1042-2587-00-251 $1.

50
Copyright 2000 by
Baylor University

Unraveling the
Determinants and
Consequences of an
Innovation-Supportive
Organizational Culture
Gaylen N. Chandler
Chalon Keller
Douglas W. Lyon
The current research identifies constructs that are supportive of an innovative culture in
small to medium-sized enterprises. A sample of 429 employees in 23 small to medium-sized
manufacturing firms was used to identify constructs associated with an innovative culture.
Supervisory support and reward system support are both positively related to an innovative
culture. Perceived work overload is negatively related. Companies with cultures supportive
of innovation tend to be smaller, have fewer formalized human resource practices, and less
munificent resources. There is no direct relationship between an innovative culture and firm
performance; however, when the competitive environment is changing rapidly firm earnings
are enhanced by an innovative culture.

here is an abundance of literature that expounds on the importance of creativity

and innovation to keep organizations healthy, viable, and competitive. A relatively
smaller body of research focuses on the organizational characteristics that lead to innovation. For example. Woodman, Sawyer, and Griffin (1993) proposed that organizational
culture, rewards, and resources are determinants of creative behavior in organizations.
Similarly, Amabile, Conti, Coon, Lazenby, and Herron, (1996) found that the perceived
work environment influences the level of creativity in organizations. Damanpour (1991),
in a study ofthe antecedents of organizational innovation, found that managerial attitude
toward change, and internal and extemal communication were positively related to
innovation. Given the relevance of organizational culture to innovation, the managerial
and human resource practices associated with an "innovation-supportive culture" become a subject of research interest. As Woodman et al. note, "we .. . know little about
how organizations can successfully promote and manage individual and organizational
creativity" (1993, p. 316).
Although not explicitly stated, much of the existing literature assumes that it is
important and desirable to foster creativity and innovation in all organizations (e.g.,
Lumpkin & Dess, 1996; Covin & Slevin, 1991; Zahra, 1993, 1994; Lawless & Anderson,
1996) and does not address the question of under which circumstances a culture supportive of innovation is associated with positive organizational-level outcomes. However, Chandler (1993) points out that some organizations perform better when key
empioyees believe they are rewarded for being innovative, while other organizations
Fall, 2000

59

perform better when key employees believe they are rewarded for conforming to the
rules and not being very innovative.
The objective of this paper is not to examine the link between an "innovationsupportive culture" and innovation. That work has been done previously by the authors
cited in the preceding paragraphs. Our objective is to address some of the "holes" in the
literature and to seek to better understand the managerial practices and other factors
associated with an innovation-supportive culture and to assess the "fit" between an
organization's environment and its culture.
This study addresses these issues by examining the managerial and human resource
practices that are associated with an organizational culture perceived to be supportive of
innovation. Specifically, we examine three aspects of organizational culture that theory
suggests are important for the development of an innovation-supportive culture and
investigate the specific managerial and human resource practices that promote the development of those three aspects of culture. We then investigate the external environment of the firm, its impact on culture, and the "fit" between organizational culture and
the environmental context. The current study is organized around five research questions:
(1) Are employee perceptions of supervisory support, perceptions of the extent to
which organizational reward systems are supportive of innovation, and perceptions of
workload pressures among employees associated with perceptions of support for innovation?
(2) Are there statistically significant differences between firms with respect to employee perceptions of support for innovation, or is perceived support for innovation
simply an individual phenomenon?
(3) Are there verifiable relationships between the managerial and human resource
practices associated with culture development, and the degree to which an organization's
culture supports innovation?
(4) Are there verifiable relationships between characteristics of the external environment that are associated with employee perceptions of organizational culture?
(5) Does the organization's external environment moderate the relationship between
an innovation-supportive culture and organizational performance?
Hence, this research contributes to the entrepreneurship literature by testing a contingency model linking innovation-supportive culture, environment, and firm performance. It contributes to the human resource management literature by exploring the
relationships between human resource and managerial practices and the perception of an
innovation-supportive culture.

INNOVATION-SUPPORTIVE CULTURES
Organizational culture has generated a significant amount of research interest since
the early 1980s (e.g.. Deal & Kennedy, 1982). One definition of organizational culture
is "the collective programming of the mind which distinguishes the members of one
organization from another" (Hofstede, 1991, p. 262). Hence, differences in culture between organizations are largely a function of managerial practice as perceived by organization members (Hofstede, 1998).
As Barney (1986) notes, it is difficult to modify firm culture such that culture
becomes a source of sustained competitive advantage. However, culture-building activities may be necessary to maintain parity with other firms. Hence, firms sometimes
engage in activities intended to develop economically valuable characteristics in their
cultures, such as those they believe are associated with innovation or other important
organizational objectives.
60

ENTREPRENEURSHIP THEORY and PRACTICE

We have selected three constructs from the literature (e.g.. Woodman et al., 1993;
Amabile et al., 1996) that have to do with managerial practice and are believed to
influence perceptions of innovation-supportive cultures. Amabile et al. (1996) discuss
six stimulants and two obstacles to creativity. The stimulants are work group supports,
challenging work, organizational encouragement, supervisory encouragement, freedom,
and sufficient resources. The obstacles are workload pressure and organizational impediments. Our initial data collection for this project began in 1994 and our items were
developed prior to the publication of Amabile's et al. (1996) work. We did not include
items representing challenging work and freedom; however, other aspects discussed by
Amabile are consistent with the items included in our factors presented in Table 1.
First, employees must trust management and feel that management supports them.
Second, organizational systems, including the reward system, must be viewed by employees as supportive of innovation. Third, excessive workload pressures inhibit creativity. Employees without time or resources to complete assigned tasks are less likely
to exhibit innovative behaviors.

