Vol. 5, No. 5, Dec 2002

WEB JOURNAL OF

A New Perspective to Evaluate Enterprise Innovation Culture: Comparison between Espoused Values and Actual Practices in a High-tech Firm

Jin CHEN Shu LIN

Printed by

Committee on China Research and Development Faculty of Business Administration The Chinese University of Hong Kong

http://www.baf.cuhk.edu.hk/ocrd/cmr.htm

Vol. 5, No.5, Dec 2002, 中華管理評論

1

A New Perspective to Evaluate Enterprise Innovation Culture: Comparison between Espoused Values and Actual Practices in a High-tech Firm Jin CHEN Shu LIN Management school, Zhejiang University, Hangzhou, Zhejiang Province, PRC

Abstract Different from former researches, this article tries to give out a new definition of enterprise culture that culture is the composite of all different kinds of relations throughout the whole enterprise and between the enterprise and its external environment. Based on this definition, we maintain that enterprise culture is well established only when the enterprise’s espoused values have been changed into routine behaviors and are completely accepted by all employees. We design two different copies of questionnaire, one for top managers and the other for employees, to measure innovation culture in a high- tech firm by comparing the minds of top managers with that of employees. We analyze the two groups of empirical data with Delphi method and conclude what are the strengths and weaknesses in the existing culture of the certain firm. At the end of this article some practical suggestions are put forward. Keyword: innovation culture; enterprise culture; innovation; culture; knowledge-based; development-oriented.

2 A New Perspective to Evaluate Enterprise Innovation Culture: Comparison between Espoused Values and Actual Practices in a High-tech Firm

1. Introduction It has been mentioned in many former literatures since 1970s, when Japanese enterprises dominated international market unexpectedly, that enterprise culture is the core competitiveness of modern enterprises. Both researchers and company management know exactly that enterprise culture is of critical importance to long-term development of enterprises. However, the majority of companies today, three decades after the emergence of East Asia economic miracle, are still avoiding cultural realities for some reasons. Many entrepreneurs have to complaint that enterprise culture is easy to say but very difficult to be done. Why is enterprise culture still a merely theoretic concept for companies? What is the root reason for this phenomenon? Are there any defects in the common definition of enterprise culture? We turn to company practices with these questions and try to give out a new definition of enterprise culture in this article. Different from the old definition that enterprise culture is the composite of personal values and beliefs, organizational institutes, moral rules and so on, our definition of enterprise culture focuses on the relationships inside and outside the company. In our opinion culture is not the values espoused by the enterprise management but those having been practiced in routine behaviors and completely accepted by all employees. Enterprise culture is a kind of tacit knowledge underpinning the whole company and closely related with actual company practices. It must be measured by evaluating what the company wants to be and what the company has now been. Then companies can prompt their culture through regulating their operations. Culture is the soul of an organization and enterprise innovation culture is undoubtedly the essence of enterprise culture. As we move into the 21st century, the so-called Knowledge Economy age, the role of innovation becomes more and more critical. Being the source of enterprise sustainable development, innovation must be placed high priority on by management. Choking market competence demands all companies, particularly high-tech firms, to build their own innovation culture, which is quickly becoming the key determinant of competitive advantage. The definition of enterprise innovation culture referred to in this article has two characteristics, knowledge-based and development-oriented. These two characteristics determine that innovation culture is the driver of company accomplishment and the nucleus of enterprise culture. How to evaluate innovation culture and adapt company behavior to prompting it become meaningful for every company in this networked society.

