Emotional and learning capability and their impact on product innovativeness and firm performance

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Technovation 27 (2007) 501–513 www.elsevier.com/locate/technovation

Emotional and learning capability and their impact on product innovativeness and firm performance Ali E. Akgu¨na, Halit Keskina,, John C. Byrneb, Selim Arena a

Science and Technology Studies, Gebze Institute of Technology, Turkey b Lubin School of Business, Pace University, USA

Abstract Learning capability, as a part of organizational capabilities, is an important factor for product innovativeness. The antecedents of the learning capability of the firm should be expanded to leverage the understanding of how firms can develop new products with success. The human resources management and organization behavior literature indicates that emotional capability of a firm has an impact on learning capabilities. Nevertheless, emotional capability in general and its impact on learning capability, product innovativeness, and firm performance in particular is not discussed in the technology and innovation management (TIM) literature. In our investigation of 106 firms, we found that: (1) a firm’s level of emotional capability (including the dynamics of display freedom, experiencing, reconciliation, and identification constructs) has a significant affect on the firm’s learning capability (composed of the managerial commitment, systems perspective, openness and experimentation, and knowledge transfer and integration); (2) a firm’s emotional capability influences its product innovativeness via learning capability; and (3) a firm’s product innovativeness, influenced by emotional and learning capability, significantly impacts the firm performance. r 2007 Elsevier Ltd. All rights reserved. Keywords: Learning capability; Emotional capability; Product innovativeness; Product development

1. Introduction With the increasing rate of competition and information/ knowledge exploitation, organizational learning has become one of the essential instruments for the firm operations and performance (Senge, 1990; Garvin, 2000). In this sense, developing an organizational learning capability, which indicates the ability of an organization to implement the appropriate management practices, structures, and procedures that facilitate and encourage learning process (Leonard-Barton, 1992; Goh, 1998), has become a primary subject of interest to managers and researchers. Especially, when considering the role of organizational learning in product innovativeness, developing and enhancing a firm’s learning capability to devise solutions to business problems and challenges, which provide the basis for the survival and success of the firm well into the future (Lynn and Akgun, 2000; Hult et al., Corresponding author. Tel.: +90 262 605 1457; fax: +90 262 653 8521.

E-mail address: [email protected] (H. Keskin). 0166-4972/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.technovation.2007.03.001

2004). However, Jerez-Go´mez et al. (2005) argued that, despite the consensus regarding the importance of constant learning for a firm’s competitiveness, there is still debate about how managers can efficiently develop a learning capability in their firms. These authors suggest investigating the effect of different antecedents on organizational learning. In particular, they noted that ‘‘y human resource (HR) practices can be a fundamental tool in developing the organization’s learning capability, which means that analyzing their possible influence opens a new field of study that has rarely been dealt with’’ (p. 724). HR practices involve many tools and techniques, such as employee education and training, rewards, and motivations, just to name a few. However, a recent and relevant approach taken in the HR as well as organizational behavior literature is the emotional capability of employees (Jordan et al., 2002; Huy, 1999). There are many research studies addressing the impact of the emotional capability of individuals on the learning and innovation. However, missing from the technology and innovation management (TIM) literature are empirical studies on the emotional

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capability of an organization, which denotes a firm’s ability to perceive, understand, monitor, regulate, and use its members’ emotions and to manifest its members’ emotions in the organization’s routines and structures (Huy, 1999), and its impact on the firm’s learning capability and product innovativeness. Although there is widespread acknowledgement that emotions determine the possibilities and limitations of learning (Vince, 2001) and innovation (Green and Aiman-Smith, 2004), we could find no attempts to integrate learning and emotional capabilities, product innovativeness and their benefits on firm performance in the extant literature. Therefore, the aim of this study is to test empirically the impact of a firm’s emotional capability on its learning capability and the effect on product innovativeness and performance, with a view to enhancing the literature on organizational innovativeness, competencies, and learning.

structures that makes organizational learning process fluid and efficient to generate new products and enhance the firm performance. However, the effective development of organizational learning capability has not been sufficiently analyzed in the TIM literature. Jerez-Go´mez et al. (2005) for instance noted that, at the operational and empirical bases, learning capability is a complex and multidimensional concept, and is composed of (1) managerial commitment, (2) systems perspective, (3) openness and experimentation, and (4) knowledge transfer and integration dimensions. Specifically:



 2. Background 2.1. Learning capability, emotional capability and product innovativeness The HR and TIM literature indicates that firm competencies cannot be observed directly, are organization-specific and imperfectly inimitable, thereby providing unique competitive advantages for the firms in their product development activities (Fowler et al., 2000; Wang et al., 2004; Iansiti and Clark, 1994). At the same time, the TIM literature identifies different types of competencies with different emphases (see, Wang et al., 2004). One of these competencies is the learning capability of the firms.1 The TIM literature widely emphasized the importance of a firm’s learning capability as a competency, and its impact on the product innovativeness and improved performance (Montes et al., 2005; Weerawardena and O’Cass, 2004; Helfat and Raubitscheck, 2000). Chipika and Wilson (2006), for instance, noted that firms could only innovate if they have the competencies and capabilities to make use of their learning. Real et al. (2006) also argued that distinctive competencies are developed through the learning process, and with this process and together with its outcomes; a meta-learning system (i.e., learning to learn) is formed to achieve competitive advantage and to become more innovative and successful. In particular, the writers in the TIM literature (e.g., Costa and Queiroz, 2002; Ingelgard et al., 2002) noted that theoretically, learning capability facilitates a competence on: (1) information/ knowledge gathering, disseminating, sharing and utilizing of activities; (2) managerial practices that encourage and enhance the learning processes; and (3) organizational 1 Consistent with general usage and much of the strategy literature (e.g. Iansiti and Clark, 1994, Fowler et al., 2000), we use the terms competencies and capabilities interchangeably in this paper. For example, Fowler et al. (2000) point out that many writers refer to firm resources as capabilities or competencies.





