The Influence of Organizational Creative Climate on

incorporated software, user friendliness, or other functional characteristics of the product (Toner, 2011). In view of the fact that manufacturing fir...

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Int. Journal of Economics and Management 8(1): 40 – 69 (2014)

ISSN 1823 - 836X

The Influence of Organizational Creative Climate on Product Innovation: A Study of Malaysian Manufacturing Firms Aizzat Mohd. Nasurdina, Tan Cheng Lingb* and Khor Boon Houc Universiti Sains Malaysia

a,b,c

Abstract The purpose this study is to examine the effect of organizational creative climate on product innovation. Organizational creative climate is conceptualized as comprising of challenge, freedom, idea support, trust/openness, dynamism/liveliness, playfulness/humour, debate, conflict, risk taking and idea time. A total of 163 large manufacturing firms in Malaysia were sampled. Ten hypotheses were tested using regression analyses. Our results showed that of the eight dimensions of organizational creative climate (risk taking & idea time, playfulness/ humour & dynamism/liveliness, absence of conflicts, trust/openness, debates, challenge, idea support, freedom), only challenge, debate, and idea support were found to have significant positive effects on product innovation. Implications and limitations of the study are also discussed. Keywords: product innovation, organizational creative climate, manufacturing industry, Malaysia

Introduction In this competitive and ever-changing world, product innovation is critically important and is being greatly emphasized, particularly in manufacturing industry. Utterback (1994) suggested that organizations need to be more creative and innovative towards improving their products, in order to survive, to compete, and to grow. To achieve such position, these organizations need to constantly focus on the introduction of new product and continuously develop their capability in product innovation. As noted by Radas and Bozic (2009), most studies on product innovation have been undertaken in developed countries, and consequently Corresponding Author: E-mail: [email protected] Any remaining errors or omissions rest solely with the author(s) of this paper.

*

The Influence of Organizational Creative Climate on Product Innovation

policy- makers from developing countries primarily look at those findings when formulating policy measures. For Malaysia, studies on innovation are still in its infancy (Abdullah, Chik, & Deen, 2006; Ismail, 2005; Pawanchik & Sulaiman, 2010). In its efforts to become a knowledge-based economy, Malaysia has also placed a great emphasis on the need for innovation in all sectors of its economy (Ministry of Science, Technology and Innovation, Malaysia (MOSTI), 2006). However, despite calls for greater innovative activities, the level of innovation in Malaysia is still low. In fact, the outcome of the national survey of research and development 2008 (Ministry of Science, Technology and Innovation, Malaysia (MOSTI), 2012), indicated the Malaysia’s ratio of national gross expenditure on research and development (GERD) to gross domestic product (GDP) was only 0.64 in relation to other countries under the East Asian Newly Industrialising Economies (NIEs), such as Korea (2.98), and Singapore (2.36), as well as those of the new emerging economies like China (1.33) and India (0.84). In fact, the Malaysian manufacturing industry is at risk of losing its competitive advantage as global competition intensifies with the emergence of low-cost developing countries like China, India, and Vietnam (Yusuf & Nabeshima, 2009; Pawanchik & Sulaiman, 2010). Although Malaysia has been involved in the semi-conductor industry as early as 1970s, this industry is still focused on low-value activities, i.e. assembling and testing (Santhapparaj, Sreenivasan, & Loong, 2006). As a result, this industry is prone to downswings in demand as well as subjected to external threats from new low-cost players such as China. Realizing this drawback, the Malaysian government has proposed the Economic Transformation Program (ETP) which aims to boost the nation’s manufacturing growth in order to achieve its Vision 2020. Thus, in order to succeed, firms have to innovate. This line of thought is in line with the claim made by Shipton, Fay, West, Patterson, and Birdi (2005) that the ability for organizations to innovate is the key factor to improve their performance and ensure their success. Innovation is often linked with the introduction of new and superior products. Tung (2012) concluded that product innovation increase a firm’s leverage in a highly competitive market. In the case of Malaysia, product innovation is crucial in order for the country to create more superior, higher value-added manufacturing outputs in order to compete internationally in line with the recommendation made based on the Malaysia National Innovation Model (National Innovation Council, 2007). Since product innovation is important for a firm’s competitive position, a range of studies were conducted to identify its antecedents. The literature has grouped these antecedents into three broad categories: individual, organisational and interactive factors (Amabile, 1991; Damanpour, 1991; Damanpour, Szabat, & Evan, 1989; Kimberly & Evanisko, 1981). Among all the possible predictors of product innovation, interactive variables have been argued as playing a prominent 41

International Journal of Economics and Management

role (Amabile, 1991). According to Amabile (1991), one interactive variable that has emerged as an important predictor of product innovation is organizational creative climate. This is not surprising since organizational creative climate is an attribute of the organization, reflecting a conglomerate of attitudes, feelings, and behaviours that characterizes life in an organization. Besides, organizational creative climate also exist independently of the perceptions and understandings of organizational members which affects the results of the operations of the organization (Ekvall, 1988; 1991; 1996), which in turn, exerts a strong influence on the product innovation. Organisational creative climate are created and reinforced by the presence of specific practices and procedures and accompanying reward mechanisms. The organizational creative climate bears a natural association with the practice of organizational innovation and resulting performance, which are all necessary for product innovation (Cummings & Oldham, 1997). In essence, organisational creative climate consists of ten dimensions: challenge, freedom, idea support, trust/openness, dynamism/liveliness, playfulness/humour, debates, conflicts, risk taking, and idea time. According to Ekvall (1996), these ten dimensions would have a profound effect on innovation. In the manufacturing context, since product innovation could lead to greater winning opportunities for Malaysian firms to market their products and compete globally, investigating the predictors of product innovation is considered crucial. Against this backdrop, the goal of this study is to examine the effect of organisational creative climate (which consists of challenge, freedom, idea support, trust/openness, dynamism/liveliness, playfulness/humour, debates, conflicts, risk taking, and idea time) on product innovation within the Malaysian manufacturing industry.