2. Literature review Former researches have never given out specific definition of the term enterprise innovation culture. But much attention has been paid to related fields, particularly in recent years. Donald C. Pelz discovered that scientists and engineers perform well when they experience a creative tension under conditions between challenge and security. He suggested that R&D managers should promote a new kind of organization culture to activate the potential creativity of employees. Obviously, creative tension shares similarit y with innovation culture to some degree. Enterprise innovation culture is also an organizational climate between challenge and security. In addition, the same idea is mentioned in Confucian Philosophy, which is a main branch of eastern

Vol. 5, No.5, Dec 2002, 中華管理評論

3

philosophy and has dominated the minds of Chinese for more 3000 years. The essence of Confucian Philosophy is harmony and diversity; namely, the development-oriented organization should construct an open platform, on which those who have different views can communicate with each other freely and fruitfully. These communications will lead to knowledge exchange, knowledge sharing and healthy competence among employees. Confucian scholars regard healthy competence as the engine of sustainable development. And this engine will not work unless it is under the condition of innovation culture. As is well known, the theme of this century is cooperation and collaboration. Those who compete with us are more our friends than enemies. For modern enterprises faced with severe global competence, how to build their industrial competitiveness in an effective way? Meng Li, Gaku Ishii, and Akio Kameka think that the solution lies in building a new platform for the company, which must enable enterprises, government agencies, universities and other research institutes to contact and learn from each other freely and openly, so the flow of information and knowledge can run from one organization to another rapidly. This platform is also a form of innovation culture. It is a context between employees, organizations and their external environment, made up of all kinds of relationships throughout and outside the enterprises. Meng Li and his colleagues also indicate that nowadays the development of enterprises no longer simply depends on technology innovation and new products marketing; innovation and new knowledge acquired from social relations are the only intangible assets that will generate core competitiveness in the long run. All these above viewpoints draw the configuration for our research. We owe great appreciation to Len Korot and George Tovstiga. They analyzed the role of knowledge from the cultural perspective and concluded that culture is the principal determinant of success of knowledge management. They pointed out that the failure of many companies is due to the discrepancy existing between espoused and practiced values-between the management ‘talk’ articulated in vision and mission statements and ‘walks’ of actual company practices. Based on their views, we put forward our theory assumption that the process of prompting enterprise innovation culture is just the process of how to apply the minds of innovation to enterprise practices.

3. Theory assumption From the view of network, we treat an enterprise as an organic system. In our opinion, the whole enterprise is like a living tree. Culture is the root, which is covered by the soil and relatively difficult to be seen, but it is the source of life; strategy is the truck, which supports the whole tree to stand and controls the growing direction of the tree; project is the branch, which depends on the trunk and expands the tree to be bigger and taller; function and operation are the twigs and leaves, by which tourists judge the healthy condition and potential vitality of the whole tree, and they constitute the image of the tree. All these components interact with each other, thus sustaining the fluxed network of the whole organization. On one hand, the root provides water and foods to the leaves through trunk and branches; on the other hand, when the leaves fall to the ground, they changed into fertilizers to nourish the root in turn. It is a feedback loop (see figure 1). The similar loop is found in companies, where water and foods are replaced with innovation and knowledge (see figure 2). Outsiders, including suppliers, customers, peers and other

4 A New Perspective to Evaluate Enterprise Innovation Culture: Comparison between Espoused Values and Actual Practices in a High-tech Firm

agencies, evaluate the companies by its explicit performance and visible behaviors, which is determined by enterprise culture to some extent and affects in turn. This feedback loop is embodied in every pace of enterprise development and determines the long-term potential of the company to a great degree. Every development-oriented company should regulate and improve its actions in order that its feedback loop will be positive. This viewpoint is identical with the sprit of an old Chinese saying- Don’t neglect any kind actions even if they are minor; don’t try any ill behaviors even though they have no seemingly disastrous effects. Only comply with this rule can a company sustain its strong cohesion. The difference between leading-edge companies and lagging companies is that the feedback loop of the former is positive while that of the latter is negative. Figure 1 The feedback loop of a living tree Branch

Twigs and leaves

Trunk Water, foods Root

Based on the frame of figure 2, we measure it by analyzing whether a company’s function is identical with its values. In our research, we compare the minds of top management with that of employees to examine whether the feedback loop is fluent and positive. Under this theory assumption we made an empirical research in a high-tech firm. Figure 2 The feedback loop of a company Project

Function and operation

Strategy Innovation, knowledge Culture

4. Data analysis and results We select Company X as our research object. Company X is a division of a large multinational corporation in wireless communication industry, located in Zhejiang province, PRC. In the last three year, this company grew at a rapid speed and its performance was notable. Its sales doubled almost every half- year. Company X is considered an innovative organization in its industry.