Management Support
The perception that management is supportive is crucial in establishing a culture that

Table 1
Rotated Structure Matrix, Principal Components Analysis
Questionnaire Items

If I improved product quality

If I eliminated wasteful/inefficient work practices
If I came up with a new product idea
If I came up uith new ways to save money
If I came up with new marketing ideas I would be appro\ ed of
If I tried new procedures
If I improved team efficiency
If I came up with productivity and quality improvements
If I tried new ways of doing things
If I questioned old ways of doing things
The timely completion of my work
The amount of work I do
The quality of my work
My achievement of predetermined goals
How well my team is doing
The results of my performance appraisal
How well I do compared to coworkers
I trust my supervisor
My supervisor is concemed about employees" welfare
My superv isor gives me support
My supervisor helps us discover problems
Our supervisors encourage participation in decision making
I am not given adequate time to do quality work
The time and resources I am given to complete jobs are limited
I frequently have to take work home or work overtime
My workload is manageable
I often lack sufficient resources to adequately complete job assignments
I frequently have to buck rules/policies to get the job done
Eigenvalues
Percentage of Variance Explained
Coefficient Alpha

Fall 2000

Factor 1

Factor 2

Factor 3

Factor 4

.11
.75
.72
.71
.71
.70
.68
.65
.63
.46
.11
.08
.23
.25
.19
.26
-.10
.18
.16
.19
.21
.34
-.11
-.20
.13
-.05
-.26
-.24
8.69
31%
.88

.01
.20
.01
.13
.108
-.02
.21
.27
.14
.12
.78
.76
.73
.73
.68
.65
.57
.16
.09
.19
.13
.15
-.02
-.07
-.05
-.03
.02
-.09
2.82
10%
.87

.17
.01
-.01
.00
.01
.02
.28
.14
.33
.32
.15
.14
.27
.13
.20
.12
-.16
.83
.80
.11
.62
.43
-.17
.01
-.02
-.24
-.20
-.17
2.43
19c
.83

-.18
-.20
-.26
-.12
-.26
.113
-.05
-.07
-.05
.16
-.01
-.07
-.06
-.08
-.03
-.08
.02
-.19
-.16
-.15
-.30
-.11
.76
.72
.71
-.71
.57
.56
1.77
6%
.74

61

fosters innovation. The uncertainly and complexity inherent in innovation suggests that
employee trust of management is central to the development of an innovation-supportive
culture because trust enables people to take risks without fear or undue penalty for failure
(Porter, Lawler, & Hackman, 1975). There is considerable research on the role of trust
in facilitating coordination within organizations (e.g., Granovetter, 1985). Innovation is
frequently the product of social relationships and complex systems of interaction. Trust
is necessary for such systems to work effectively (Thompson, 1967; Granovetter, 1985).

Organizational Reward Systems Supportive of Innovation

Organizational systems must provide reward and recognition for creative work and
performance accomplishments (Amabile et al., 1996). There is a burgeoning literature on
organizational control systems such as pay-for-performance that can impact innovative
activity by employees. Paradoxically, while pay-for-performance may encourage in-role
behaviors (Oliver & Anderson, 1995), it may also discourage behaviors not linked to
specific rewards (Morrison, 1996). Hence, the reward system can have a significant
impact on innovative activity, both because it can be a tool to increase such activity and
because it can discourage innovative activity by rewarding other behaviors. Further,
expectancy theory (Vroom, 1964) predicts that individual effort requires that the individual must believe that goal accomplishment will lead to a reward. Therefore, the
perception that organizational systems support innovative activity is an important component of individual motivation to engage in such activities.

Workload Pressures
Amabile et al. (1996) speculate that employees may develop beliefs about the intrinsic value of projects that they have undertaken based upon the level of resource
allocation. A lack of resources such as time, materials, information, and so on can lead
to reduced commitment to assigned goals (Klein & Kim, 1998). Perceptions of the level
of resource allocations in support of innovative activities may thus influence the degree
to which employees perceive the organizational culture to be supportive of innovation.