managerial commitment—indicates developing and facilitating managerial support and leadership commitment for the innovation process and employee motivation. Managerial commitment promotes personal efficacy and learning, and the ability for an organization to change based on the environmental conditions; systems perspective—refers to bringing the organization’s members together around a common identity and a shared vision, interconnecting the activities of employees—promoting joint actions, and developing relationships based on the exchange of information and shared mental models; openness and experimentation—denotes a climate of accepting new ideas and points of view, both internal and external, allowing individual knowledge to be constantly renewed, widened, and improved. It favors experimentation to search for innovative and flexible solutions to current and future problems based on the possible use of different methods and procedures; and knowledge transfer and integration—which refers to the internal spreading of knowledge through verbal and non-verbal communications, e.g., formal and informal conversations, dialogue, debate, and interaction among individuals, and the information systems that aid in the accuracy, reproducibility and availability of the information.

Another firm competency is the emotional capability of the firm (Huy, 1999). The term emotion refers to both exaggeratedly expressive communications and to internal states related to feelings, such as love, hate, courage, fear, joy, sadness, pleasure and disgust (Perlovsky, 2006). The emotional capability of an individual indicates the ability of one to perceive, access and generate emotions so as to assist thought, to understand emotions and emotional knowledge, and to reflectively regulate emotions in self and in others so as to promote emotional and intellectual growth (Mayer and Salovey, 1997, p. 5). In this respect, emotional capability is inherently an individual-level concept. However, the writings on the organizational behavior and management literature also argue that emotions may be attributable to organizations as well as to individuals (see, Fineman, 1993; Rafaeli and Worline, 2001; Ashforth and Humphrey, 1995; Domagalski, 1999). For instance, Domagalski (1999) point out that emotions

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are part of the organizational life and saturate the workplace. Based on the work of Bion (1961), for instance, people share common assumptions about an organization that emanates from deep emotional sources, and that these shared basic assumptions are largely unconscious and nonverbalized. Also, based on the structuration theory of Giddens (1984), a person’s feelings and emotions are determined by internal individual characteristics, organizational structure, routines, and culture. And in turn, organizational structure, routines and culture is created or shaped by the collective actions and interactions bonded by emotions (Fineman, 1993; Giddens, 1984). In this sense, an organizational emotional capability is tacit and embedded in the social system of a group of individuals, in their relationships/interactions and their networks/ shared experiences; and emerges throughout the interactive organizational processes (Huy, 1999). In his theoretical study, Huy (1999), further, described six emotional dynamics, which express the emotional states of the organization, that illustrate the emotional capability concept. Specifically, since using an individual level construct (i.e., emotional capability of individuals) for a higher level entity, such as an organization, causes an anthropomorphic or cross-level fallacy and reification bias (AllardPoesi, 1998), and aggregating the individuals’ emotional capability does not represent the organization’s emotional capability, Huy (1999) suggested the usage of the term ‘‘emotional dynamics’’ for the organizational level of emotional capability. The use of ‘‘emotional dynamics’’ provides a meso-perspective, bridging the micro- and macro-levels of emotional capability, and removes the border between individual and organizational levels of emotional capabilities. Using emotional dynamics neither neglects the individual or the organizational levels nor does it restrict the organizational emotional capability to one of those levels. Also, those dynamics indicate the processes and mechanisms of how people perceive, appraise, understand, and express emotions in their interactions with others, and reflect the display and regulation of feelings among people, and how organizations evoke, inspire, elicit, and manage emotions. In particular, those dynamics help us to operationalize an organization’s emotional capability. These emotional dynamics include the dynamic of encouragement, display freedom, playfulness, experiencing, reconciling, and identification. In particular:

 

 

dynamic of encouragement—denotes the organization’s ability to instill hope among all of its members; dynamic of display freedom—refers to the organization’s ability to facilitate the variety of authentic emotions that legitimately can be displayed (and felt) in the organization; dynamic of playfulness—refers to the ability of an organization to create a context that encourages experimentation and that tolerates mistakes; dynamic of experiencing—refers to the quality of an organization’s efforts to identify the variety of emotions,

 

503

to accept and internalize them, and to act on a deep level of understanding; dynamic of reconciliation—is the process of bringing together two seemingly opposing values people feel strongly about; and dynamic of identification—refers to the collective behavior whereby organization members express their deep attachment to salient organization characteristics.

