Pakistan Journal of Psychological Research, 2013, Vol. 28, No.

1, 01-24

Organizational Innovation and Organizational

Effectiveness Among Employees of Cellular

Companies

Fatima Ashraf and Muhammad Asif Khan

Shaheed Zulfikar Ali Bhutto Institute of Science and Technology

The present study examined the association between organizational

innovation and effectiveness and the role of innovative climate as a potential
mediator in this association. Data was obtained from 164 employees from
three cellular companies in Islamabad. Subjective and objective measures
were collectively used to measure organizational effectiveness. Subjective
measures included Affective Commitment Scale (Allen & Meyer, 1990),
Aspects of Identity Scale (Cheek, 1983), Group Cohesion Scale (Glass &
Benshoff, 2002), Job Satisfaction Scale (Spector, 1985), Transformational
Leadership Questionnaire (Avolio, Bass, & Jung, 1999), and New Product
Development. Objective measures included Market Share, Sales, and
Profitability, for which items were developed and validated (Joreskog &
Sorbom, 1996). To assess Organizational Innovation and Innovative Climate,
adapted versions of Organizational Innovation Questionnaire (Ismail, Belli,
Sohn, & Toussaint, 2002) and Organizational Climate Measure (Patterson et
al., 2005) were used. A series of regression analyses was done to test the
proposed hypotheses. Results suggest that organizational innovation indeed
predict firm effectiveness while some support was also found for the role of
innovative climate as a mediator in the relationship between organizational
innovation and firm effectiveness. Overall, our findings suggest a strong
association between organizational innovation and overall organizational
effectiveness of a firm. These findings also endorse the significance of
innovative climate as an imperative factor in the relationship between
organizational innovation and organizational effectiveness. We discuss the
implications of these findings in detail.

Keywords: innovation, organizational effectiveness, cellular companies,

innovative climate, Pakistan

Fatima Ashraf and Muhammad Asif Khan, Shaheed Zulfikar Ali Bhutto Institute of
Science and Technology, Islamabad, Pakistan.

Correspondence concerning this article should be addressed to Fatima Ashraf,

Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, Plot No. 67, Street
No. 9, H-8/4, Islamabad, Pakistan, Pakistan. E-mail: [email protected]
2 ASHRAF AND KHAN

For over a century, organization behavior theorists, human resource

managers and scholars, management thinkers and practitioners have
been intrigued by what makes an organization effective (Cameron,
1986). Hence, the construct of firm effectiveness is central to the
organizational sciences and all organizational theories rely on some
conception of differences between effective and ineffective
performance. Presently, the effectiveness of an organization depends
upon its proficiency to innovate (Bolton, 1993; Fischman, 2001).
Thus, research that probes the innovation – effectiveness relationship
and factors that may intervene in this relationship gains weight. The
present study is an attempt at examining whether organizational
effectiveness is impacted by organizational innovation, and whether
an innovative climate mediates this relationship.

Scholars have paid attention to organizational innovation due to its

significant role in economic progress (Aubert, 2006; Hage, 1999;
Nacinovic, Galetic, & Cavlek, 2009; Van de Ven, 1986), and its
facilitative role in overall social prosperity (Budros, 2000). Given
that organizations have to compete globally and face constant change,
they need to continually innovate to survive (Budros, 2000; Denning,
2010; Hage, 1999; Ho, 2011; Kazama, Foster, Hebl, West, &
Dawson, 2002), and succeed (Naranjo-Valencia, Jime´nez-Jime´nez,
& Sanz-Valle, 2011).

Moreover, the drive for innovation is based on the idea that it

provides a definite competitive advantage (Monge, Cozzens, &
Contractor, 1992). Given the accelerating rate of change in particular,
innovation has a significant role to play for the survival of
organizations (Hage, 1999; Martins & Terblanche, 2003). Since
organizations must respond to technological changes, amongst others,
they work towards fostering innovation as an essential part of the
work environment (Martins & Terblanche, 2003). Herein, the
challenge for organizations is that it is exceptionally difficult to
innovate (Nacinovic et al., 2009; Paulsen, Maldonado, Callan, &
Ayoko, 2009), hence scholars examine how to make innovation an
organization-wide capability (Denning, 2010). Additionally, the
construct deserves more empirical work (McLean, 2005) as lesser
studies have focused on the construct from the organizational
perspective (Chuang, Liu, & Huang, 2010).

