MHA6100 WEEK 4 DISCUSSION AND PROJECT INSTRUCTIONS

The Role of Stimulating Employees Creativity and Idea Generation in Encouraging Innovation Behaviour in Irish Firms

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Mr. Justin Doran

College Lecturer, School of Economics, University College Cork, Cork, Ireland

Dr. Geraldine Ryan

College Lecturer, School of Economics, University College Cork, Cork, Ireland

Corresponding Author:
Mr. Justin Doran, School of Economics, Aras Na Laoi, University College Cork, Cork. Email: [email protected], Tel: 00353-(0)21-4901882, Fax: 00353-(0)21-4273920.

The Role of Stimulating Employees Creativity and Idea Generation in Encouraging Innovation Behaviour in Irish Firms

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Abstract

This paper analyses the impact of stimulating staff creativity and idea generation on the likelihood of innovation. Using data for over 3,000 firms, obtained from the Irish Community Innovation Survey 2008-10, we examine the impact of six creativity generating stimuli on product, process, organisational, and marketing innovation. Our results indicate that the stimuli impact the four forms of innovation in different ways. For instance brainstorming and multidisciplinary teams are found to stimulate all forms of innovation, rotation of employees is found to stimulate organisational innovation, while financial and non-financial incentives are found to have no effect on any form of innovation. We also find that the co-introduction of two or more stimuli increases the likelihood of innovation more than implementing stimuli in isolation. These results have important implications for management decisions in that they suggest that firms should target their creative efforts towards specific innovation outcomes.

Keywords: Creativity, Idea Generation, Innovation, Componential Theory of Creativity, Ireland

INTRODUCTION

Today a firm’s growth and survival depend on its ability to innovate (Hossain, 2013; Varis and Littunen, 2010). Firms that innovate to improve their processes, differentiate their products and/or transform their structure have been shown to regularly outperform their competitors (Tidd, 2001). At the heart of all organizational innovation lies creative ideas and it is individual employees, who alone or in groups, generate, promote, discuss, modify, and realize these ideas (Cirella and Shani, 2012; Scott and Bruce, 1994). Creativity has been widely accepted as a key ingredient of innovation (Amabile et al., 1996; Çokpekin and Knudsen, 2012; Mumford, 2000; Shalley et al., 2004) thus, organizations are dependent on the creativity, and the innovative engagement of their employees. In many firms action is taken to stimulate such creativity and hence innovation (Martins and Terblanche, 2003) as firm owners and managers search for effective, efficient and competitive ways to give their firms the competitive edge. In this paper we examine whether idea generation and creativity stimuli foster innovation.
To date a lot of attention has been paid to the role of research and development (Cohen et al., 1987; Doran et al., 2013) and networking (Boschma, 2005; Doran et al., 2012b; Freel, 2003) in the innovation performance of firms. While a number of qualitative studies and case studies have been conducted on the role less tangible factors such as brainstorming and multidisciplinary teams play in a firm’s innovation performance, there has been relatively little quantitative analysis. Drawing on insights from the Componential Theory of Creativity (Amabile, 1988, 1996; Amabile and Mueller, 2008) this paper addresses this gap in the literature, by providing insights into the role these less tangible forms of creativity and idea generation stimuli have on the innovation performance of firms. The results from this study will help managers understand which methods of generating ideas and creativity to invest in.
The central question addressed by this paper is whether idea generation and creativity stimuli, other than networking or research and development, result in innovation. This analysis is facilitated through the use of the Irish Community Innovation Survey which contained a special module in 2008-2010 on the methods firms use to stimulate new ideas or creativity among their staff. The factors considered are (i) brainstorming sessions, (ii) multidisciplinary work teams, (iii) job rotation of staff, (iv) financial incentives, (v) non-financial incentives, and (vi) training employees on how to develop new ideas.
We consider four types of innovation; product, process, organisational and marketing. The Oslo Manual notes that these forms of innovation are a mixture of technical and non-technical innovation which may have different determinants (OECD, 2005). Indeed in the context of R&D Doran et al. (2013) note that different forms of R&D have diverse impacts on the likelihood of performing different forms of innovation. Therefore, it is possible that our idea generation and creativity stimuli may have a differentiated impact on innovation types. We assess the importance of our stimuli on as wide a spectrum of innovation types as our data facilitates in order to ascertain whether there are any commonalities or substantive differences in their effectiveness.
The remainder of this paper is structured as follows. Section 2 presents a review of the literature. The data and methods are presented in Section 3. The results are set out in Section 4, while Section 5 discusses these results. Section 6 concludes our study.