Hypotheses
As the preceding discussion suggests, these constructs, either singly or together,
have been shown to be associated with the level of innovation and are expected to be
associated with the perceived degree to which an organization's culture supports innovation. The major point of the first hypothesis is simply a recognition that management
support, organizational reward systems, and workload pressures are related to the perception that the organizational culture supports innovation. This leads to our first hypothesis.
HI: Employee perceptions of an innovation-supportive culture will be positively
related to perceptions of management support and organizational reward systems, and negatively related to workload pressures.
Our first hypothesis is tested at an individual level of analysis. However, culture is
the aggregation of individual attitudes and values and is best analyzed at an organizational level of analysis (Hofstede, 1998). Hence, to investigate a claim that individual
perceptions of management support, organizational systems supportive of innovation,
and relative freedom from workload pressures create an organizational culture supportive of innovation, it would be very useful to be able to show that aggregated individual
62

ENTREPRENEURSHIP THEORY and PRACTICE

attitudes vary across organizations. Thus, the perception of an innovation-supportive

culture is not simply an individual phenomenon, but rather an aggregation of individual
perceptions that can be used to differentiate the working environments of different
companies. This leads to our second hypothesis.
H2: Perceptions of an innovation-supportive culture, along with management support, organizational reward systems, and workload pressures, can individually
or in configuration discriminate between firm cultures.
In the preceding section, we investigated employee perceptions of aspects of organization culture and the degree to which those three aspects of culture determine w hether
or not the overall organization culture is supportive of innovation. Hofstede (1998) states
that differences between organizations are based on differences in managerial and human
resource practices. As Pfeffer (1995) notes, it is widely believed by both academics and
practitioners that firm performance can be improved by a number of management practices. Human resource practices related to employee training, team-based production
systems, incentive-based reward systems, and employee empowerment are believed to
be particularly effective. It follows, then, that management and human resource policies
and practices, individually or in configuration, impact employee perceptions of firm
culture. Our intent is not to predict which human resource and managerial practices are
associated with an innovation supportive culture, but rather to verify that such differences exist.
H3; There will be differences between companies with innovation-supportive and
non-innovation-supportive cultures with respect to human resource and managerial practices.
In addition, Lawrence and Lorsch (1967) discuss the infiuence the environment has
in the development of the organization; hence, we believe that organizational culture is
likely to be infiuenced by the external environment. Thompson (1967) notes that organizations seek to develop cultures and systems that insulate them from uncontrollable
externalities. That is, the culture and systems of an organization evolve in direct response
to environmental uncertainty. Therefore, we expect environmental characteristics such as
perceived competitive intensity and perceived environmental munificence to infiuence
the development of cultures either supportive of innovation or not supportive of innovation.
H4: There will be differences between companies with innovation-supportive and
non-innovation-supportive cultures with respect to the perceived intensity of the
competitive environment and perceived environmental munificence.
In the present research context, Ashby's (1956) law of requisite variety implies that
cultures supportive of innovation would be better suited to rapidly changing, multifaceted environments than cultures that encourage conformity to rules and procedures. The
relationship of innovativeness to firm performance has been examined in a number of
studies in the entrepreneurship literature (e.g., Covin & Slevin, 1989, 1991). However,
to our knowledge, the determinants and role of an innovation-supportive culture in
facilitating firm performance have not been examined. Our first four hypotheses focus on
various issues concerning firm culture and its relationship to innovation. The last research question, in keeping with Rosenberg's admonition that "the greater one's understanding of the links in (a causal) chain, the better one's understanding of the relationship" (1968, p. 63), tests a contingency model of firm culture, the extemal environment,
and firm performance. Thus, if the organization's culture is consistent with the extemal
environment, we would expect to see enhanced organizational performance. Hence, our
final hypothesis is as follows.
Fall 2000

63

H5: The dynamism of the environment will moderate the relationship between
innovation-supportive cultures and company performance.

METHODS
Sample
The data for this study are an extension of a previous data set of small to mediumsized manufacturing firms in Utah. An initial survey was mailed in 1994 to the CEOs of
476 Utah manufacturing firms selected by industry group to represent both high-tech and
low-tech industries. Surveys were mailed to a complete census of firms in the selected
industry groups. Eorty-nine percent of the companies in the sample frame were high-tech
manufacturing firms in aerospace, measuring devices, automotive products, biomedical
products, chemicals, communications products, composite materials, computer equipment, electronics, machinery, lasers, pharmaceutical, and robotics as listed by Utah's
High Technology Directory^ (Bureau of Economic and Business Research, 1993). The
remaining companies came from the Utah Directory of Business and Industry (Utah
Division of Business and Economic Development, 1992). They were manufacturing
firms in three basic manufacturing industries: structural metal, industrial machinery, and
sporting and athletic goods. One week after the initial questionnaire was mailed, we
mailed a follow-up postcard, with a second mailing of the questionnaire two weeks later.
Fifty-six questionnaires were returned marked not deliverable as addressed. We received
120 completed questionnaires for an effective response rate of 28%. There were no
significant differences in response rate from each industry group. Our sample was also
representative of the sales level distribution of the sample frame. From this initial survey,
we obtained information about the firm's level of involvement with productivity and
quality initiatives, the firm's sales and growth performance, and some organizational
demographics. The median company age in our sample was 13 years with a range from
2 to 124 years. The median number of employees was 31, with a range of 2 to 1150.
After acquiring and analyzing the initial data, a letter was mailed to the CEOs of the
120 companies who had responded to the initial questionnaire inviting them to participate in an extension of the study. Thirty-two of the 120 companies consented to take part
in the current study. The relatively low number of companies willing to participate is
explained primarily by the fact that we wished to collect data from three different sources
in the company. First, we requested additional information from the CEO. Second, we
requested information about human resource practices from another member of the
management team (other than the CEO) who had responsibilities for human resources.
Third, we wished to survey a random sample of at least 25% of all employees in order
to develop measures of employee perceptions of the culture of the organization. Each of
the CEOs was contacted by telephone and arrangements were made to collect the
information. After three reminder phone calls, complete data were returned for 23
companies. After seeing the extensive nature of the requested information, nine of the
CEOs who previously agreed to participate eventually declined. In the 23 responding
companies 505 employees received surveys. A total of 429 employees responded, for an
85% response rate.
The sub-sample of 23 firms included small to medium-sized manufacturing enterprises, with company size ranging from 10 employees to 443 employees. Median firm
age was 18 years. Fourteen of the companies responding came from Utah's High Technology Directory (Bureau of Economic and Business Research, 1993). The remaining
nine companies came from the Utah Directory of Business and Industry (Utah Division
of Business and Economic Development, 1992). T-tests were used to check for significant differences between the sample frame of 120 and the 23 companies that responded.
The 23 responding companies were slightly older than the original sample (18 years
64