On one end, a substantial number of studies have investigated the impact

of several factors on firm effectiveness (Georgakellos & Pekka-
Economou, 2007) and on the other hand, authors (such as Bates &
Khasawneh, 2005; Kazama et al., 2002) have emphasized the
significance of innovative climate for innovation of firms. Yet, the
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
3

relationship between organizational innovation and organizational

effectiveness as well as the possible mediating role of innovative
climate in this relationship remains untested in the empirical sense,
particularly in non-western milieu as most studies pertaining to
innovation have been carried out in western settings. In sum,
especially since innovation is generally considered to be one of the
key drivers of organizational success (Schillewaert, Ahearne,
Frambach, & Moenaert, 2005), the need of the hour is to empirically
test this relationship and factors that may mediate this relationship.

In Pakistan, Malik, Ghafoor, and Naseer (2011) examined

effectiveness from employee motivation and performance
perspective. Likewise, Khan, Rehman, and Fatima (2009) examined
innovation as an outcome variable from the transformational
leadership perspective. Despite the emphasis that western authors
have laid on the significance of innovation for firm effectiveness and
the value of innovative climate for firm effectiveness, two important
questions that studies conducted in Pakistan have not addressed so far
are: How significant is innovation for effectiveness of firms, and,
does innovative climate mediate this relationship? The present study
makes an important contribution to existing literature by providing
answers to these research questions and offering cross -cultural
insights. With regard to the industry, the cellular industry in Pakistan
has been typified by rapid growth and contribution to economy. Yet,
since it is an under researched area (Rafiq & Gao, 2008; Tajeddini,
2011), further research into this industry is necessitated.

Organizational Effectiveness

Given that organizational effectiveness is a necessary trait in

organizations (Steers, 1975), it has become a fashionable topic lately
since the 1980s. Although scholars (such as Hancott, 2005; Ho, 2011)
have equated effectiveness with performance, the present study will
focus on organizational effectiveness. Several scholars (Andersen,
2006; Bolton, 1993; Georgakellos & Pekka-Economou, 2007; Ho,
2011) have defined organizational effectiveness in several ways.
Owing to its conciseness, we choose the definition provided by
Andersen (2006), that is effectiveness is the degree to which an
organization achieves its goals.

Dimensions of organizational effectiveness. Based on literature,

organizational effectiveness has been operationalized and measured
in two broad domains: subjective measures and objective
4 ASHRAF AND KHAN

measures. For subjective measures, researchers have used indicators of

affective commitment, collective identity (Zhang & Liu, 2010), group
cohesion, leadership (Handy, 1993), job satisfaction (Steers, 1975), and
new product development (Fey & Denison, 2003) for measuring
organizational effectiveness. As for objective measures, authors have
used market share, sales (Denison & Mishra, 1995; Fey & Denison,
2003; Subramanian & Nilakanta, 1996; Tippins & Sohi, 2003), and
profitability (Andersen 2006; Denison & Mishra, 1995; Fey & Denison,
2003; Georgakellos & Pekka-Economou, 2007; Tippins & Sohi, 2003) to
define organizational effectiveness. Since these indicators are frequently
used as indicators of firm effectiveness, they were chosen for the present
study and are deliberated below.

Subjective measures. Meyer and Allen (1984) describe affective

commitment as “positive feelings of identification with, attachment
to, and involvement in the work organization” (p. 375). A member
who is ardently committed to the organization is emotionally attached
and enjoys membership in the organization (Allen & Meyer, 1990).
Past research has demonstrated that this form of commitment
correlates positively with measures of performance (Meyer,
Paunonen, Gellatly, Goffin, & Jackson, 1989).

Collective identity is the outcome of the shared interests,

associations, and harmony of a group’s members (Taylor & Whittier,
1992). Cohesiveness is an imperative factor for progress particularly
for a group that includes the inter-relations between members as well
as member- leader relations (Griffin & Pennscott, 1991). Group
cohesion is important since it facilitates group formation and
efficiency (Bollen & Hoyle, 1990). Concerning job satisfaction,
Locke (1976) classically defined it as a "positive emotional state
resulting from the appraisal of one's job" (p. 1300). Job satisfaction is
an emotion-related reaction of an employee to one’s job that ensues
from an employee’s assessment of real results against desired ones.
Owing to the humanitarian and work-related values (Oshagbemi,
1999) of job satisfaction, it is centrally pertinent to employees’
physical and emotional welfare. As for transformational leadership,
Bass (1985) theorized that the transformational leader is the one who
inspired followers to attain higher performance by setting demanding
expectations. Reasonably therefore, the aspect of transformational
leadership is a criterion for firm effectiveness. Additionally, new
product development is an activity that encompasses various
specialties such as marketing and strategy, economics, sociology, as
well as operations management (Maylor, 1997). A firm can increase
market demand for its new products through apt use of resources, and
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
5

