Organizational Culture, Innovation, and Performance - A Test of Schein Model PDF

Journal of Business Research 67 (2014) 1609–1621
Contents lists available at ScienceDirect
Journal of Business Research
Organizational culture, innovation, and performance: A test of

Schein's model
Suellen J. Hogan ⁎, Leonard V. Coote
The University of Queensland, Brisbane, Queensland 4072, Australia
a r t i c l e i n f o a b s t r a c t
Article history: Innovation is the key to organizational survival and therefore the study of processes that support innovation
Received 1 March 2013 should be of interest to researchers and practitioners alike. Schein's multi-layered model of organizational culture
Received in revised form 1 July 2013 offers a useful framework for thinking about processes that foster innovation. A defining characteristic of the
Accepted 1 September 2013
model is the subtle but important distinctions between the varied “layers” of organizational culture (i.e., values
Available online 11 October 2013
and norms, artifacts and behaviors). The basic assumption of this study is that Schein's model offers a tractable
Keywords:
explanation of cultural processes that support organizational innovation, especially in service firms. Despite
Organizational culture the intuitive appeal and practical value of Schein's conceptual framework, empirical research in relation to the
Innovation model is limited. This paper develops a rationale for an empirical model based on Schein's conceptual model;
Professional service firms the study reports a test of an empirical model. Data collected from approximately 100 principals of law firms
Survey research provides a suitable empirical context for a test of the model. The findings generally support the hypothesized
Structural equations modeling relationships. A key result is how layers of organizational culture, particularly norms, artifacts, and innovative
behaviors, partially mediate the effects of values that support innovation on measures of firm performance.
The findings have implications for theory and practice, especially in relation to building an organizational culture
within professional service firms that fosters innovative behavior.
© 2013 Elsevier Inc. All rights reserved.
1. Introduction & Boyer, 2007; Tellis et al., 2009); this perspective may be relevant espe-
cially in the context of professional service firms.
Following the worst global economic crisis experienced in fifty years, The concept of organizational culture originates in cultural anthro-
a report from the Organisation for Economic Co-operation and Develop- pology and is popular within the organizational behavior, management,
ment (OECD, 2010) highlights the potential of innovation for long-term and marketing literatures (e.g., Gregory, Harris, Armenakis, & Shook,
economic growth. Innovation is a key driver of economic development 2009; Homburg & Pflesser, 2000; Schein, 1992). Organizational culture
and plays a crucial role in competition at both the national and firm refers to the values and beliefs that provide norms of expected behav-
levels (Cefis & Marsili, 2006; Tellis, Prabhu, & Chandy, 2009). Given iors that employees might follow (Schein, 1992). Schein (1992) con-
the complex and dynamic conditions in which organizations compete siders organizational culture as a social force that is largely invisible
today, the need for organizations to innovate continually has never yet very powerful. Empirical evidence suggests that organizational
been greater (Gumusluoglu & Ilsev, 2009; Tellis et al., 2009). Prior culture significantly influences market-oriented behaviors, and market
literature proposes a positive link between innovation and a range of and financial performance (Homburg & Pflesser, 2000), employee atti-
desired performance outcomes (e.g., Garcia-Morales, Matías-Reche, & tudes and organizational effectiveness (Gregory et al., 2009), and has a
Verdu-Jover, 2011; Han, Kim, & Srivastava, 1998). greater contribution to knowledge management and organizational
Consequently, empirical interest continues to increase understand- effectiveness than organizational strategy and structure (Zheng, Yang, &
ing of paths to innovation. Not surprisingly, much of this research has McLean, 2010). An organization's culture strongly influences employees'
focused on manufacturing firms. Few studies document processes that behaviors beyond formal control systems, procedures, and authority
support innovation in service firms that deliver high “value added” ser- (O'Reilly, Chatman, & Caldwell, 1991). As such, organizational culture is
vices, by comparison. Organizational culture as the key to fostering pro- a powerful means to elicit desired organizational outcomes.
cesses that support innovation is one speculation (Khazanchi, Lewis, Nonetheless, despite much focused attention on the topic of organi-
zational culture, extant literature does not sufficiently document the
characteristics of an organizational culture that supports innovation.
Importantly, prior research does not sufficiently document the explicit
⁎ Corresponding author at: UQ Business School, University of Queensland, Brisbane,
Queensland 4072, Australia. Tel.: +61 7 3346 8092; fax: +61 7 3346 8166.
process by which organizational values (i.e., the foundational building
E-mail addresses: [email protected] (S.J. Hogan), blocks of culture) translate into observable desired behaviors. More-
[email protected] (L.V. Coote). over, advancing the literature requires a finer-grained view and clearer
0148-2963/$ – see front matter © 2013 Elsevier Inc. All rights reserved.
http://dx.doi.org/10.1016/j.jbusres.2013.09.007
1610 S.J. Hogan, L.V. Coote / Journal of Business Research 67 (2014) 1609–1621
explanation of the specific layers of an organizational culture supporting behaviors within an organization's culture. Values therefore provide a
innovation. “That organizational culture influences firm effectiveness subtle mechanism through which senior management can exercise influ-
is an assumption implicitly held by many managers and management ence (Mumford, Scott, Gaddis, & Strange, 2002). By emphasizing certain
researchers, although few empirical studies have provided detailed in- values and by building corresponding norms for expected behaviors,
sight into the relationship” (Gregory et al., 2009, p. 683). This research managers can begin to build an organizational culture that has a powerful
begins to address this important gap. and compelling influence on employee behavior (Mumford et al., 2002;
A central aim of this paper is to contribute to existing literature Tellis et al., 2009). Values and norms can in turn manifest in artifacts
by providing a clearer understanding of the links between the distinct (e.g., organizational rituals, language and stories, and physical configura-
layers of an organization's culture and innovative behaviors. The tions) and lead to desired behaviors such as innovation.
motivation for this paper is to provide a more complete account of the While most prior research considers organizational culture as a single
key cultural characteristics and processes that lead to innovative behav- construct, Schein (1992) considers the importance of analyzing and
iors within a knowledge-based context. This study contributes to under- distinguishing between several layers of culture (see Fig. 1). Further,
standing these key issues in several ways. First, this study presents and Schein (1992) attributes the confusion in definitions of culture to failure
empirically tests Schein's (1992) multi-layered organizational culture in differentiating the levels at which organizational culture manifests cor-
model. In contrast to most previous studies that conceptualize organiza- rectly. As Fig. 1 illustrates, values underlie norms and artifacts and deter-
tional culture as a unidimensional construct, we build on and extend mine observed patterns of behavior. Norms are expectations of acceptable
Homburg and Pflesser's (2000) work. We argue that distinguishing behaviors held by members of an organization and have the force of social
between the subtle but distinct cultural dimensions underpinning obligation or pressure (O'Reilly et al., 1991; Schein, 1992). For instance,
behaviors provides a finer-grained picture and better understanding innovative behaviors can result from norms that support information ex-
of the interrelationships between the specific layers of organizational change about new ways of doing things within an organization (Amabile,
culture that drive desired behaviors. As such, our study provides a 1988; Moorman & Miner, 1997). Organizational norms derive from values
means to assess and therefore manage specific elements of an and are manifest in artifacts. Whereas values are the least visible, artifacts
organization's culture. Second, this study contributes to establishing represent the most visible layer of organizational culture and are mani-
the value creating outcomes of these complex constructs. In doing so, festly evident in organizational symbols, rituals, language, and physical
our study addresses important and timely issues that are fundamental workspace arrangements (Schein, 1992).
to organizational effectiveness. This study therefore establishes some
very clear guidelines for managers seeking to build a culture of innova- 2.2. Organizational innovation
tion, within professional service firms in particular.
Innovation theory has developed within manufacturing and high-
2. Theoretical framework technology industries, and the innovation construct is generally concep-
tualized as a discrete process or dichotomous variable. That is, innovation
2.1. Schein's model of organizational culture is often considered as either radical or incremental (e.g., Subramaniam &
Youndt, 2005), technical or administrative (e.g., Han et al., 1998), or
Many definitions of organizational culture exist, however, organiza- product or process (e.g., Chen, 2009). Within manufacturing industries,
tional culture generally refers to the organizational values communicated innovative outputs are tangible, such as new products, produced using
through norms, artifacts, and observed in behavioral patterns (Homburg technological process innovations, and stored for later use. The develop-
& Pflesser, 2000; Schein, 1992). The intrinsic worth of values is to act ment of new machinery and equipment is central to the innovative
as social principles or philosophies that guide behaviors and set a activities of firms within these industries.
broad framework for organizational routines and practices (Hatch, However, this conceptualization is not always appropriate within
1993; O'Reilly et al., 1991). For example, values communicated by senior service contexts because services are perishable and intangible, and
management assist the innovation process by embedding expected the close interaction between the producer and the customer in the
Most
Visible
A
Artifaacts of Inno ovation In
nnov vativ
ve
Exam mpless: Behav viorrs
* storiies a
abouut em mployyeess who o ha ed
ave ssolve Exa amplles:
prroble
ems in in nnovvativee waays * soolve clien
nts’
* physsicall arra
ange emen nts to
o faccilitate in n-
nnovation prooblemms inn
re
elate
ed acctivitiies innoovattive w
wayss
* im
mplem ment
innoovattive m
markketin
ng
La
ayerrs off proogramms
C
Cultu
ure * innova ate w
with
N
Normms ffor In
nnov vatio
on softtwarre &
Exam
E mpless: technology
* exp
pectaations of open coommunication n about n as &
new idea
appro
a oachhes to so
olving oblem
g pro ms
* exp
pectaations of co-o
operaation
n andd tea
am w devellopin
work in d ng ne
ew
deass and
id d neww waays o ealin
of de work taskks
ng wiith w
Leeast V
Value es SSupp ovation
porting Inno
Vissible Exaamples:
ng op
aluin
* va pen ccommun nicatiion w
within thee firm
m
ng co
aluin
* va o-opeeration th
hrou
ughout th he firrm
Fig. 1. Layers of an organizational culture that supports innovation.