ENTREPRENEURSHIP THEORY and PRACTICE

compared to 13 years, p < .05). This is explained by the inclusion of two companies
founded in 1926 and 1927. The remaining 21 companies were all less than 30 years old.
If tbe two outlying companies are not considered, there are no remaining significant
differences in company age. There were no significant differences in company size
(number of employees), industry classification (low-tech v. high-tech), or reported sales
levels.
There were 429 employees who responded to the questionnaire at the operational
employee level. Of the 429 employees, 61% were male, median education was some
college or technical school, median length of employment with the company was four
years (mean 7.46 years), median tenure at the current job was two years (mean 3.48
years), and median employee age was 36 years.

Measures
We developed individual, organizational, and industry levels of measurement. First
we developed measures of employee perceptions of the firms" cultures. We developed 28
items intended to measure employee perceptions of culture. These were factor analyzed
using principle components analysis. A four-factor solution was specified based on the
theoretical underpinnings of this research. A screen plot analysis indicated that a fourfactor solution was optimal. The four-factor solution explained 549c of the total variance.
Table 1 displays all items included in the factor analysis, the rotated structure matrix
along with eigenvalues, percentage of variance explained, and coefficient alpha. Based
on the factor analysis results, simple scales were calculated by averaging the items in
each scale. As Hofstede (1998) notes, culture is the aggregation of individual attitudes
and values. Thus, these measures were aggregated from employee responses in each
company. The resulting factors are described below.
Factor 1: Innovation supportive culture. Perceptions of an innovation-supportive
culture were measured using a 10-item Likert-type scale. The response format stated: If
I participated in the following activity I would be (1) disapproved (2) mildly disapproved. (3) neither approved nor disapproved. (4) mildly approved, and (5) approved.
Core items for the scale include: (1) Improved product quality. (2) Developed a new
product idea. (3) Came up with new ways to save money. (4) Improved team efficiency,
and (5) Tried new ways of doing things. Coefficient alpha for the scale is .88.
Factor 2: Organizational reward systems. Perceptions of how well organizational
reward systems functioned to measure and reward perfonnance were measured using
seven items in 5-point Likert-type scales ranging from disagree to agree. The following
items were included: My rewards are determined by (1) the amount of work I do. (2) the
timely completion of my work, (3) the quality of my work, (4) my achievement of
predetermined goals. Coefficient alpha for the scale is .87.
Factor 3: Management support. Perceptions of management support were measured
using five items in a 5-point Likert-type scale ranging from disagree to agree. Core items
include: (1) I trust my supervisor, (2) My supervisor is concemed about employee
welfare, (3) My supervisor gives me support, (4) my supervisor helps us discover
problems. Coefficient alpha for the scale is .83.
Factor 4: Workload pressure. Perceptions of workload pressure were translated into
items that directly affect workers at an operational level. These perceptions were measured using six items in 5-point Likert-type scales ranging from disagree to agree. Core
items include: (1)1 frequently have to take work home or work overtime, (2) I am
constrained by limited time and resources, (3) I am not given enough time to do quality
work, (4) I frequently have to buck rules/policies to get the job done. Coefficient alpha
for the scale is .74.
Fall, 2000

65

Measures Developed from CEO Responses

CEOs provided information to measure three constructs: (1) the degree of perceived
competitive intensity in the industry, (2) industry dynamism, and (3) environmental
munificence, all measured at the organization level. These were measured using 5-point
Likert-type scales. Each construct had a coefficient alpha in excess of .70 (Nunnally,
1978). Factor analysis was not used because at the company level of analysis the sample
size is too small.
Competitive intensity. Perceived competitive intensity was measured with four items
using 5-point Likert-type scales: (1) It is inexpensive to enter this industry, (2) High
start-up costs keep a lot of competitors out of the industry (reverse scored), (3) We have
several direct competitors, and (4) Products in our industry are relatively homogeneous.
Coefficient alpha for the scale is .73.
Industry dynamism. Industry dynamism was measured using three items using
5-point Likert-type scales: (1) Technologies in our industry are changing rapidly, (2) In
our industry we must frequently improve work processes to compete, (3) Our industry
is characterized by a high degree of change. Coefficient alpha for the scale is .80.
Environmental munificence. Environmental munificence refers to the abundance or
scarcity of key resources. Environmental munificence was measured using five items
ranging from unavailable to always readily available on 5-point scales: (1) capital, (2)
low-cost factors of production, (3) managerial expertise, (4) process technology expertise, and (5) low-cost labor. Coefficient alpha for the scale is .81.