Literature Review Product Innovation as a Type of Innovation Innovation is a very broad research field and there are many definitions of innovation that have been proposed. In general, innovation has been conceived as the process of making changes, large or small, radical on incremental, to products, processes, and services that result in the introduction of something new for the organization (O’Sullivan & Dooley, 2009). There are various types of innovation classified by past scholars, such as product innovation (Damanpour, 1992; Johanessen, Olsen & Lumpkin, 2001; Knight, 1967), process innovation (Damanpour, 1992; Mavondo, Chimhanzi, & Stewart, 2005), and administrative innovation (Chuang, 2005; Mavondo, et al., 2005). Of the innovation types that have been examined, product innovation has been posited to result in better organizational performance (Porter, 42

The Influence of Organizational Creative Climate on Product Innovation

1998; Cottam, Ensor, & Band, 2001). Product innovation is defined as forming a new product category or implementing small-scale alterations to existing products for the benefit of customers (Gopalakrishnan & Damanpour, 1997). In simple terms, product innovation is the introduction of a new product in the market that uses different technology and has a higher utility for the consumer than the existing products (Tung, 2012). Product innovation reflects performance derived from the significant improvements in technical specifications, components and materials, incorporated software, user friendliness, or other functional characteristics of the product (Toner, 2011). In view of the fact that manufacturing firm’s performance relies heavily on the introduction of new products and services and significant improvements in the functional or user characteristics of existing products and services, this form of innovation is regarded as a key source of competitive advantage.

Organizational Creative Climate Many conceptualizations of organizational creative climate have been made based on the different views regarding organizational climate. For instance, organizational climate refers as a set of shared perceptions regarding the policies, practices, and procedures which an organization rewards, supports, and expects (Schneider & Reichers, 1983). Martin (2002) viewed organizational climate as the manifestation of practices and patterns of behaviour rooted in the assumptions, meanings and beliefs that make up the culture. In a similar vein, organizational creative climate can be conceived as a set of shared attitude, value and beliefs about the organization which affects employee attitudes and behaviour towards innovation (Ferris, Arthur, Berkson, Kaplan, Harrell-Cook, & Frink, 1998). Ekvall (1996) proposed a theoretical model of organizational creative climate by conceptualizing the construct as an objective property of the organization separate from the collective perceptions of employees. Ten factors that can facilitate or hamper creativity and innovation comprised of challenge, freedom, idea support, trust/openness, dynamism/liveliness, playfulness/humour, debates, conflicts, risk taking, and idea time. According to Ekvall, Arvonen, and Waldenstrom-Lindblad (1983), organizational creative climate has the power to influence organizational process such as communications, problem solving, decision-making, co-ordination, motivation, and commitment. Creating an organizational creative climate within the organization is therefore essential in determining success of product innovation (Ekvall, 1996). In fact, a high level of organizational creative climate has been suggested by other researcher (Cokpekin & Knudsen, 2011) as one method for enhancing product innovation. 43

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Organizational Creative Climate and Product Innovation Based on the model of creativity and innovation proposed by Amabile (1988), organizational motivation, resources, and management practices constitute the work environment for individuals and teams working within the organization. These elements of the work environment will impact individuals’ and teams’ creativity and innovation. According to Schneider (1990), organizational creative climate consists of a set of specific practices and procedures and accompanying reward mechanisms, which serves as the primary driver of product innovation. This means that a creative work climate will enable individuals and teams in the organization to continuously create new products. This aligns well with the argument by Glick (1985) that the organizational creative climate is expected to strengthen organizational capability to innovate. Since organizational creative climate has been identified as having ten dimensions: challenge, freedom, idea support, trust/ openness, dynamism/liveliness, playfulness/humour, debates, conflicts, risk taking, and idea time, our main hypothesis is as follows: H1 : Organizational creative climate (challenge, freedom, idea support, trust/openness, dynamism/liveliness, playfulness/ humour, debates, conflicts, risk taking, and idea time) will be positively related to product innovation.

Risk taking and product innovation Risk taking is defined as the tolerance for uncertainty in the firm (Ekvall et al., 1983). Decision-making is prompt, attention is being paid to arising opportunities, and experimentation is preferred to detailed investigation and analysis. Employees feel as though they can “take a gamble” on some of their ideas (Isaksen, Lauer, & Ekvall, 1998). When employees can take bold action even if the outcome is unclear, it will definitely encourage them to experiment, leading to the development of new products or alterations of existing ones. In line with the discussion, the subhypothesis is conjectured as below, H1a : Risk taking will be positively related to product innovation.

Idea time and product innovation Idea time is conceptualized as the amount of time that employees can use for planning new ideas (Ekvall et al., 1983). In a high idea time situation, opportunities exist for employees to discuss and test impulses and non-routine suggestions. In an environment with high idea time, employees are allowed to spend time to explore, 44

The Influence of Organizational Creative Climate on Product Innovation

develop, and elaborate on ideas and alternatives (Isaksen, et al., 1998). Under such circumstances, employees are encouraged to generate new and improved products. In contrast, time pressures make thinking beyond planned routines impossible. Hence, the sub-hypothesis is presented as below, H1b : Idea time will be positively related to product innovation.

Playfulness/Humour and product innovation Playfulness/Humour is regarded as the spontaneity and ease that is displayed among employees in the firm. Such organizations maintain a relaxed atmosphere with jokes and laughter (Ekvall et al., 1983). Isaksen et al (1998) added that an easygoing and light-hearted atmosphere would create a fun workplace. In this type of work environment, employees will feel relax, and their capacity to think increases, leading to greater idea generation for product development and improvement. Thus, we posit that: H1c : Playfulness/humour will be positively related3 to product innovation.

Dynamism/Liveliness and product innovation Dynamism/liveliness is conceptualized as the eventfulness of life in the firm (Ekvall et al., 1983). In a highly dynamic situation, changes are rampant all the time, in terms of activities and ways of thinking (Ekvall et al., 1983). In such situation, new things are happening all the time and new ways of thinking and handling issues often occur (Isaksen, et al., 1998). Constant changes make the atmosphere lively. When employees are exposed to this kind of work environment, they are bound to accept change as the norm, and become energized and be more willing to generate new ideas concerning product development. Therefore, we postulate that: H1d : Dynamism/liveliness will be positively related to product innovation.