It is interesting to note the overlap of the above four learning capability constructs and six emotional capability constructs. Specifically, the operationalization as well as conceptualization of dynamics of playfulness is similar to openness and experimentation, and the dynamic of encouragement and managerial commitment are alike (Huy, 1999). Therefore, we will use the four learning capability constructs and these four emotional dynamics, excluding the dynamic of playfulness and encouragement. As mentioned above, emotional and learning capabilities are imperative for successful innovativeness and performance. We all recognize that the firm innovativeness is a multidimensional construct involving several aspects such as product, process, market, technological and strategic planning (Wang and Ahmed, 2004; Hurley and Hult, 1998). In this study, however, we specifically focused on product innovativeness. Product innovativeness refers to the novelty and meaningfulness of new products introduced to the market in a timely fashion (Wang and Ahmed, 2004); it is the most researched type of innovation in the literature, and has been described as an essential process for firm success (Brown and Eisenhardt, 1995). However, there is scant investigation of these joint constructs, i.e., learning and emotional capability, product innovativeness, and performance. To address this deficiency, the present study developed a model based on innovation management, HR, organizational learning, and organizational behavior scholarship. By adapting learning capability (Jerez-Go´mez et al. (2005) and emotional capability (Huy, 1999) constructs in HR, organizational learning and behavior scholarship, and studying TIM literature (Hurley and Hult, 1998; Wang and Ahmed, 2004), as shown in Fig. 1, we demonstrate that:

  

emotional capability impacts learning capability, emotional capability influences product innovativeness via a firm’s learning capability and product innovativeness, which is affected by emotional and learning capabilities simultaneously, impacts firm performance.

3. Hypotheses development The learning capability of a firm can be enhanced by its emotional capability. For instance, Vince (2001) noted that learning primarily occurs in the context of social relations and their complex interactions, which are profoundly influenced by both individual and collective emotions.

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504

• • • •

Emotional Capability Dyn. of display freedom Dyn. of experiencing Dyn. of reconciliation Dyn. of identification

H3 Product Innovativeness

H1

Firm Performance

H2

Learning Capability • Managerial commitment • Systems perspective • Openness and experimentation • Knowledge transfer and integration Fig. 1. Conceptual research model.

Fineman (1997) suggests that emotions provide the necessary impetus for learning, and states that, ‘‘Emotions should be considered not just a by-product or interference to the learning process, but also intrinsic to what is learned, how it is learned and the organizational context in which learning takes place’’ (p. 13), Specifically, in the organizational context, a firm’s ability to manage the emotions is, in essence, managing: (1) the anxiety and resistance arising from the anxiety (Vince, 2001); (2) the internal feelings of employees, such as fear, joy, excitement, disgust, or anger, and changes to them (Kagan, 1984); and (3) the employees’ expressive behavior and inclinations to act (Frijda et al., 2000). We find that a firm’s capability to manage its individuals and their collective emotions, will enhance its ability to (1) generate fruitful ideas and knowledge across multiple boundaries, through specific management initiatives (Yeung et al., 1999); (2) learn the lessons of its experience and to pass those lessons across boundaries and time (Ashkenas et al., 1995); (3) recreate its own solutions for change and improvement; (4) train and educate their employees for gaining benefits from their skills and abilities; (5) acquire, disseminate, and integrate market, technology, and competition information for the firm’s value creating activities and (6) develop a shared vision and collective understanding on operations and tasks. For instance, providing freedom for displaying emotions enhances the firm’s learning capability; and Perel (2005) is explicit noting the positive effects of giving people opportunities to express their display freedom in order to passionately pursue ideas. This also means that displaying emotions freely, without fear, guilt and embarrassment, give people the impetus to continue their jobs with greater energy (Huy, 2005). Ashforth and Humphrey (1995) point out that certain organizational tasks (e.g., creative processes and learning) may benefit from an environment that allows for greater expression and discussion of emotions. Also, when firms grant freedom with support for their employees to express their ideas, feelings and emotions, different views and approaches may be captured enhancing the learning process

(Ashforth and Humphrey, 1995). Further, displaying of emotions freely brings about and enhances our interactions with others; it helps us to use information/knowledge in social situations, and provides an indirect means of communicating information about ourselves and what we think of others. Also, the dynamic of experiencing influences the firm’s learning capability. Experiencing the same or other appropriate emotions in response to others’ feelings and to communicate or act on this internal experience enables people to respond to a broad range of information and social stimuli from inside and outside the organization enhancing the learning process. Specifically, comprehending and experiencing another person’s emotions (empathy) motivates and enhances prosocial behavior, such as collaboration, help, altruism, or voluntarism; it helps one to consider and accept another person’s opposing viewpoint more easily and to achieve a higher collective gain; it also fosters reciprocity and trust, which in turn facilitates the creation and acquisition of knowledge (Nahapiet and Ghoshal, 1998); and provides an understanding of the degree to which knowledge is embedded in the organization. Next, the dynamic of emotional reconciliation will also influence the firm learning capability. Since groups and organizations comprise individuals with a variety of emotions, reconciling diverse opinions leads to a more effective group discussion and avoids group-think; it results in solving complex and non-routine problems; provides a variety of perspectives and ideas; and fosters higher-quality decisions and learning (Bantel and Jackson, 1989). Further, the emotional dynamic of identification affects the firm learning capability. The literature indicates that individuals’ emotional bonds and ties to the organization, which facilitate achieving harmony among people, is an antecedent of organizational learning capability (Huy, 2005). The dynamic of identification helps people to internalize the organization’s values to perceive more meaning in the task and to subordinate their emotional self-control to job demands; and increases personal