Managerial Practices
For employees working at an operating level in manufacturing firms, the managerial
practices of the firms can best be captured by specific measurements of manufacturing
practices. Consistent with prior research (e.g., Snell & Dean, 1992), we conceptualized
these practices as a continuous rather than dichotomous variable. In other words, companies pursue different manufacturing practices in varying degrees. Our measures were
developed from the literature focusing on productivity and quality improvement (e.g..
Dean & Bowen, 1994; Reeves & Bednar, 1994). Manufacturing practices were measured
using a total of 23 items grouped in the following five subscales:
1) Management involvement. Six items measured the CEOs' perceptions of their
own involvement in, and support for, world-class manufacturing practices.
2) Closeness to customers. Four items measured the company's emphasis on staying
close to customers and the degree to which involvement with, and leaming from, customers was emphasized.
3) Waste. Four items measured the company's emphasis on the elimination of
wasteful practices in the organization.
4) Quality tools. Five items measured the use of quality tools in the workplace such
as Kanban, source inspection, cause and effect diagrams, and statistical process control.
5) Clean up. Four items measured the emphasis on making things organized, keeping
work areas spotless, doing preventative maintenance, and following work rules.
All data for these measures came from CEO responses in the first phase of data collection. Coefficient alphas for the subscales ranged from .71 to .95, and the coefficient alpha
for the entire managerial practices scale was .86.

Company Performance
Consistent with prior research, we used firm profitability and sales growth as de66

ENTREPRENEURSHIP THEORY and PRACTICE

pendent variables for our last hypothesis. Because these were all privately held small and
medium-sized enterprises, and secondary data were not available, CEOs provided performance information. Previous research shows that these variables are reliable and valid
estimators of performance (Chandler & Hanks, 1993). CEOs of the sample firms were
asked to respond to a categorical measure to report annual earnings: less than $25k. $25k
to $50k, $50k to $100k, $100k to $250k, $250k to $500k, $500 to $1 million, and over
$1 million. The Pearson correlation coefficient between primary and secondary respondents on this item (interrater reliability) was .87.
CEOs were also asked to report the last two years of sales figures. Sales growth was
calculated using the following formula: (1994 sales 1993 sales)/1993 sales.

Measures Developed from Human Resource Manager Responses

Human resource practices were reported by human resource managers. These practices were also measured on 5-point scales ranging from strongly disagree to strongly
agree. Eight items were used to measure human resource practices: (1) We have welldefined incentive systems, (2) We have formalized job descriptions, (3) We have formalized performance appraisals, (4) We have well-developed employee training programs, (5) Top management is involved in recruiting and hiring employees, (6) We use
a consistent discipline system, (7) We provide extensive orientation for new employees,
and (8) We have formalized programs to encourage employee participation. Coefficient
alpha for the scale is .80.

Control Variables
Control variables at the individual level of analysis were employee age, sex. education level, tenure at the company, and company membership. At the organizational
level of analysis, company age. company size (number of employees), and the hightechnology/low-technology classification were used as control variables.

ANALYSIS AND RESULTS

Descriptive statistics and correlations at the employee level of analysis are displayed
in Table 2. Descriptive statistics and correlations derived at the organizational level of
analysis are displayed in Table 3. As can be seen from these tables, there are moderate
levels of correlation between independent variables. Dillon and Goldstein (1984) state
that multicollinearity may be a problem if (a) certain regression coefficients have signs
opposite to what would be expected, (b) simple correlations are high but corresponding
parameter effects are not significant, or (c) the R-square value of the model is high, but
partial correlation coefficients are low. Since none of these is the case we see no severe
effects of multicollinearity that may confound the analysis.
To test the first hypothesis (n = 429) we used hierarchical regression analysis. We
chose rec^ression analysis over simple correlation analysis because we wanted to control
for as many external factors as possible. We point out that regression analysis in this
context is simply a measure of linear association. A perceived innovation-supportive
culture was the dependent variable. We recognize that the dependent variable for this
hypothesis is a perceptual variable provided by employees. As a result, the independent
and dependent variables for this particular hypothesis are prone to common method and
common source variance which has the effect of overstating the true level of correlation
(Campbell & Fiske, 1959). Therefore, the results for hypothesis 1 should be viewed with
some caution since the correlation may be inflated. Results are displayed in Table 4.
Fall 2000

67

Table 2
Descriptive Statistics and Correlations for Employee-Level Data
Variables

1.
2
3.
4.
5.
6.
7.
8.

Innovative Culture
Managerial Support
Reward System Support
Workload Pressure
Sex
Age
Education Level
Employment Tenure

Mean

s.d.