Trust/Openness and product innovation Trust/openness is defined as the emotional safety in the relationship among employees (Ekvall et al., 1983). In an atmosphere of trust, communication is open and employees are willing to share their opinions, as initiative is taken without fear of reprisal and ridicule in case of failure (Ekvall et al., 1983). In additions, a climate involving a high level of trust and openness also provides emotional safety 45

International Journal of Economics and Management

in relationships where everyone in the organization dares to put forward their ideas and opinions (Ekvall, 1996). In such situation, employees are likely to share ideas and knowledge on product development and alterations. Hence, we conjecture that: H1e : Trust/openess will be positively related to product innovation.

Debate and product innovation Debate is conceptualized as the occurrence of encounters and clashes between ideas and different experiences. In a debating firm, voices with different perspectives are heard (Ekvall et al., 1983). A debating climate is said to exist when organizational members and teams are allowed to exchange ideas verbally and make frequent interactions with one another (Ekvall, 1996).The debate climate will encourage employees to voice concerns and challenge ideas, leading to creativity, and ultimately higher product innovation. In line with this discussion, our sub-hypothesis is: H1f : Debate will be positively related to product innovation.

Challenge and product innovation Challenge refers to the emotional involvement of the employees of the firm in its operations and goals (Ekvall et al., 1983).When employees experience joy and meaningfulness in their job, they tend to become more energetic in their work. Besides, employees who are exposed to a high level of challenge will be more likely to spend time trying new things (Cokpekin & Knudsen, 2011). According to Ekvall et al. (1983), high challenge climate stimulates creativity and innovation among employees, which are likely to increase their innovative capability to develop new product. Thus, the following sub-hypothesis is offered: H1g : Challenge will be positively related to product innovation.

Idea support and product innovation Based on Ekvall et al. (1983), idea support is regarded as the way in which new ideas are treated. When new ideas are well received by superiors and peers in an organization, employees are likely to judge their organization as supportive. As

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The Influence of Organizational Creative Climate on Product Innovation

suggested by Isaksen et al. (1998), in a constructive and positive atmosphere, employees feel encouraged to try out new ideas and initiatives, leading to greater product innovation. In line with the discussion, we speculate that: H1h : Idea support will be positively related to product innovation.

Freedom and product innovation Freedom is conceptualized as the independence in behaviour exerted by the employees in a firm (Ekvall et al., 1983). In a climate characterized by freedom, employees make contacts, share information, evaluate alternative, and make decisions for problem-solving (Ekvall et al., 1983). When employee are free to share information and knowledge, the flow of knowledge and information becomes smoother and faster, and this will help provide faster feedback to the management authorities, resulting in prompt decision-making (Chen & Huang, 2009). Hence, freedom is necessary for the development and establishment of context that will foster product innovation. Following the above discussion, the following subhypothesis is suggested. H1i : Freedom will be positively related to product innovation.

Absence of conflicts and product innovation Conflict is defined as the presence of personal and emotional tensions, where, in a firm with a high level of conflict, employees dislike each other, and that the climate can be liken to a war (Ekvall et al., 1983). Plots, traps, gossip, and slander are usually present. The absence of conflict enables employees to become matured thinkers, and more likely to deal effectively with diversity. Absence of conflict suggests that people tend to behave in a more matured manner as they have higher psychological insight and greater control of impulses (Isaksen, et al., 1998). When there is less personal tension, employees are likely to channel their energy to the development and improvement of products. Therefore, our final sub-hypothesis is: H1j : Absence of conflicts will be positively related to product innovation.

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Methodology Sample and Data Collection The list of large manufacturing firms was retrieved from the Federation of Malaysian Manufacturers (FMM) Directory (2010) and Invest Penang Directory (2010). Questionnaires were distributed to a total of 688 large manufacturing firms located in six states of Peninsular Malaysia. These states comprising of Penang, Kedah, Perak, Selangor, Kuala Lumpur, and Johor, were identified as having a high percentage of innovating firms (MOSTI, 2006). Participating firms were given two months to complete the questionnaires. After the specified period, 163 useable questionnaires representing a response rate of 23.7 percent were returned and consequently analysed.

Measurement The independent variables in the present study relates to organizational creative climate, comprising of ten dimensions: challenge, freedom, trust/openness, dynamism/liveliness, idea time, playfulness/humour, conflict, idea support, debate, risk taking. Each dimension was measured using 5 items adopted from Ekvall, et al. (1983). All measures of organizational creative climate are based on a 7-point Likert scale ranging from (1) “strongly disagree” to (7) “strongly agree”. The mean score for each construct will serve as an indicator of the level of challenge, freedom, trust/openness, dynamism/liveliness, idea time, playfulness/humour, conflict, idea support, debate, risk taking respectively. The dependent variable is product innovation, measured using thirteen items where eight items adapted from Langerak, Hultink, and Robben (2004) and five items adapted from and another 5 items scale adapted from Zhang (2006). A similar seven-point response format was used. An index for product innovation was computed by taking the mean score of the all the items used to measure product innovation. A higher mean score indicates higher product innovation.

Method of Analysis Two demographic variables that have been previously found to affect innovation, such as size of company (Jiménez-Jiménez & Sanz-Valle, 2005; Shipton, et al., 2005), and years of company in operation (Jiménez-Jiménez & Sanz-Valle, 2005) were controlled in the regression analyses in order to prevent confounding effects. Multiple regression analyses were employed to test our sub-hypotheses.

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Results Profile of Participating Firms Out of the 163 participating large manufacturing firms, 62.6% were from Penang, 11.0% were from Selangor, 10.4% were from Kedah, 9.2% were from Johor, 3.7% were from Perak, with the remaining 3.1% were from Kuala Lumpur. In terms of type of industry, the participating firms came from a various industries: radio, television and communication (17.8%), chemicals and chemical products (6.7%), electrical machinery (12.9%), paper and paper products (3.1%), fabricated metals products (17.2%), textile (0.6%), motor vehicle, trailers and semi-trailers (3.1%), recycling (0.6%), medical, precision, optical instruments, watches and clocks (9.2%), office, accounting and computing machinery (11.0%), leather products (0.6%), rubbers and plastic products (15.3%), and basic metals (1.8%). With regards to ownership, 38.0% were 100% local-owned companies, 50.3% were 100% foreign-owned companies and 11.7% were joint-ventures companies. The median for the size of company (measured in terms of the number of employees) is 300 (S.D. = 1137.90). Meanwhile, the mean value for years of company in operation is 21.12 years (S.D. = 11.24).

