The Role of Organizational Culture in Knowledge Creation Speed and Innovation.
International Conference on Entrepreneurship and Business Management (ICEBM 2014)
Penang, Malaysia – November 6-7, 2014
ISBN: 978-979-9234-51-3
THE ROLE OF ORGANIZATIONAL CULTURE IN KNOWLEDGE
CREATION SPEED AND INNOVATION
Jahja Hamdani Widjaja1)
1)
Faculty of Economics, Maranatha Christian University
Corresponding author: jahjahamdani@yahoo.com
Abstract
Knowledge and innovation have already known as a source of firm’s competitive advantage. But, there are
still some questions about how to foster it. This theoretical study suggested that organizational culture played
important role to encourage new knowledge and then create innovation. Based on the Competing Values
Framework this study explained how each organizational culture type could foster knowledge generating
process and then create specific type of innovation. This paper would be concluded in six propositions and
some implications.
Keywords: Innovation, knowledge creation, organizational culture
Introduction
The ultimate goal of firms is to get rents by creating and sustaining source of competitive advantage
[Bowman, 1974; Rumelt, 1987; Barney, 1986]. Strategic researchers perceived rents as something that
mostly were derived from intangible assets such as organizational learning, brand equity, reputation [Penrose,
1959;Rumelt, 1987; Barney, 1986; Sender, 1994; Grant, 1996], and knowledge [Penrose, 1959; Winter,
1988]. Knowledge were the most valuable asset that firm could acquire, as a key for both Ricardian and
monopoly rents [Penrose, 1959; Winter, 1988], even as a basic for strategic success [King and Zeithaml,
2003]. The increasing of knowledge intensity by multinational corporation subordinates may allowed them to
get strategic independence that increasing their bargaining power toward firm’s resource distribution and
then accomplished their own objectives [Mudambi and Navarra, 2004]. Thus, knowledge could be a source
of firm’s competitive advantage.
A key form of organizational knowledge creation was innovation [Nonaka, 1994]. Innovation was
needed both to raise the economy [Lundvall, 1998] as well as business [Drucker, 2002; Schumpeter, 1934].
To encourage innovation, firms needed to implement knowledge management [Fontana, 2009]. By doing
this, firms could integrate specific knowledge that was held by individuals in it for the purpose to produce
goods or services [Grant, 1996].
Ross and Schulte (2005) revealed that cultural factor had influence as much as 25% toward succeeding in
knowledge management implementation. The cultural factor had several levels such as national culture,
organizational culture, organizational climate, sub organizational culture, sub unit culture, and team climate
[King, 2007]. Then, it was confusing whether which level of culture would influence knowledge
management and how it influenced knowledge management practiced. Therefore, this paper attempted to
reveal the role of organizational culture in knowledge creation and innovation. De long and Fahey (2000)
said that organizational culture would affect organization member’s behavior in knowledge creation,
dissemination, and utilization.
Argote, McEvily, and Reagans (2003) suggested a theoretical framework to organize research in
organizational learning and knowledge management. There were two main dimensions in the theoretical
framework. They were knowledge management outcomes and knowledge management context. Knowledge
management outcome consist of knowledge creation, knowledge retention, and knowledge transfer.
Knowledge creation referred to the moment which new knowledge was created in an organization.
Knowledge retention referred to how existing knowledge was documented and used all the time. Knowledge
transfer referred to how a best practice in a unit would influence other units.
The second dimension was knowledge management context which consist of properties of units,
properties of the relationships between units, and properties of knowledge. Properties of units were
happened when the main driver of effective knowledge management was specific characteristics that came
from the unit itself such as statehood of the unit. Properties of the relationships between units were happened
International Conference on Entrepreneurship and Business Management (ICEBM 2014)
Penang, Malaysia – November 6-7, 2014
ISBN: 978-979-9234-51-3
when the main driver of effective knowledge management was specific characteristic that emerged from the
relationship between two or more units. The examples of specific characteristic were relationship intensity,
frequencies of relationship and social similarity. Properties of knowledge were emerged when the main
driver of effective knowledge management was specific characteristic that was inherent with the knowledge
such as the flow speed of explicit or tacit knowledge.