3.71
3.56
3.43
2.80
0.62
36.11
3.79
7.47

0.62
0.77
0.89
0.75
0.55
10.22
1.51
8.23

.504**
.380**
-.339**
-.103
-.038
.100
-.123*

.341**
-.368**
.030
-.109*
.005
-.258**

-.198**
.042
-.011
-.091
-.024

.070
.199**
o\2**
.235**

.197**
.144**
.211**

.235**
.618**

.068

* p < .05
**p < .01

Employee sex, age, education level, and tenure with the company were entered as a block
of control variables. Length of tenure with the company is negatively related to perceptions of an innovation-supportive culture. The other control variables are not significant.
In addition, a dummy variable was created for each company. Another dummy variable
was created to control for high-technology/low-technology companies. These were entered to control for differences in perceptions based on company membership or hightechnology/low-technology environments. Finally, perceptions of management support,
organizational reward systems, and workload pressures were entered at the next stage.
Management support and organizational reward systems are positively related to perceptions of innovation supportiveness (both p < .05). The workload pressures construct
is negatively related (p < .05). Thus, our first hypothesis is supported.
According to Hofstede (1998), in order to ascertain whether employee perceptions
are a manifestation of the culture of the organization we must discriminate between
organizations based on these dimensions. The dummy variables indicating company
membership included in the previous regression analysis indicates that there are some
significant differences. However, such an analysis paints an incomplete picture. Hence,
to test our second hypothesis we used employee responses and multiple discriminant
analysis to analyze differences in company culture as perceived by the employees (Watson, 1982). Seven of the 23 companies had fewer than 10 employees reporting. Thus, we
have eliminated them from this stage of the analysis and focus on 376 employees in the
16 remaining companies with more than 10 employees reporting. The 28 items used to
develop measures of company culture were used in a stepwise discriminant analysis
using the Wilkes method (Watson, 1982). Results indicate that there are indeed differences in employee perceptions of company culture. The tlrst five discriminant functions
were statistically significant (p < .01) and explained 85.6% of the total variance. The
rotated structure matrix and related results are displayed in Table 5. The reclassification
results indicate that 50.8% of the employees are correctly classified with the appropriate
company. That is substantially higher than the 6.9% that would be expected by random
chance. Hence, our second hypothesis was partially supported. There were verifiable
differences among groups of companies based on items measuring workload pressures,
support for innovation, and supervisory support. However, reward system items do not
discriminate between the companies in our sample.
We used the results of the multiple discriminant analysis to provide insights into our
68

ENTREPRENEURSHIP THEORY and PRACTICE

q q
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69

Table 4
Multiple Regression Results to Test Hypothesis 1
N = 429
(Dependent Variable = Perception of a Culture Supportive
of Innovation)
Variable

Company 1
Company 2
Company 3
Company 4
Company 5
Company 6
Company 7
Company 8
Company 9
Company 10
Company 11
Company 12
Company 13
Company 14
Company 15
Company 16
Company 17
Company 18
Company 19
Company 20
Company 21
Company 22
High Tech
Employee Age
Employee Sex
Education Level
Employment Tenure
Supervisory Support
Reward System Support
Workload Pressure
F
Adjusted R-

Standardized Beta
Model 1

.067
.036
.158***
.177***
.032
.057
223***

.239***
-.013
-.001
.089
-.050
.072
-.092
-.021
.094
-.103
_ 242***
.014
.017
-.063
-.033

.229*

Standardized Beta
Model 2

-.001
.011
.106
.117
-.001
.030
.174**
.136
.012
-.023
.073
-.056
.078
-.120
.026
.074
.115
.249***
.009
.029
-.077
-.034
.059
.046
-.023
-.171*
-.099

Standardized Beta
Model 3

-.035
-.031
.102*
.026
-.003
.031
.162**
.038
.013
-.028
.029
-.047
.073
-.094
-.053
.052
-.082
-.139*
.065
-.002
-.053
-.049
-.035
.058
-.086
-.116
-.046
T94***

2.798***
.119

2.58***
.124

.215***
-.203***
7.11***
.379

*p < .10
** p < .05
*** p < .01

third and fourth hypotheses. The discriminant functions were used to classify all 23
companies into two groups. Approximately half of the firms (n = 11) grouped together
rather tightly into a high innovation/management support group. The remaining firms
(n = 12) were included in a group with lower innovation, lower management support,
and higher workload pressures. The third and fourth hypotheses stated that differences
were expected between innovation-supportive and non-innovation-supportive cultures
with respect to human resource and manufacturing practices, the perceived intensity of
the competitive environment, and perceived environmental munificence. Due to the
70

ENTREPRENEURSHIP THEORY a n d PRACTICE

Table 5
Rotated Discriminant Structure Matrix to Test Hypothesis 2;
Companies as Grouping Variable
(15 Companies, 374 Employees)
Variable

Function
I

Function
II

Function
III

Function
IV

Function
V

My workload is manageable
Tried new ways of doing things
New product idea
Productivity and quality improvements
Limited time and resources
Not given adequate time to do quality work
Questioned old ways of doing things
I trust my super\isor
My supervisor is concemed about employee welfare
My supervisor helps discover problems