Factor Analysis Results of the factor analysis on the 50 items revealed that 4 items had either differences between cross loading less than 0.1 (Snell & Dean, 1992) or factor loadings lower than 0.45 (Hair, Anderson, Tatham, & Black, 2006). These items were eliminated from further analysis. Factor analysis is rerun on the remaining items. Table 1 shows the results of factor analysis on organizational creative climate. Table 1  Results of factor analysis on organizational creative climate items Items

Factor loadings F1

F2

There is a follow through of new ideas in this organization.

0.76

0.12

People in this organization dare to take the initiative, even if the outcome is uncertain.

0.73

0.19

F3

F4

F5

F6

F7

F8

F9

–0.10 0.18

0.26

0.15

0.16

0.13

0.05

0.10

0.21

0.13

0.13

0.26 -0.08

Factor 1: Risk Taking and Idea Time

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0.04

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Table 1 (Cont’d) 0.72

0.28

0.12

0.14

0.16

0.14

0.05

0.18 -0.03

0.70 People in this organization are confident and act quickly. 0.66 Coming up with new ideas is regarded as an important part of the operation of this organization.

0.13

–0.07 0.15

0.17

0.20

0.32

0.01

0.08

0.25

-0.20 0.13

0.16

0.02

0.10

0.18

0.10

Normal ideas in this organization are quickly adopted into this organization.

0.64

0.36

-0.01 0.12

0.07

0.21

0.27

0.10

0.06

The Pace of work in this organization allows for the testing of new ideas

0.60

0.06

-0.01 0.17

0.43

0.07 -0.01 0.24 -0.08

People in this organization take time to discuss new ideas.

0.53

0.13

-0.12 0.21

0.38

0.08

0.07

0.20

0.09

There are a lot of activities in this organization.

0.13

0.73

-0.08 0.19

0.02

0.20

0.16

0.02

0.20

People in this organization tend to joke quite a lot.

0.22

0.69

0.01

0.10

0.34

0.01

0.11

0.21 -0.01

One can usually see many cheerful faces in this organization.

0.24

0.69

-0.17 0.25

0.34

0.18

0.04

0.04 -0.05

People here have a sense of humour.

0.20

0.67

-0.10 0.11

0.42

0.01

0.03

0.16

A lively atmosphere prevails in this organization.

0.18

0.67

-0.23 0.29

0.15

0.29

0.18 -0.01 0.14

There is an informal atmosphere in this organization.

0.22

0.66

-0.08 0.29

0.15

0.03

0.20

The atmosphere here is exciting.

0.23

0.64

-0.16 0.30

0.27

0.37

0.14 -0.06 0.10

There is a lot of energy and drive in the operation of this organization.

0.26

0.63

-0.21 0.30

0.13

0.29

0.20 -0.06 0.18

There is a clear tendency for risk taking in this organization.

Factor 2: Playfulness/ Humour & Dynamism/ Liveliness

50

0.01

0.29 -0.10

The Influence of Organizational Creative Climate on Product Innovation

Table 1 (Cont’d) Factor 3: Conflicts Quite a number of personal conflicts exist in this organization.

0.05

-0.01

0.89 -0.09 -0.04 -0.06 -0.12 0.05 -0.09

It is common in this organization for people to plot against each other.

0.00

-0.11

0.89 -0.06 0.04 -0.06 -0.03 -0.05 0.05

Quite a number of people in this organization cannot tolerate one another.

-0.02

-0.14

0.88 -0.09 0.00 -0.03 -0.13 -0.02 -0.04

There are power and territory -0.09 struggles in this organization.

-0.05

0.87 -0.14 0.00 -0.04 -0.06 0.00

0.02

There is a considerable amount of tension here because of conflicts.

-0.07

-0.10

0.83 -0.07 0.00 -0.05 0.03

0.04

0.06

People here do not talk behind others’ back.

0.08

0.19

-0.10 0.84

0.22

0.20

0.02

0.10 -0.01

The communication between people in this organization is straightforward.

0.21

0.24

-0.09 0.78

0.06

0.18

0.24

0.07

Conflicts and opposition in this organization are dealt with openly.

0.19

0.23

-0.08 0.77

0.10

0.10

0.31 -0.02 0.16

In this organization there is no fear of being stabbed in the back.

0.17

0.22

-0.23 0.75

0.21

0.22 -0.02 0.08 -0.09

People here trust each other.

0.16

0.26

-0.15 0.74

0.25

0.17

0.11

0.17

0.04

People here are anxious to talk about their ideas.

0.26

0.17

0.07

0.13

0.78

0.07

0.13

0.07

0.08

Many new ideas are floating around in this organization.

0.32

0.25

0.07

0.14

0.75

0.09

0.23

0.09

0.08

There is a great variety of views in this organization.

0.22

0.32

-0.08 0.12

0.73

0.14

0.14

0.11

0.04

Many different points of view are expressed in this organization.

0.21

0.22

-0.02 0.29

0.66

0.15

0.24

0.01

0.22

Unusual ideas often come up in discussions in this organization.

0.25

0.22

0.03

0.52

0.15

0.25 -0.03 -0.01

Factor 4: Trust/Openness

0.12

Factor 5: Debate

51

0.23

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Table 1 (Cont’d) Factor 6: Challenge People in this organization usually enjoy their job.

0.08

0.13

-0.09 0.17

0.06

0.83

0.17

Most people here enjoy contributing to this organization.

0.14

0.23

0.08

0.08

0.08

0.79

0.20 -0.02 0.07

Most people in this organization consider their work meaningful and stimulating.

0.15

0.15

-0.06 0.25

0.15

0.76

0.03

0.29 -0.04

People in this organization feel deeply committed to their job.

