A Conceptual Framework of Innovation and Performance: The Importance of Leadership, Relationship Quality, and Knowledge Management

Abstract

INTRODUCTION To maintain a sustainable competitive advantage in the hypercompetitive marketplace, innovation (Gunday, Ulusoy, Kilic, & Alpkan, 2008; Rosenbusch, Brinckmann, & Bausch, 2011; Van Auken, Madrid-Guijarro, & Garcia-Perez-de-Lema, 2008), defined as a construct that captures the newness of a product or service that can increase organizational performance (Bowen, Rostami, & Steel, 2010), is essential (Caselli, Gatti, & Perrini, 2009). Organizations that innovate can grow their profits, size, and market share (Van der Panne, Van Beers, & Kelinknecht, 2003) by increasing the value of the products and services that they offer (Caselli et al., 2009). This, in turn, leads to continuous improvement, efficiencies, and, eventually, profitability (Caselli et al., 2009). Indeed, the ability to innovate and differentiate from the competition whilst shielding one's organization from external factors is vital to long-term success (Hult, Hurley, & Knight, 2004; Jimenez-Jimenez & Sanz-Valle, 2011; Lin & Chen, 2007). Given the importance, managers perpetually strive to foster innovation throughout their hierarchies by organizing corporate retreats, design thinking courses, and recruiting management consultants. These activities can be useful, but innovation is one of the most knowledge-intensive activities, which encompasses the collective knowledge within an organization (Caselli et al., 2009), and does not come easy. Innovation is dependent on an organizational culture that incentivizes creativity. Through this, organizations eventually become breeding grounds for innovation (Caselli et al., 2009). To achieve this level of innovation, leadership is important. According to the resource-based view (RBV) of the firm, which is based on viewing organizations as pools of resources, capabilities, knowledge, intangible assets, skills, and leadership (Chisholm & Nielson, 2009; Mention, 2012), the collective knowledge and skill-set within an organization are crucial to success (Chisholm & Nielson, 2009; Henton, Melville, & Walesh, 2009; Mention, 2012). Social capital, which is based on the premise that external networks, cultural norms, and trust facilitate the communication, cooperation, and coordination of activities (Putnam, 1995; Rodriguez, Perez, & Gutierrez, 2007), can lead to the development of innovation and. eventually, success (He & Poh-Kam, 2012; Rogers, 2004; Romijn & Albaladejo, 2002). Considering that leaders are vitally important to instilling a value-system within an organization, fostering best practices, and developing a culture that can stimulate collaboration and motivate employees, social capital is a function of leadership, which has been suggested to be an important antecedent to innovation (Garcia-Morales, Jimenez-Barrionuevo, & Gutierrez-Guiterrez, 2012; He & Poh-Kam, 2012; Montes, Moreno, & Morales, 2005). Through leadership activities, organizational members begin to develop a sense of trust in the integrity and reliability of their leader, which can subsequently develop commitment and satisfaction among the workforce (Caceres & Paparoidamis, 2007). Both trust and commitment are considered two dimensions of social capital. In the customer relationship management literature, relationship quality, defined as the overall strength of a relationship that is capable of meeting the needs, wants, and expectations of business partners (Woo & Ennew, 2004), is vital to establishing and prolonging long-term relationships (Morgan & Hunt, 1994; Singh et al., 2012). Relationship quality is composed of the commitment, trust, and satisfaction that business partners experience in exchange relationships (Athanasopoulou. 2009; Fynes, Voss, & Burca, 2005; Lambe, Wittman, & Spekman, 2001). In their research. Yli-Renko et al. (2001) determined that fostering and managing effective relationships can lead to knowledge sharing, acquisition, and exploitation. …