apt management of factors that underlie the effect of a product

(Zirger & Maidique, 1990). Firms need to pay attention to processes
involved in new product development if they are to enhance their
effectiveness (Bhuiyan, Gerwin, & Thomson, 2004).

Objective measures. Scholars (for instance, Andersen, 2006; Denison &

Mishra, 1995; Fey & Denison, 2003) generally contend that the
monetary success of a firm can be expressed in terms of its market share,
sales and profitability. Following this rationale, we used perception
based measures of market share, sales and profitability as objective
indicators of organizational effectiveness for this study.

Organizational Innovation

Bolton (1993) defined innovation as putting of new ideas and

procedures in effect. Daft (1978) asserts that organizational
innovation refers to the implementation of an idea or behavior that is
novel for the organization. Presently, scholars (Fischman, 2001;
Hage, 1999; Martins & Terblanche, 2003; Monge et al., 1992) draw
attention to organizational innovation because it provides a definite
competitive advantage, is the means to motivate, and is critical for
organizational survival.

Indicators of organizational innovation are multi-faceted (Baccarani,

2005; Borins, 2001; Chuang et al., 2010; Gilbert & Reid, 2009;
Venkatraman, 1989; Vigoda-Gadot, Shoham, Ruvio, & Schwabsky,
2005). Earlier research identified various management factors for
organizational innovation (Bate, 2010; Covey, 1993; Martins &
Terblanche, 2003; Naranjo-Valencia et al., 2011; Pearce & Ensley,
2004; Wong & Chin, 2007). This points out that the innovation
process must commence with a strategic intent to provide for a sense
of direction for employees. A closer look at innovation dimensions
reveals that they broadly fall under three broad domains: an
environment that endorses innovation, the preference of a firm’s
leaders to innovate, and personal orientation of employees for
innovation. Hence, for this study and based on literature deliberated
earlier, we labeled these three dimensions as environment innovation
propensity, leadership innovation propensity, and personal innovation
propensity to innovate. Therefore, organizational innovation is
operationalized as, “production or adoption, assimilation, and
exploitation of a value-added novelty in economic and social spheres;
renewal and enlargement of products, services, and markets;
6 ASHRAF AND KHAN

development of new methods of production; and establishment of new

management systems. Hence, it is both a process and an outcome”
(Crossan & Apaydin, 2010, p. 1155). The preceding definition is chosen
for this study due to its broad coverage of the term innovation.

Organizational Climate

Organizational climate is the most common variable applied to

descriptions of the organizational context. It describes the members’
perception of their work environment (Zhang & Liu, 2010).
Organizational climate is viewed as an organizational trait comprised
of mindsets and outlooks that guide behaviors and that illustrate
organizational life (Ekvall, 1996). Owing to the relevance of this
construct to a diverse set of organizational as well as psychological
variables, scholars (Glick, 1985; Reichers & Schneider, 1990) agree
that organizational climate is a useful construct.

Innovative Climate as a Mediator

Organizations stress the need to creating an innovative climate to

favor innovation (Fichman, 2001) and the centrality of leadership role
therein (Kazama et al., 2002; Paulsen, Maldonado, Callan, & Ayoko,
2009). Indeed, an organizational climate aimed at innovation is
related with innovation itself (Kazama et al., 2002) and an
organization may be unable to support innovation in the long run
(Wong & Chin, 2007) unless a climate that fosters innovation exists.
Firms may either stifle or promote creativity via the atmosphere they
provide (Baccarani, 2005; Somech & Drach-Zahavy, 2011). Hence,
innovation is more likely to happen in an organizational climate that
rewards it (Borins, 2001). Literature points at several attributes of
organizational climate that support innovation.