0.18

0.10

-0.13 0.24

0.16

0.68

0.11

0.15

0.09

Most people here strive to do 0.30 a good job.

0.12

-0.20 0.12

0.08

0.52

0.13

0.09

0.41

0.24 -0.08

Factor 7: Idea Support People in this organization receive support and encouragement if they present new ideas.

0.27

0.23

-0.17 0.25

0.24

0.24

0.69

0.25

0.03

People in this organization feel welcome when presenting new ideas.

0.20

0.23

-0.28 0.20

0.29

0.30

0.63

0.18

0.06

Initiatives in this organization are often received favourably, so people here feel encouraged to generate new ideas.

0.27

0.24

-0.06 0.11

0.37

0.32

0.61

0.19 -0.08

People in this organization generally dare to take risk to share their ideas, because others listen and encourage them.

0.37

0.21

-0.06 0.14

0.33

0.12

0.60

0.20 -0.03

This organization usually accepts new ideas.

0.29

0.24

-0.23 0.32

0.30

0.19

0.54

0.11

People in this organization make decisions on their own to a fairly large extent.

0.23

0.05

0.04

0.09

0.13

0.19 -0.03 0.79 -0.09

Most people in this organization prioritize their work to a rather large extent by themselves.

0.27

-0.03

-0.01 0.16

0.01

0.21

0.07

Factor 8: Freedom

52

0.13

0.73

0.21

The Influence of Organizational Creative Climate on Product Innovation

Table 1 (Cont’d) 0.12

0.37

0.03

0.00

0.07

0.04

0.22

0.72 -0.02

It is common for people in 0.31 this organization to take their own initiative in solving problems.

0.05

-0.03 0.03

0.09

0.20

0.29

0.54

There is quite a lot of freedom in this organization.

Factor 9: Creative People

 

Many people in this 0.01 organization are full of ideas.

 

 

 

0.13

0.05

  0.07

  0.16

 

 

0.17

 

0.05 -0.01 0.08

0.82

Eigenvalue

5.25 

5.11

4.42  4.33  4.24  3.81  2.94  2.83  1.23 

% Variance Expectation

11.42

11.10

9.60

Total Variance Explained

71.57

KMO

0.90

Bartlett’s Test of Sphericity

9.40

9.22

8.28

6.39

6.16

2.68

 

 

 

 

 

 

6490.38**

Note: N = 163. Bold font loadings indicate the inclusion of that item in the factor; *p < 0.05;** p < 0.01.

The KMO measures of sampling adequacy value for the items of organizational creative climate, was 0.90, which indicates that the items are interrelated and shared common factors. Bartlett’s Test of Sphericity was found significant (Approximate Chi Square of 6490.38, p < 0.01), indicating the significance of the correlation matrix and thus appropriateness for factor analysis. Results of the varimax rotated analysis indicate the existence of nine significant factors with eigenvalues greater than one explained 71.57 % of the variance. The results of a scree test also provide support for a nine factor solution. Factor 1 includes 5 items relating to risk taking and 3 items relating to idea time. This first factor (eigenvalue = 5.25) with factor loading ranging from 0.53 to 0.76 accounted for 11.42% of the variance in the data. Therefore, factor 1 was labelled as “Risk Taking and Idea Time”. Factor 2 includes 4 items relating to Playfulness/ Humour, Dynamism/Liveliness, and 4 items relating to Dynamism/Liveliness. This second factor (eigenvalue = 5.11) with factor loading ranging from 0.63 to 0.73 accounted for 11.10% of the variance in the data. Therefore, factor 2 was labelled ‘Playfulness/Humour and Dynamism/Liveliness”. The third factor which was represented by five items was labelled as “Conflict”. This factor with eigenvalue = 4.42, accounted for 9.60% of the total variance in the data. The factor loading for items ranging from 0.83 to 0.89. Items in Factor 3 include personal conflicts exist in the organization, people plotting against each other, people cannot tolerate one another, power and territory struggles, and tension because of conflicts. The fourth factor was represented by 5 items and named as “Trust/Openness”. This factor 53

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with eigenvalue = 4.33, accounted for 9.40% of the total variance in the data. The factor loading for items was ranging from 0.74 to 0.84. Factor 5 was represented by 5 items and named as “Debate”. This factor with eigenvalue = 4.24, accounted for 9.22% of the total variance in the data. The factor loading for items is ranging from 0.52 to 0.78. Factor 6 was represented by 5 items and named as “Challenge”. This factor with eigenvalue = 3.81, accounted for 8.28% of the total variance in the data. The factor loading for items ranging from 0.52 to 0.83. The seventh factor was represented by 5 items and named as “Idea Support”. This factor with eigenvalue = 2.94, accounted for 6.39% of the total variance in the data. The factor loading for items ranging from 0.54 to 0.69. Factor 8 was represented by four items and named as “Freedom”. This factor with eigenvalue = 2.83, accounted for 6.16% of the total variance in the data. The factor loading for items ranging from 0.54 to 0.79. Factor 9 was represented by only 1 item which was originally under the dimension of Dynamism/Liveliness (e.g. many people in this organization were full of ideas). This factor with eigenvalue = 1.23, accounted for 2.68% of the total variance in the data. The factor loading for this item reads 0.82. Therefore, Factor 9 was relabelled as “Creative People”. Product innovation consisted of 13 items. Principal component’s analysis with orthogonal varimax rotation was used to identify the appropriate factors of the items. A three-factor solution was discovered. Table 2 shows the final results of factor analysis on product innovation. Table 2  Results of factor analysis on product innovation items Factor loadings

Items

F1

F2

F3

My organization’s new/improved product contributed to profitability relative to our major competitors.

0.81

0.28

0.13

My organization’s new/improved product contributed to profitability relative to our original objectives.

0.79

0.29

0.01

My organization’s new/improved product contributed to sales relative to our original objectives.

0.77

0.13

0.09

My organization’s new/improved product contributed to sales relative to our major competitors.

0.75

0.10

0.35

My organization’s new/improved product contributed to customer satisfaction relative to our major competitors.

0.54

0.10

0.44

Factor 1: Product Innovation – Financial Aspects

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Table 2 (Cont’d) Factor 2: Product Innovation – Quality Aspects My organization’s new/improved product replaced inferior products.

