in external corporate venturing. In real

option terms, open innovation gives companies a chance to scan through a wide range of available

technologies or new market developments, instead of just investing in internal projects alone. This has

fnancial value for the focal firm because there may be more varied opportunities, and some of these may be

uncorrelated with internally perceived opportunities (Vanhaverbeke et al., 2008). In the case of external

corporate venturing in the open innovation paradigm, the focal innovating firms also benefit from delayed

entry or delayed financial commitment and an option of early exit and the ability to realize some value from

projects that do not go forward internally. Beside while the venture grows further and matures, the corporation

can decide whether to spin in the venture or whether to sell it to external capital providers such as venture

capitalists (Vanhaverbeke, et al., 2008). This can bring profit to the firm as well. For these and other reasons,

firms are moving from the closed innovation model to open innovation strategies.

6. 2.4 Challenges to Open Innovation

Being a part of the open innovation paradigm and reaping its benefits in case of organizational collabrations

or alliances does not seem to be easy. Open innovation requires an over-all organizational fit between the

partners, absense of which can derail the whole intent of any such collaboration. Needless to say that this open

innovation process first involves compatibility in terms of nature of business. But beyond the nature of

business, many other important factors may impact the success of any collboration for open innovation. Open

innovation entails many organizational changes. The capacity of a firm to to align with value-added partners

enhances tangible value and responsiveness to the changing needs of the customers (Ulrich & Smallwood,

2004). At the same time, joining hand with the external players leads to some degree of complexity relating to

culture, organizational personality, and trust.

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Thus the success of a collobaration and the execution and implementation of the alliance strategy relies on

leading human, information, and organizational capital that is external to the organizational structure.Moving

to an open innovation paradigm involves significant organisational change in the firm that is willing to adhere

to its principles. Chiaroni et al., (2009) contend that the implementation of open innovation takes place in a

multi-phase organisational change process involving three phases: unfreezing, moving and

institutionalisation. Besides suggesting that open innovation as an organisational change process occurs

through an unfreezing–moving–institutionalising sequence, Chiarono et al., (2009)also identifiy four

manegerial levers that are important for open innovation to take place. They are: networks, organizational

structures, evaluation processes and knowledge management systems. The study shows that the starting point

of the process of implementation of open innovation is in the organisational structures lever. The study further

shows that the firms' network of customers and suppliers play a marginal role at least in the first phase of the

proces. Individual social networks are also pivotal in the implementation of open innovation while a deep

change takes place in the processes and evaluation metrics (Chiaroni, et al., 2009).

The collaboration efforts of firms many times yield positive results, however failures have also been reported

(Duysters et al., 2004). Das et al., (2000) report that despite the increase strategic alliances, alliance

performance has remained weak (Das & Teng, 2000). Strategic alliances can encounter difficulties which may

often lead to disappointing firm performance (Larsson, et al., 1998). Open innovation may involve multi-

faceted problems. Open innovation involves considerable transaction costs for the search and evaluation of

external partners and infact it is difficult to get access to external partners (Chesbrough, 2003b; Omta

&Rossum, 1999). Open innovation also entails intellectual property considerations which may hinder

implementation of open innovation (Keupp & Gassmann, 2009). Embarking on an open innovation paradigm

also involves many manegerial challanges to implement as deeply engrained mindsets need to be changed

(Chesbrough, 2003b). Open innovation can also lead to a firm‟s resources being exploited by another firm

given that intellectual property rights are difficult to protect and benefits from innovations difficult to

appropriate (Dahlander & Gann, 2010).

In an alliance, a firm may also face issues regarding protecting themselves from the opportunistic behaviour of

the partners to retain their core properietary assets and leakage of critical know-how and information (Hamel,

1991; Kale, Singh, & Perlmutter, 2000). In collaborations in general the partnering players, contribute

capabilities that are superior to those available internally and craft agreements that protect them against

partner opportunism (Hennart & Zeng, 2005). Besides, since not all alliance partners are equally adept at

learning, the assymmetries in learning alter the relative barganing power of partners (Hamel, 1991). Realising

the benefits of capturing and internalizing knowledge from alliance partners needs the discipline of

developing an alliance learning capability (Grant & Baden Fuller, 2004).