S.J. Hogan, L.V. Coote / Journal of Business Research 67 (2014) 1609–1621 1611
service delivery process makes it difficult to distinguish between prod- different layers of a market-oriented organizational culture across a
uct and process innovation. Within the context of a professional service, range of industries in Germany. They found strong support for the role
knowledge and information that is intangible in nature are the main of specific values, norms, and artifacts in shaping employee behaviors
outputs; the outputs do not involve physical or technological aspects that support a strong market-orientation (i.e., staying informed of
necessarily. For example, the provision of an innovative solution to a market trends, reacting to customers' shifting preferences).
client's problem within a professional service context involves the provi- Based on a review of research and relevant literature (summarized
sion of both the service and product, as well as the process of supplying an in Table 1), our study examines the values, norms, and artifacts that
innovation that is intangible and is unable to be stored for later use. the literature suggests motivate innovative behaviors. We therefore
An emerging perspective within the literature is that the innovation assess an innovation-oriented culture through the following value
conceptualization needs to include multiple dimensions (Wang & dimensions: success, openness and flexibility, internal communication,
Ahmed, 2004). Hogan, Soutar, McColl-Kennedy, and Sweeney (2011) competence and professionalism, inter-functional cooperation, respon-
three-point model is one such conceptualization. The components of sibility of employees, appreciation of employees, and risk-taking. As
the construct capture innovative behaviors directed towards the devel- Homburg and Pflesser (2000) note, some values may yield other valued
opment of client-focused, marketing-focused, and technology-focused behaviors (e.g., pro-social displays).
innovation activities. This particular innovation construct has the ad- Although not directly observable, values have a powerful force on
vantage of capturing the types of innovative behaviors that are possible norms and resultant observable behaviors (Dose, 1997; Rokeach, 1973).
within professional service firms. Hence, this multi-dimensional per- Norms are social expectations based on underlying organizational values
spective provides the basis for the conceptualization and measurement and represent behavioral rules that guide actions within groups, and often
of innovative behaviors described subsequently. specify precise sanctions for violations of these expectations (O'Reilly
et al., 1991). Whereas values provide a broad foundation for an
3. Empirical model and research hypotheses organization's culture, norms provide explicit guidance to desired behav-
iors. Social learning theory suggests that individuals learn values, atti-
The empirical model of Fig. 2 outlines the core hypotheses for this tudes, behaviors, and skills through observing others in a social context
study. Central to this process model is the idea that basic values (Bandura, 1986). By observing others, reinforcement of organizational
supporting innovation, norms for innovation, and artifacts of innovation values and the subsequent expectations of specific behavior occurs. This
lead to innovative behaviors. In turn, innovative behaviors have perfor- implies that a set of underlying organizational values provides a basis
mance implications for firms. Attention now turns to developing a ratio- on which to foster a set of corresponding norms, or expectations, for
nale for these constructs and their hypothesized interrelationships. innovation-related behaviors. Stated formally as a hypothesis:
3.1. Organizational values and norms H1. Values supporting innovation positively influence norms for
innovation.
Values theorists suggest that values develop through the influences
of cultural and social contexts (Dose, 1997; Rokeach, 1973). Values es- 3.1.1. Norms and innovative behaviors
poused within an organizational environment are defined as evaluative Formal control systems are assessed for effectiveness through the
standards relating to work, or the work environment, by which individ- measurement of either behaviors or outcomes, such as productivity
uals discern what is considered “right” or “wrong” (Dose, 1997). Values (O'Reilly, 1989). However, not all behaviors are predicted and mea-
serve an important function guiding specific norms, or expectations of sured, and organizations often seek to elicit appropriate attitudes
behavior, within organizations. Previous research provides support for and behaviors from employees through the development of informal
the influence of certain values, norms, and artifacts on the behavior of controls (O'Reilly, 1989). “Social norms are among the least visible
employees. For example, Homburg and Pflesser (2000) investigate the and most powerful forms of social control over human action”
Artiffacts of
H1 (+) γ 4,1 H2b (+) β3,4 innoovatioon
η3
alues
Va
portin
supp ng Noorms for
inno
ovatio
on inn
novattion
1 η4 Firm
H2a (+) β2,4 +) β2,3
H3 (+ performance
η1
ovativve
Inno H4 (+) β 1,2
behhaviorrs 1
η2
= exogenous construct; η = endogenous construct; γ = exogenous construct to endogenous construct; β = endogenous construct to endogenous construct;
ζ = error variance for endogenous construct.
Note: for purposes of clarity observed variables are not presented.
N
Fig. 2. Empirical model of an organizational culture that supports innovation.