.88
-.21
-.13
.14
-.08
.15
-.01
-.03
-.06
.04

-.09
.60
.31
.44
.04
-.02
.12
.02
.06
.17

.24
.06
.08
-.10
.92
.51
-.01
-.03
-.02
-.19

-.01
.20
.03
-.03
-.01
.00
.94
.02
.04
.06

-.10
.21
.15
-.09
.00
-.07
.06
.67
.49
.40

Discriminant
Function

n
m
rv
rv

Canonical
Correlation

Significance Level

Proportion of total
discriminting power

Cumulative proportion of
total discriminating power

.698
.524
.500
.433
.373

.000
.000
.000
.000
.008

39.7
15.8
13.9
9.6
6.7

39.7
55.4
69.3
78.9
85.6

restricted sample size at this level of analysis we used univariate t-tests to test this
hypothesis. Table 6 includes the results of the univariate t-tests.
Results of the univariate T-tests indicate that firms with cultures supportive of
innovation perceived their environments to be somewhat less competitive (p < .10).
However, they also perceived that they had less access to capital and low-cost factors of
production than did their counterparts with cultures less supportive of innovation, indicating that perhaps there is some "'bootstrapping" occurring. They were less likely to
have formalized human resource programs. There were no significant differences in
manufacturing practices. The high-innovation group had a mean of 44 employees compared to a mean of 130 employees for the low-innovation group.
Our final hypothesis is a contingency argument suggesting that if the culture fits the
environment, performance will be enhanced. Results are displayed in Table 7. To test
this proposition, we used moderated hierarchical regression analysis with a multiplicative interaction term. The form of moderation between environment, culture, and firm
performance can be tested by using complementary moderated regression analysis (Venkatraman, 1989). The multiplicative interaction term represents the variance explained
by the interaction of "X" (rapidly changing environment) with "Z" (culture supportive of
innovation) beyond the direct effects of the original variables. This perspective can be
represented in the following equations:
Y=
Y=
Fall 2000

+ a, X -I-

-I- e
+ a3

71

Table 6
T-Test Results to Test Hypothesis 3
Variable

Mean: Non-Innovation
Supportive Group
N = 12

Mean: Innovation
Supportive Group
N = 11

T score

Natural Log of Number of Employees

Natural Log of Company Age
Competitive Intensity
Resource Munificence
Manufacturing Practices
Human Resource Practices

4.55
3.08
2.78
3.61
3.42
2.82

3.41
2.98
2.14
2.86
3.73
2.07

3.21***
.26
1.83*
2.61***
-.97
2.40**

*p < .10
** p < .05
* * * p < .01

The multiplicative effect may result in high levels of multicollinearity. However,

Southwood (1978) demonstrated that a simple scale of origin transformation reduces
multicollinearity and it remains a valid analytical tool for testing moderation. After the
transformation, the t-score associated with ''aj" is a valid estimator of the significance of
the interaction term (Venkatraman, 1989). Both company earnings and sales growth
were used as dependent variables. Results indicate that neither a culture supportive of
innovation nor a dynamic environment are directly related to firm earnings. However,
when a culture supportive of innovation is linked with a rapidly changing environment
there is a positive relationship (p < .05) with firm earnings. The regression equations
relating to firm growth are not significant. Thus, our final hypothesis is supported with
respect to firm earnings, but not with respect to firm growth.

DISCUSSION AND IMPLICATIONS FOR MANAGEMENT

We have attempted in this paper to delineate the characteristics of innovationsupportive cultures as perceived by employees. The results from hypothesis 1 suggest
that such cultures require that employees perceive that management support and organizational reward systems are consistent with a commitment to innovation on the part of
management. Excessive workload pressures seem to inhibit the perception of an innovative culture.
The testing of hypothesis 2 demonstrates that there are significant differences among
organizations with respect to the degree of support for innovation. As noted by Carrier
(1993), the strategy and entrepreneurship literature has recognized the importance of
continued innovation, and an emergent body of literature seeks to identify the conditions
required for intrapreneurship to occur in organizations. The current research adds to that
body of literature by identifying a set of constructs that can be used to assess an
organization's culture and the degree to which that culture supports innovation. Further,
our results indicate that the strength of those perceptions varies across organizations and
influences the degree to which employees believe that a firm's culture is supportive of
innovation.
The tests of the third and fourth hypotheses demonstrated that employees' percep72

ENTREPRENEURSHIP THEORY and PRACTICE

Table 7
Moderated Regression Results to Test Hypothesis 4
N = 23

Variable

Natural Log Company Age

Natural Log Company Size
High-Tech
Culture Supportive of Innovation
Dynamic Environment
Innovation x Dynamism
Adjusted R"
F Statistic