7. Organizational Citizenship Behaviour

Organizational citizenship behaviours are discretionary, extra-role behaviours of employees which go beyond

the prescribed formal roles, are not directly or explicitly recognized by the formal award system and are

known to be contributing factors of organizational performance (Organ, 1988; Organ, Podsakoff, &

MacKenzie, 2005). In a rather influential book, Organizational citizenship behaviour: The good soldier

syndrome (1988), Organ argues that good citizenship behaviour is characterized by traits of altruism,

conscientiousness, sportsmanship, and courtesy among the employees. Organ however recognizes that in

isolation any one instance of OCB may be insignificant, but in the aggregate this discretionary behaviour has a

major beneficial impact on organizational operations and effectiveness. Later in 1997, Organ acknowledged

the conceptual difficulties and ambiguities associated with OCB being discretionary and unrewarded

(Motowidlo, 2000) and re-defined it as „„performance that supports the social and psychological environment

in which task performance takes place” (Organ, 1997).

The pioneering researchers of OCB emphasized that OCB should be viewed as extra-role and organizationally

functional and separate from in-role job performance (Bateman & Organ, 1983; Smith, Organ, & Near, 1983).

This, according to Graham (1991) created the difficulty of determining what is in-role and what is extra-role.

To remove this difficulty, Graham proposed a second approach based on research of civic citizenship in

philosophy, political science, and social history arguing that organizational citizenship can be conceptualized

as a global concept that includes all positive organizationally relevant behaviours of employees. This

conceptualization of organizational citizenship thus encompasses the traditional in-role job performance

behaviours, organizationally functional extra-role behaviours, and political behaviours, such as full and

responsible organizational participation (Dyne, Graham, & Dienesch, 1994).

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Several nomenclature have been used to describe extra-role behaviour such as organizational citizenship

behaviour (Bateman & Organ, 1983; Graham, 1991; Organ, 1988; Schnake, 1991; Smith, et al., 1983), civic

organizational behaviour (Graham, 1991), organizational spontaneity (George & Brief, 1992), contextual

performance (Borman & Motowidlo, 1997b), prosocial organizational behaviour (Brief & Motowidlo, 1986),

counter role behaviour (Staw &Boettger, 1990) and contextual performance (Borman & Motowidlo, 1997a).

Notwithstanding this diverse vocabulary, all of these concepts aim at identifying a work behaviour among

employees that leads to organizational effectiveness (Dyne, et al., 1994). Organizational citizenship

behaviours (OCBs) performed by the employees of a firm surpass the minimum role requirements expected by

organizations and promote the welfare of co-workers, work groups, or the organization. At the same time,

organizations rely on the employees‟ practice of OCBs so as to help their colleagues with problems, promote a

positive work climate, tolerate inconveniences without complaint, and protect organization resources (Witt,

1991).

Positive employee voluntary behaviours like acting cooperatively, suggesting ways to improve the product,

and promoting a positive climate, which Organ termed as OCB are manifested by the activities directed

toward other members in the workplace or the organization, and may include helping co-workers,

communicating new and critical information, maintaining a conscientious attitude toward the work

environment, actively participating in decision processes and discussions, and refraining from complaining

about minor irritants (Yen, Li, & Niehoff, 2008).Three main types of behaviours are required for high

organizational effectiveness: one, people must join and remain in the organization (employee retention rate);

two, employees must stick to the in-role behaviour which is performed in accordance with formal role

descriptions; and three, extra-role behaviour which goes beyond the formal requirements of the role must be

practiced (Katz & Kahn, 1978). The in-role behaviour expected of an employee is usually codified in job

description or role requirement. However, for increased organizational effectiveness, the employees must also

practice the extra-role and engage in cooperative behaviour which goes beyond what is stated in their role

descriptions. OCB is a term used to describe such extra-role and employee cooperation.

