Leadership Styles and Organizational Design: a short literature review about the impact of these two aspects on innovation processes and activities

1.     Article about Leadership Styles and Innovation

 

Innovation, as stated by Drucker (2006, p. 252), is “a change in market or society. It produces a greater yield for the user, greater wealth-producing capacity for society, higher value or greater satisfaction.” He argues that innovation is fully perceptual as much as conceptual, building the point that in any innovation process intuition is not enough, requiring detailed and rigorous logical analysis. Moreover, Drucker posits that entrepreneurs, as leaders of business organizations, should be avid of market-driven innovation. A great amount of research has been done about the relationship between leadership and innovation, such is the case of the paper The Influence of Leadership on Innovation Processes and Activities (Oke, Munshi, & Walumbwa, 2009). 

This part of the report aims to explore the main ideas presented in that paper. Firstly, the authors consider that knowledge by becoming a commodity for entrepreneurship, the way forward to create competitive advantage is based on creativity and innovation (p. 64), dethroning Drucker’s “super-star” paradigm (2006, p. 116). This new paradigm, by the time the article was printed, was the truth for at least U.S. and Western companies (p. 64).

A relevant aspect of innovation, according to Oke and his team, is that, besides representing a shift in status quo, necessarily evoking a discovery of something totally new (referenced as radical innovations) or an improvement of something that exists (known as incremental innovations), it also includes the “commercialization of such discoveries,” hence emphasizing implementation as a key point of the innovation process (p. 64).

Innovative organizations have in place technological and R&D capabilities, but also go-to-market capabilities, such as sales, marketing and distribution networks (Ibid.). These capabilities allow them to bounce between the “ambidexterity” conveyed by March that postulates that “both exploration and exploitation are essential for organizations, but they compete for scarce resources.” (1991, p. 71). However, to drive the innovation process successfully, organizations need the right type of leadership (p. 64), a dynamic capability as posited by Richard Nelson and Sidney Winter in their seminal book, An Evolutionary Theory of Economic Change (1982).

The team coordinated by Oke presents their conclusions about how two different leadership styles – transformational and transactional – can affect different innovation processes and activities (p. 64). They also elaborate about how different organizational contexts can be impacted by these leadership styles during innovative processes and activities (p. 65).

A transformational leader aggregates four dimensions: “charisma, or idealized influence; inspirational motivation; intellectual stimulation; and individualized consideration” (Ibid.) and obtains the right behaviors from subordinates focusing in “intrinsic rewards”, binding them to a common inspiring goal (Ibid.). These leaders are often seen as drivers of organizations change (Bass & Avolio, 1993, p. 113). On the other hand, transactional leaders are divided in two broad categories: contingent reward and management by exception. Capabilities of organizational architecture are often associated to this leadership style and leaders have propensity for maintaining culture status quo (p. 65). Despite the differences between both styles, for an effective organization performance, leaders at their best need to master and apply both (p. 66), which is another good example of management ambidexterity.

Analyzing product development processes, a team coordinated by Iansiti (1999) posits that the initial phase requires creativity and ambiguity management, while the last phase depends on formal processes and coordination across departments, inducing the need for different leadership styles for each phase (p. 67). For the initial creative phase, a basic trigger for creativity is the mental state of the creator. That state is influenced by the organization environment and its levels of freedom. Hence, it seems that a transformational leadership, aiming to change, is more related with the first phase of an innovation process. Whilst the implementation phase seems more appropriate for a transactional leader, focused in systems and structures (p. 69). Furthermore, the authors argue that the “transactional form of leadership will be appropriate for exploitative innovation activities,” which are more related with developing existing products, rather than with radical innovation (Ibid.). 

According to the authors, a risk-taking, innovative context and open to change culture is likely to benefit from a transformational leader when dealing with the creative phase of the innovation process. On the other hand, in formal organizational environments, with rigid processes, transactional leaders will render more in the implementation phase of innovation (p. 71).

Finally, the authors conclude that successful outcomes in innovation processes and activities, as per exploration and exploitation virtues of management, the secret is to find the right balance (p. 71) so as to obtain the correct mix of transformational and transactional leadership style in any organization.

 

2.    Article about Organization Design and Innovation

 

Institutional theory has been used to explain much of the fundamentals of organization and management theory (Greenwood et al, 2011, p. 76). Selznick (1948), the seminal author of institutional theory studied the process of organizations becoming institutions and dedicated attention to how “institutional processes affect organizations” (Miles et al., 2010, p. 1208). Many scholars have dedicated their research efforts to investigate further organizational developments, trying to apply a dynamic theory of organization design to explain different design typologies over time. That is the case of a team coordinated by Miles (2010) with the paper Designing Organizations to Meet 21st-Century Opportunities and Challenges, which will be analyzed in the following paragraphs.