Table 1
Research and literature on dimensions of organizational culture that support innovation.
Value dimension Definition Rationale Citations
Success The degree to which an organization values * Raises performance expectations of employees; Abbey & Dickson (1983);
success & strives for the highest standards * creates psychological ownership of organizational goals; Amabile, Conti, Coon, Lazenby,
of performance, & values the provision of * enhances intrinsic motivation & feelings of self-efficacy; & Herron (1996); Gumusluoglu
challenging goals & encouragement of * increases employees' motivations to find novel solutions & Ilsev (2009); Mumford et al.
employees to excel to organizational problems; * improves innovative performance (2002); Redmond et al. (1993);
Sethi, Smith, & Park (2001);
West (2002)
Openness & The degree to which an organization values * Facilitates creativity, empowerment, & change that are essential for Amabile (1988); Howell & Boies
flexibility openness & responsiveness to new ideas, & the exploration that drives innovation; * encourages intrinsic interest (2004); Khazanchi et al. (2007);
a flexible approach to solving problems in, & appreciation of novelty, promotes variety seeking, receptiveness to Mumford et al. (2002)
new ideas, & tolerance for ambiguity associated with creativity and
innovation; * facilitates idea generation, divergent thinking that enable
problem identification & implementation of creative solutions
Internal The degree to which an organization values * Social development theory and situational learning theory emphasize Amabile (1988); Baker &
communication open communication that facilitates cognitive growth through social interaction & communication of Freeland (1972); Binnewies,
information flows within an organization information; * provides access to and availability of diverse knowledge, Ohly, & Sonnentag (2007);
cross-fertilization of ideas, improved quality of decision-making & Caldwell & O'Reilly (2003);
consideration of novel alternative solutions that yield innovation Garcia-Morales et al. (2011);
Moorman & Miner (1997);
Sonnentag & Volmer (2009)
Competence & The degree to which an organization values * Professional knowledge, expertise & technical skills (i.e., domain Amabile (1988); Sonnentag &
professionalism knowledge & skills, & upholds the ideals & relevant knowledge) constitute the raw material for innovation; Volmer (2009); Subramaniam
beliefs associated with a profession * increased professional knowledge & expertise leads to increased & Youndt (2005)
problem analysis & solution provision, increased initiation of and
adoption of technical innovations, increased total, technical &
administrative innovation adoption, increased innovative
human resource practices & increased radical innovation capability
Inter-functional The degree to which an organization * Resource dependence theory suggests that when working on highly Abbey & Dickson (1983); Baker
cooperation values coordination & teamwork innovative projects, members from different functional areas consider & Freeland (1972); Caldwell &
their tasks to be more heavily reliant on the expertise, information & O'Reilly (2003); De Clercq,
resources of other functional specialists in order to achieve buy-in & Menguc, & Auh (2009); Song &
successful & innovative outcomes; Swink (2009)
* High levels of integration & sharing among teams is facilitated through
complex coordination, communication, information-sharing, cooperation
& conflict resolution processes, which in turn influences innovation success
Responsibility The degree to which an organization values * A relatively high degree of responsibility, autonomy & encouragement Amabile et al. (1996);
employees' proactiveness, initiative, of initiative fosters innovation; * when employees perceive responsibility Binnewies et al. (2007);
autonomy & responsibility for their work for achieving the overall goals of a project & have discretion in how goals Caldwell & O'Reilly (2003);
are accomplished they develop a sense of ownership & control over their Mumford et al. (2002)
own work & ideas, overcome potential problems with persistence &
determination, & produce more creative & innovative outcomes
Appreciation The degree to which an organization values, * As a directive mechanism, output expectations are more successful Abbey & Dickson (1983);
rewards & recognizes employees' when accompanied by rewards & feedback, & the provision of rewards Amabile (1988); Howell & Boies
accomplishments & recognition of innovative accomplishments positively influences (2004); Mumford et al. (2002);
innovation; * the synergistic effects of extrinsic motivation O'Reilly (1989); West (2002)
(e.g. recognition) & intrinsic motivation (e.g. commitment to work &
exploratory learning) influence innovation; * performance–reward
dependency & risk-taking are positively related to all stages in the
development of new technological innovations
Risk-taking The degree to which an organization values * Valuing risk-taking, or an encouragement to take meaningful & Caldwell & O'Reilly (2003);
experimentation with new ideas & calculated risks within the scope of one's job, & an encouragement to Dewett (2004); Sethi et al.
challenging the status quo challenge the status quo in an effort to produce positive job-related (2001); Tellis et al. (2009)
outcomes, is related to the psychological safety construct where
employees have a sense of being able to experiment with new ideas &
to do things differently without the fear of negative consequences to
self-image, status or career;
* Encouraging risk-taking strengthens superordinate identity & when
combined with supervisory support & encouragement positively
influences product innovativeness
(Bettenhausen & Murnighan, 1985, p. 350). An organization's culture (e.g., expectations and encouragement of teamwork, such as coordina-
grows via norms, and the approval or disapproval attached to these tion and information exchange) are significantly related to innovation
expectations (O'Reilly, 1989). Norms provide order and meaning to (Caldwell & O'Reilly, 2003). When these norms are present individuals
ambiguous or uncertain situations, therefore providing standards are more likely to propose new and creative solutions to problems
against which individuals can evaluate the appropriateness of and are more likely to have an easier time putting creative ideas into
behavior. As governance mechanisms, norms have been shown to action than if these norms did not exist (Caldwell & O'Reilly, 2003;
safeguard against opportunistic behavior and encourage “pro-social” Dewett, 2004). Other research confirms early studies and provides
behavior. support for the relationship between norms for collaborative problem-
Previous research suggests norms associated with enhancing solving and related behaviors (Taggar & Ellis, 2007). Based on this dis-
creativity (e.g., expectations and encouragement of risk-taking), and cussion, organizational norms for innovation often occur in antecedent
norms associated with promoting the implementation of projects paths of innovative behaviors.
H2a. Norms for innovation positively influence innovative behaviors. portrayed as working with diligence, persistence, and ingenuity to over-
come an obstacle, led to employees feeling they had the same desirable
3.1.2. Norms and artifacts control over outcomes. Organizations can craft strategic stories to mobi-
Artifacts are the most explicit and observable characteristics of an or- lize members to move the organization in a desired direction. As Bartel
ganizational culture (Schein, 1992) and provide a context for employees and Garud (2009) propose, narratives of innovation not only symbolize
to understand what is expected within the organization (Mahler, 1997; expected behaviors, but they also provide a means of information
Meyer, 1995). Ceremonies and rituals reveal what is important in a par- sharing, inspire new ideas, and can promote coordinated action during
ticular organization, and can symbolically convey organizational values the innovation process. When employees can locate themselves in a
and norms (Higgins & McAllaster, 2002). Rituals celebrating successful story, their sense of commitment and involvement in actual behaviors
events, such as an award ceremony for the success of an innovative mar- increases.
keting strategy, reinforce the importance of expected behaviors. Rituals Successful innovation requires that managers provide clear and
affirm and communicate to organizational members in a more tangible consistent signals to employees about what is important for the
and visible way an organization's underlying values and norms in order organization and its chosen course (Barnes, Jackson, Hutt, & Kumar,
to create and maintain the culture (Beyer & Trice, 1987). 2006). That is, rituals provide clear signals and public recognition of em-
The degree to which an organization values and expects certain ployees' accomplishments that are valued and expected by an organiza-
behaviors (e.g., achievement, service, efficiency, appreciation of em- tion, and serve to motivate other organizational members to greater
ployees, autonomy, and inter-functional cooperation) influences the effort (Trice & Beyer, 1984). Rituals are generally perceived as helpful
display of artifacts such as language and metaphors containing mes- in managing behavior in accordance with value-based expectations by
sages that emerge consequent to organizational norms that support providing guidelines and social maps (Beyer & Trice, 1987). Through
innovation (Gibson & Zellmer-Bruhn, 2001). The language and met- the practice of rituals, organizations can begin to realize the practical
aphors used in support of desired behaviors provide employees with consequence of rewarding desired behaviors so that other employees
essential information about expectations regarding their job-related repeat and emulate these behaviors (Barnes et al., 2006).
roles, scope, objectives, and organizational membership. Moreover, Finally, the physical layout of organizations impact on valued
the conceptualization of inter-functional cooperation, or teamwork, and expected behaviors. Toker and Gray (2008) investigated
as evidenced by metaphors and language may give rise to psycholog- whether differences in spatial layout of organizations affected
ical safety, which may lead to innovation in teams. face-to-face consultations and ultimately innovation processes in
Organizational norms have a crucial role in shaping an organization's settings where innovation was expected and encouraged. In organi-
social and physical environment. The physical layout of an organization zations that featured open shared spaces as well as quiet individual
not only serves instrumental, but also symbolic and aesthetic functions offices that were easily accessible, with shorter walking distances
(Vilnai-Yavetz & Rafaeli, 2005). Office design physically expresses the between them, exhibited higher face-to-face consultation rates, in-
underlying values and corresponding norms of an organization and cre- creased connections between consultation networks, and increased
ates a particular atmosphere, feeling, and meaning for employees over innovation outcomes. The spaces created by office design facilitate
time (Elsbach & Bechky, 2007). As the visible part of an organization's or constrain social interaction between groups, and are a means to
culture, office design and décor symbolize an organization's social elicit desired behaviors.
order (Schein, 1992). An organization interested in promoting a culture In summary, a reasonable conjecture is that innovative behaviors
of equality among groups, for example, would discourage and eliminate are likely to emerge in response to environments in which artifacts
visible status symbols, such as executive lunchrooms and extravagant (e.g., stories, rituals, the physical architecture, and language) are used
offices for senior management. Similarly, an organizational culture to signal and communicate an organization's underlying values and
that expects collaboration, open communication, and problem solving norms. Innovative behaviors require a physical and social environment
between groups, would facilitate and encourage these behaviors in the that can support the development and implementation of new ideas,
office layout. products, strategies, and systems.
The manifest indicators of an organization's cultural artifacts
H3. Artifacts of innovation positively influence innovative behaviors.
(i.e., artifacts including stories, rituals, the organizational architecture,
and language) depend upon the presence of norms. Hence, the follow-
3.3. Innovative behaviors and firm performance
ing hypothesis:
H2b. Norms for innovation positively influence artifacts of innovation. The final link in the empirical model of Fig. 2 is between innovative
behaviors and firm performance. Establishing this link should be of
3.2. Artifacts and innovative behaviors central concern to strategy and organizational theorists with an interest
in organizational cultures that are presumed to support innovation. To
According to the model of Fig. 2, artifacts of innovation lead to inno- be sure, innovation is seen as a key source of an organization's compet-
vative behaviors. Relevant organizational artifacts include language and itive advantage (Bharadwaj, Varadarajan, & Fahy, 1993; Weerawardena,
symbols, rituals, and the physical environmental and layout. Language 2003). This occurs for reasons including enhancement of product and
as an element of organizational culture (Schein, 1992; Trice & Beyer, service quality, the realization of new customers and markets, and
1984) cues appropriate and inappropriate behavior using metaphors improvement in a firm's marketplace position. The link between devel-
and meaning structures (Gundry & Rousseau, 1994; Smith & Ellis, oping new products and performance outcomes is supported in
2001). The findings from previous research highlight the important manufacturing firms (e.g., Avlonitis & Salavou, 2007; Song & Swink,
task that managers have in sending appropriate messages, and through 2009). Empirical research is limited and especially in relation to profes-
the use of appropriate language, that will be recalled by employees sional service firms. Studies of the relationship between new service de-
when deciding how to behave. velopment and firm performance are beginning to emerge (e.g., Ettlie &
Success in relation to innovation may further depend on an Rosenthal, 2011; Storey & Kahn, 2010), but the link is still understudied.
organization's ability to effectively manipulate and manage symbols. Nonetheless, firms that engage in various innovative behaviors, such as
For instance, research by Martin, Feldman, Hatch, and Sitkin (1983) sug- the development of new products, services, and solutions, can realize
gests that the way stories are told has a significant effect on shaping the positive performance outcomes.
attitudes and behaviors of employees. According to attribution theory,
organizational stories framed in the positive, in which employees are H4. Innovative behaviors positively influence firm performance.
4. Method The participants included partners, senior lawyers, and junior lawyers.
Convenience and the first author's knowledge of the firm determined
4.1. Survey procedure and sample the selection of interviewees. The aims of the semi-structured inter-
views were to explore qualitatively the plausibility of the empirical
Law firms within a large geographic area that included the metro- model and to allow for refinement of the measurement instrument.
politan hub of Sydney, Australia and several regional centers define The qualitative interviews suggested that something like the constructs
the population of interest. The authors obtained contact details for and relationships specified in the model of Fig. 2 might actually exist.
