Effects of Organizational Culture on Organizational Innovation in Small Businesses

Abstract

Small businesses play a vital role in small economies. According to Eurostat, 99.8% of businesses in Latvia are small and medium-sized enterprises (SMEs), creating 79% of jobs and 70% of gross added value [1]. Thus, their ability to create value and to sustain competitive advantage through innovation is essential for economic development and growth. Yet many small businesses might face challenges of limited capacity, personnel and insufficient resources for long-term investments in research and development. And, besides the lack of resources, such businesses might not see the benefits of innovation. Implementation of organizational innovation could provide them a way to improve competitiveness and also become a stepping stone to foster other types of innovation. The purpose of this study is to analyze the effects of organizational culture (OC) on organizational innovation in SMEs via an empirical study of businesses from various industries. The study assesses four dimensions of the OC adopted from Denison and Spreitzer (1991) Team, Development, Result-orientation and Consistency [2]. And it evaluates the impact of the OC on product, process, marketing and organizational innovation performance in selected companies. The study confirms that OC and innovation indicators are closely related. Stronger and more developed OC in any of the four aforementioned dimensions leads to better innovation performance. This relation is particularly strong for organizational innovation, thus the impact is further analyzed using a regression model. This study finds Development-orientation and Consistency as the most significant factors, explaining 44.6% of the total variation in the organizational innovation performance. This study contributes to research on small and medium-sized business innovation.