For example, climate factors that foster innovation include instigating

risk and generating ideas, open communication flow across
organizational groups (Angle, 1989; McLean, 2005; Monge et al.,
1992), and an encouraging role played by the supervisor (Amabile,
Conti, Coon, Lazenby, & Herron, 1996; Borins, 2001). At the
individual level, innovative persons look for autonomy and
individuality (McLean, 2005), while control and a climate that
punishes unsuccessful innovation are factors that are likely to inhibit
innovation (Angle, 1998; Borins, 2001). Following Frazier, Tix, and
Barron (2004) advice, innovative climate was hypothesized as a
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
7

mediator in this study because past research provides strong evidence

that this variable is correspondingly related with both organizational
innovation, the hypothesized predictor, as well as organizational
effectiveness, the hypothesized criterion.

Organizational

Innovation

Environment
Innovative

Organizational

innovation propensity

effectiveness

Leadership innovation
climate

propensity
Personal innovation

propensity

Figure 1.Theoretical model of the research.

Hypotheses

The current study aims to test the following hypotheses.

Organizational innovation, environment innovation propensity,

leadership innovation propensity, and personal innovation are
positive predictors of organizational effectiveness.

Innovative climate mediates the innovation-effectiveness

relationship.

Method

Sample

Convenient sampling technique was used to collect data and total of 230
questionnaires were distributed among full time employees working at
three cellular companies in Islamabad and received 164 usable replies;
the response rate was thus 71.3%. Men were 80% (n = 131) and women
20% (n = 33) of the total sample. Of the study sample, the average age
was 30-39 years (M = 2.37, SD = .6). With respect to job tenure, 13.6%
(n = 22) of respondents had less than 5 years, while 47.4% (n = 78) had
5-10 years, 30.7% (n = 50) had 10-20
8 ASHRAF AND KHAN

years, and 8.3% (n = 14) had less than 5 years of job tenure. As
regards designation level of respondents, 48.3% (n = 79) worked as
low-level managers, 44.4% (n = 73) worked as middle level, while
7.3% (n = 12) worked as high level managers. With regard to
education level, 41% (n = 67) of the respondents were graduates,
44% (n = 72) had a master’s degree, while 15% (n = 25) had a post-
master’s degree.

Measures

All scales were used in their original English form and specific items
pertaining to constructs used in the study were selected. Responses
on scales were measured on a 5-point Likert type scale where scoring
categories range from 1 representing strongly disagree to 5
representing strongly agree. Details of the instruments for this study
are deliberated as follows:

Organizational Effectiveness. Organizational effectiveness was

assessed with a set of multiple measures. To curtail the length of
questionnaires, items presenting main themes of the constructs were
chosen for the present study. Organizational Affective Commitment
subscale (Allen & Meyer, 1990) comprising of four items was used to
assess organizational commitment (e.g., I think that I could not become
as attached to another organization as I am to this one). Alpha reliability
for the Organizational Commitment scale was good (α =

.88). Eight items from Cheeks’ (1983) Aspects of Identity

questionnaire (e.g., my language, such as my regional accent or
dialect or a second language that I know, is important to me) were
used to measure collective identity, which showed satisfactory
internal consistency (α = .72). Six items from the Group Cohesion
Evaluation scale (Glass & Benshoff, 2002) were used to assess group
cohesion (e.g., we enjoy helping each other, we stick together during
challenges), which showed acceptable internal consistency (α = .71).
Nine items from the Job Satisfaction Survey (Spector, 1985) were
used to measure job satisfaction (α =.73). Four items from the
Multifactor Leadership Questionnaire-5 (Avolio, Bass & Jung, 1999)
(e.g., I am ready to trust my leader to overcome any obstacle) were
used to measure transformational leadership (α = .82).

Additional indicators of organizational effectiveness included subscales

of New Product Development, Market Share, Sales, and Profitability. To
measure these, several items were first generated based on pertinent
literature review (Holak, Parry, & Song, 2002; Leonard-Barton, 1992;
Pauwels, Silva-Risso, Srinivasan, & Hanssens,
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
9

2004; Zirger & Maidique, 1990) so as to depict the particular domain

of concern, while excluding the irrelevant content (Hinkins, 1995).
These items were then evaluated for their content by five subject
matter experts, who were academicians in management sciences and
marketing fields. Subsequently, items agreed upon as representing the
necessary content of these scales by experts were retained, hence
content validity for items of the three scales was performed. Next,
retained items of each scale were subjected to exploratory factor
analysis for assessing their factorial validity using principal
component analysis with varimax rotation and retaining eigenvalues
greater than one. These items loaded onto their presumed factors
(scales) with factor loadings above 0.7 (Field, 2005), which
established the factorial validity of the items. Hence, the newly
developed items for New Product Development, Market Share, and
Profitability sub-scales exhibited adequate validity. Finally, four
items for example (To promote growth of a product, we expand its
distribution and modify our product) assessed New Product
Development in a firm. Two items tapped Market Share (e.g., this
firm has attained its targeted market share over the past five years)
and Profitability (e.g., the profitability of this firm has been greater as
compared with competitors over the past five years) each, and one
item (e.g., this firm has achieved its sales targets over the past five
years) was generated to measure sales. The overall Organizational
Effectiveness measure exhibited adequate internal consistency (α = .
79).