principals of law firms within this area from publicly listed information Minor changes to the scale items yielded measures that better reflect
(i.e., industry association lists, company websites, and directory sources). a professional service firm setting. See the Appendix A for a complete
The final mailing list consisted of 658 firm principals. Using senior listing of the measures.
managers, such as principals of law firms, as key informants is consistent
with previous research on organizational culture because of their macro 4.2.1. Values and norms
perspective of an organization's activities and culture (e.g., Gregory et al., As appearing in Table 1, a review of literature identified eight orga-
2009; Zheng et al., 2010). Each law firm's principal received a survey nizational values consistently associating with an organizational culture
packet including a cover letter from the researchers, a self-completion supporting innovative behaviors. Three items measure each of the eight
questionnaire, and a postage-paid return envelope. A second mail out dimensions. Example items in relation to values of success, appreciation
four weeks after the initial mailing was conducted to improve the re- of employees, and risk-taking, for example, are “we place great value
sponse rate. Five questionnaires were discarded due to unacceptable on our performance,” “taking time to celebrate the achievements of
levels of missing data. We obtained 91 usable questionnaires in total employees is valued in this firm,” and “the firm values a willingness
for a response rate of approximately 14%. to challenge the status quo,” respectively. All items for these mea-
There is wide variation in respondent's demographic characteristics. sures are captured on five-point Likert-type scales anchored from
Respondents range in age from 24 to 81 years (mean = 50.7, std. “1 = strongly disagree” to “5 = strongly agree.”
dev. = 10.8). Seventy-eight percent of respondents are male, 46% of The measures for organizational norms naturally follow on from the
respondents are managing partners, and 31% are partners, with the re- measures for values. For each organizational value, there is a corre-
mainder holding senior lawyer and senior management positions such sponding organizational norm. Thus, the hypothesized measurement
as vice-president of marketing or vice-president of human resources. structure for organizational norms parallels that for the measurement
The average number of years sampled firms have been established is of values; that is, three items measure each of the underlying dimen-
41 (range = 1 to 150, std. dev. = 39.7). The number of lawyers sions previously identified for organizational values. However, the
within the sampled firms ranges from 1 to 800 (mean = 35.6, std. measures for norms have a specific focus on expected behaviors relating
dev. = 113.4). The average number of employees in total per firm is to innovative behaviors, whereas values are more general in nature. A
84 (range = 2 to 2,000, std. dev. = 271.1). Thirty-three percent of sample item for the norm success in innovation is, “striving to be
firms are located in the metropolitan hub and 23% of firms are located successful with new ways of doing things is expected within this
in its immediate suburbs. The remaining firms (43%) reside in regional firm.” It is important to recognize the subtle but meaningful distinction
centers across the geographic region studied. Although the sample of between values and norms. Pretest qualitative interviews and subse-
91 observations is a modest one, it is comparable to other studies in quent empirical work support this important distinction. Organizational
this research setting (cf. Gregory et al., 2009; Loi, Hang-Yue, & Foley, values underpin norms or expectations of behaviors. Values are general
2006). Simulation studies produce consistent and reliable estimates of social principles and standards, whereas norms are accepted, expected,
model parameters in samples as small as 50 observations (Gerbing & and encouraged behaviors that characterize specific organizational
Anderson, 1992). This result is specific to the latent variable structural routines and practices.
equation modeling techniques used subsequently for data analyses.
The extrapolation procedures that Armstrong and Overton (1977) 4.2.2. Artifacts
describe were used to test for the presence of non-response bias. Defining characteristics of artifacts supporting an innovative culture
Categorizing responses to the first and second mailing as early and are stories, arrangements, rituals, and language (Bartel & Garud, 2009;
late maximizes the potential differences across early and late waves of Elsbach & Bechky, 2007; Gibson & Zellmer-Bruhn, 2001; Gundry &
respondents, with late respondents postulated to be relatively disinter- Rousseau, 1994; Higgins & McAllaster, 2002; O'Reilly, 1989; Trice &
ested respondents, similar in nature to non-respondents (Armstrong & Beyer, 1984). We developed new scales for artifacts indicating the pres-
Overton, 1977). Tests of differences in means and proportions across a ence of innovative behaviors following a review of literature and the
range of organizational and respondent demographic variables as well semi-structured interviews. The measurement approach is broadly con-
as the theoretical variables of interest were conducted. No significant sistent with Homburg and Pflesser's (2000) measurement of organiza-
differences in the gender, age, or role of organizational participants tional artifacts. Eight items measured the four components of artifacts
across waves of early versus late respondents are present. Similarly, supporting innovative behaviors: stories about heroes of innovation,
early and late responses were the same in terms of organizational loca- physical arrangements for innovation, rituals of innovation, and lan-
tion (i.e., metropolitan versus regional), years of operation, and firm size guage supporting innovation. Illustrative items in relation to physical
(measured by number of lawyers and total number of employees). arrangements and rituals, for example, are “there are discussion areas
Further, no differences in the measured variables across waves of early within our firm where employees can meet to discuss new and useful
and late respondents are present. These findings suggest that non- ideas” and “we have made an effort within this firm to celebrate the
response bias may not be a problem. adoption of new practices and processes,” respectively. Five-point
Likert-type scales anchored from “1 = strongly disagree” to “5 =
4.2. Measure development strongly agree” were used as response formats.
Measures for the constructs of the empirical model were adapted 4.2.3. Innovative behaviors
from established scale items used in previous studies of organizational Innovative behaviors were measured using the multi-item scale
culture. However, some of the constructs are new to the context of pro- developed by Hogan et al. (2011), which was developed specifically for
fessional service firms and additional refinement of scale items was nec- measuring innovation in professional service firms. Hence, the appropri-
essary. As a starting point, semi-structured interviews with six lawyers ateness of the scale to the context of law firms studied here. Three
from a large corporate law firm helped to set the scene for the research. dimensions are measured; that is, innovative behaviors in relation to a
client-focus, marketing-focus, and technology-focus. Five items measure With this background, the specification and estimation of the
perceptions of behaviors relating to client-focused innovation, and four measurement model(s) is straightforward. The CFA model specifies
items each measure marketing-focused and technology-focused innova- five latent variables. Each latent variable corresponds to one of the five
tion behaviors. All items for the measures of innovative behaviors are theoretical variables of interest: firm performance, innovative behav-
captured on five-point Likert-type scales anchored from “1 = poor” to iors, artifacts, norms, and values. Norms and values are measured with
“5 = excellent”. eight composite indicators each, artifacts with four composite indica-
tors, and innovative behaviors and firm performance with three and
4.2.4. Firm performance two composite indicators each, respectively. The CFA has a “simple
Six items each assess market and financial performance, following structure.” That is, each composite indicator relates only to its posited
Morgan and Piercy (1998). Market performance relates to the degree theoretical (latent) variable. Further note that the theoretical variables
to which an organization attracts and retains customers for its products correlate freely. This specification is the basis for the tests of the validity
and services. Financial performance is the degree to which an organiza- and reliability of the composite indicators. These measurement tests are
tion achieves economic outcomes. Illustrative items include “achieving important before considering the substantive questions of interest.
client satisfaction” (Anderson, Fornell, & Lehmann, 1994; Banker, Estimating the theorized CFA model (measurement model 1)
Potter, & Srinivasan, 2000) and achievements in “overall profitability” yielded a significant chi-squared value (χ2 = 648.86, d.f. = 270,
(Fornell, 1992), respectively. All items for the measures of firm perfor- p b .05). However, other measures of model fit are indicative of good
mance are captured on five-point Likert-type scales anchored from model fit to the sample data (e.g., root mean square error of approxima-
“1 = poor” to “5 = excellent”. tion [RMSEA] = .00, comparative fit index [CFI] = 1.0, goodness-of-fit
In addition, the study includes two objective measures of perfor- index [GFI] = .97, and adjusted goodness-of-fit index [AGFI] = .96).
mance for a check of the self-reported measures. The objective mea- Table 3 reports the parameter estimates for the effects of the theoretical
sures were “total revenues” and “total profits” for the previous variables on their respective composite indicators. All of the regression
12 months. The self-reported financial and objective performance mea- coefficients for the effects of the theoretical variables on the composite
sures were positively and significantly correlated (r = .30, p b .01). indicators are positive and statistically significant (p b .05). This result
This result is important because it helps to establish the validity of the is important because it establishes the convergent validity of the com-
self-reported performance measures. posite indicators; that is, each of composite indicators converges on its
posited construct. For each of the theoretical variables, the average
value of the (standardized) parameter estimates are .68 (values), .78
5. Results (norms), .73 (artifacts), .61 (innovative behaviors), and .76 (firm perfor-
mance). Squaring these values yields reliability scores for each theoret-
The analysis reported subsequently is generally consistent with the ical construct in the range of .50, which implies more theoretical
“two-step” approach to estimating structural equation models with variance than measurement error is evident in the composite indicators.
latent variables described by Anderson and Gerbing (1988). That is, Hence, evidence supports the validity and reliability of the composite
the study explores measurement models before estimating substantive measures per the hypothesized measurement structure.
model(s). A second CFA model was examined for a stronger test of measure
The measurement and structural models here are based on the validity and reliability. This model adds a “common method” factor to
modeling and analysis of composite variables or indicators. That is, a measurement model 1. That is, each of the composite indicators is
composite measure represents each of the subscales used to measure now a function of its posited theoretical variable, a method factor that
the dimensions of the theoretical constructs. The composites are aver- is common to all composite variables, and a random error (uniqueness).
ages for each respondent, the responses to each set of subscale items. The common method factor represents a latent source of shared varia-
The analyses include creating 25 composite variables—a composite tion. Examining the possibility of a common method factor is important
variable for each subscale. The use of composite variables here has sev- for several reasons (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003).
eral advantages. The composite variables help to simplify the structure The use of a single method of data collection can produce inflation
of the data while still allowing for the rigorous assessment of the mea- or attenuation in parameter estimates (or indeed, inflation in some
surement properties of the theoretical constructs. Further, the use of estimates and attenuation in others). Hence, the second CFA model
composite variables allows the theoretical variables of interest repre- (measurement model 2) provides a more robust test of the validity
sentation as first-order variables with “measured” indicators, and there- and reliability of the composite indicators as deemed necessary by the
fore the focus shifts to the theoretical issues of substantive interest. design.
For completeness, the subscales were subject to rigorous analysis Estimating the re-specified CFA model with a common method fac-
before the creation of the composite variables (e.g., the specification tor (measurement model 2) produces a significant chi-squared value
and testing of higher-order structures). This analysis is available from (χ2 = 493.55, d.f. = 240, p b .05). Other measures are indicative of
the first author upon request. Table 2 reports the means and standard good fit (e.g., RMSEA = .00, CFI = 1.0, GFI = .98, and AGFI = .98).
deviations of the composite variables and their correlations. Note that, as indicated by a chi-squared difference test, the common
method factor model achieves a significant improvement in fit vis-à-
5.1. Measurement model vis the original CFA model (χ2 Δ = 155.31, d.f. = 30, p b .05). The in-
terpretation of this result is that a common method factor is evident.
The estimation of the restrictive or confirmatory factor analysis Hence, a reinterpretation of the parameter estimates is necessary with
(CFA) models, and all subsequent models, uses version 8.8 of the a particular emphasis on checking for attenuation (or inflation) in the
LISREL estimation software (Jöreskog & Sörbom, 1996). Sample covari- measurement model parameters. Table 3 reports the parameters for
ances of the 25 composite indicators were inputs and the study uses the common method factor model (measurement model 2).
diagonally weighted least squares (DWLS) estimator to solve for the Evidence supports a very slight attenuation in the regression coeffi-
unknown parameters. The DWLS estimator is a variation on the default cients for the effects of the theoretical variables on the composite
maximum likelihood (ML) estimator and offers the advantage of indicators. However, this attenuation is minor and is never to the
robustness to non-normality under the ML assumption. The inspection point of non-significance. In some instances, there is evidence of infla-
of a range of descriptive statistics suggested non-normality was not tion (but this too is minor). Furthermore, few if any of the effects of
excessive. Nonetheless, a more robust estimator allows for greater pre- the common method factor on the composite indicators achieve signif-
cision in hypothesis tests. icance. To summarize, there is evidence of a common method factor, but
Table 2
Means, standard deviations, and correlations of composite indicators.
Mean Std. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25.
Dev.
1. 3.84 .55 1.00