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commitment and loyalty (Mathieu and Zajac, 1990) to enhance the learning. Therefore, we hypothesize that: H1. Emotional capability of an organization is positively associated with its learning capability. Emotional capability helps organizations to monitor, evaluate and use their employees’ emotions to contribute to the product innovation process as well. A firm-level emotional capability directs the employees’ emotions towards an increase in new product development and innovativeness, because employee motivation and involvement are not possible without an emotional connection to the work or work context, and in particular, the new products embody or elicit the emotions of people (Frijda, 1986). For instance, based on the knowledge management literature, organizations incorporate emotions into vehicles or mediums as, for instance, in design solutions (e.g., components and architectures), products, standard methodologies and procedures, or organizational structure and routines. These are easily transferred, shared, and utilized in a productive way throughout the organization (Madhavan and Grover, 1998). However, even though emotional factors have an effect on product effectiveness, they may not necessarily be immediately apparent in product innovativeness (Weiss and Cropanzano, 1996). Specifically, emotional capability influences product innovativeness by the way of learning capability—learning capability mediates the relationship between emotional capability and product innovativeness. The rational is that even though emotions can improve the decision-making process, by affording a better understanding of one’s emotional reaction and facilitates cognitive processes such as creativity,2 those emotions should be harmonized and assimilated, and then utilized for effective product development. For example, an organization’s ability (1) to instill hope among all of its members, to provide freedom for displaying emotions, (2) to identify the variety of emotions, support, direct, and then incorporate and reconciliate them, and (3) to foster collective behavior with a common emotion will influence its effectiveness for product innovativeness and new product development activities. This is true only to the extent that an organization demonstrates a leadership commitment for the innovation process, promotes joint actions, identifies a shared goal and common identity, fosters experimentation on new product ideas, and transfers and integrates the knowledge among the individuals in the organization. Learning capability thus helps organizations to channel and embed emotional capability into product innovativeness. Therefore, we hypothesize that: 2 The literature indicates that the process by which the innovative ideas for new products emerge is closely related to the emotions of creative people (Van de Ven, 1986). Emotions provide evaluative information and supply ‘‘energy’’ (motivation) for creativity. We see this when employees are free to make judgments and create and develop new ideas through the application of subjective emotions and empathic awareness.

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H2. Emotional capability is positively associated with product innovativeness via learning capability. After demonstrating the relationships among learning and emotional capabilities and product innovativeness, their impact on the firm performance should be investigated. This is particularly true as a firm’s performance is an essential criterion for managerial success. TIM literature broadly indicates the importance of product innovativeness for firm performance (e.g., Danneels and Kleinschmidt, 2001). The justification is that firm performance, as defined by the profitability and growth in sales and market share, is the result of the new product innovations. The empirical studies of organizational innovation have also shown that there is a positive and direct relationship between product innovation and business performance (Han et al., 1998; Hurley and Hult, 1998). For example, Desphande and Webster, 1993, investigating Japanese firms, found that innovativeness is positively related to a firm’s financial performance. Therefore, in the emotional and learning capability context, we hypothesis that: H3. Product innovativeness, which is influenced by emotional and learning capabilities, is positively associated with firm performance. 4. Research method 4.1. Measures and sampling To test the above hypotheses, we used multi-item scales adopted from prior studies for the measurement of constructs. We measured 10 constructs using 5-point Likert scales ranging from ‘‘strongly disagree’’ (1) to ‘‘strongly agree’’ (5). The measures are included in the Appendix A. A brief explanation of the measures is below. For emotional capability, we developed the question items based on Huy (1999). We asked three questions for the dynamic of display freedom, four questions for dynamic of identification, and five questions each for dynamic of experiencing and reconciliation. Since the emotional capability question items were new, we asked three academics from US-based universities to evaluate the content and meaningfulness of the items to establish face validity. The scholars did not indicate any difficulty understanding the items or scales. The learning capability question items were adopted from Jerez-Go´mez et al. (2005). Jerez-Go´mez et al. (2005) operationalized learning capability as a multidimensional construct composed of managerial commitment, systems perspective, openness and experimentation, and knowledge transfer and integration. We asked four questions for managerial commitment, four questions for openness and experimentation, three questions for systems perspective and three questions to address knowledge transfer and integration. We derived the product innovativeness questions from Wang and Ahmed (2004) and asked four questions.

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To measure firm performance, seven questions were asked. These were adopted from Ellinger et al. (2002) and York and Mire (2004). Since a multi-company and multi-industry sample was used (i.e., selection of a diverse set of industries improves the generalizability of the research findings to a broader population), performance differences in the nature of firms were controlled by using relative performance measures. Firm performance was assessed relative to the achievement of organizational goals related to profitability and growth in sales and market share. We used the firm size and age as control variables in our model, because researchers suggest that firm size and age can have significant influence on firm innovation and performance (Rothaermel and Deeds, 2004). Firm age was assessed by asking the number of years since the firm was founded (Gulati and Higgins, 2003) and firm size was indicated by the logarithm of the number of employees (Zhou et al., 2005). By using the parallel-translation method, question items adopted from the literature were first translated into Turkish by one person and then retranslated into English by a second person to make sure that the meanings of question items were correctly transformed from English to Turkish. The two translators then jointly reconciled all differences. The suitability of the Turkish version of the questionnaires was then pre-tested by five part-time graduate students working in industry. After refining the questionnaire, based on interviews with the pre-test subjects and managers from the industry, the questionnaires were distributed and collected by the authors, using the ‘‘personally administrated questionnaire’’ method. The initial sample consisted of 250 firms in the industrial area of Turkey, nearby Istanbul. Those firms were selected because they develop new products and export them to other countries, such as the UK, Germany, Arabic countries, Central Asia and Russia, as indicted by the Istanbul Chamber of Industry. Also these firms are organized and managed based on the Western management style, e.g., they operate in accordance with ISO quality standards. First, we contacted the firms’ General Managers by telephone and explained the aim of the study to them. Of the 250 firms contacted operating in a variety of sectors, 146 agreed to participate in the survey study. From these firms, we were able to gather usable data from 106 firms (42% response rate). To reduce the possible problems associated with single sourcing, we selected the most knowledgeable person, as pointed out by general manager, as key informants to complete the survey. After the respondents were selected, each was informed that his/her responses would remain anonymous and would not be linked to them individually, their companies or products. This was done to assure anonymity, increasing the motivation of informants to cooperate without fear of potential reprisals. Table 1 demonstrates our sample’s characteristics.