Vol. 5, No.5, Dec 2002, 中華管理評論

5

We designed two different copies of questionnaire for Company X, Questionnaire A having 21 systemic questions for top management and Questionnaire B having 63 much more specific questions for employees. All questions are related with 21 critical factors that measure enterprise innovation culture from different perspectives. We investigated the managers and employees respectively and collected two groups of data listed in table 1. The left group of data in Table 1 is collected from 5 top managers when they were asked ‘Which factor is more important to innovation in your firm’; the right group is collected from 30 employees when they were asked to evaluate the cultural actuality in their firm. We analyzed the data using Delphi method, with the provision that the highest score of every factor is 4.5 and the lowest score is 0.5. The data listed in table 1 are average data after calculation. From these data we can know about the espoused values and the actual practices of Company X. For example, entrepreneurship is regarded as the most important factor of innovation culture for Company X in the top managers’ opinion (with the score 4.3 and the rank 1st) while employees think Company X still has defects in this aspect (with the score 3.103 and the rank 8th). The discrepancy between the two scores suggests that the top management should take some measures to enhance entrepreneurship in their organization. In additional, the top managers think knowledge update is not so important for their firm to develop (with the score 3.1 and the rank 15th), but the employees feel that the speed of knowledge update in Company X is fairly rapid (with the score 3.518 and the rank 1st). It means that the management should pay more attention to the factor ‘The high rate of knowledge update in the firm’ and try to take advantage of this resource in their company. Table 1 shows the degrees of the discrepancies between the two scores for the 21 factors, one evaluated by top management and the other by employees. On the differences of every factor we classify the 21 factors into four teams (see table 2). The first team in table 2 includes three factors (whether the firm satisfies its employees for their personal development desire, promptness of the employees' adapting themselves to rapidly changing situations, enough freedom for employees to deal with routine matters), which is thought much by the top managers and is done well in Company X. These three factors are core part of enterprise innovation culture of Company X and should be deepened and extended further in the company. The ten factors included in the second team are those considered important by top management but are still weak in Company X. These factors need more investment and efforts from the top management. The company should improve them in time, or they may act as barriers in the way of development. Especially, the three factors typed in bold in the second team (the firm's ability of new product research and development, fruitful and free communication among the organization, knowledge exchanging and knowledge sharing throughout the whole firm) demand urgent betterment for the gaps between the two scores of these three are most wide, which means that they are key weaknesses in the innovation culture of Company X. There are seven factors in the third team of table 2. They are the elements not regarded as critical by top managers, but employees think that Company X does well in these fields. These factors are tacit knowledge lying in the company and should be exploited by managers. Top management of Company X should pay more attention to these factors, through which they can know more about the organization and its members and may find new ways to allocate enterprise resources. The two factors typed in bold (The high rate of knowledge update in the firm, harmonious relations among employees) hold high ranks in actual practices of Company X evaluated by the employees. For Company X, spending more time in these fields will help the organization run more effectively; the top managers and employees can communicate with each other more easily because they will know each other better and have more views to share. The fourth team has only one factor ‘whether the firm collaborate with

6 A New Perspective to Evaluate Enterprise Innovation Culture: Comparison between Espoused Values and Actual Practices in a High-tech Firm

research institutes or consultants’. The top management thinks collaborating with research institutes and consultants has little help for their firm and the employees they devote few efforts to cooperation with local universities and other research agencies.

