Elsevier

Organizational Dynamics

Volume 38, Issue 1, January–March 2009, Pages 64-72
Organizational Dynamics

The Influence of Leadership on Innovation Processes and Activities

https://doi.org/10.1016/j.orgdyn.2008.10.005Get rights and content

Introduction

In the August 1, 2005 issue, Business Week magazine reported that due to the emergence of low cost economies of Eastern Europe and Asia as the preferred locations for sourcing knowledge related activities (such as digitized analytic work and manufacturing), the focus of U.S. corporations is shifting from the knowledge economy to what is being referred to as the creativity economy. As a result of the increasing commoditization of knowledge, the creativity economy represents a change in paradigm – where the focus of competition will be on creativity, imagination and innovation. Leading through innovation in a creativity economy appears to be the only way (at least for the moment) that U.S. corporations and western corporations as a whole can gain and sustain competitive advantage. In a survey of over 900 senior executives by Boston Consulting Group Inc, innovation was identified as key to driving top-line revenue. This is evidenced in how different types of innovations have transformed many corporations. For example, the success of the BlackBerry transformed an otherwise unknown company, Research in Motion. Apple Computer Inc.’s iPod, a huge success that integrates technological, business model and branding innovations, became a high revenue earner for Apple. Another example is the process innovation of Southwest Airlines Co. that has enabled it to become a highly successful low cost airline. Procter & Gamble Co.’s focus has been on design innovation, which has helped it to transform itself and outperform its industry competitors.

Innovation can be seen as representing a change in the status quo and has been defined as involving the discovery of new things and the commercialization of such discoveries. To be innovative, it is not sufficient to be creative and come up with new possibilities and ideas, implementation is a key aspect of the innovation process. Innovation has also been categorized as the discovery of something completely new (often referred to as radical innovations) and an improvement effort of something that already exists (often referred to as incremental innovations). James March referred to the two categories as the “exploration of new possibilities and the exploitation of old certainties,” respectively. Organizations are constantly required to monitor both their exploitative and exploratory activities in increasingly uncertain and competitive environments.

Having the requisite technological or R&D capabilities and complementary assets such as marketing and distribution capabilities are key enablers of innovation. But of paramount importance is having the right type of leadership to drive the innovation process efficiently and effectively. Unique leadership capabilities are the hallmark of firms that are able to manage different types of innovative activities successfully. Leaders like A.G. Lafley, Procter & Gamble’s chief executive officer (CEO); J.R. Immelt, General Electric Co.’s CEO; Steve Jobs of Apple, and Richard Branson of Virgin Group Ltd. are constantly pushing their organizations to remain at the forefront of innovation. Immelt noted the role of leadership in fostering innovation at GE as the ability to have “the courage to fund new ideas, lead teams to discover better ideas, and lead people to take more educated risks.” In the automotive industry, for instance, we see firms currently juggling societal demands for greener and more fuel-efficient cars with rising costs of managing R&D projects. Such types of challenges require leaders to skilfully transform their organizations into innovative ones. One example of a leader doing just that is Ratan Tata, the chairman of both the Tata Group and Tata Motors since 1993. Tata recently made news headlines by acquiring U.K. based Jaguar and Landrover from Ford Motor Co. in the U.S. What makes this even more newsworthy is that it marks another foray into international waters by the India-based Tata in an industry that is dominated by western and Japanese carmakers. This high profile sale was well received by the U.K. stakeholder groups who have perceived Tata’s style as nurturing rather than cost cutting. In public, Tata comes across as being quite understated. Tata is widely admired and well respected in the Indian and international business circles and the effect of his leadership style on innovation is evident in the company’s successes. For example, Tata’s recent acquisitions come on the heels of his launch of the Tata Nano – the world’s cheapest car – which created waves both in its Indian home market and at the Geneva auto show in 2007. It is Tata’s vision and inspirational leadership style that has changed the way the game is played in the automotive industry, and his introduction of the Nano as the world’s cheapest car has all the hallmarks of a radical innovation.

In spite of the above examples, leading innovation remains one of the most challenging aspects for contemporary leaders. There have been many studies on leadership and several bodies of work on innovation. Surprisingly, there has been very little done to address the link between leadership and innovation. In this paper, we investigate two different leadership styles focusing on transformational-transactional leadership theory and the underlying linkages between these leadership styles and different innovation processes and activities.

Our goal is to demonstrate that different leadership styles may foster distinct innovative processes such as the creative and the implementation processes as well as distinct innovation activities, such as exploitation and exploration. We will also examine how different organizational contexts can affect this link between leadership styles and innovative processes and activities. For example, the types of cultural, formal and informal processes, systems and products or services within an organization could affect the link between leadership and innovation. We aim to shed light on the crucial role that leadership plays in driving innovation in organizations and specifically, to be able to ascribe different leadership styles to the types of innovation processes and activities observed. One potential organizational implication of this work is to recognize and develop appropriate leadership for innovation in a given organizational context.

Section snippets

Transformational and transactional approaches to leadership

Leadership has been viewed as a social process that takes place in a group context in which the leader influences his or her followers’ behaviors so that desired organizational goals are met. The leader’s role as an influencer of required behaviors may range from being inspirational, motivational and visionary to a role that involves the design of an appropriate organizational context. Bruce Avolio and Bernard Bass referred to these as transformational and transactional leadership styles.