Organizational Innovation Scale. Organizational Innovation Scale

(Ismail et al., 2002) was used to measure organizational innovation.
Three relevant subscales of Organizational Innovation Scale were used.
Nine items that tap three dimensions of leadership innovation propensity
(e.g., the leaders of this organization tend to uphold new ways of doing
things), environment innovation propensity (e.g., if I make a mistake at
work, it will not be held against me), and personal innovation propensity
(e.g., I try to make changes in my work as much as possible) were
employed for the present study. The reliability estimates for
Organizational Innovation subscales were .78,

.76, and .84 respectively, while alpha coefficient for overall

Organizational Innovation Scale is .86.

Innovative Climate Measure. Ten items (e.g., it is not important to

check things first with the boss before taking a decision’) from the
Organizational Climate Measure (Patterson et al., 2005) were
employed to measure innovative climate (α = .72).
10 ASHRAF AND KHAN

Procedure

We contacted the human resource department in each of these cellular

companies and sought assistance for conducting the research whilst
explaining the academic nature and purpose of the study. To address
ethical concerns, we clearly confirmed respondent anonymity and use
of the data provided for mere academic purpose. Participation in the
research was voluntary. Successively, the questionnaire booklet was
delivered to employees and managers of three well-known cellular
companies in Islamabad. Following Church (2001)’s assertion that
survey method predicts a minor percentage of unique variance in
data, and that factors as ease and cultural fit should be considered for
data collection, we used two methods to collect data so as to gather
quality data involving as many respondents within the stipulated time
for this study. Precisely, data were collected through personal visits
and colleagues, while in some cases employees were emailed the
questionnaire.

Results

Table 1

Correlations, Means, and Standard Deviations of Variables of Study

Variable
No. of items
M
SD
1
2
3
4
5
1.
IC
10
1.82
2.80
-

2.
OI
9
1.71
1.80
.74*
-

3.
EIP
3
1.88
0.80
.56*
.76*
-

4.
LIP
3
1.78
0.78
.51*
.56*
.73*
-

5.
PIP
3
1.69
0.97
.45*
.43*
.51*
.40*
-
6.
OOE
39
2.23
0.88
.54*
.61*
.45*
.35*
.46*

Note. IC = Innovative Climate; OI = Organizational Innovation; EIP = Environment

Innovation Propensity; LIP = Leadership Innovation Propensity; PIP = Personal

*
Innovation Propensity; OOE = Overall Organizational Effectiveness. p < 0.01.

Table 1 reveals that all correlations among variables were positive, as

expected. Also, organizational innovation and innovative climate, i.e.,
the independent variable and hypothesized mediator in this case,
correlate positively.

Construct Validity

Construct validity was assessed through confirmatory analysis that was

performed independently for each of the three constructs using
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
11

Lisrel 8.0 (Joreskog & Sorbom, 1996). Specifically, three different

models were specified and tested separately to assess the construct
validity of organizational innovation, innovative climate, and
organizational effectiveness. Each of these analyses were initiated
with a covariance matrix using maximum likelihood estimates and
cut-off values for estimating model-fit indices as recommended by
Hu and Bentler (1999) were used.

This first order factor model with three indicators showed a good fit
(X2 = 26.32, df = 16, p = 0.054, RMSEA = 0.053, CFI = 0.984, NNI =
0.775, SRMR = 0.046, AGFI = 0.933). Loadings of the second-order
organizational innovation factor on the first-order factors were
significant and varied between 0.45 (environment innovation
propensity), 0.61 (leadership innovation propensity), and 0.77
(personal innovation propensity). For innovative climate, a single
first-order factor model was specified using the odd number of items
as indicators – a procedure known as parceling that has been
recommended by Little, Cunningham, Sahar, and Widaman (2002) to
enhance the distribution property of indicators. This first-order factor
model with five indicators proved a reasonably good fit (X2 = 24.56,
df = 13, p = 0.058, RMSEA = 0.045, CFI = 0.977, NNI = 0.875,
SRMR = 0.036, AGFI = 0.913).