Table 1 data collected from Company X Espoused values (Evaluated by top managers)

Actual practices (Evaluated by employees)

Score

Rank

Score

Rank

Entrepreneurship

4.3

1

3.103

8

Professional knowledge and technical skill of employees Whether the firm satisfies its employees for their personal development desire

3.9

2

2.786

15

3.7

3

3.355

3

Full trust between employees and managers

3.7

3

2.759

16

The attractiveness of the firm's brand Promptness of the employees' adapting themselves to rapidly changing environment

3.7

3

2.981

11

3.5

6

3.5

2

Enough freedom for employees to deal with routine matters Knowledge exchange and knowledge sharing throughout the whole firm

3.5

6

3.017

10

3.5

6

2.815

14

Fruitful and free communication among the organization

3.5

6

2.84

13

The comfortable climate in the firm

3.5

6

2.329

19

Diversified knowledge structure of employees

3.3

11

3.179

6

The firm's ability of new product research and development

3.3

11

2.326

20

Employee’s participating in decision making The relation between enterprise and its consumers

3.25 3.25

13 13

2.107 2.604

21 17

Harmonious relations among employees

3.1

15

3.273

4

The high rate of knowledge update in the firm

3.1

15

3.518

1

The attention job seekers pay to the firm

2.9

17

3.107

7

The relation between the firm and local government agency Whether the climate of the city the firm located suitable for the firm

2.9

17

2.952

12

2.7

19

3.222

5

Promptness of the firm's adapting itself to WTO Whether the firm collaborate with research institutes or consultants

2.7

19

3.091

9

2.5

21

2.5

18

Factor (Total: 21factors)

Vol. 5, No.5, Dec 2002, 中華管理評論

7

Table 2 the four teams of critical factors for innovation culture in Company X

The firm team

Whether the firm satisfies its employees for their personal development desire Promptness of the employees' adapting themselves to rapidly changing situations Enough freedom for employees to deal with routine matters

The firm's ability of new product research and development Fruitful and free communication among the organization Knowledge exchanging and knowledge sharing throughout the whole firm Entrepreneurship Professional knowledge and technical skill of employees Full trust between employees and managers Employee’s participating in decision making The comfortable climate in the firm The attractiveness of the firm's brand The second team The relation between enterprise and its consumers

The high rate of knowledge update in the firm Harmonious relations among employees Diversified knowledge structure of employees The relation between the firm and local government agency Whether the climate of the city the firm located suitable for the firm The attention job seekers pay to the firm The third team Promptness of the firm's adapting itself to WTO The fourth team Whether the firm collaborate with research institutes or consultants

5. Conclusions From the data listed in table 1, we conclude the majority of employees in Company X. are satisfied with the existing culture of their organization. 18 of the 21 scores given by employees for the 21 critical factors are higher than the mean 2.5; the three factors whose scores are lower than 2.5 are ‘the comfortable climate in the firm’ (2.329), ‘the firm's ability of new product research and development’ (2.326) and ‘employee’s participating in decision making’ (2.107). The employees think the climate in the company is not comfortable enough because they have too little entertainments or leisure time in daily life. The other two problems are challenges Company X faced with and must be solved as soon as possible. The three factors rank the top three are ‘the high rate of knowledge update in the firm’ (3.518), ‘promptness of the employees' adapting themselves to rapidly changing environment’ (3.5) and ‘whether the firm satisfies its employees for their personal development desire’ (3.355). How to take full advantage of these positive conditions is a task for Company X to carry out. In conclusion, Company X has three following questions to answer for building its enterprise innovation culture:

8 A New Perspective to Evaluate Enterprise Innovation Culture: Comparison between Espoused Values and Actual Practices in a High-tech Firm