LITERATURE REVIEW

Innovation is the key to maintaining competitiveness in the global market. The capability of a firm to develop new goods and services, to transform its structure into a more efficient one and to make its marketing more competitive determines its success. Since idea generation and creativity are fundamental to innovation, firm owners and managers frequently encourage, stimulate, fund and reward such activities (Hansen and Birkinshaw, 2007; OECD, 2005; Roper et al., 2008). We begin this section by examining what is meant by idea generation and creativity stimuli, and how these concepts are linked to innovation. Following this we examine the Componential Theory of Creativity (Amabile, 1988, 1996; Amabile and Mueller, 2008) and use it to identify stimuli that may enhance organisational creativity.

Linking Idea Generation, Creativity, and Innovation

Since the concepts of idea generation, creativity and innovation are used interchangeably in the literature (Ford, 1996; Shalley et al., 2004), it is important to analyse them in the context of this research.
An idea is classified as being new if it is new to the firm. New ideas can either be novel ideas or they can be copied from other places. The term creativity, on the other hand, refers only to useful, novel and relevant ideas (Amabile, 1996; Heinze, 2013; Rank et al., 2004).

Mumford (2012)
defines creativity as the ‘production of high quality, original and elegant solutions to problems’. For an idea to be considered as creative it must be useful, relevant, and novel at the same time.

Beheshtifar and Kamani-Fard (2013)
argue that an individual’s level of creativity is driven by their expertise, their creative thinking skills, and their level of motivation.

Amabile (2013)
argues that managers can stimulate and facilitate organisational creativity, where organisational creativity is defined by

Woodman et al. (1993)
as the ‘creation of a valuable, useful new product, service, idea, procedure, or process by individuals working together in a complex social system’.

Cirella and Shani (2012)
argue that creativity within organisations happens when people work together to trigger ideas through dialogue, debate and conflict. Similarly,

Baer et al. (2010)
argue that organisations rely on both team-based structures and internal competition between these teams to elicit creativity.
Innovation is the successful application of creativity and as a result creatively is said to ignite innovation (Amabile, 1996; Çokpekin and Knudsen, 2012; Mumford, 2000; Shalley et al., 2004). Innovation is not the same as creativity (Amabile, 1996; Lewis and Wright, 2012). When a company decides to introduce a new good or service, it creates lots of ideas, and then picks the best of these for development (Girotra et al., 2010). In other words, innovation involves the crafting of creative ideas into new products, processes or services (Mumford, 2012; Nyström, 1979).
Given the importance of idea generation and creatively for innovation, extensive research has studied factors stimulating employee creativity (Beheshtifar and Kamani-Fard, 2013; Ford, 1996; Woodman et al., 1993) and has acknowledged the importance of a supportive work environment (Amabile, 1996). Despite this

Çokpekin and Knudsen (2012)
and

Puccio and Cabra (2010)
argue that there is still little evidence to show whether boosting creativity results in innovation, and

Ettlie and Reza (1992)
question whether different types of stimuli are required to motivate the different types of innovation. In this paper we address both these questions.

Stimulating Idea Creation and Creativity

Since new ideas and creativity are prerequisites for innovation and innovation is essential for survival and growth in the modern economy, it is important that organisations manage and develop these attributes. One primary model of creativity is the Componential Model of Organisational Creativity (developed by

Amabile (1988)
and updated by

Amabile (1996)
and

Amabile and Mueller (2008)
). This model argues that creativity arises through the coming together of four elements: three relate to the individual – knowledge (all the relevant understanding an individual brings to bear on a creative effort), creative thinking – (how people approach problems) and motivation (the passion and interest the individual has for their work), and one relates to the external environment in which the individual works. The model identifies a number of ways creativity can be stimulated by adapting these four elements. In this Section we begin by briefly examining knowledge, creative thinking, and motivation before turning to how the collective introduction of these elements can create a supportive and stimulating environment which fosters creativity and innovation.

Knowledge

Gardner (1993)
argues that two types of knowledge are required for creativity. Firstly, employees need to build their technical expertise over time. This knowledge then acts as a solid foundation from which creativity can emerge. Without this knowledge base

Simonton (1980)
suggests that individuals cannot be creative. Secondly, employees need to be able to recognise opportunities and combine previously disparate elements in new ways.

Johansson (2004)
argues that a balance is needed between these elements and

Adams (2006)
proposes that one way to achieve this balance is by building multi-disciplinary teams. This mirrors the general innovation literature which suggests that team processes and behaviours such as reflexivity and knowledge sharing are important predictors of innovation (DeDreu, 2002).
Knowledge is a unique asset to a firm; in the right hands, it can create immense value, however, people can leave the business at any moment in time, taking all their knowledge with them. It is not easy to create or share knowledge. While it is the ultimate economic renewable, and its value comes from sharing it with others, it is very difficult to encourage and facilitate this sharing. Knowledge sharing is an important dimension of innovation, particularly the sharing of new, diverse knowledge.