For organizational effectiveness, a second-order factor model was

specified with two indicators of measures subjective measures and
objective measures. This second-order factor model also showed a
good fit (X2 = 25.76, df =14, p = 0.068, RMSEA = 0.053, CFI =
0.987, NNI = 0.975, SRMR = 0.034, AGFI = 0.923). The second-
order organizational effectiveness factor loaded significantly on the
first-order factors, the loadings ranging between 0.56 (subjective
measures), and 0.79 (objective measures). Taken together, results
from the confirmatory factor analysis of the three measures used in
the present study indicated that these measures demonstrated
sufficient construct validity and could be used for further analyses.

Regression Analysis

For multiple regression analysis, in the first step, organizational

effectiveness was regressed on organizational innovation.
Organizational innovation dimensions were entered into the
regression equation as predictors keeping organizational effectiveness
as the criterion in the second step.
12 ASHRAF AND KHAN

Table 2

Regression Analysis on Variables of the Study

Predictors
R2
F
Stand. β
t

Model 1

(constant)
.34
85.0*

6.0*

Model 2

.587
9.22*
(constant)
.33
25.94*

3.5*

Environment innovation propensity

.202
2.9*

Leadership innovation propensity

.455
6.6*

Personal innovation propensity

.091
1.4*

Note. Model 1. Predictor: Organizational Innovation; Criterion: Organizational

Effectiveness; Model 2. Predictors: Organizational Innovation Dimensions of
Environment, Leadership, Personal Innovation Propensity; Criterion: Organizational
Effectiveness.

*p < .000.

Table 2 shows that for the first regression equation organizational

innovation positively predicts organizational effectiveness with 34.4%
variance. For the second regression equation, keeping organizational
innovation dimensions as predictors and organization effectiveness as
criterion, the overall model is significant and organization innovation
dimensions of environment innovation propensity, leadership innovation
propensity, and personal innovation propensity predict 32.7% variance in
organization effectiveness.

Table 3

Results of Mediation Analysis of Innovative Climate in the Organizational

Innovation – Organizational Effectiveness Relationship

Model
R2
F
Stand. β

t
1 (constant)
.37*
95.0*

7.32*

.609
9.7*
2 (constant)
.34*
85.0*

6.0*

.587
9.22*
3 (constant)
.37*
43.0*

5.0*
Innovation

.028
6.8*
Climate
.904
6.9*

Note. Model 1. Predictor: Organizational Innovation; Criterion: Organizational

Climate; Model 2. Predictor: Organizational Innovation; Criterion: Organizational
Effectiveness; Model 3. Predictor: Organizational Innovation, Organizational Climate;
Criterion: Organizational Effectiveness.

*p < 0.000.
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
13

We used Bar-On and Kenny’s (1986) method to test the hypothesized

meditation model. As recommended by Baron and Kenny (1986),
three causal paths are tested for mediation effect: the independent
variable causes variation in the mediator (path a), the hypothesized
mediator causes variation in the dependent variable (path b), and,
controlling for paths a and b, the previous significant relation
between independent and dependent variable is reduced in path c,
with complete mediation occurring when path c is reduced to zero.
These regression equations were entered to test the three causal
models. First, innovative climate (mediator) was regressed on
organizational innovation (predictor). Second, organizational
effectiveness (criterion) was regressed on organizational innovation.

Third, organizational effectiveness was regressed on innovation and

innovative climate simultaneously. If these three conditions are met
and in the assumed direction, then the indirect effect of the dependent
variable on the independent variable is comparatively less in the last
equation than the in the second one. Since innovative climate was
hypothesized as a mediator in the organizational innovation-
organizational effectiveness relationship, the mediation analysis was
performed by using overall organizational innovation. The first
regression equation shows that the model is significant as R2 is 0.371
(F = 95, p < .000). Hence, organizational climate explains 37.1 %
variance in organizational innovation and the first condition for
mediation is met. For the second regression equation, R2 is 0.344 (F =
85, p < .000) and organizational innovation explains 34.4 % variance
in organizational effectiveness.