How to prompt internal communication, especially, communication between managers and employees? How to enhance the ability of new product research and development? How to accumulate new knowledge flowing throughout the firm in order that it can be memorized by the organization? In term of these three questio ns, we suggest Company X should encourage its employees participate in decision- making and the managers should learn to care for the advices from employees. We find that almost all employees in Company X are self-confident; they are proud of being a member of Company X and wish what they do will benefit the development of their organization. So the top managers should create opportunities for the employees to talk out what they are thinking, what they want to do for the organization and what they want the management to do, which may be the best compensation the employees in Company X aim to acquire. How to improve its ability of new product research and development is a complex question for Company X to answer. Since Company X is a branch of an international corporation; its ability of R&D depends on the technology capability of the headquarters to a great degree. How to reconcile the relation between the whole corporation and its divisions and to balance the effectiveness of technology transfer with its cost are matters many multinational corporations may encounter. The real question Company X faced is whether it should enhance its R&D capability through collaborating with local research institutes or continuing to depend on its headquarters as the only technology source.

6. Limitation and further research This article is built on the definition that enterprise culture is the composite of all different kinds of relations throughout the whole enterprise and between the enterprise and its external environment. We measure the relations with comparing the espoused values with the actual practices of a company and draw conclusion after empirical research and data analysis. The definition and frame of enterprise innovation culture referred in this article can be generalized to other enterprises and non-enterprise organizations for evaluating their existing culture. There are some limitations in our empirical research for some reasons. Firstly, data analysis in this article relies on the assumption that the minds of the five top managers embody the values espoused by the whole organization. Although we try to describe enterprise innovation culture from different directions, there maybe some discrepancies exist between our assumption and the real culture lying in an organization. Secondly, Company X is a division of a multinational corporation with its headquarters in Silicon Valley. This article does not identify the differences between its innovation culture and that of other high-tech firms in Zhejiang province, PRC. To illustrate, one great challenge facing domestic enterprises in China results from the coming severe competence with international corporations since PRC became a member of WTO. Being a branch of a multinational corporation, Company X will not have to stand such pressures. In our research into enterprise innovation culture, this article may be only the first step to put forward our definition. Many viewpoints are to be deepened and furthered in this field.

Vol. 5, No.5, Dec 2002, 中華管理評論

9

References 1.

Hongyi Sun and Wong Chungwing (2001). Critical successful factors for new product development in Hong Kong toy industry. PICKNET2001, Portland, USA, pp623-633 2. Donald C. Plez (1967). Creative Tension in the research and development climate. Science, Vol. 157. No. 3785, July 1967, 160-165 3. Meng Li, Gaku Ishii, Akio Kameka (2001). A new framework on industrial competitiveness: an alternative perspective blending competition with cooperation. PICKNET2001, Portland, USA, pp675-680 4. Len Korot, George Tovstiga (2001). Knowledge-driven organizational change : a framework. Int .J. Entrepreneurship and Innovation Management, Vol. 1, No 1, pp22-33 5. Nathan Rosenberg (2001). Uncertainty and the culture of innovation. Delivered at the International Symposium on the culture of S&T and Innovation, Hangzhou, China 6. Charles M. Hampden-Turner and Fons Trompenaars (2000). Building cross-culture competence: how to create wealth from conflicting values. Yale University Press, New Heaven and London, pp60-61 7. Jon-arid Johannessen, Johan Olaisen and Bjorn Olsen (1999). How can Europe competence in the 21st century?. International Journal of Information Management 19, 263-275 8. M. N. Richter (1989). Science is a process of culture. Translated by Gu Xin and Zhang Xiaotian. Sanlian Press, PRC, pp5-20 9. Nan Huaijin (1995). The extensive speech of Chinese culture. Fudan University Press, Shanghai, PRC 10. Ji Xianlin (1996). Chinese culture and Eastern culture. The Corpus of Ji Xianlin. Vol 6. Jiangxi Education Press, Jiangxi Province, PRC 11. John Storey (2000). Culture Theory and A Guide to Popular Culture. Translated by Zhou Hui, Guo Fayong and Yang Zhushan. Nanjing University Press, Jiangsu Province, PRC, pp21-65 12. Le Daiyun and Alain Le Pichon (1999). Cross-culture Dialogue. Vol 2. Shanghai Culture Press, Shanghai, PRC