 The authors of this paper start by considering that four major organization designs have evolved since mid-19th century in the U.S.: U-form, M-form, matrix, and multi-firm network (p. 93). After this initial consideration, they use their theory to propose the shape of a “collaborative community” (Ibid.) organizational design, exposing also its uses and benefits.

Miles and his team assert that the theory of organization design envisages to explain the elements and the forces that produced new configurations of those elements that create and shape new organizational models. Essentially, the organizational model of a business configures the way value is created and retained (Ibid.). In a way, it captures the combination of resources and activities with the dynamic capabilities needed to sustain competitive advantage (Teece, Pisano, & Shuen, 1997, p. 510). Moreover, the authors posit that an organizational form is the “structure and processes that the firm uses to arrange and focus tangible resources,” giving as examples of tangible resources equipment and money, but also “intangible resources,” namely knowledge (p. 93). They postulate that the core elements of their theory of organization design are the organization model and the organizational form (Ibid.).

The development of a new organizational design builds on previous designs, aiming to eliminate their restrictions and limitations, and to potentiate their strengths. The human capital of an organization must maintain the useful skills, while flexing to adapt to the ongoing need of different capabilities required by new organizational designs (p. 94). The authors argue that organizational models and forms evolve from “pioneering” business organizations, seeking to use new knowledge (technology) and market penetration. When those cutting-edge business organizations fully embed the new design, it becomes available to early adopters and followers to converge to it with the success rate of adoption depending on capabilities (Ibid.).

The organization design known as U-form (unitary) can be considered the first relevant concept to be in place from mid-18^th century until the 1920s. Their contribution to society became important by establishing organizational coordination methods, supervising mechanisms, and by providing workforces stable wages and minimum working conditions (Ibid.).

Emerging from the need to tackle weaknesses of the previous organizational design, the M-form (multi) organization of early 1930s, came up with new skills that managers had to develop, such as delegation and management by objectives, as opposed to the old school of top-down leadership and control methods (p. 95). The team coordinated by Miles also asserts that business organization designs have always been iterating learnings from public and private sectors (Ibid.).

The period of the Matrix organizational design started to flourish after the WWII, by interconnecting skills and resources across the organizations, and also upward and downward the hierarchies. A structured set of coordination and control methods allowed the execution of this dual hierarchical system (p. 96).

As soon as extensive moves to downsizing and subcontracting activities became a necessity to face delicate economic periods, such as the oil crisis of the 1970s, a new organization design started under the concept of multi-firm network, where business organizations focused their activities in their core competences, substituting the matrix organization as the main paradigm. The influential paper The Core Competence of the Corporation is relevant literature about the need to focus on the core competences to create and maintain competitive advantage (Prahalad & Hamel, 1990). 

By the time the article was published (2010), a new organizational design was being shaped as global communities were facing new challenges (p. 96). The time was for business organizations to participate in knowledge communities to drive innovations in a global scale. Collaborating to create “large-scale complex solutions as well as sharing knowledge to produce innovations across a set of expandable markets” became the new way to capture economic value (Ibid.). Organizational forms needed to learn how to manage new product and service development for a “range of complementary markets” (p. 97), suggesting the acquisition of new capabilities to deal with innovation in a collaborative way.

Business organizations participating in temporary self-managing communities, focused in networking and collaboration, became the incubators of product and market innovations (p. 99). The IBM example of “Collaboratories” encapsulates the innovation generation model under the organizational design that has been gaining shape (p. 100).

It is not without challenges that the large-scale multi-party collaboration organization design has been evolving. To make sure the commitment to a common goal is strong, to free up the needed investments, or managing the complex contribution of all participants, with the absence of hierarchies, to engage compatibility of individual solutions fitting the overarching innovation, are examples of difficulties that this design is facing in practical terms (Ibid.). To overcome the challenges, the collaborative communities are based on protocols and shared infrastructures, enabling participants to connect and access the same information on real time (Ibid.).

To conclude, these authors believe that current approaches to leadership, decision making processes, resource allocation principles, organization structure and innovation activities will have to be revisited as this collaborative communities evolve and consolidate as a new organizational design (Ibid.).