While OCB has been given several nomenclatures, it has also been variously dimensionalized and

operationalized. Smith et al., (1983) proposed `altruism' and `generalized compliance' as the components of

OCB. In 1988, Organ proposed `altruism', `conscientiousness', `courtesy,' `civic virtue', and `sportsmanship' as

the five dimensions of OCB (Organ, 1988). Dyne et al., (1994) proposed `organizational obedience',

`interpersonal helping', `organizational loyalty', and `organizational participation' as the OCB dimensions.

Podsakoff et al., (1994) proposed `helping behaviours‟, `sportsmanship' and `civic virtue'. However the

dimensions of OCB as proposed by Organ (1988) have become widely accepted as they comprehensively

represent the constructs on extra-role behaviour or voluntary behaviour proposed in previous studies (Yoon,

2009). To operationalize the construct of OCB, this study uses the OCB dimensions proposed by Organ

(1998). These dimensions of OCB have been found to be widely used by most of the researchers investigating

this construct and are considered the standard measures of this construct. The five dimensions are:

1. Altruism refers to the voluntary behaviours. It occurs when one employee aids another employee in completing his/her task under unusual circumstances (Organ, 1988). For instance, being cooperative,

helpful and other instances of extra-role behaviour, which helps a specific individual with a given work

related problem (Podsakoff, Scott & Philip, 1990).

2. Conscientiousness refers to the extent of behaviours to which someone is punctual, high in attendance and goes beyond normal requirements or expectations. In other words it refers to an employee

performing his/her assigned tasks (in-role behaviour) in a manner above what is expected

(Podsakoff, et al., 1990).

3. Courtesy refers to behaviours that are aimed at preventing future problems, which is different from altruism because altruism is helping someone who has a problem, while courtesy is helping to prevent

problems, performing thoughtful or considerate gestures towards others (Podsakoff, et al., 1990). In the

words of Organ (1988), courtesy includes behaviour such as „„helping someone prevents a problem from

occurring, or taking steps in advance to mitigate the problem”.

4. Civic virtue involves support for the administrative functions of the organization. It consists of those behaviours that are concerned with the political life of the organisation (e. g., attend meetings, engage in

policy debates, and express one's opinions in implementing a new policy). Derived from Graham's

concept of organizational ``citizens'' who are willing to participate actively in organizational governance

and monitor the environment for possible threats and opportunities even at personal cost, Civic virtue

refers to employees‟ commitment to the organization as a whole (Ackfeldt & Coote, 2005; Graham, 1991;

Yen, et al., 2008).

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5. Sportsmanship refers to stressing the positive aspects of the organization instead of the negative. In other words, sportsmanship describes those individuals who tolerate the annoyances that are inevitable in

the workplace a set of behaviours that demonstrate tolerance of less than ideal conditions at work without

complaining (Podsakoff, et al., 1990). Sportsmanship refers to maintaining a positive attitude by

employees even when things go wrong or when there are minor setbacks, and their willingness to give up

personal interests for the good of the organization by, for example, not complaining about trivial matters

or not finding fault with other employees.

Several studies have studied the relationship between different elements of organizational citizenship

behaviour and organizational performance. The emerging literature suggests that OCBs can be positively and

negatively related to various measures of individual and organizational performance (Ackfeldt & Coote,

2005). The positive contribution that organizational citizenship behaviours (OCBs) make toward business

performance is also well accepted in the literature (Podsakoff & MacKenzie, 1994; Podsakoff & MacKenzie,

1997). Organizational citizenship behaviours can contribute to organizational performance as these behaviours

provide an effective means of managing the interdependencies between members of a work unit and

resultantly increase the collective outcomes achieved. OCBs also enhance organisational performance in that

practising the dimensions of OCB lubricate the social machinery of the organisation, reducing friction, and

increasing efficiency (Bateman & Organ, 1983; Smith, et al., 1983). OCBs may also reduce the need of

organizations to devote scarce resources to maintenance functions. Fewer resources devoted to maintenance

means more resources available for immediately productive purposes. (Organ, 1988; Smith, et al., 1983).