According to Argote et al. (2003), this paper would focus on knowledge creation and properties of
knowledge. It was based on situation that organizational theory had long been dominated by such paradigm
that organization was a system to process information or to solve problem [Nonaka, 1994]. The paradigm
emphasized on the efficiency of an organization due to information processing and decision making in an
uncertain environment. It less focused on knowledge creation in organization.
Literature Review
A. Knowledge Creation
Every organization that dynamically relate to its ever changing environment should not only collect and
processed the information efficiently. They also needed to create information and knowledge [Nonaka,
1994]. For an example, innovation, as a concept, could not be explained clearly from both information
processing perspective nor decision making perspective. Innovation was more a process that organization
created and determined problems, then they actively developed new knowledge to solve the problems
[Nonaka, 1994]. It was not about information processing or decision making, but it was rather a matter of
creating knowledge or determining what the problem was.
Nonaka (1994) said that organizational knowledge creating could be seen from two perspectives,
epistemology and ontology. Epistemology explained that ideas and new concepts were created by continuous
dialogue between explicit and tacit knowledge [Polanyi, 1966]. Explicit knowledge or codified knowledge
was knowledge that could be transmitted in formal and systematic language. Tacit knowledge was
knowledge that had private quality and therefore was hard to be formalized or communicated. Tacit
knowledge was rooted mainly on acting, commitment, and involvement in a specific context [Polanyi, 1966].
Thus, explicit knowledge could be explained in detail and was easily understood or copied by others, while
tacit knowledge was hard to be understood or copied.
Ontology explained that ideas were the result of interaction between individuals that was established in
the mind of each individual. Then, interaction between individuals, between individuals and units, between
units, between units and organization established communities of interaction that contributed to give more
explanation, developed, and stabilized the ideas into new knowledge.
Organizational knowledge creation model was developed by combining epistemology perspective and
ontology perspective. The process of knowledge creation was depicted as spiral that grown from little into
larger and was driven by interaction between explicit knowledge and tacit knowledge (Fig. 1). Along with the
development of these interactions, the ideas experienced additional explanation, development, and
stabilization. In the beginning, individual’s idea was generated from the interaction between explicit
knowledge and tacit knowledge. When the individual had interaction with others there was a process of
combination explicit knowledge between individuals. Then it was followed by the process of tacit knowledge
socialization. After that, the idea entered the externalization stage where tacit knowledge was converted into
explicit knowledge. Finally, the idea came into internalization stage where explicit knowledge was
reconverted into tacit knowledge that emerged new knowledge which contained explicit and also tacit
knowledge.
International Conference on Entrepreneurship and Business Management (ICEBM 2014)
Penang, Malaysia – November 6-7, 2014
ISBN: 978-979-9234-51-3
B. Knowledge Management and Innovation
Knowledge management is a value creating process by firm in term of best practices or product ideas for
their customers or society based on their knowledge and intellectual assets [Fontana, 2009]. Knowledge
management consists of four things [Fontana, 2009]. First, knowledge management was value creating
process based on organizational knowledge and intellectual assets. Second, knowledge management was
value creating practices. Third, knowledge management was a social interaction that generated social
creativity. Forth, value creating practice should be managed effectively to achieve organizational objectives.
Then, firm needed knowledge management in order to manage their knowledge and intellectual asset to serve
their customer and society with valuable products and get rents.
Thus, knowledge management would manage the process and the practice of value creating based on
organizational member’s knowledge through their social interaction and generated social creativity. The
ultimate form of organizational knowledge creation was innovation [Nonaka, 1994]. Innovation activity
outcomes would strengthen or renovate knowledge management based of firm. Innovation would also refresh
and maintain existing best practices so that it could always support the company life and would not become
obsolete [Fontana, 2009].
Innovation had two main forms, they were radical innovation and incremental innovation [Nonaka and
Teece, 2001]. Radical innovation was the result of problem formulating and problem positioning from a new
perspective that used to be different from the existing one [Mintzberg, Lampel, Quinn and Ghoshal, 2003].
Radical innovation was not merely bringing up new program or technology. It emphasized more on the
emergent of significant change in doing existing based activities. Incremental innovation was a peripheral
change as a response toward environmental demand and claims [Mintzberg et al., 2003]. Incremental
innovation was an improvement effort toward existing activities.