2. 3.19 .85 .51 1.00
3. 3.53 .89 .56 .27 1.00
4. 2.94 1.28 .41 .31 .51 1.00
5. 3.40 1.07 .34 .07 .37 .22 1.00
6. 2.65 1.29 .17 .26 .52 .46 .12 1.00
7. 2.73 1.25 .30 .06 .60 .38 .16 .49 1.00
8. 2.97 1.11 .43 .17 .69 .50 .33 .55 .63 1.00
9. 3.26 .95 .30 .09 .56 .44 .30 .46 .51 .61 1.00
10. 3.25 1.04 .45 .23 .67 .62 .44 .49 .46 .73 .61 1.00
11. 3.99 .79 .30 .07 .56 .41 .34 .32 .38 .61 .55 .72 1.00
12. 3.62 .92 .34 .22 .53 .46 .41 .44 .26 .53 .50 .63 .67 1.00
13. 3.63 .90 .25 .05 .52 .33 .28 .40 .37 .61 .46 .61 .63 .51 1.00
14. 3.95 .88 .27 .09 .41 .21 .25 .27 .38 .55 .39 .44 .62 .62 .62 1.00
15. 3.62 .91 .29 .17 .51 .46 .29 .50 .32 .62 .40 .63 .57 .60 .58 .56 1.00
16. 3.40 .99 .41 .27 .53 .48 .23 .51 .46 .72 .46 .67 .56 .58 .45 .56 .63 1.00
17. 2.90 1.02 .23 .15 .56 .52 .32 .51 .43 .69 .49 .77 .65 .59 .64 .48 .70 .66 1.00
18. 4.50 .69 .39 .16 .36 .33 .28 .16 .36 .50 .37 .51 .57 .50 .51 .66 .30 .46 .37 1.00
19. 4.37 .73 .37 .16 .35 .29 .29 .16 .27 .48 .42 .51 .62 .56 .33 .48 .54 .52 .46 .53 1.00
20. 4.16 .83 .37 .18 .30 .30 .27 .17 .13 .36 .28 .47 .47 .62 .18 .41 .44 .54 .33 .42 .69 1.00
21. 4.55 .66 .26 .09 .31 .15 .14 .12 .33 .42 .41 .41 .59 .43 .52 .62 .30 .35 .31 .78 .58 .40 1.00
22. 3.96 1.03 .40 .30 .36 .36 .12 .27 .30 .43 .33 .44 .51 .57 .35 .61 .37 .51 .41 .60 .55 .63 .56 1.00
23. 4.38 .71 .38 .18 .25 .23 .30 .12 .15 .31 .25 .32 .53 .61 .27 .55 .48 .44 .34 .46 .66 .61 .47 .55 1.00
24. 3.79 .92 .35 .20 .40 .48 .13 .29 .30 .48 .40 .50 .43 .57 .23 .44 .50 .71 .50 .43 .55 .61 .40 .55 .51 1.00
25. 3.45 .95 .35 .24 .56 .49 .39 .38 .43 .60 .42 .74 .58 .52 .46 .32 .53 .59 .69 .38 .49 .41 .25 .29 .33 .53 1.00
Note: 1 = MrktPerf, 2 = FinPerf, 3 = ClntInn, 4 = MrktInn, 5 = TechInn, 6 = ArtStor, 7 = ArtArr, 8 = ArtRit, 9 = ArtLan, 10 = NorSucc, 11 = NorOpn, 12 = NorComm, 13 =
NorCpf, 14 = NorIfc, 15 = NorRes, 16 = NorApp, 17 = NorRis, 18 = ValSucc, 19 = ValOpn, 20 = ValComm, 21 = ValCpf, 22 = ValIfc, 23 = ValRes, 24 = ValApp, 25 = ValRis.
its effects on measurement model parameters, if any, are small. None- A third and final CFA model follows. Specifying this measurement
theless, the consideration of a common method factor warrants consid- model (measurement model 3) is necessary for the purposes of testing
eration in relation to the specification and interpretation of subsequent the dimensionality and assessing the discriminant validity of the theo-
model forms (i.e., in tests of structural model relationships). retical constructs. Correlations among the theoretical constructs per
Table 3
Measurement model parameter estimates.
Measurement Model 1 Measurement Model 2 Measurement Model 3