Leadership and performance

The importance of leadership to organizational performance cannot be over-emphasized. Most survey studies using the Multifactor Leadership Questionnaire (MLQ), which measures the behaviors involved in transformational and transactional leadership, positively relate transactional and transformational leadership to indicators of leadership effectiveness such as subordinate satisfaction, motivation and performance. It has been argued that Jack Welch’s leadership strategies and business acumen were

Linking leadership to innovation processes and activities

It is without question that leadership plays a vital role in fostering innovation processes and activities in organizations. Although some innovations may be a bottom-up activity, arising from the members of an organization who are not necessarily leaders or in top management, generally innovations tend to be the result of a strategic response or initiatives in organizations to compete effectively in the market place. For innovations to succeed in an organization, they require the commitment of

The influence of transformational leadership on creativity and exploratory innovation activities

As discussed, the creative innovation process is primarily a product of imagination, including the ability to take risks, deviate from the status quo and connect different matrices of thought, reflexes and skills and apply them in the creative process of coming up with new ideas. Thus, the mental state of the creator is an essential factor in the creativity process activities. Such a mental state can be influenced by a creator’s surroundings, freedom to operate as well as the higher order needs.

The influence of transactional leadership on innovation implementation process

When the innovation process involves, for example, the implementation and development of a product concept, the need for “blue sky thinking” is minimized and the need for appropriate systems, processes and structures to achieve efficiency is required. The transactional form of leadership – through its focus on management, clear structures, formal systems, reward and discipline – is likely to be more effective in the implementation stage of an innovation than transformational leadership.

In the

The influence of transactional leadership on exploitative innovation activities

We argue that the transactional form of leadership will be appropriate for exploitative innovation activities that involve refining and improving on existing products and services, due to minimal risk-taking such activities require. Many organizations have a strategy of focusing on exploitative activities to achieve incremental outcomes by improving existing products and services. In their study of the innovative practices of small firms in the United Kingdom, Adegoke Oke and colleagues found

The influence of transformational leadership on exploitative activities

It is pertinent to note that there are some exploitative activities that involve totally new ways of thinking, risk-taking and other attributes that are better enhanced by transformational leadership than by transactional leadership. For example, repositioning an existing product or service in a new market is an exploitative activity in the sense that it does not involve the creation of a new thing. At the same time, such an activity may not only require the use of formal processes and systems

The influence of transactional leadership on exploratory activities

It is also possible that transactional leadership style may be required in some cases to foster exploratory activities to achieve more radical outcomes. This is most likely to occur in a situation where an organization or a firm collaborates with other firms to develop new things that are exploratory and radical in nature such as sourcing innovations through collaborative arrangements. Such inter-firm organizational networking or joint innovative efforts may require transactional leadership

Moderating effects of organizational contexts

It is clear from the above discussion that the influence of both transformational and transactional leadership styles on innovation processes and activities can be affected by certain organizational contexts. For example, transformational leadership is likely to be more effective in environments where creative processes and exploratory activities thrive. Such environments can come about through appropriate human resource policies that encourage an innovative culture (e.g., Google’s 20%

Conclusions

Leadership plays a vital role in fostering innovation outcomes in organizations. However, because of the different processes and activities involved in innovation efforts, a “one size fits all” leadership approach may not be appropriate. In this paper, we have explored two different leadership behaviors (e.g., transformational and transactional leadership) and their effects on two areas of innovation efforts (e.g., innovation processes and activities). Innovation processes involve the

Managerial implications

This paper has implications for the leadership of innovation efforts at different levels within an organization. An awareness of the need to utilize different leadership styles to lead different innovation processes and activities is important. For example, a transformational leader must recognize the need to focus more on the transactional aspect of leadership style than the transformational leadership style to direct innovation efforts in the implementation stage. The study also has

Selected bibliography

This paper builds on an earlier work by N. Munshi, A. Oke, M. Stafylarakis, P. Puranam, S. Towells, K. Moslein, and A. Neely, “Leading for Innovation: The Impact of Leadership on Innovation,” Advanced Institute of Management Research (AIM research) report (www.aimresearch.org), 2005.

For more information about the research that studied innovation processes and activities see M. Iansiti, Technology Integration: Making Critical Choices in a Dynamic World (Harvard, MA: Harvard Business School

Adegoke Oke is the associate director of the Center for Productivity, Innovation and Quality at Arizona State University. He obtained his Ph.D. in operations management from Cranfield University, U.K. He is widely published in the areas of innovation management and supply chain management. He is a U.K. Advanced Institute of Management Scholar. Prior to a career in academia, he was a project engineering manager for Shell for 10 years (Tel.: +1602 5436209; fax: +1602 5436221; email: [email protected]

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Adegoke Oke is the associate director of the Center for Productivity, Innovation and Quality at Arizona State University. He obtained his Ph.D. in operations management from Cranfield University, U.K. He is widely published in the areas of innovation management and supply chain management. He is a U.K. Advanced Institute of Management Scholar. Prior to a career in academia, he was a project engineering manager for Shell for 10 years (Tel.: +1602 5436209; fax: +1602 5436221; email: [email protected]).

Natasha Vijay Munshi is an assistant professor in the Department of Management at Wright State University, Ohio. She obtained her Ph.D. in strategic management from the University of Pittsburgh. She teaches, publishes and advises on strategic management, technology strategy, science entrepreneurship, corporate social responsibility and international stakeholder management issues.

Fred O. Walumbwa is an associate professor of management at Arizona State University. He received his Ph.D. at the University of Illinois at Urbana-Champaign. His research interests include leadership development, organizational culture/identity, organizational justice, cross-cultural research, business ethics, multilevel issues in research, and social networks. He is also a senior scientist with the Gallup Organization (Tel: +1 602 543 6240; fax: +1 602 543 6221, email: [email protected]).

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