Thus, the second condition for mediation is also met. For the third
regression equation, R2 is 0.374 (F = 43, p < .000). Examination of
regression coefficients reveals that innovation β weight is reduced
from 0.647 in the second equation to 0.604 in the third equation. In
this way, the indirect effect of the predictor on the criterion is reduced
when the hypothesized mediator is also entered, indicating partial
mediation. Also, the change in R2 in the third equation is .03 which
shows that organizational climate brings an additional 3% change in
the organizational innovation – organizational effectiveness
relationship. Mediation effect is thus established and the research
hypothesis is confirmed. Yet, contrary to expectation the effect size
(Cohen, 1988) is found to be small.

Discussion
examined whether organizational
The present study empirically innovation predicted organizational
effectiveness and also investigated
14 ASHRAF AND KHAN

which organizational innovation dimension carried most significance

in predicting organizational effectiveness. It also addressed whether
innovative climate mediated the relationship between firm innovation
and effectiveness. Two main hypotheses and three sub-hypotheses
were developed to test these relationships. These results fully support
the first study hypothesis. Results clearly point to organizational
innovation as well as its innovation dimensions of environment
innovation propensity, leadership innovation propensity, and personal
innovation propensity are found to predict effectiveness.

Leadership innovation propensity is the most significant in predicting

organizational effectiveness. Theoretically, these results posit that an
organization’s effectiveness is positively favored when the leadership
supports innovation. Leaders must appreciate innovative behavior
and impede factors as control that discourages innovative behavior.
These results concur with past research, which clearly asserts that
leadership is an important antecedent to innovation (Vaccaro, Jansen,
Van Den Bosch, & Volberda, 2012) and it is the top management that
influences innovation through strategic decision making (Elnkove &
Manev, 2005). It is leadership that reinforces innovation (Parry, 2003;
Reichwald, Siebert, & Moslein, 2005). These results are also in line
with Angle (1989) who views that leadership may discourage
innovation by punishing unsuccessful innovation. Hence, we
conclude that leadership must underline the significance of surviving
on the cutting edge of innovation with the aim of enhancing
organizational effectiveness.

Concerning environment innovation propensity, the results of this

study agree with the proposition that environmental aspects are a key
antecedent to innovation, which leads to organizational effectiveness.
For innovation to take place in a firm, its members must feel that the
environment favors the freedom to function in a creative manner. In
an environment characterized by honest debate, employees are open
to risk taking and creativity as they sense that the organization
believes in the greatest interest for all (McLean, 2005).

At employee level, results of this study concur with past research that
demonstrates that employee personal characteristics influence innovation
implementation (Choi & Price, 2005). However, this study concluded
employees’ personal innovation propensity to be the least significant
among the three innovation dimensions in predicting organizational
effectiveness. This certainly poses a challenge for those concerned with
human resource development and policy making. Employees must be
inspired on a personal level as their actions and motivation directly
impact innovation (Bates & Khasawneh, 2005).
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
15

Regarding the mediating role of innovative climate in the relationship

between innovation and effectiveness, the present study provides some
empirical evidence for the mediating effect, though the effect size of the
mediation is small (Cohen, 1988). This finding is unexpected, as it does
not totally support the existing theory that propagates that a climate that
supports innovation would lead to enhanced success. However, these
findings are interpretable in light of the industry and economic situation
of the study setting. For one, an organization’s innovation is merely one
aspect that contributes to its success. Owing to certain external
influencing factors, the right organizational climate may not necessarily
cause innovation to enhance effectiveness. For example, Abereijo,
Oluwagbemiga, Taiwo, and Adegbite (2007) concluded that external
factors may impact the internal innovation in a firm, and in this the
results concur with theirs.

Moreover, in the present study, objective measures as profitability

were measured as part of effectiveness. In fact, investment and
allocation of resources for innovation may lead to decline in profits in
the short run. In the cellular industry, the rate of failure of ideas and
products is high and product life cycle is short, meaning that new
products are born and die too quickly to allow innovation to
significantly impact effectiveness in the short run, despite a suitable
climate being in place. Further, since we gauged the mediating role of
innovation-climate in the innovation – effectiveness relationship at
one time, our finding that innovation- climate has a small mediating
effect might reflect the short-term failures that innovative firms face.
In addition, findings of this study coincide with Rafiq and Gao
(2008)’s argument that innovation in the cellular industry is really a
complicated phenomenon. For cellular market growth, an entire set of
actors needs to be examined for a holistic perspective rather than
merely firm innovation.