Nielsen et al., (2009) meta-analytically reviewed 38 independent samples and suggested that a positive overall

relationship between OCB and performance. Many more such studies establishing a positive relation between

OCB and superior performance exist (Podsakoff et al., 2009; Yen, et al., 2008). The results of a review of the

available empirical evidence on OCB and organizational performance indicate that OCBs make important

contributions to the variance in organizational effectiveness (Podsakoff & MacKenzie, 1997). Besides several

other studies also consider OCB as a means of positively impacting a firm‟s performance (Dunlop & Lee,

2003; Ehrhart, et al., 2006). Besides impacting performance of a firm, OCBs also have implication on the

managerial evaluation of the employees. Although organizational citizenship behaviours are not easily

enforceable by the threat of sanctions because they extend beyond formal role requirements (Smith, et

al.,1983), managers may give better evaluations to employees who perform OCBs because this may help the

managers to focus on and devote their time to more important activities like planning, scheduling, problem

solving, and organizational analysis that enhance the manager's personal effectiveness.

While the link between OCBs and business performance has been discussed both conceptually and supported

by empirical evidence as shown above, some studies have also shown the contribution of practising OCBs

towards innovative performance of a firm. This relationship has however been investigated only in the closed

innovation paradigm which assumes reliance on internal research and development only. There seems to be no

study that investigates the relationship between OCBs and business performance as measured in terms of open

innovation – a paradigm that assumes using both internal research and development and external

collaborations to fuel innovation. Three main reasons exist for expecting a positive relationship between

OCBs and open innovation.

First, shifting from a closed innovation paradigm to an open innovation paradigm may entail scarcity or

unpreparedness of resources or teething problems. Managers cannot foresee all contingencies or fully

anticipate the activities that they may desire or need employees to perform (Katz & Kahn, 1978; Organ,

1988). This is where organizational citizenship behaviours and their practice comes into picture and help in

successful creation of open innovation. The employees who go the extra mile by performing spontaneous

behaviours that go beyond their role prescriptions are especially valued by the management (Ishak, 2005).

Therefore, OCBs shown by the employees may go a long way in ensuring success of the open innovation

projects. Second, since research has shown a positive relation between OCBs and organizational performance

as measured in the (closed) innovation paradigm (Jomo et al.,1999), the same can be expected in the case of

open innovation also as innovation is a measure of performance.

Proposition 1: Practice of organizational citizenship behaviours by the employees of an organization

facilitates the creation of open innovation.

8. Organizational Structure

The relationship between organizational structures and innovation has been the focus of numerous studies,

however understanding the effect of organizational structures in the open innovation paradigm has hardly

been researched.

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Several conceptualizations of organizational innovation imply that the process of innovation in an

organization is a complex, multi-phased activity that moves from initiation to adoption and implementation

(Pierce & Delbecq, 1977). The outcome of this innovation process is moderated, for one, by the characteristics

of organizational structure which have been recognized as critical elements in influencing innovation in firms

(Drucker, 2007). Organizational structures adopted by organizations exert influence on the development and

execution of innovation (Menguc & Auh, 2009). Organizational structures are broadly classified into formal

and informal organizational structures and the distinction between the two has been widely discussed (Chen &

Huang, 2007; Cobb, 1980; Mintzberg, 1983; Pierce & Delbecq, 1977; Watson & Weaver, 2003). John and

Martin (1984) define formalization as the emphasis placed on following specific rules and procedures in

carrying out plan formulation, including documentation of planning activities and adherence to job

descriptions. According to Pierce and Delbecq (1977), “formalization, a form of control employed by

bureaucratic organizations, refers to the degree to which a codified body of rules, procedures or behaviour

prescriptions is developed to handle decisions and work processing.”