Standardized
Beta
Dependent =
Earnings

Standardized
Beta
Dependent =
Earnings

Standardized
Beta
Dependent =
Sales Growth

Standardized
Beta
Dependent Sales Growth

-.19
.54**
.12
-.01
-.245

-.19
.68***
.14
-.20
-.01
.57***
.58
6.24***

.21
-.11
-.17
.43
-.36

.07
-.17
-.26
.42
-.34
-.26
.23
1.89

.32
3.12**

.23
2.04

** p < .05
* * * p < .01

tions of whether or not a firm's culture is supportive of innovation vary as a function of

management and human resource practices, perceived environmental competitive intensity, and environmental munificence. Interestingly, the development of formalized human resource practices tends to have a negative influence on perceptions of an innovation-supportive culture. This occurred even after controlling for the size of the organization. In many ways this is consistent with Harrison's (1987) observation that
managerial systems seeking to control employees actually reduce opportunities for initiative, creativity, and individual contribution. Hence, formalized HR practices, a form
of bureaucracy, may stifle creativity by imposing a mechanistic organizational structure
(Robey, 1991). Some simple post hoc analyses were conducted to better understand the
dynamics underlying this finding. Another interesting finding is that, using bivariate
Pearsson correlations of HR practices with aggregated measures of organizational support for innovation, neither managerial support nor reward system support is significantly correlated with HR practices.
Finally, the results indicate a positive association of an innovation-supportive culture
on firm earnings under conditions of rapid environmental change. This is consistent with
our final hypothesis. However, the interaction of innovation-supportive culture and rapid
environmental change is not significantly related to firm growth. There are a number of
possible explanations for these partially confiicting results. First, there may be a lagged
performance effect (Zahra, 1991; Zahra & Covin, 1995). For instance, Zahra and Covin
(1995, p. 44) observe that cross-sectional research may not "allow sufficient time for
entrepreneurial actions to have their full market and corresponding financial impact."
Hence, the results of this study may refiect the impact of past events on financial
performance. In addition, there may be a different lag time between entrepreneurial
activity/culture-building activity and financial performance, and such activities and firm
growth. For instance, the observed increase in financial performance may stem from
entrepreneurial activities undertaken in a previous period that are bearing fruit in the
current period. Such previous activities were not controlled for in the current study.
It appears that the innovation-supportive culture/performance relationship is exFall, 2000

73

tremely complex. Each company works in a different task environment. Our findings
seem to indicate that companies operating in non-munificent environments are more
innovative. Likewise, it is probable that such firms are less likely to grow. Perhaps firms
that find success become less innovative as they become larger and more bureaucratic
(Robey, 1991). Our finding that formalized HR practices, a form of bureaucracy, are
negatively related to perceptions of an innovation-supportive culture supports this explanation. A third possibility is that the significant interaction effect is simply an artifact
produced by small sample size. In any event, these results indicate that high levels of
innovation may not be appropriate for all companies.
In general, our research is supportive of the findings in previous research on innovation (e.g., Amabile et al., 1996). Perceptions of managerial and reward system support
are positively associated with an innovation-supportive culture. Perhaps of greater interest is that the results suggest that among small and medium-sized enterprises, company size and formalization tend to inhibit employee perceptions of an innovationsupportive culture. Formalized human resource systems, including programs designed to
enhance employee participation, are negatively related to an innovation-supportive culture. This finding is consistent with that of Welbourne and Andrews (1996, p. 911) who
found that employee "compensation programs that link employee wages to the success
of an organization have a strong and negative effect" on measures of stock market
performance. Clearly, much work remains to be done as we seek to unravel the determinants and consequences of an innovation-supportive organizational culture.
One caveat to this research and an area for future examination concerns the sample
sizes used to test hypotheses 3, 4, and 5. Since those hypotheses were tested at the
organizational level of analysis, the sample size dropped from 429 in hypotheses 1 and
2 to 23 in hypotheses 3-5. As a consequence, our findings for the final hypotheses, while
sparking some interest, may not be generalizeable beyond our sample.
Future researchers could augment the current research findings with structured interviews of key personnel to more fully explore the extent and nature of managerial
practices related to culture-building, as well as the link between firm culture and performance. "Fine grained'' (Harrigan, 1983) methodologies such as case analysis may
provide insights into how and why specific dimensions of culture foster innovation, and
the nature and extent of the impact on firm performance. Likewise, larger and more
diverse sample sizes will provide more generalizable findings.
From a normative standpoint, the results of this research seem to indicate that both
environmental factors and managerial practices strongly infiuence culture. This is a
significant finding with broad research and normative implications because, heretofore,
culture has generally been regarded as a construct internal to the firm. The finding that
culture can be infiuenced by characteristics of the external environment suggests that
culture-building activities may, depending upon environmental characteristics prevailing
in a given industry, be less effective than hoped. Future research should seek to more
fully explicate these relationships and determine the conditions under which characteristics of the environment are most salient to culture-building activities. Given the apparent association between organizational culture, environment, and firm perfonnance,
further research into these and related issues holds a strong prospect of enhancing
normative theorya fundamental objective of both entrepreneurship and strategy research.

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Gaylen N. Chandler is Associate Professor of Management and Human Resources at Utah State University,
Logan.
Chalon Keller is Assistant Director of MBA Programs at Utah State University, Logan.
Douglas W. Lyon is Assistant Professor of Management and Human Resources at Utah State University,
Logan.

76

ENTREPRENEURSHIP THEORY a n d PRACTICE