Table 1 Characteristics of the study sample Frequency

Percent

Industry Manufacturing Service Automotive Food Textile Communication Finance Electronics Chemistry Total

31 16 11 11 10 8 7 6 6 106

29 15 10 10 9 8 7 6 6 100

Number of employees Less than 100 100–249 250–499 500–999 1000–2499 Over 2500 Total

48 20 14 9 7 8 106

45 19 13 8 7 8 100

Age of firms Less than 10 10–24 25–49 Over 50 Total

28 38 23 17 106

26 36 22 16 100

Respondent position Senior employee/staff Senior engineer Department manager Product manger Technical leader General manager Total

33 28 23 10 8 4 106

31 26 22 9 8 4 100

4.2. Measure validity and reliability After data collection, measures were subjected to a purification process to assess their reliability, unidimensionality, and discriminant validity (Fornell and Larcker, 1981; Anderson and Gerbing, 1988). To asses the unidimensionality, measures were divided into three subsets of theoretically related variables: the four emotional capability measures (i.e., dynamic of display, experiencing, reconciliation, and identification); four learning capability measures (i.e., managerial commitment, systems perspective, openness and experimentation, and knowledge transfer and integration); and two outcome measures (i.e., product innovativeness and firm performance) as recommended by Moorman and Miner (1997) and Bentler and Cho (1988) due to the small sample size. Results indicate that three models fit adequately: the four emotional capability variables (w2(113) ¼ 204.67, RMSEA ¼ 0.08, CFI ¼ 0.89; IFI ¼ 0.89), four learning capability variables (w2(71) ¼ 107.52, RMSEA ¼ 0.07, CFI ¼ 0.95; IFI ¼ 0.95), outcome variables (w2(43) ¼ 88.21, RMSEA ¼ 0.10, CFI ¼ 0.93; IFI ¼ 0.93).

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To asses the discriminant validity, a series of two-factor models, recommended by Bagozzi et al. (1991) were estimated in which individual factor correlations, one at a time, were restricted to unity by using AMOS 4.0. The fit of the restricted models was compared with that of the original model. The chi-square change (Dw2) in each model, constrained and unconstrained, were significant, Dw24 3.84, which suggests that constructs demonstrate discriminant validity. Further, the measures were subjected to Confirmatory Factor Analysis (CFA) using AMOS 4.0. All 10 factors were included in one CFA model. For the CFA analysis, subscales or parcels were used (a method of aggregating or taking the mean of several items that purportedly measure the same construct as indicators of a latent variable), instead of individual items, as recommended by Drasgow and Kanfer (1985), and Schmit and Ryan (1993) due to the small sample size. These researchers noted that goodnessof-fit measures are affected when the number of items used to identify a small number of factors is relatively large. Consistent with this approach, two sub-scores or parcels for each scale were created, each consisting of a randomly divided subset of the items in the scale. The CFA produced a good fit with an incremental fit index (IFI) of 0.96 and a comparative fit index (CFI) of 0.95 (also, w2(125) ¼ 186.02, RMSEA ¼ 0.07). A second-order confirmatory factor analysis of a model depicting the dynamics of display freedom, experiencing, reconciliation, and identification was also conducted because the first-order factors loading onto a single emotional capability factor included 17 observable variables (reflecting four latent factors). This model also yielded acceptable fit indices (w2(118) ¼ 211.44; CFI ¼ 0.89; IFI ¼ 0.89; RMSEA ¼ 0.09). In addition, all first- and second-order factor loadings were significant, thereby providing evidence for the plausibility of the thesis that emotional capability is a multifaceted construct construed

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from dynamics of display freedom, experiencing, reconciliation, and identification. A second-order confirmatory factor analysis of a model depicting the managerial commitment, systems perspective, openness and experimentation, and knowledge transfer and integration was also conducted because the first-order factors loading onto a single learning capability factor included 14 observable variables (reflecting four latent factors). This model also yielded acceptable fit indices (w2(76) ¼ 113.23; CFI ¼ 0.95; IFI ¼ 0.95; RMSEA ¼ 0.07). In addition, all first- and second-order factor loadings were significant, thereby providing evidence for the plausibility of the thesis that learning capability is a multifaceted construct construed from managerial commitment, systems perspective, openness and experimentation, and knowledge transfer and integration. Table 2 shows the correlation among all 12 variables. The relatively low-to-moderate correlations provide further evidence of discriminant validity. 5. Analysis and results To test our hypotheses, we performed a series of multiple linear regression models and analyses using the Partial Least-Squares (PLS)-based Structural Equation Modeling (SEM) technique. The mean of items (composite score) was used for each variable. Table 3 demonstrates the results of the impact of the emotional dynamics on the learning capability. As shown in Table 3, first we regressed each learning capability construct on each emotional capability variable to gain greater insight. The results indicate that when managerial commitment was selected as the dependent variable, the dynamic of display freedom and reconciliation were significant predictors. When system perspective was selected as the dependent variable, the dynamic of display freedom, experiencing, and reconciliation were the significant