Nahapiet and Ghoshal (1998)
model learning and argue that it takes place through the combination and exchange of knowledge. Knowledge can be combined by merging knowledge that was previously unconnected or by finding novel ways of blending pre-existing knowledge. This process is often dependent on the exchange of information, especially where resources are held by different parties.

Moran and Ghoshal (1996)
contend that for knowledge sharing to be effective there must be an opportunity for employees to share information. This can be done through the structure of the firm where a flat structure with autonomy and work teams has been found to promote innovation, whilst specialisation, formalisation, standardisation and centralisation inhibit innovation (Martins and Terblanche, 2003).
When innovation is mandated professionals such as researchers, engineers, designers, and programmers often collaborate on assigned or original projects (Sundstrom et al., 1990).

Mohrman et al. (1995)
define a team as: ‘a group of individuals who work together to produce products or deliver services for which they are mutually accountable’. They go on to propose that ‘team members share goals and are mutually held accountable for meeting them, they are interdependent in their accomplishment, and they affect the results through their interactions with one another’. Groups composed of people with differing professional backgrounds, knowledge, skills and abilities, will be more innovative than those whose members are similar, because they bring differing perspectives on issues to the group (Paulus, 2000; West, 2002). Their divergence of views can create multiple perspectives, which if managed correctly can lead to more innovative actions (Paulus, 2000). The ability to rotate to different projects and positions within a firm increases the level of flexibility within a firm and it is values like flexibility, freedom and cooperative teamwork which promote creativity and innovation (Martins and Terblanche, 2003). On this basis we hypothesise that:

H1: Knowledge generation stimuli, such as work teams and job rotation, are positively related to innovation output.

Creative Thinking

Since creativity involves the production of high-quality, original, and elegant solutions to complex, novel, ill-defined, or poorly structured problems (Mumford and Gustafson, 1988) it is essential that individuals are able to combine existing elements of knowledge or understanding in new ways. This calls for creative thinking.

Mumford et al. (2012)
argue that creative thinking involves multiple, complex processing operations and that the execution of these processes depends on the knowledge available to the individual at the time and the procedures he/she uses when executing the processes. They argue that the creative thinking process begins with problem definition. This is followed by information gathering, information organisation, conceptual combination, idea generation, idea evaluation, implementation planning and solution monitoring. These processes operate in a dynamic fashion and failure to adequately complete any one stage will lead individuals to step-back to early processing activities.

Adams (2006)
argues that the creative mind can be enhanced by environments or efforts that encourage individuals to generate new variations and new combinations of ideas.
Brainstorming is one of the most popular techniques used to induce creativity (Adams, 2006). Its purpose is to generate a limited number of good ideas which can be developed further with a view to implementing them (Nijstad and De Dreu, 2002).

Johansson (2004)
, amongst others, argue that group brainstorming can be particularly effective when individuals are allowed 15-20 minutes to think individually and write their ideas on an anonymous piece of paper which is then handed to a facilitator. All ideas can then be discussed openly with a view to considering whether each one could be feasible rather than seeking to criticise or find the reasons why it wouldn’t work.

Rietzschel et al. (2006)
and

West (2002)
claim that this type of group brainstorming can outperform individuals working alone, particularly on intellective tasks whilst

Paulus (2000)
reports that sharing ideas with others in a team can increase the chances of producing novel ideas. We hypothesise that

H2:

Creative thinking stimuli, such as brainstorming, are positively related to innovation output.

While creative thinking depends a lot on an individual’s characteristics (e.g. independence, self-discipline, risk-taking attitude, willingness to deal with failure etc.)

Amabile (1996)
argues that these skills can be increased with education and training. The acquisition of information about the job enables employees to broaden and enrich their knowledge of the job task, task problems, and the job context.

Weisberg (1998)
presents theoretical and empirical evidence which suggests that work-based learning strategies promote knowledge acquisition and that knowledge acquired in this way boosts the potential to create and generate new and useful ideas. Since the innovation process is knowledge intensive and since employees may need to acquire new knowledge in order to participate in the development and implementation of ideas, we anticipate that job-specific-training is positively related to innovation output. Using this theoretical and empirical evidence we hypothesise:

H3:

Creative thinking stimuli, such as job-specific-training, are positively related to innovation output.