C. Organizational Culture
Organizational culture is a pattern of basic assumptions that shared and learned by a group and be used
when they have to solve adaptation problems with external actor as well as they have to solve internal
integration problems [Schein, 2004]. The pattern of basic assumptions have been examined and assumed to
be trusted. Then it was taught to new members as a way of seeing, thinking and sensing when they interacted
with external and internal problems. Kreitner and Kinicki (2008) said that at least there were three
characteristics of organizational culture: 1) it was disseminated to new members through socialization
process; 2) it affected individuals, groups, and also organizational behavior; 3) It operated in all level in
organization. Thus, organizational culture reflected values and beliefs concept in an organization and it also
could be seen in organization member’s behavior both as individuals or groups.
Despite of minimizing organizational transaction cost [Ouchi, 1980; Wilkins and Ouchi, 1983],
organizational culture might also reflected organizational orientation [Cameron and Quinn, 2006]. The
competing values framework [Cameron and Quinn, 2006] suggested four types of organizational culture
based on two kind of competing values. The first competing values are between emphasizing on internal
environment and emphasizing on external values. The second competing values are more focusing on
flexibility and discretion or more focusing on stability and control. Then, the fourth types of organizational
culture are clan culture, adhocracy culture, market culture, and hierarchy culture.
Clan culture is a kind of organizational culture that more focus on internal environment and also
emphasize on flexibility and discretion [Cameron and Quinn, 2006]. It was like a family organization that
encouraged collaboration between organization members to achieve organizational success [Kreitner and
Kinicki, 2008]. The organizational focus was the employees while cohesiveness was attained through
employee’s involvement in consensus, job satisfaction, and commitment [Scherer, 1988]. Firms that used
clan culture would allocate a great number of resources to recruit and develop their employees, and regard
customers as partners [Kreitner and Kinicki, 2008]. The aims of clan culture were collaboration through
cohesiveness, participation, communication and empowerment [Scherer, 1988].
Adhocracy culture is a type of organizational culture that more focus on external environment and also
emphasize on flexibility and discretion [Cameron and Quinn, 2006]. Adhocracy culture encouraged to
generate creative products through the ability to be adaptive, creative, and quick response toward market
changing. Power and authority were decentralized to employees and encouraged them to be risk taker,
thinking in a new way, and experimenting to seek new ways in doing and finishing a job. The aims of
adhocracy culture were creating newness through the ability to be adaptive, creative and agile. The outcomes
of adhocracy culture were innovation, growth and breakthrough outputs [Cameron and Quinn, 2006].
Market culture is a type of organizational culture that more focus on aligning with external environment
and also emphasize on stability and control toward incongruity with market [Cameron and Quinn, 2006].
Market culture was driven by competition and goal-oriented. Customers and profit were more preferable than
employee satisfaction. The aims of market culture were productivity, profit, and customer satisfaction.
International Conference on Entrepreneurship and Business Management (ICEBM 2014)
Penang, Malaysia – November 6-7, 2014
ISBN: 978-979-9234-51-3
Employees were expected to be quick response, hard worker, and quality job on time. Market culture was
also underlined central authority, high level of control, and problem solving.
Hierarchy culture is a type of organizational culture that more focuses on internal environment as well as
integration, stabilization and control [Cameron and Quinn, 2006]. Hierarchy culture encouraged reliable
internal process development, extensive measurement, and implementation of various control mechanisms
[Kreitner and Kinicki, 2008]. The outcomes of hierarchy culture were efficiency, punctuality, and reliability
on production and delivering products [Scherer, 1988]. Firm that apply hierarchy culture generally has a
stable, well-established and prudent operational [Shieh and Wang, 2010].
Organizational culture perspective suggested by Cameron and Quinn were in align with other experts
[Harris, 1998; Pettigrew, 1979] whose revealed that organizational culture was a matter of structured pluralist
[Deshpande and Farley, 2004]. Then, it was possible that there were more than one type of organizational
culture in an organization called subculture [Shiel and Martin, 1984].The most dominate subculture called
dominant culture. Subculture that supported dominant culture called enhancing subculture. Subculture that
was neither supporting nor interfering dominant culture called orthogonal subculture. Subculture that was
against dominant culture called counterculture.
Discussion
Organizational culture had important role in determining about which, for whom and when new
knowledge was disseminated [King, 2007]. National culture and various level of organizational culture had
common effect as well as specific effect on knowledge management [Leidner and Kayworth, 2006].