Managerial Implications

The study proclaims several important managerial implications,

especially for research and development organizations that continually
strive to innovate. Managers and human resource development (HRD)
practitioners may want to assess the degree of innovation in their
organization to enhance the effectiveness of their organization. They
should assess whether their leadership clearly emphasizes and
communicates an innovation vision, the level of innovation propensity in
the environment, and the extent of employee personal propensity to
innovate. Importantly, managers and HRD practitioners should also
16 ASHRAF AND KHAN

deliberate over how the three should be facilitated simultaneously to

work towards enhanced organizational effectiveness.

Further, managers and HRD practitioners may find it useful to

scrutinize climate factors that impact organization innovation and
subsequently effectiveness with the aim of cultivating an innovative
climate. Elimination of factors such as discouraging or punishing
risk-taking behavior is important because innovation might entail
short-term failure (McGill, Slocum, & Lei, 2003) and such factors
obstruct innovation. It also implies that employees should be assisted
in learning from mistakes.

This study contributes to the existing literature by empirically

substantiating scholars’ argument (such as Russel, 1989) that an
organizational climate that fosters and facilitates innovation is
imperative for successful innovation. Importantly, the current study
has also empirically tested the relationship between organizational
innovation and effectiveness and established a significant link.
Further, the current study points out that for enhanced organizational
effectiveness, it is leadership innovation propensity that plays the key
role, while environment innovation and personal innovation follow.
Logically, the three innovation dimensions might have a causal link.
To investigate this causal link is beyond the scope of this study,
however.

Strengths and Limitations

A noteworthy strength of this study is that both subjective as well as

objective criteria were employed to gauge overall organizational
effectiveness. We consider this to be an important merit as most past
studies have considered either aspect (Alinaitwe, Mwakali, &
Hansson, 2009; Yang, 2007; Zhang & Liu, 2010). Thereby, this study
offered a more holistic measurement of organization effectiveness.

The present study is not without potential limitations, however. For one,
the cross-section design of the study limits concluding causality in the
model. Hence, our findings should be interpreted keeping in view the
cross-section nature of this study. A longitudinal study would better
address the mediating role of innovative climate in the innovation-
effectiveness relationship. Moreover, on a conceptual level, this research
utilizes data acquired at the individual level only. Literature points out
that innovation operates at various levels in the organization (Amabile, et
al., 1996) and to attain innovation the call for innovation must be
founded at all organizational levels (Nacinovic et al., 2009). A more
complete model should include gauging
ORGANIZATION INNOVATION AND ORGANIZATIONAL EFFECTIVENESS
17

innovation at more levels, specifically at the group and organizational

level.

Finally, the sample size in this study may limit the generalizability of the
study’s findings to other settings and industries. Albeit, this may not be a
true limitation since only in an innovation-intensive industry can
innovation be expected to boost organizational effectiveness. For more
certainty, the sample size may be increased and results of this study must
be tested in other industries and settings.

Future Research

Future studies may examine additional variables for more theory

building. A longitudinal study is required to empirically examine how
innovation would impact effectiveness using objective as well as
subjective criteria. Importantly, future research might investigate the
causal link between the three innovation dimensions, as it is
leadership that articulates and encourages innovation, by creating and
vision and influencing the environment and finally inducing
innovation on a personal level. Future studies might also focus on
gauging innovation at the group and organizational level for a more
complete model.

Conclusion

The present study has empirically established that an organizational

climate appropriate for innovation indeed facilitates organizational
innovation for effectiveness of firms. The study unexpectedly found a
small effect size for the facilitating (mediating) role of organizational
climate in the organizational innovation – organizational
effectiveness relationship. These findings point to possible external
factors that may restrain this relationship, despite a firm’s steering of
innovation efforts towards effectiveness. Moreover, a firm may show
sluggish results in terms of financial success, especially in the short
run. This important reality must be realized ahead of time if a firm
aims to adopt innovation for sustained competitive advantage.
Additionally, the current study also proved the significance of
environment innovation propensity, leadership innovation propensity,
and personal innovation propensity for organizational effectiveness.
Leadership innovation propensity was found to be the most
significant factor. Logically, it is leadership that influences the overall
direction and vision of a firm to innovate for success via framing and
conveying the elements of clarity of
18 ASHRAF AND KHAN

innovation vision and provides assurance for new idea generation and
risk.

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Received November 15, 2011

Revision received May 16, 2013