0.21

0.72

-0.06

My organization’s new/improved product provided higher quality than our competing products.

0.28

0.65

0.37

My organization’s new/improved product solved problems for our customers.

0.07

0.62

0.16

My organization’s new/improved product offered unique benefits for our customers.

0.06

0.62

0.33

My organization’s new/improved product was highly innovative. 0.31

0.58

0.16

My organization’s new/improved product was radically different 0.12 from our competitor products.

0.15

0.76

My organization’s new/improved product was superior to our competing products.

0.31

0.34

0.68

My organization’s new/improved product offered solutions not possible with our existing products.

0.07

0.12

0.60

Eigenvalue

3.07

2.37

2.05

% Variance Expectation

23.60

18.23

15.76

Factor 3: Product Innovation – Differentiation Aspects

Total Variance Explained

57.59

KMO 0.84 Bartlett’s Test of Sphericity

781.77**

Note: N = 163. Bold font loadings indicate the inclusion of that item in the factor; *p < 0.05;** p < 0.01.

As indicated in Table 2, the KMO measures of sampling adequacy value for the items of product innovation was 0.84, indicating that the items were interrelated and shared common factors. Bartlett’s Test of Sphericity was also found to be significant (Approximate Chi Square of 781.77, p < 0.01), indicating the significance of the correlation matrix and thus, appropriateness for factor analysis. Results of the varimax rotated analysis indicate the existence of three significant factors with eigenvalues greater than one that explained 57.59 % of the variance. The results of a scree test also provided support for a three-factor solution. Factor 1 includes 5 items relating to financial aspect of product innovation. This first factor (eigenvalue = 3.07) with factor loadings ranging from 0.54 to 0.81 accounted for

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23.60% of the variance in the data. Therefore, Factor 1 was labelled as “Financial Aspects of Product Innovation”. Factor 2 includes 5 items relating to quality aspect of product innovation. This second factor (eigenvalue = 2.37) with factor loading ranging from 0.58 to 0.72 accounted for 18.23% of the variance in the data. Therefore, Factor 2 was labelled as “Quality Aspects of Product Innovation”. Factor 3 includes 3 items relating to differentiation aspect of product innovation. This third factor (eigenvalue = 2.05) with factor loading ranging from 0.60 to 0.76 accounted for 15.76% of the variance in the data. Therefore, Factor 3 was named, “Differentiation Aspects of Product Innovation”.

Restatement of Hypotheses Results of the factor analyses required a restatement of the initial hypotheses. Our revised hypotheses are as follows: H1 : The Organizational Creative Climate (i.e.: Risk Taking & Idea Time, Playfulness/Humour & Dynamism/ Liveliness, Absence of Conflicts, Trust/Openness, Debates, Challenge, Idea Support, Freedom) will be positively related to Product Innovation (i.e.: Financial Aspect, Quality Aspect, and Differentiation Aspect ). H1.1 : The Organizational Creative Climate (i.e.: Risk Taking & Idea Time, Playfulness/Humour & Dynamism/Liveliness, Absence of Conflicts, Trust/Openness, Debates, Challenge, Idea Support, Freedom) will be positively related to the Financial Aspect of Product Innovation. H1.1a : Risk Taking and Idea Time will be positively related to the Financial Aspect of Product Innovation. H1.1b : Playfulness/Humour and Dynamism/Liveliness will be positively related to the Financial Aspect of Product Innovation. H1.1c : Absence of Conflicts will be positively related to the Financial Aspect of Product Innovation. H1.1d : Trust/Openness will be positively related to the Financial Aspect of Product Innovation.

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The Influence of Organizational Creative Climate on Product Innovation

H1.1e : Debates will be positively related to the Financial Aspect of Product Innovation. H1.1f : Challenge will be positively related to the Financial Aspect of Product Innovation. H1.1g : Idea Support will be positively related to the Financial Aspect of Product Innovation. H1.1h : Freedom will be positively related to the Financial Aspect of Product Innovation. H1.2 : The Organizational Creative Climate (i.e.: Risk Taking & Idea Time, Playfulness/Humour & Dynamism/Liveliness, Absence of Conflicts, Trust/Openness, Debates, Challenge, Idea Support, Freedom) will be positively related to the Quality Aspect of Product Innovation. H1.2a : Risk Taking and Idea Time will be positively related to the Quality Aspect of Product Innovation. H1.2b : Playfulness/Humour and Dynamism/Liveliness will be positively related to the Quality Aspect of Product Innovation. H1.2c : Absence of Conflicts will be positively related to the Quality Aspect of Product Innovation. H1.2d : Trust/Openness will be positively related to the Quality Aspect of Product Innovation. H1.2e : Debates will be positively related to the Quality Aspect of Product Innovation. H1.2f : Challenge will be positively related to the Quality Aspect of Product Innovation. H1.2g : Idea Support will be positively related to the Quality Aspect of Product Innovation. H1.2h : Freedom will be positively related to the Quality Aspect of Product Innovation. 57

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H1.3 : The Organizational Creative Climate (i.e.: Risk Taking & Idea Time, Playfulness/Humour & Dynamism/Liveliness, Absence of Conflicts, Trust/Openness, Debates, Challenge, Idea Support, Freedom) will be positively related to the Differentiation Aspect of Product Innovation. H1.3a : Risk Taking and Idea Time will be positively related to the Differentiation Aspect of Product Innovation. H1.3b : Playfulness/Humour and Dynamism/Liveliness will be positively related to the Differentiation Aspect of Product Innovation. H1.3c : Absence of Conflicts will be positively related to the Differentiation Aspect of Product Innovation. H1.3d : Trust/Openness will be positively related to the Differentiation Aspect of Product Innovation. H1.3e : Debates will be positively related to the Differentiation Aspect of Product Innovation. H1.3f : Challenge will be positively related to the Differentiation Aspect of Product Innovation. H1.3g : Idea Support will be positively related to the Differentiation Aspect of Product Innovation. H1.3h : Freedom will be positively related to the Differentiation Aspect of Product Innovation.