(Theorized CFA model) (CFA plus method factor) (One-factor model)
Estimate t-value Estimate t-value Estimate t-value
Firm performance
MrktPerf .55 8.76 .54 6.73 .29 14.57
FinPerf .44 8.53 .45 7.66 .24 8.28
Innovative behaviors
ClntInn .69 11.07 .68 5.66 .66 17.50
MrktInn .81 11.38 .82 5.32 .76 14.61
TechInn .47 10.91 .45 8.61 .45 11.22
Artifacts
ArtStor .78 14.37 .82 3.15 .66 13.15
ArtArr .79 14.67 .79 7.04 .68 13.10
ArtRit 1.06 18.21 1.03 17.01 .92 18.40
ArtLan .70 16.51 .68 14.52 .62 15.36
Norms
NorSucc .91 23.48 .94 8.58 .90 20.09
NorOpn .64 22.29 .63 5.19 .63 17.97
NorComm .74 21.67 .72 4.18 .73 16.96
NorCpf .60 18.52 .61 10.73 .59 16.08
NorIfc .59 18.03 .57 2.29 .57 15.08
NorRes .69 21.15 .69 18.68 .68 16.89
NorApp .80 20.80 .80 17.19 .79 16.63
NorRis .82 22.41 .85 5.95 .80 19.21
Values
ValSucc .46 14.72 .44 2.58 .41 12.75
ValOpn .53 14.51 .49 2.29 .46 12.58
ValComm .53 13.39 .48 1.97 .47 11.19
ValCpf .38 12.77 .36 1.77 .33 10.84
ValIfc .72 15.14 .66 2.27 .63 13.53
ValRes .42 12.71 .39 1.38 .37 10.81
ValApp .66 15.52 .62 6.30 .59 13.52
ValRis .74 18.89 .76 3.42 .69 16.12
Note: Unstandardized parameter estimates.