Motivation

The third element in the Componential Theory of Creativity is motivation.

Mitchell (1982)
defines motivation as ‘the psychological processes that cause the arousal, direction, and persistence of behaviour’.

Ames (1992)
argues that motivation is the reason individuals behave in a particular manner in a certain situation. Motivation exists as part of one’s goal structures, one’s beliefs about what is important, and it determines whether or not one will engage in any given pursuit.

Deci (1975)
separates motivation into extrinsic and intrinsic motivation. While extrinsically motivated people do the work because of some threat (e.g. evaluation, surveillance, competition with peers) or because there is some promise of reward (e.g. money, promotion etc.), intrinsically motivated people do the work because they find it interesting, involving, exciting, satisfying, or personally challenging.

Lindenberg (2001)
further sub-divides intrinsic motivation into normative and hedonic motivation. The former group act because they want to comply with personal, social or organisational norms, while the latter group act because they find the task challenging, exciting and enjoyable.

Amabile (1996)
argues that people are more creative when they are hedonically intrinsically motivated as they are more likely to explore various pathways and alternatives.
Incentives are commonly used in business to motivate employees and to align their wants with the needs of the employer (Laffont and Martimort, 2002 ). The purpose of an incentive is to provide the decision maker with a reason to follow a particular course of action.

Brynjolfsson and Mendelson (1997)
argue that the best way for employers to induce the optimal level of effort from their employees is to base their salary directly on the effort they exert. However, paying according to effort requires that the employer can monitor the employee perfectly and cheaply. In many cases it is not possible to do this and therefore carefully designed incentive mechanisms are needed. The behavioural literature on compensation systems warns that using incentives often leads to unintentional and dysfunctional consequences. Asymmetric information and unintended consequences can make incentives much more complex than the people offering them originally expected, and can lead either to unexpected windfalls or to disasters. The problem with incentive contracts is not that they don’t work but that they work too well. Agents do exactly as the incentive desires. For example, contracts that promote quantity often result in poor quality products or if bonuses are more dependent on timely project completion than on discovered failures, the employee may over invest in expedience at the expense of quality (Wash and MacKie-Mason, 2006).
Intrinsically motivated people and extrinsically motivated people need to be incentivised in different ways. While hedonically intrinsically motivated employees may be more likely to be creative, they can be demotivated by certain types of extrinsic rewards.

Amabile (1996)
identifies two types of extrinsic motivators: non-synergistic motivators and synergistic motivators. The former are controlling and they are likely to have negative impacts on creativity. For example, when monetary rewards are given for meeting specific targets, then employees only do what is necessary to meet that target. Synergistic motivators, on the other hand, support creativity and can be informational or enabling motivators. These motivators include things like frequent constructive feedback on the work, reward and recognition for creative ideas and clearly defined overall project goals. This idea is supported by recent survey findings which show that non-financial incentives are more effective and valued by employees than financial incentives. A survey, conducted by MacKinsey Quarterly, found that praise is the best incentive as it made employees feel like the firm appreciated them (Dewhurst et al., 2009). Other incentives valued by employees are leadership attention (for example, one-on-one conversations), and a chance to lead projects or task forces. We hypothesise that

H4:

Non-financial incentives support hedonically intrinsically motivated employees and hence increase creativity and innovation whilst financial incentives have less of a positive impact.

The Work Environment

The work environment is important when motivating idea generation, creatitivity and innovation.

Mumford (2000)
argues that organizations should consider multiple interventions that take into account the individual, the group, the organization, and the strategic environment when selecting interventions intended to enhance creativity. This view is supported by the Computational Model of Creativity (Amabile, 1988, 1996; Amabile and
Mueller, 2008) which argues that creativity comes from the bringing together of knowledge, creative effort, creative thinking and motivation.

Mauzy et al. (2003)
argue that effective information flow within an organisation is critical and according to

Johansson (2004)
creative success is most likely to occur where widely different ideas bump into each other.

Cummings and Oldham (1997)
find that organizations, which provide a supportive innovation context for creativity, tend to reap greater benefits from employees who are innately creative whilst

Deci and Ryan (1985)
find that management can motivate employees’ creativity. They note that support that pays attention to the employees’ needs enhances curiosity and work effort whilst simultaneously reducing their fear of making a mistake thereby encouraging risk-taking (Madjar and Ortiz
‐
Walters, 2008; Shin and Zhou, 2003) and facilitating creativity. Work colleagues also play a role in creating a supportive work environment.

Zhou and George (2001)
show that the information and skills of co-workers generates feedback, new information, and the elaboration of unusual ideas thus enhancing creativity.