Formally structured organizations tends to be more bureaucratic and are characterized by institutionalized

rules, policies and routines, difficult integration across functions, less spontaneity and flexibility in its working

which leads to behaviour programming and strict enforcement of rules, thereby increasing predictability of

performance (Chen & Huang, 2007; Miller, et al., 1984; Pierce & Delbecq, 1977). Innovation, on the other

hand, demands leeway to take risk, and a formalized organization may not permit this. “A good soldier” in an

organization, responsive to the formal structure of authority, may not be willing to take the risks associated

with job security, promotion, salary raise or even feeling of inferiority or subordination in case of a failure in

innovation. This checks innovation in a formal organizational structure (Shepard, 1967). However, while a

formal organizational structure can be perceived as reflecting inhibition and inefficiency, it can also reflect

order and stability (John & Martin, 1984). It enhances clarity, transparency, objectivity; and when the task is

less complex, stable and routine, formalization can also streamline decision-making process and thus improve

efficiency and speed (Menguc & Auh, 2009).

In contrast to a formalized organizational structure, an informal organizational structure is characterized by

openness in the system which is a necessary precondition for idea initiation in the innovation process

(Shepard, 1967). Sivadas and Dwyer (2000) suggest that in less formalized organizations, job profiles are

relatively less structured and employees have greater freedom to perform their relevant tasks (Sivadas &

Dwyer, 2000). This freedom offers room for activities that can be potential innovations. A widespread belief

holds that informal organizational structures, by virtue of their flexibility and openness, facilitate and enhance

innovativeness by encouraging new ideas. However since all innovations are not similar, the organizational

characteristic will have different impacts on different types of innovations (Subramanian & Nilakanta, 1996).

For instance, high formalization makes administrative innovation easier, while low formalization facilitates

adoption of technical innovations (Daft, 1978; Damanpour, 1987). Furthermore, there is considerable

consensus among scientists and practitioners that even in formally structured organizations, organizational

actors use both formal and informal coordination devices to achieve their targets (Rank, 2008). Nevertheless,

a review of the literature on the characteristics of organizational structures and innovation in general gives a

sense that innovation is more favoured by informal rather than formal organizational structures. Given this, it

is proposed that:

Proposition 2a: An informal organizational structure is positively related to the creation of open innovation

by an organization.

Proposition 2b: A formal organizational structure is negatively related to the creation of open innovation by

an organization.

9. Strategic Resonance

Strategic resonance is “an on-going, dynamic, strategic process whereby customer requirements and

organizational capabilities are in harmony and resonate” (Brown, 2000). This definition alludes to a firm‟s

two distinct capabilities: internal and external. The internal dimension concerns the cohesion and strategic

alignment within the functions of a firm. This also relates to social integration mechanisms with a firm‟s

different functions and management levels. It is important for the creation of open innovation, as it is for

efficiency and competitiveness also, to have proper „harmonization‟ between all the functions of a firm and a

fit between the firm‟s strategy and operational capabilities. Harmony between the strategy, research and

development (R&D) and manufacturing capabilities are crucial to innovation based competitive success

(Brown & Fai, 2006). Not aligning corporate strategy with strategic action can lead to strategic dissonance

(Burgelman & Grove, 2004).

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Strategic dissonance, Burgelman et al., (2004) note is the divergence between strategic action and strategic

intent. One example of strategic dissonance within a firm is that of Intel. In 1991, Intel had to scale down its

RISC effort which had taken off in 1980s and reaffirm its commitment to x86CISC architecture after support

for continued use of the RISC led to creation of two camps within the company with differing views about the

use of RISC and CISC architectures (Burgelman & Grove, 2004). Another oft-cited real example of internal

strategic dissonance is that of Xerox wherein internal strategic dissonance occurred between design and

volume manufacture (Brown & Fai, 2006). In late 1970s, Xerox developed a computer called Alto which

comprised a mouse, a laser printer, and a graphical user interface. This became the first personal computer but

due to Xerox‟ internal inability of operations to volume-manufacture it, Alto could never become a

commercial success.