Mean, Standard Deviations, and Correlations of the Study Variables Descriptive statistics such as mean scores, standard deviations, reliabilities, and intercorrelations of the study variables are shown in Table 3.

58

59

5.88 5.90 5.60 4.87 3.78 4.81 4.98 5.45 5.32 5.16 5.01

PDI_F PDI_Q PDI_D PT_IT CF TO DB CM IS FD PH_DL

0.81 1.29 1.16 0.90 0.61 0.89 0.77 0.90 0.58 0.71 0.59

S.D. (0.85) .531** .467** .293** -.109 .108 .332** .316** .212** .241** .223** (0.73) .498** .303** -.052 .213** .311** .451** .316** .305** .317** (0.64) .277** -.003 .207** .281** .334** .290** .429** .333**

PDI_F PDI_Q PDI_D

(0.91) -.124 .504** .659** .500** .689** .551** .624**

PT_IT

(0.93) -.280** -.066 -.203** -.288** -.035 -.271**

CF

(0.93) .530** .520** .579** .321** .638**

TO

(0.90) .421** .675** .371** .653**

DB

(0.87) .602** .467** .532**

CM

(0.93) .516** .667**

IS

(0.81) .393**

FD

(0.93)

PH_DL

** p < 0.01, * p < 0.05.

Note: Values in parentheses indicate Cronbach’s alpha; CM denotes Challenge, FD denotes Freedom, IS denotes Idea Support, TO denotes Trust/Openness, PH_DL denotes DL denotes Playfulness/Humor and Dynamism/Liveliness, DB denotes Debate, CF denotes Conflicts, RT_IT denotes Risk Taking and Idea Time, PDI_F denotes Finance aspect of Product Innovation, PDI_Q denotes Quality aspect of Product Innovation, and PDI_D denotes Differentiation of Product Innovation.

Mean

Variables

Table 3  Descriptive statistics, correlations, and reliabilities of the study variables

The Influence of Organizational Creative Climate on Product Innovation

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With reference to Table 3, the participating companies judged their level of quality aspect of product innovation (M = 5.90, S.D. = 1.29) to be relatively high, followed by financial aspect of product innovation (M = 5.88, S.D. = 0.81), and differentiation aspect of product innovation (M = 5.60, S.D. = 1.16). The level of challenge (M = 5.45, S.D. = 0.90) was found to be higher than idea support (M = 5.32, S.D. = 0.58), followed by freedom (M = 5.16, S.D. = 0.71), playfulness/ humor_dynamism/liveliness (M = 5.01, S.D. = 0.59), debate (M = 4.98, S.D. = 0.77), risk taking_idea time (M = 4.87, S.D. = 0.90), trust/openness (M = 4.81, S.D. = 0.89) and conflicts (M = 3.78, S.D. = 0. 61). Forty-three out of 50 intercorrelations were statistically significant. All correlations among product innovation were statistically significant, with r ranging from 0.467 (p < 0.01) to 0.531 (p < 0.01). Most of the correlations among organizational creative climate dimensions were significant, ranging from -0.203 (p < 0.01) to 0.675 (p < 0.01). Likewise, the correlations between conflicts and product innovation, as well as freedom and product innovation were found to be insignificant. The reliabilities of the study ranged from 0.64 to 0.93. According to Sekaran (2003), a coefficient that exceeded 0.60 is acceptable.

Hypotheses Testing In this study, product innovation (finance aspect, quality aspect, and differentiation aspect) was regressed against the eight dimensions of organizational creative climate (Risk Taking & Idea Time, Playfulness/Humour & Dynamism/Liveliness, Absence of Conflicts, Trust/Openness, Debates, Challenge, Idea Support, Freedom) in a two-step manner. In the first step, the two control variables were entered into the equation. In the second step, the eight dimensions of organizational creative climate were entered. The results of the regression analysis are depicted in Table 4, Table 5 and Table 6.

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The Influence of Organizational Creative Climate on Product Innovation

Table 4  Results of regression analysis: Impact of OCC on finance aspect of product innovation Predicators Step1:

Step 2:

  Control Variables Size of company Years of company in operations

Model 1

Model 2

Std β

Std β

0.11 –0.02

0.05 0.01

Organizational Creative Climate Risk Taking and Idea Time Conflicts Trust Debates Challenge Idea Support Freedom Playfulness/Humour and Dynamism/Liveliness

R2 Adjusted R 2 ∆R2 F Value ∆ F Value

0.13 –0.15 –0.19 0.39** 0.30* 0.27* 0.10 –0.05 0.01 0 0.01 0.94 0.94

0.22 0.17 0.21 4.27** 5.05**

Note: * P < 0.05, ** P < 0.01

Control variables (size of company and years of company in operation) explained 1.0% of the variation in finance aspect of product innovation. On adding the eight model variables, the R2 increased to 0.22 indicating that the eight dimensions of organizational creative climate contributed an additional 21.0% to the variance in finance aspect of product innovation. The F-change (5.05) was also significant (p < 0.01). Of the eight dimensions of organizational creative climate, only debate (β = 0.39, p < 0.01), challenge (β = 0.30, p < 0.05), and idea support (β = 0.27, p < 0.05) were found to be positively and significantly related to the financial aspect of product innovation. The rest had no relationship with finance aspect of product innovation. The results provided support for our three subhypotheses (H1.1e, H1.1f, and H11g ). Thus, hypothesis H1.1 was partially supported.

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Table 5  Regression results of the relationship between organizational creative climate and quality aspects of product innovation Predicators Step1:

Step 2:

Control Variables Size of company Years of company in operations

Model 1

Model 2

Std β

Std β

0.13 0.06

0.08 0.12

Organizational Creative Climate Risk Taking and Idea Time Conflicts Trust Debates Challenge Idea Support Freedom Playfulness/Humour and Dynamism/Liveliness

R2 Adjusted R 2 ∆R2 F Value ∆ F Value

0.02 0.01 –0.08 0.13 0.39** –0.05 0.08 0.08 0.02 0.01 0.02 1.87 1.87

0.26 0.21 0.24 5.38** 6.13**

Note: * P < 0.05, ** P< 0.01

Control variables (size of company and years of company in operation) explained 2.0% of the variation in quality aspect of product innovation. On adding the eight model variables, the R2 increased to 0.26 indicating that the eight dimensions of organizational creative climate contributed an additional 24.0% to the variance in quality aspect of product innovation. The F-change (6.13) was also significant (p < 0.01). Challenge (β = 0.39, p < 0.01) was the only organizational creative climate dimension that was found to be significantly and positively related to the quality aspect of product innovation. The other organizational creative climate dimensions were not significant in predicting the quality aspects of product innovation. Since our results provide support to only one sub-hypothesis (H1.2g), we concluded that hypothesis H1.2 was weakly supported.