Mauzy et al. (2003)
suggest that job rotation can help create this stimulating work environment.

Adams (2006)
argues that less-structured and less-bureaucratic firms are more likely to facilatate such information flows as there is likely to be more focus on ideas generation and sharing rather than on career progression.

Amabile (2013)
affirms that many techniques can be used to stimulate a creative work environment such as the creation of work teams that are collaborative, diversely skilled, and idea-focused; the creation of incentives that recognise creative work; and through creating norms for actively sharing ideas across the organization. On the other hand, political problems within the firm, excessive time pressures and harshly criticizing new ideas can block creativity. We hypothesis that

H5:

Supportive work environments (i.e. those introducing more than one idea generation and creativity stimuli) enhance creativity and hence result in higher innovation output.

In the next section we specify a model which allows us to test whether work teams and job rotation by stimulating knowledge generation increase the level of innovation within firms (
H

1), whether brainstorming and job training by stimulating creative thinking increase the level of innovation within firms (
H

2 and
H

3), and whether financial or non-financial incentives motivate employees to become more creative and hence increase the innovation within firms (
H

4). We also test whether a combination of these stimulating factors create a more supportive work environment which facilitates greater levels of innovation (
H

5).

METHODOLOGY

Sample

The data used in this paper is derived from the Irish Community Innovation Survey 2008-2010. This survey was conducted jointly by Forfás (Ireland’s national policy advisory body) and the Central Office in Ireland. Consistent with the OECD’s Oslo manual, the survey includes a reference period, which in this case is 2008 to 2010, for innovation inputs and outputs (OECD, 2005). The motivation for the CIS survey is to provide a comprehensive survey of the innovation performance of Irish firms. The survey is conducted as part of the European wide Community Innovation Survey project and is completed every two years (CSO, 2010).
A detailed review of the survey methodology can be found in

CSO (2012)
. The survey was distributed to a total of 4,532 enterprises of which 3,245 responses were returned (a response rate of 72%). The sampling frame for the CIS 2008-10 was based on enterprise size and the sector of operation. The CSO used the Statistical Classification of Economic Activities in the European Community (NACE Rev.2) to identify specific sectors to target. Specifically the CIS 2008-2010 includes industry (NACE 05-39) and selected services sectors (NACE 46, 49-53, 58, 61-66 and 71). To be included in the sampling frame the firm must have 10 or more persons engaged.
The Community Innovation Survey examines product, process, organisational and management innovation. We summarise the measures we use for our empirical analysis in this section and provide the exact questions asked in the CIS 2008-10 in Appendix 1. Product innovation is comprised of firms which introduce new to market and new to firm innovations. Specifically we argue that a firm has introduced a product innovation if it has introduced a new or significantly improved good or service. It does not matter whether this product was already being supplied to the market by their competitors. This definition encapsulates both new to market and new to firm innovation. New to market innovation is defined as the introduction of a new or significantly improved good or service onto your market before the firm’s competitors (it may have already been available in other markets) while new to firm innovation is defined as the introduction of a new or significantly improved good or service that was already available provided by the firm’s competitors. It is common in the empirical literature to combine both of these measures (see for example Doran et al. (2012a) and Doran and Ryan (2012)). Process innovation is defined as new or significantly improved methods of manufacturing or producing goods or services, new or significantly improved logistics, delivery or distribution methods for the firm’s inputs, goods or services or new or significantly improved supporting activities for the firm’s processes, such as maintenance systems or operations for purchasing, accounting or computing. Organisational innovation is defined as new business practices for organising procedures, new methods of organising work responsibilities and decision-making or new methods of organising external relations with other firms or public institutions. Finally, marketing innovation is defined as significant changes to the aesthetic design or packaging of a good or service, new media or techniques for product promotion, new methods for product placement or sales channels or new methods of pricing goods or services.
We note in Table 1 that 32% of firms in our sample introduced product innovations, 35% introduced process innovations, 40% introduced organisational innovations and 32% introduced marketing innovations. There is some overlap among firms which introduce innovations, with some introducing all four types while others only introduce one type of innovation.

[Insert Table 1 Here]

We include a number of controls in our analysis to capture firm heterogeneity in innovation performance. Summary statistics for these are also displayed in Table 1. The controls we include are firm size, ownership, external networking, R&D activity and sector. These are standard controls in the innovation literature, see for example Roper, Du and Love (2008) and Freel (2000, 2003). We can see the average firm size in our sample is 96 employees with a standard deviation of 381. Approximately 73% of the firms surveyed are Irish owned. As in Roper, Du and Love (2008) we define four types of external networking. We …