 

3.    Articles’ comparative analysis

 

Similarly, both aforementioned articles converge to the point that innovation is at forefront of organizations value creation. Societies expect business organizations to develop business models so as to create and appropriate economic wealth (Miles et al., 2010, p. 97) and hence to innovate and create value, contributing for its progress. The way forward to create competitive advantage, or in other words, to create value, is based on creativity and innovation (Oke et al., 2009, p. 64).

The same way that the team coordinated by Oke postulates that innovation represents a shift in status quo (Ibid.), the new organizational forms, as per Miles and his team proposition, need to learn how to manage new product and service development by acquiring new capabilities to deal with innovation (Miles et al., 2010, p. 97).

The authors of both articles agree on the importance of dynamic capabilities for the success of organizations and innovation. As stated in the paper about organization design, most of the success of collaborative communities will be driven by dynamic capabilities such as leadership, decision making processes, resource allocation principles, organization structure and innovation activities (p. 100). Likewise, the paper about leadership styles suggests that the dynamic capability of leadership can affect innovation processes and activities, and therefore the organization success (Oke et al., 2009, p. 64).

Finally, authors of both articles converge in the principle that different organizational contexts need different approaches to leadership and innovation. Oke and his team argue that different organizational contexts can be impacted by two different leadership styles (p. 65). On the other hand, Miles and his partners posit that when the new organizational design is being shaped, this process requires learning on how to manage new product and service development for a “range of complementary markets” ((Miles et al., 2010, p. 97).

From a different point of view that argues that “paramount importance is having the right type of leadership to drive the innovation process efficiently and effectively” (Oke et al., 2009, p. 64), the team led by Miles suggests that hierarchy “is not well suited to managing the collaborative process, particularly collaboration that extends beyond the boundaries of the firm” (Miles et al., 2010, p. 100), inducing a softer approach to leadership when dealing with collaborative communities.

As a last point, contrasting with ambidexterity being the key management characteristic for successful outcomes in innovation processes and activities, as proposed by the team coordinated by Oke (p. 71), Miles and his team advocate that managing complexity is paramount to engage compatibility of individual solutions fitting the overarching innovation (p. 100).

 

4.    Main ideas from Articles

 

The above summarized articles encapsulate tree main ideas as follows:

 

1)    Innovation leadership is the way to gain and sustain competitive advantage in a globalized creativity economy (Oke et al., 2009, p. 64). Innovation and imagination involve “discovery of new things and the commercialization of such discoveries” (Ibid.) and leadership is fundamental to “foster innovation outcomes in organizations” (p. 71).

 

2)    Successful results of innovation efforts of organizations require a balance between transformational and transactional leadership styles (Oke et al., 2009, p. 71). The concept of “ambidexterity” conveying that “both exploration and exploitation are essential for organizations” (March, 1991, p. 71) applies similarly to both leadership styles.

 

3)    Collaborative community organization design has been successfully transforming previous design paradigm (Miles et al., 2010, p. 101). Organizations need to develop new capabilities to manage innovation complexity, produced by individual contributions, to achieve the final collaborative outcome (p. 100).

1.     References

Bass, B., & Avolio, B. (1993). Transformational Leadership and Organizational Culture. Public Administration Quarterly, 17(1), 112–121.

Drucker, P. (2006). Innovation and Entrepreneurship. Practice and Principles (Harper Pap).

Greenwood, R., Raynard, M., Kodeih, F., Micelotta, E. R., & Lounsbury, M. (2011). Institutional complexity and organizational responses. Academy of Management Annals, 5(1), 317–371. 

Iansiti, M., Jonathan, W., Chedbrough, H., Teece, D., Pisano, G., Whellwright, S., & Arthur, B. (1999). Harvard Business Review on Managing High-Tech Industries. Harvard Business School Press.

March, J. (1991). Exploration and Exploitation in Organizational Learning. Organizational Science, 2(1), 71–87.

Miles, R. E., Snow, C. C., Fjeldstad, Øy. D., Miles, G., & Lettl, C. (2010). Designing organizations to meet 21st-century opportunities and challenges. Organizational Dynamics, 39(2), 93–103.

Nelson, R. R., & Winter, S. G. (1982). An Evolutionary Theory of Economic Change. The Belknap Press of Harvard University Press.

Oke, A., Munshi, N., & Walumbwa, F. (2009). The Influence of Leadership on Innovation Processes and Activities. Organizational Dynamics, 38(1), 64–72. 

Prahalad, C. K., & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business Review, May-Jun.

Selznick, P. (1948). Foundations of the Theory of Organization. American Sociological Review, 13(1), 25–35

Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic Capabilities and Strategic Management. Srategic Management Journal, 18(March), 509–533.