On the other hand, the external dimension of Brown‟s definition relates to a firm‟s capabilities and the market

segments in which the firm wishes to compete (Brown & Fai, 2006). This dimension relates to a firm‟s

interactions with the external players like customers and suppliers who are a critical source of feedback in the

process of innovation. As Brown pointed out resonance is about reducing the distance between a firm, its

infrastructure and its customers. It is imperative for a firm to achieve harmonization with its markets on one

hand, within itself on the other, and lastly between strategy makers and the operations (Brown & Fai, 2006;

Brown & Maylor, 2005). More importantly, it is vital to focus on both of these capabilities simultaneously in

order to come up with successful open innovations. Lack of alignment between different functions and levels

of a firm internally (Clifford, 2001) and between a firm and its customers and supply network externally can

lead to strategic dissonance which can impede or even kill innovation. An interesting analogy about strategic

dissonance between a firm and its customers is this: once a circus (read the firm) wanted to do something

unique to wow its audience (read the customers).

To this end, the circus staff worked assiduously to train a camel to walk backwards. Camels do not walk

backwards, but after much hard work, the circus finally got the camel walk backwards. The time to stage the

show came and everyone in the circus watched excitedly. As the camel walked backwards, the crowd kept

looking on in anticipation of the unique act promised, which had already been performed but gone unnoticed

as no one knew that camels do not walk backwards, or even if someone did, it did not matter. Serious

dissonance had crept in between the circus and its customers. On the basis of the above discussion we

propose:

Proposition 3a: Strategic resonance within the functions and levels of a firm (internal) and between a firm and

its market (external) will moderate the relation between organizational citizenship behaviours and creation of

open innovation.

Proposition 3b: Lack of strategic resonance within the functions and levels of a firm (internal) and between a

firm and its market (external) will moderate the relation between organizational structures and creation of

open innovation.

10. Conclusions

Open innovation considers porousness in the boundaries of a firm as a facilitator in creating innovation as a

result of the firm‟s collaboration with the external players in the same or different industry (Chesbrough,

2006).This entails certain changes in the organization which, for open innovation being a new construct, many

times remain hazy. This article looks at a firm‟s ability to create innovation in the open innovation paradigm

and relates this new construct to organizational citizenship behaviours, organizational structure and strategic

resonance. This paper has implications for research into organization citizenship behaviours (OCB),

organizational structures, firm boundaries and open innovation. Understanding the relationship between OCB,

organizational structure and creation of open innovation is crucial in increasing the rate of successful open

innovations. We propose that practising OCBs facilitates creation of open innovation and that an informal

organizational structure favours creation of open innovation more than a rigid formal structure.

This proposition has implications for managers particularly for those working in the open innovation

paradigm. The framework developed in this article will help managers focus on internal as well as external

factors required for creating successful open innovation. Among the internal factors, the organizational

citizenship behaviour traits that are found to impact positively a firm‟s ability to create open innovation can be

replicated in other departments within the same firm or across businesses. Identifying an organizational

structure that favours creation of open innovation can be implemented in order to lead to successful open

innovations. Regarding external factors, understanding strategic resonance conditions can help managers tap

open innovations under different market conditions. Furthermore, this article has implications for typical

supplier-firm-distributor relation.

International Journal of Business and Social Science Vol. 2 No. 6; April 2011

191

Companies which heavily interact with their upstream and downstream suppliers and distributors can accrue

benefits as a result of better understanding of what makes open innovation tick. This article also provides

ground for empirical research into the relationships discussed. Since not much empirical research has been

done into this, it would be worthwhile for future researchers to empirically test the propositions developed in

this paper across different industries and sectors.

Figure 1:The conceptual framework

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