the estimates of measurement models 1 and 2 are in the range of .40 to Table 4
.90. Correlations of this magnitude may warrant concerns that the Structural model parameter estimates.
theoretical constructs are not sufficiently distinct, at least empirically. Path Estimate t-value Hypothesis
Stated differently, showing the theoretical constructs are not the same
Structural model 1 (Hypothesized structural model)
construct is important. Following Homburg and Pflesser, measurement Values → norms .86 18.85 H1 (Supported)
model 3 specifies a single latent variable as the source of variation in Norms → innovative behaviors .45 2.99 H2a (Supported)
the 25 composite variables. The specification of measurement model 3 Norms → artifacts .81 13.26 H2b (Supported)
Artifacts → innovative behaviors .47 3.15 H3 (Supported)
implies that there is no empirical separation (discriminant validity)
Innovative behaviors → firm performance .58 16.46 H4 (Supported)
among the theoretical variables (cf. the Harmen one-factor test).
Compare this specification with measurement model 1. Measurement Structural model 2 (Hypothesized structural model plus method factor)
Values → norms .98 1.66 H1 (Supported)
model 1 implies that the five theoretical variables are indeed empirically
Norms → innovative behaviors .43 2.22 H2a (Supported)
distinct, though correlated. Significant correlations are expected, because Norms → artifacts .76 2.13 H2b (Supported)
the theoretical variables are part of the same underlying nomological Artifacts → innovative behaviors .38 .77 H3 (Not supported)
net. However, empirically discriminating among the constructs is still Innovative behaviors → firm performance .64 1.80 H4 (Supported)
necessary. Structural model 3 (Hypothesized structural model plus direct effects)
Estimating the single-factor model (measurement model 3) yields a Values → norms .86 18.60 H1 (Supported)
large and significant chi-squared value (χ2 = 870.99, d.f. = 275, Values → innovative behaviors .28 1.13 –
p b .05). Other measures are indicative of acceptable fit to the sample Values → artifacts −.32 −1.23 –
Values → firm performance .21 2.74 –
data (e.g., RMSEA = .00, CFI = 1.0, GFI = .96, and AGFI = .95). How-
Norms → innovative behaviors .02 .03 H2a (Not supported)
ever, a chi-squared difference test establishes that the single-factor Norms → artifacts 1.12 3.55 H2b (Supported)
model represents a significant decrement in fit vis-à-vis the theorized Artifacts → innovative behaviors .66 2.47 H3 (Supported)
five-factor CFA model (χ2 Δ = 155.31, d.f. = 30, p b .05). Though all Innovative behaviors → firm performance .37 3.45 H4 (Supported)
of the parameter estimates in the single-factor model achieve signifi- Note: Unstandardized parameter estimates.
cance (p b .05, see Table 3), the theorized five-factor measurement
structure is a more plausible representation of the data than is the
single-factor specification. The single factor model imposes the assump-
tion that the theoretical variables are the same variables (i.e., lacking in 34%). This analysis supports the hypothesized structure but further
discriminant validity), but is insufficient for representing the patterns of model forms warrant consideration.
variation in the composite indicators. By implication, the theoretical Tests of the measurement structure were clearly indicative of a com-
variables are empirically distinct. mon method factor. Hence, testing the robustness of the structural
Tests of the theoretical model of interest are now possible, given that model parameters to a common method factor is required. Structural
the five theoretical variables appear to be empirically distinct. However, model 2 therefore adds a common method factor to the specification
the measurement model(s) results reported here show that it may still of structural model 1. Following the measurement model tests, the com-
be necessary to consider the impacts of a common method factor; even posite indicators are now a function of both the theoretical variables and
if its impact on measurement model relationships are minor and gener- the common method factor (and uniqueness). This specification intro-
ally not significant. duces the common method factor and tests the robustness of the struc-
tural model parameters to possible common method effects. Fitting this
re-specified structural model (structural model 2) to the data produces
5.2. Hypothesis testing a significant chi-squared value (χ2 = 508.36, d.f. = 245, p b .05).
Other measures indicate good fit to the sample data (RMSEA = .00,
The next step is estimating the theoretical model of interest CFI = 1.0, GFI = .98, and AGFI = .98).
(structural model 1) as illustrated in Fig. 2 for a substantive test of The common method model (structural model 2) achieves a better
the research hypotheses. The same measurement structure as for the fit to the sample data than does the hypothesized structural model
theorized measurement model applies; that is, five latent variables (χ2 Δ = 172.76.09, d.f. = 25, p b .05). This is an important result be-
and 25 indicator variables with each composite indicator related only cause, like the measurement model tests earlier, it shows that a com-
to its posted theoretical variable. Estimating the hypothesized structural mon method factor is evident (and warrants a re-examination of the
model produced a significant chi-square value (χ2 = 681.12, d.f. = structural model parameters). The parameter estimates of the structural
270, p b .05). However, a range of other fit statistics provides evidence model are generally robust to the common method (see Table 4). There
of good model fit to the data (e.g., RMSEA = .00, CFI = 1.0, GFI = is, however, one important exception. In the common method factor
.97, and AGFI = .96). Table 4 reports the parameter estimates for struc- specification, the predicted relationship between artifacts of innovation
tural model 1. The pattern of results is consistent with the hypothesized and innovative behaviors is not significant. Hence, H3 is not supported.
relationships. Other parameter estimates are not greatly attenuated or inflated,
As H1 predicts, the relationship between values supporting innova- which points to the robustness of the general process implied by the
tion and norms for innovation is positive and significant (γ41 = 0.86, model of Fig. 1. Nonetheless, other model forms may be necessary to
t = 18.85). Consistent with H2a, the relationship between norms for test.
innovation and innovative behaviors is positive and significant The final model specification considered here is the specification
(β24 = 0.45, t = 2.99). As H2b predicts, the relationship between of structural model 3. If the results of structural model 1 (the hypoth-
norms for innovation and artifacts of innovation is positive and signifi- esized structural model) are generally accepted then a process
cant (β34 = 0.81, t = 13.26). Consistent with H3, the relationship of complete mediation is implied; that is, the effect of values
between artifacts of innovation and innovative behaviors is positive supporting innovation on firm performance is mediated by norms
and significant (β23 = 0.47, t = 3.15). for innovation, artifacts of innovation, and innovative behaviors
Finally, consistent with H4, evidence supports a strong positive (values → norms → artifacts → behaviors → performance). This
relationship between innovative behaviors and firm performance “causal chain” or process model seems to be a plausible representation
(β12 = 0.58, t = 16.46). Consider the R2 values for each of the of the data and is parsimonious. However, explicit testing of possible
theoretical variables as further evidence of model fit (norms = 74%, direct effects of values supporting innovation on artifacts, innovative
artifacts = 66%, innovative behaviors 76%, and firm performance = behaviors, and firm performance is necessary (if the implied process
of mediation is to be supported). Therefore, the specification of struc- management expect employees to generate new ideas and to try out
tural model 3 explicitly includes the possible direct effects of values new ways of doing things, organizational artifacts that communicate
on performance, behaviors, and artifacts. Estimating structural model and facilitate these expectations are important to eliciting such behav-
3, a structural model with direct effects from values to performance, iors. Frequently, innovative behaviors depend on norms and artifacts
yields a significant chi-squared value (χ2 = 668.19, d.f. = 267, that support such behaviors.
p b .05). Other measures imply good fit to the sample data Second, empirical support for a direct link between artifacts of
(RMSEA = .00, CFI = 1.0, GFI = .97, and AGFI = .96). innovation and innovative behaviors is mixed. This finding challenges
Testing the mediating hypothesis requires a direct comparison of earlier empirical work (cf. Homburg & Pflesser, 2000). To be sure,
structural models 1 and 3. A chi-squared difference test establishes the effect size for the relationship between artifacts of innovation
that structural model 3 achieves better fit to the sample data than and innovative behaviors is consistently positive and in the range of
does structural model 1 (χ2 Δ = 12.93, d.f. = 3, p b .05). This signifi- .40 to .50. However, the method factor attenuates this effect to the
cant difference does not support the process of complete mediation point of non-significance. One line of speculation, consistent with this
(at least one of the three possible direct effects are significant). Table 4 result, is organizations differ greatly in the processes linking artifacts
reports parameter estimates for structural model 3. A review of the and behaviors. Classifying organizations by artifacts of innovation and
parameter estimates shows that the estimated values are generally con- identifying salient group differences warrants immediate research
sistent with structural model 1. However, the direct effect of values attention.
supporting innovation on organizational performance is positive and As indicated in Table 4, the findings of the current study highlight
significant (γ11 = .21, t = 2.74). Note that the effect of innovative be- the critical role of artifacts in eliciting valued and expected behaviors.
haviors on organizational performance is more strongly positive than Management may profess to value, and expect certain behaviors of
that of values supporting innovation. Furthermore, note that norms employees. Innovative behaviors are unlikely to occur unless these
for innovation and artifacts completely mediate the effects of values values and norms are manifest in the stories, physical layout, rituals,
supporting innovation on innovative behaviors. In summary, reflecting and language of the organization. For example, innovative behaviors
now on all three structural models, the analysis generally supports the may be stifled unless an organization facilitates expected behaviors
process model of Fig. 2. The core paths (hypotheses) of Fig. 2 are gener- through the provision of workplace facilities that enable employees
ally robust to common method effects, although a common method the opportunity to discuss and share ideas openly, as well as to work,
factor is evident. Norms for innovation completely mediate the effects think, and develop ideas on their own. Moreover, as Barnes et al.
of values on other layers of organizational culture, but values are so (2006) and Beyer and Trice (1987) suggest, rituals are critical to these
strong a theoretical variable that they have a possible direct effect on behaviors being repeated and emulated by other employees. Awards
performance. ceremonies, for example, help build such valued behaviors because
they provide clear signals and public recognition of employees'
6. Discussion accomplishments.
Finally, despite a substantial body of work in the areas of both orga-
Innovation is a prerequisite for success in increasingly dynamic and nizational culture, and innovation, limited research on these topics exist
competitive markets. In the service economy of the 21st century, firms within the context of professional service firms. Human actors alone
compete on their service products and processes, and on their solutions, create the service delivery processes that characterize professional
strategies, and service delivery. In professional service firms in particu- services (Løwendahl et al., 2001). This highlights the importance of
lar, a culture of innovation is a crucial precursor to the types of innova- managing individuals and professionals in ways that support innovative
tive behaviors that can sustain organizations and foster organizational enterprise. In particular, the results of this research highlight the impor-
renewal. Organizations are social as well as physical constructions and tance of an organizational culture that values, expects and facilitates
therefore an understanding of organizational culture can help to shape calculated risk-taking and a willingness to challenge the status quo,
the process of innovation and firm performance. Schein's model pro- appreciation and acknowledgement of employees' accomplishments
vides a framework for thinking about organizational culture and foster- and efforts, inter-functional cooperation, success, openness and flexibil-
ing cultures of innovation. Building on this framework, this study ity, and internal communication. These cultural dimensions appear to
establishes an empirical model for how distinct layers of organizational be crucial values that will in turn support norms for innovation. This