Table 2 Descriptive scales and construct correlations, and reliability estimates

1 2 3 4 5 6 7 8 9 10 11 12

Variables

1

2

3

4

5

6

7

8

9

10

11

12

Firm performance Product Innov. D. of display freedom D. of identification D. of experiencing D. of reconciliation Mng. com Sys. per. Openness and exp. Know. trans. & intg. Firm size Firm age

— 0.54*** 0.24** 0.40*** 0.36*** 0.22** 0.35*** 0.26*** 0.41*** 0.30*** 0.04 0.24**

— 0.37*** 0.45*** 0.45*** 0.25** 0.36*** 0.31*** 0.55*** 0.37*** 0.04 0.18

— 0.45*** 0.52*** 0.37*** 0.69*** 0.57*** 0.62*** 0.57*** 0.17 0.07

— 0.55*** 0.53*** 0.51*** 0.48*** 0.57*** 0.32*** 0.16 0.07

— 0.54*** 0.53*** 0.59*** 0.57*** 0.47*** 0.12 0.07

— 0.57*** 0.52*** 0.36*** 0.43*** 0.03 0.06

— 0.65*** 0.64*** 0.59*** 0.07 0.07

— 0.54*** 0.59*** 0.25** 0.12

— 0.55*** 0.23** 0.20**

— 0.02 0.01

— 0.43***

—

3.53 0.71 0.88

3.74 0.93 0.87

3.49 0.79 0.71

3.62 0.69 0.62

3.69 0.69 0.87

3.48 0.79 0.89

3.51 0.85 0.81

3.58 0.88 0.86

3.67 0.77 0.81

3.59 0.79 0.67

2.17 0.83 NA

21.08 18.19 NA

Mean S.D. Cronbach a *

po0.1;

**

po0.05;

***

po0.01.

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Table 3 The impact of emotional dynamics on learning capability constructs Independent variables

Beta Managerial commitment

D. D. D. D.

of of of of

display freedom identification experiencing reconciliation

0.61*** 0.11 0.04 0.24***

Systems perspective 0.28*** 0.08 0.29** 0.20**

Openness and experimentation

Knowledge transfer and integration

0.39*** 0.32*** 0.25*** 0.11

0.53*** 0.05 0.16 0.15

Cumulative emotion. cap. Firm size Firm age

0.21*** 0.04

0.09 0.003

0.04 0.11

F R2adj

27.71*** 0.61

15.58*** 0.46

18.63*** 0.50

*

po0.1;

**

po0.05;

0.23*** 0.02 12.42*** 0.40

***

po0.01.

predictors. The dynamic of display freedom, identification, and experiencing were significant predictors, when openness and experimentation as a dependent variable was selected. Finally, when the knowledge transfer and integration was selected as a dependent variable, we found that the dynamic of display freedom was the significant predictor. Regarding the control variables, the results showed that larger the firm size, the higher the management commitment, and knowledge transfer and integration. It appears that when the number of employees increases in the firm, the need for managerial support and leadership commitment and internal spreading of knowledge through verbal and non-verbal communications for the innovation process and employee motivation increases. To test our hypotheses, we used Structural Equation Modeling (SEM) technique. The particular SEM technique used was Partial Least Squares (PLS). PLS is a regressionbased technique that originates from path analysis, and has emerged as a powerful approach to study causal models involving multiple constructs with multiple indicators. The PLS method has an ability to model latent constructs that are uncontaminated by measurement error under conditions of non-normality and small-to-medium sample sizes, and to handle complex predictive models, which is preferable to techniques such as regression assuming error-free measurement (Chin and Newsted, 1999; Wang et al., 2004). Also PLS is the most appropriate SEM approach to use when the aims of the study are predictive applications and/or theory building (Chin and Newsted, 1999). As this study introduced a model to examine the relationships between emotional and learning capability, product innovativeness and firm performance, and the sample size is relatively small (N ¼ 106 firms), PLS was deemed to be the most suitable approach. In this respect, we used PLS Graph 3.0 and Bootstrapping resampling method to test their statistical significance. This procedure entailed generating 100 sub-samples of cases randomly selected, with replacement, from the original data.

As shown in Fig. 2, the results indicate that emotional capability has a positive association with learning capability (b ¼ 0.81, po0.01), supporting H1. Regarding the mediating role of learning capability between emotional capability and product innovation, the results shows that emotional capability has a positive relation with learning capability, and learning capability has a positive association with product innovativeness (b ¼ 0.29, po0.05). However, we could not find any statistical relationship between emotional capability and product innovativeness, hypothesis H2 was supported. The results also demonstrate that product innovativeness, which is influenced by emotional and learning capabilities, has a positive association with firm performance, supporting H3. Finally, our results indicate that emotional capability explains the 65% of variance (R2 ¼ 0.65) in the learning capability; learning capability and emotional capability together explain the 26% of variance in product innovativeness; and all independent variables explain the 29% of variance in the firm performance. Table 4 summarizes our results. 6. Discussion and implications In this study, we investigated the impact of emotional capability on learning capability and product innovativeness, and then explored their combined effect on firm performance. We found that a firm’s emotional capability influences its learning capability. Specifically, when an organization: (1) has the ability to facilitate a variety of authentic emotions that legitimately can be displayed; (2) encourages people to express their full range of emotions without fear of reprisal; and (3) facilitates learning and exploration of the alternatives—dynamic of display freedom—that firm can: (1) involve people in important decision-making processes (i.e., managerial commitment); (2) carry on effective program changes; bring out innovative ideas; and improve work processes, procedures and methods (i.e., openness and experimentation); and (3) facilitate the transfer information/knowledge