Organizational culture was the most significant input toward knowledge management and effective
organizational learning [Janz and Prasamphanich, 2003].
Based on adhocracy culture’s characteristics we could conclude proposition 1:
Adhocracy culture was the most supportive culture toward organizational knowledge creation speed and
radical innovation.
Generally external environment was a source of rapid changes. Adhocracy culture focused on external
environment and also supported decentralization authority that encouraged organization members to be risk
taker, adaptive and creative. Employees were encouraged to explore newness in their daily operation.
Employees were also been able to reformulate problems in a totally new perspective. To support this activity,
employee needed the rapid flow of information and knowledge. Then, the rapid flow of information and
knowledge would encourage rapid organizational knowledge creation as well as encourage the emergence of
radical innovation.
Based on clan culture’s characteristics we could conclude proposition 2:
Clan culture was more supporting culture toward organizational knowledge creation speed and radical
innovation than market culture and hierarchy culture.
Clan culture emphasized on flexibility and discretion but it focused on internal environment. The availability
of flexibility and discretion would enable organization members to explore newness in their daily operation,
but it focused on internal organization. Generally, internal environment might be more stable than external
environment. Then, it required less rapid flow of information and knowledge than in the adhocracy culture.
But, since clan culture encouraged flexibility and discretion it needed more rapid flow of information and
knowledge to support rapid organizational knowledge creation and radical innovation than market culture
and hierarchy culture.
Based on market culture’s characteristics we could conclude proposition 3a:
Market culture was less supporting culture toward organizational knowledge creation speed and radical
innovation.
Market culture was emphasized on stability, control and adaptation toward external environment. The flow of
information and knowledge was limited to keep stability and control toward existing situation. It was not
encouraged to do beyond existing situation. Then, it did not support the organization to make rapid
organizational knowledge creation and radical innovation.
Based on market culture’s characteristics we also could conclude proposition 3b:
Market culture was more supporting culture toward incremental innovation that externally driven.
Since market culture was externally oriented and external environment had much change, then it needed
rapid flow of information and knowledge especially about market. But, it limited to adapt with current
situation. This situation encouraged firm to make incremental innovation as a response toward market needs.
Based on hierarchy culture’s characteristics we could conclude proposition 4a:
Hierarchy culture was the most less supporting culture toward organizational knowledge creation speed
and radical innovation.
Hierarchy culture was focused on internal environment as well as stability and control. Since it emphasized
on stable, well-established and prudent operational, then it did not encourage exploration to find newness. As
International Conference on Entrepreneurship and Business Management (ICEBM 2014)
Penang, Malaysia – November 6-7, 2014
ISBN: 978-979-9234-51-3
internal environment was more stable than external environment, then it did not require rapid flow of
information and knowledge. Therefore, hierarchy culture did not suitable to push radical innovation.
Based on hierarchy culture’s characteristics we also could conclude proposition 4b:
Hierarchy culture was more supporting culture toward incremental innovation that internally driven.
Since hierarchy culture was internally oriented and internal environment was more stable than external
environment, then it needed less rapid flow of information and knowledge. It focused information and
knowledge that supported efficiency and reliable operation. This situation would encourage firm to make
incremental innovation as a response toward internal concerns.
Implications
As explained above, certain type of organizational culture would make certain effect in term of
organizational knowledge creation speed and type of innovation. Each type of organizational culture that
mentioned above could encourage certain type of innovation either radical or incremental. Then, firms should
be aware about the type of innovation that they needed. Firms should also maintain the suitability between
the type of organizational culture they had and the type of knowledge creation speed as well as the type of
innovation they needed.
Furthermore, this paper needed field study to check whether the propositions mentioned above were met.
Field study could also open the possibility of new information and knowledge that could strengthen existing
propositions.
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Authors’ Bibliography
Jahja Hamdani Widjaja is a lecturer in Department of Management, Faculty of Economic, Maranatha
Christian University, Bandung. He was born in Surabaya, 5th February 1965. He graduated from Department
of Management, Faculty of Economics, Satya Wacana Christian University, Salatiga, Indonesia. He received
his Magister Management in Business Administration and Technology from Bandung Institute of
Technology, Indonesia. He got his third degree from Study Program of Management Science Faculty of
Economics University of Indonesia. His research interests are in the area of strategic management, family
business, organizational development, and organizational behavior.