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Table 6  Regression results of the relationship between organizational creative climate and differentiation aspects of product innovation Predicators Step1:

Step 2:

  Control Variables Size of company Years of company in operations

Model 1

Model 2

Std β

Std β

0.10 0.01

0.05 0.05

Organizational Creative Climate Risk Taking and Idea Time Conflicts Trust Debates Challenge Idea Support Freedom Playfulness/Humour and Dynamism/Liveliness

R2 Adjusted R2 ∆ R2 F Value ∆ F Value

-0.09 0.05 -0.04 0.09 0.15 -0.06 0.34** 0.21 0.01 0 0.01 0.86 0.86

0.25 0.20 0.24 4.94** 5.90**

Note: * P < 0.05, ** P< 0.01

Control variables (size of company and years of company in operation) explained 1.0% of the variation in differentiation aspect of product innovation. On adding the eight model variables, the R2 increased to 0.25 indicating that the eight dimensions of organizational creative climate contributed an additional 24.0% to the variance in differentiation aspect of product innovation. The F-change (5.90) was also significant (p < 0.01). However, only one dimension relating to freedom (β = 0.34, p < 0.01) was found to be significantly and positively related to the differentiation aspect of product innovation. The other remaining climate dimensions were not significant in predicting the differentiation aspect of product innovation. Our results provided support to only one sub-hypothesis (H1.3h) suggesting that hypothesis H1.3 was weakly supported.

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Discussion, Implications and Limitations The objective of the current study is to examine the effect of organizational creative climate (comprising of eight dimensions after factor analysis: Risk Taking & Idea Time, Playfulness/Humour & Dynamism/Liveliness, Absence of Conflicts, Trust/ Openness, Debates, Challenge, Idea Support, Freedom) on product innovation (financial aspect, quality aspect, and differentiation aspect) among firms within the Malaysian manufacturing industry. The statistical results revealed that of the twenty four sub-hypotheses, only five sub-hypothesis (H1.1e, H1.1f, H1.1g, H1.2g, and H1.3h) were supported. Our findings provided partial support for the main hypothesis. The finding is consistent with past studies (Ekvall, 1996; Lauer, 1994). Our results indicate that organizations which have an organizational climate characterized by debates whereby employees are encouraged to actively put forward different ideas, viewpoints, experiences for considerations, as well as are supportive of new ideas put forth by employees, are bound to result in greater returns for the organization in terms of profitability, market share, and customer satisfaction (financial aspects of product innovation). Likewise, a workplace that has an exciting atmosphere where people are energized to work will foster employees’ motivational level and creativity in performing their jobs, which ultimately results in greater financial gains returns for the organizations. Besides, organizations that are supportive of new ideas put forth by employees are bound to enhance their employees’ satisfaction level. Satisfied workers tend to become more committed and innovative, which lead to higher financial returns for organizations. Similarly, our results indicate that in organizations that are receptive of new ideas and suggestions, employees tend to become creative. In such situations, they are likely to provide greater inputs to their superiors on product improvements, all of which will lead to higher quality products. Our results also suggest that organizations characterized by high freedom whereby employees actively make contacts, continuously give and receive information, discuss problem-solving and alternatives in their daily tasks and decision-making activities, will spur creativity among employees. Creative employees are bound to give greater attention to the differentiation aspects of product innovation by generating new and unique products. Generally, our findings are consistent with findings of previous studies (Lauer, 1994; Ekvall, 1996; Patterson, West, Shackleton, Dawson, Lawthom, Maitlis, Robinson, & Wallace, 2005; Ismail, 2005; Abdullah et al., 2006). On the other hand, most of the creative climate dimensions had no relationships with product innovation. One possible reason for this non-relationship may be

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due to the fact that like any business entity, one of the fundamental priorities of manufacturing firms in Malaysia resides in its cost reduction ability especially with regards to timely delivery of products to customers (Santhapparaj et al., 2006). As such, low priority is devoted in cultivating a creative work environment. The findings offer both theoretical and practical implications. In terms of theory, our results demonstrate the applicability of the resource-based view in a Malaysian setting. The resource-based view recognizes that organizational resources are key elements in the creation and application of knowledge (Barney, 1991; Mumford, 2000). In particular, a creative climate creates a context that facilitates employees to obtain and share valuable and unique knowledge, which in turn, leads to superior product innovation performance. Variations in product innovation are due to the organization’s capabilities in developing and deploying resource. From the practical perspective, our results suggest that organizations should encourage a high degree of challenge, provide greater freedom, be more attentive and receptive to employees’ ideas and suggestions, and foster open communication to allow employees to express their views and debate issues openly. By doing so, an environment that fosters creativity will be established that will encourage employees to feel motivated and committed to make contributions in developing new products or improving existing ones. One major limitation of this study is the use of a single informant from each of the participating companies. Each participating manager from the respective firms held various job designations such as: R&D manager / Product manager / Program manager / Operations manager / General manager / Managing Director. Since the informants had to be familiar with the organization’s practices in the areas of organizational creative climate and product innovation, it is unlikely that they would be able to provide accurate account of these constructs. Thus, we recommend the use of multiple informants to provide information on specific areas. For instance, creative climate questionnaire be answered by the HR manager whereas information on product innovation be answered by the R&D manager.

Conclusion In conclusion, organizational creative climate has been found to contribute significantly in the prediction of product innovation among manufacturing firms in Malaysia. Our findings concur with Isaksen, et al. (1998) who argued that organizational creative climate is crucial in encouraging new ideas that are pivotal in the development of new products or in the improvements of existing ones.

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