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509

D. of display freedom

Control Variable: Firm Size Firm Age

0.36**

D. of identification D. of experiencing

0.30** 0.34**

Emotional Capability

0.26**

0.23

D. of reconciliation

R2= 0.29

R2= 0.26

0.81**

0.53**

Product Innovativeness

Mng. com

Firm Performance

0.29* 0.31** R2= .65

Sys. per.

Openness and exp

0.29** 0.33**

Learning Capability

*p<0.05,**p<.01

0.26**

Know. trans. & intg. Fig. 2. Results.

Table 4 Summary of results Dependent variables

D. of display freedom D. of identification D. of experiencing D. of reconciliation Emotional capability Learning capability Product innovativeness

Manag. Commit.

Sys. Persp.

Open. Exper.

Know. Trans. Integ.

|

|

|

|

| |

| | |

among the individuals (i.e., knowledge transfer and integration). In addition, people in the firm can work together in a coordinated fashion, have generalized knowledge regarding the firm’s objectives, and are well aware of how they contribute to achieving the overall objectives (i.e., systemic perspective). Also, if the firm can bring together opposing values; and people in the organization can jointly develop a meaningful bridge among their emotions, retain their private feelings while supporting the understanding of others with no direct sharing of that person’s experience—dynamic of reconciliation, that firm can: (1) promote personal efficacy and learning, and facilitate managerial backing, and (2) bring people together around a common identity and a shared vision (i.e., managerial commitment).

Learning capability

Product innovativeness

Firm performance

| | |

We have also found that when people in the firm show loyalty to the organization, express their deep attachment to salient organizational characteristics such as values and beliefs, and stay together due to the mutual benefits and emotional bonds—dynamic of identification, (1) that firm is more market aware, observing what other firms in the sector are doing, adopting those practices and techniques it believes to be useful and interesting, and (2) the employees can express their opinions and make suggestions regarding the procedures and methods in place for carrying out tasks (i.e., openness and experimentation). Next, when people in the firm communicate their emotions with others, demonstrate care and concern for one another, and have the ability to understand others feelings (i.e., dynamic of experiencing), (1) the organization

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can develop a climate for accepting new ideas and points of view, both internal and external, and favor experimentation, promote joint actions, and foster relationships based on the exchange of information and shared mental models (i.e., systemic perspective), and (2) people can constantly renew, widen, and improve their knowledge (i.e., openness and experimentation). This study also shows that emotional capability has an impact on product innovativeness by the way of learning capability. Specifically, a firm turns its emotional capability into new products and services, which (1) are often perceived as very novel by customers and first-tomarket, and (2) take the firm up against new competitors, via facilitating the managerial commitment, systems perspectives, openness and experimentation, and knowledge transfer and integration. In a sense, a firm can introduce more innovative products than its competitors to the extent that emotions of employees are managed and manifested in the organizational routines, particularly when organizational emotion management actions are coupled with the capability of problem solving, knowledge acquiring, disseminating and utilizing, coordinating employees’ actions, and elevating leadership commitment. This study further shows that in order to perform better than competitors in respect to sales, market share, and financial performance (i.e., firm performance), a firm should develop and launch new products. However, a new product needs to embody the firm’s learning and emotional capability to become successful in the market. Specifically, emotion management actions, strengthened by the facilitative leadership, experimentation, open-mindedness, sense of collectivism, and effective knowledge sharing and management, should surrender and cover the new products. The implication of this study for managers is that managers should foster the development of emotional capability in the organization. Management should understand, monitor, and manage the employees’ emotions and manifest those emotions in the organizational routines, norms, and culture by fostering emotional dynamics. In addition, management should promote a learning capability for the organization. Especially, management should instill an information/knowledge management system for effective transfer and integration of the information, encourage experimentation, develop a collective understanding and systems view for employees by promoting teamwork and job rotation, and encourage innovative ideas. 7. Limitations and future research There are some methodological limitations to this study—notably, single sourcing, self-reporting, and retrospective reporting. Our research is prone to common method bias since, in the questionnaire, the dependent variable was answered by the same respondents that