culture can support the types of innovative behaviors that are so crucial further highlights the need for research to determine which value
to firm performance. The tests reported here are generally supportive of dimensions are the most fundamental to the innovation process. The
the core hypotheses; that is, the distinct layers of organizational culture learning literature highlights the importance of wide information dis-
(partially) mediate the effects of values that support innovation on firm semination (e.g., Baker & Sinkula, 1999; Hurley & Hult, 1998); however,
performance. there is a need for much more theoretical development in this area in
order to integrate research on innovation, in particular, with work on
6.1. Implications for theory organizational learning.
The current study contributes to theory development of organiza- 6.2. Implications for practice
tional culture and innovation in several important ways. First, this
study empirically tests Schein's (1992) multilayered model, and in The results of the current study hold a number of immediate impli-
doing so, highlights the importance of the indirect process from cultural cations for practitioners; and an organizational culture that encourages
values to firm performance. Importantly, the findings of this study sug- new and novel approaches to addressing the requirements of clients'
gest that values supporting innovation alone do not lead to increased needs creates an opportunity for service firms to differentiate their
performance. It appears that the process from values to performance organizational processes, products and services from their competitors.
outcomes is in part dependent on norms for innovation, artifacts of First, this research points to the importance of underlying organizational
innovation, and innovative behaviors. Although organizational values values that motivate and foster innovative behaviors among employees.
provide a broad foundation, norms serve an important function in guid- Organizational culture shaped by management through organizational
ing specific expected behaviors within organizations (Heide & John, values, norms, and artifacts encourages and supports innovative behav-
1992; O'Reilly, 1989). In particular, norms, or explicit expectations of iors. In particular, leadership behaviors such as showing respect for
behaviors for innovation, appear in stories, the physical architecture, employees (e.g., considering their input into decisions that affect them)
rituals and language supporting innovative behaviors. Where and showing an appreciation of employees (e.g., recognizing the
contribution of employees towards organizational goals) are crucial. Or- Appendix A. Measurement items
ganizational leaders have the ability to promote and lead innovation
within organizations (Hunt, Stelluto, & Hooijberg, 2004; Mumford et al., Firm performance
2002); thus, leaders also have an opportunity to create a culture where Financial performance
employees can generate, pursue, and implement new ideas and
1. Overall profitability,
processes.
2. Profitability per employee,
Second, embedding values and norms in organizational artifacts
3. Profit growth,
would assist higher levels of innovation. Artifacts can be a powerful
4. Overall cash flow,
mechanism for communicating and endorsing values that support inno-
5. Cash flow per employee,
vation. In this way, senior managers can set assessable standards and
6. Growth in cash flow.
guidelines for behavior that employees can follow. Additionally, the
physical arrangement of an organization can support innovation by Market performance
providing employees with opportunities to exchange new ideas, share
1. Achieving client satisfaction,
information between functional areas, and co-ordinate and integrate
2. Providing value for clients,
work across groups and organizational divisions. Artifacts, the physical
3. Keeping current clients,
manifestation of norms, are important because of their direct link to
4. Attracting new clients,
innovation and subsequent performance outcomes. Managers should
5. Attaining desired growth,
seek to understand this process.
6. Securing desired market share.
Innovative behaviors
6.3. Limitations and research directions Client-focused innovation-related behaviors
1. Provide clients with services/products that offer unique benefits
The current study suffers several limitations, mostly relating to the
superior to those of competitors.
nature of the design and sample. One is particularly noteworthy. The
2. Solve clients' problems in very innovative ways.
sample of respondents, mostly principals of law firms, is overwhelm-
3. Provide innovative ideas and solutions to clients.
ingly male (78%). The number of females working at higher levels
4. Present innovative solutions to our clients.
within the legal profession is increasing as more and more women
5. Seek out novel ways to tackle problems.
earn professional qualifications in law. Nonetheless, a lack of gender
diversity within the very senior ranks of law firms may limit the per- Marketing-focused innovation-related behaviors
spective(s) offered by this particular study. Gender differences are not
1. Develop “revolutionary for the industry” marketing programs for our
the focus of the current study, but experimental research in this area is
services/products.
suggestive of possible differences in relation to risk and decision-
2. Adopt novel ways to market our firm.
making (see, e.g., Eckel & Grossman, 2008). These types of differences
3. Innovate our marketing programs to stay ahead of the market.
in calculating risk, if more general than the experimental results,
4. Implement innovative marketing programs.
may be indicative of different pathways to building organizational
values that support innovation. One, for example, might think that Technology-focused innovation-related behaviors
the current study, with its male bias, may overstate the importance
1. Innovate with new software.
of risk-taking. A review of the parameter estimates for values and
2. Innovate with new technology.
norms in relation to each of the eight composite indicators does
3. Introduce new integrated systems and technology.
indeed show risk-taking is consistently the most important of
4. Adopt the latest technology in the industry.
the eight values/norms studied here. Other values and norms might
be of equal or greater importance in a different sample. But these dif- Artifacts of innovation
ferences still could be explored within the context of the process Stories about “heroes” of innovation
model of Fig. 2.
1. There are well known stories in this firm about employees who have
A substantive opportunity for future research relates to the role of
developed new and useful ideas.
leader–managers in establishing values and norms that support innova-
2. There are stories in this firm about employees who have strongly
tion. That is, how do the dimensions establish themselves within orga-
encouraged the implementation of new practices and processes.
nizations, and how do organizations come to place emphasis on some
dimensions and not others? To be sure, leaders and managers play an Physical arrangements for innovation
important part in facilitating innovation (Redmond, Mumford, &
1. There are meeting areas and discussion rooms within our firm where
Teach, 1993; Scott & Bruce, 1994); however, a better understanding of
employees can meet to discuss new ideas and ways to implement
actionable leader behaviors that promote innovation will only come
them.
about through a sustained research effort in this direction (Hunt et al.,
2. We have set aside space within our office layout where employees
2004; Mumford et al., 2002). In particular, the role of leaders in the pos-
can meet and talk informally about new ideas and novel ways to
itive framing of values and norms warrants study. For example, leaders
solve problems.
have a crucial role in encouraging the display of behaviors that are
valuable, appropriate, and desirable and discouraging behaviors that Rituals of innovation
are not valued and considered inappropriate and undesirable. An
1. We have made an effort within this firm to celebrate the adoption of
assumption of the current study is that the values, norms, and artifacts
new practices and processes.
have a “positive” framing. Nonetheless, one could imagine an organiza-
2. We make an effort within this firm to acknowledge and reward the
tional setting in which stories of failed attempts at innovation circulate.
implementation of new services and ways of doing things.
Building on the model of Fig. 2, future research could more fully
explore leader behaviors and management practices that influence the Language supporting innovation
development and adoption of values and norms that support innova-
tion. We offer the model as a starting point for further, substantive 1. “We could probably get some benefit from looking at this problem
investigations. from a different perspective”.
2. “Could we develop a new approach to solving this problem or are Basic values
there other ways we could go about resolving this issue?” Success
Norms for innovation 1. We value success in this firm.
Success in innovation 2. We aspire to be the best firm in our market.
3. We place great value on our performance.
1. Striving to be successful with new ways of doing things is expected
within this firm. Openness and flexibility
2. We are encouraged to be the most creative and innovative firm in our
market. 1. We value openness and responsiveness in this firm.
3. Striving to be successful with generating new ideas within this firm is 2. We place great value on being flexible in our approach to problems.
expected. 3. A willingness to show flexibility and openness is valued within this
firm.
Openness and flexibility for innovation
Quality of internal communication
1. We expect employees to be open to new ideas and responsive to
them. 1. Open communication is valued highly within this firm.
2. We expect employees to be flexible in dealing with new ideas and in 2. We place great value on excellent internal communication within
their approach to solving problems. this firm.
3. A willingness to try new ideas is encouraged within this firm. 3. Maintaining high quality internal communication is valued within
this firm.
Internal communication supporting innovation
Competence and professionalism
1. Open communication of new ideas and practices is expected to be
second nature within this firm. 1. We place great value on professional knowledge and skills.
2. Information about new ideas and new ways of doing things is 2. We aspire to a high level of competence and professionalism.
expected to be communicated throughout the firm. 3. Upholding the highest levels of professionalism is valued within this
3. We expect the quality of internal communication related to new firm.
ideas and processes to be high.
Inter-functional co-operation
Competence and professionalism supporting innovation
1. Cooperation among different work teams is valued highly.
1. We expect creativity and innovation to be part of the professional 2. This firm values integration and sharing among teams throughout
skill set of employees within this firm. the firm.
2. We expect employees within this firm to have a high level of 3. We place great value on co-ordination among different work teams.
competence in developing and implementing new ideas.
3. High levels of knowledge supporting innovation are expected within Responsibility of employees
this firm.
1. We place great value on every employee being proactive in his
Inter-functional co-operation supporting innovation (or her) role.
2. This firm values employees using their initiative.
1. We expect people throughout the firm to work together to imple-
3. We value employees taking responsibility for their work.
ment new processes.
2. We encourage teams throughout the firm to work together in order Appreciation of employees
to develop new ideas and practices.
1. We place great value on recognizing and rewarding employees'
3. We expect people within this firm to work collaboratively in order to
accomplishments.
implement new ways of doing things.
2. Taking time to celebrate employees' work achievements is valued in
Responsibility of employees for innovation this firm.
3. We place great value on showing our appreciation for the efforts of
1. We encourage employees to take responsibility for new ways of
each employee.
doing things in their work.
2. We expect employees to use their initiative in developing new ideas Risk-taking
and ways of dealing with work tasks.
3. We expect employees to take an active role in trying out new ways of 1. This firm values a willingness to challenge the status quo.
doing things. 2. This firm values a willingness to experiment with new ideas.
3. Valuing calculated risk-taking helped this firm get to where it is
Appreciation of employees supporting innovation today.
1. Recognizing and rewarding employees who implement new ideas
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Journal of Business Research 67 (2014) 1609–1621

Contents lists available at ScienceDirect

Journal of Business Research

Organizational culture, innovation, and performance: A test of

Fig. 1. Layers of an organizational culture that supports innovation.

Fig. 2. Empirical model of an organizational culture that supports innovation.

Value dimension Deﬁnition Rationale Citations

1. 3.84 .55 1.00

Measurement Model 1 Measurement Model 2 Measurement Model 3

Estimate t-value Estimate t-value Estimate t-value

Note: Unstandardized parameter estimates.

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