answered the independent variable, in a cross-sectional manner. We checked this potential problem with the Harman one-factor test (Podsakoff and Organ, 1986). An unrotated factor analysis of seven focal variables resulted in a seven-factor solution, as expected, which accounted for 73.78% of the total variance; and Factor 1 accounted for 26.18% of the variance. Because a single factor did not emerge and Factor 1 did not explain most of the variance, common method bias is unlikely to be a concern in our data. Utilizing a cross-sectional design with questionnaires was also one of the limitations of this study. A future research strategy that may overcome this limitation is one that involves longitudinal studies in which flow of knowledge and emotions can be followed over time. In addition, using objective measures, archival data for some variables, such as new product success, and firm performance, may give results that are more objective. In addition to the nature of data, the generalizability of sampling is another limitation of this study. The study has been conducted in a specific national context, Turkish firms. It is important to note that readers should be cautious when generalizing the results to different cultural contexts. Further, the sample size is relatively small, requiring the increased sample size. Future research should investigate the antecedents of emotional capability. In addition, inclusion of the moderator variables, such as environmental uncertainty and industry type, into the model can be studied. Also, how types of new products, incremental versus radical, affect the usage of emotions and learning infrastructure can be studied. Further, the interrelations among the learning and emotional capabilities, and technological and market capabilities, and their combined effect on firm innovativeness can be investigated in detail. In this study, we only studied product innovativeness. In future studies, process, market, and technological and strategic innovativeness can be studied in the context of emotional and learning capabilities. 8. Conclusion The TIM literature demonstrates the importance of learning capability for product innovativeness, which is vital for firm performance. However, the role of emotion capability on the learning capability and product innovativeness was not addressed in the literature. In this study, we empirically demonstrated that firm level emotional capability, including the dynamics of display freedom, experiencing, reconciliation, and identification, has an impact on the firm’s learning capability, composed of the managerial commitment, systems perspective, openness and experimentation, and knowledge transfer and integration. We also showed that product innovativeness is influenced indirectly by emotional capability. We also demonstrated that a firm’s learning capability mediates the relationship between product innovativeness and

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emotional capability. Finally, we noted that conducting research on the emotion capability in innovation management is a fruitful research stream.

A.2. Emotional capability (adapted from Huy (1999))

Appendix A. Measures



A.1. Learning capability (adopted from Jerez-Go´mez et al. (2005))



Dynamics of display freedom:



Managerial commitment:

   

The managers frequently involve their staff in important decision-making processes. The firm’ s management looks favorably on carrying out changes in any area to adapt to and/or keep ahead of new environmental situations. Employee learning capability is considered a key factor in this firm. In this firm, innovative ideas that work are rewarded. Systems perspectives:

  

All employees have generalized knowledge regarding this firm’ s objectives. All parts that make up this firm (departments, sections, work teams, and individuals) are well aware of how they contribute to achieving the overall objectives. All parts that make up this firm are interconnected, working together in a coordinated fashion. Openness and experimentation:

   

  

This firm promotes experimentation and innovation as a way of improving the work processes. This firm follows up what other firms in the sector are doing, adopting those practices and techniques it believes to be useful and interesting. Experiences and ideas provided by external sources (advisors, customers, training firms, etc.) are considered a useful instrument for this firm’ s learning. Part of this firm’s culture is that employees can express their opinions and make suggestions regarding the procedures and methods in place for carrying out tasks.

511

Our firm has ability to facilitate the variety of authentic emotions that legitimately can be display. Learning and exploration of the alternatives are not bounded in our firm. In our firm, people are encouraged to express their full range of emotions without fear of reprisal. Dynamics of identification:

 

 

Members of our firm express their deep attachment to salient organizational characteristics such as values and beliefs. Members of our firm stay together because there are mutual benefits: among the most important of those are the emotional bonds that develop over time in relation to self-identified and shared organizational characteristics. Members of our firms have feelings of a basic level of security and comfort. People defense our firm’s name and reputation to outside work boundaries. Dynamics of experiencing:

   



Our members have ability to understand others feelings. People in our firm experience the same or other appropriate emotions in response to others feelings. People in our firm communicate their emotions with others. People are able to read the subtle social cues and signals given by others in order to determine what emotions are being expressed and understanding the perspective of the other individual. People in our firm demonstrate care and concern for one another. Dynamics of reconciliation:

  

Knowledge transfer and integration:



Errors and failures are always discussed and analyzed in this firm, on all levels. Employees have the chance to talk among themselves about new ideas, programs, and activities that might be use to the firm. The firm has instruments (manuals, databases, files, organizational routines, etc.) that allow what has been learnt in past situations to remain valid, although the employees are no longer the same.



Our firm has ability to bring together two seemingly opposing values people feel strong about. People in our firm retain their private feelings while understanding those of others. People in our firm can jointly develop a meaningful bridge among their emotions. People in our firm feel the general feeling of another with no direct sharing of that person’s experience. People in our firm can maintain their feelings while appreciating those of others.

A.3. Product innovativeness (adopted from Wang and Ahmed (2004))



In new product and service introduction, our company is often first-to-market.

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Our new products and services are often perceived as very novel by customers. New products and services in our company often take us up against new competitors. In comparison with competitors, our company has introduced more innovative products and services during the past 5 years.

A.4. Firm performance (adopted from Ellinger et al. (2002)) In comparison to our competitors, we have more:

      

Return of investment. Marker share. Sales. Profitability (%). Earnings. Gross margin (profitability/total sales). Market value.

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Ali E. Akgu¨n received his M.S. degree in engineering management from Drexel University, Philadelphia, PA, and his Ph.D. in technology management from Stevens Institute of Technology, Hoboken, NJ. He is an Associate Professor of Science and Technology Studies in the School of Business Administration, Gebze Institute of Technology, Gebze-Kocaeli, Turkey. His research has been published in the Human Relations, Journal of Engineering and Technology Management (JET-M), Journal of Product Innovation Management, the IEEE Transactions on Engineering Management, Information & Management, Research Technology Management, Industrial Marketing Management, International Journal of Technology Management, among other journals. His research areas are new product/technology development, organizational learning, and cognitive and social psychology in innovation management.

Halit Keskin received his Ph.D. in management and organization from the Gebze Institute of Technology, Gebze-Kocaeli, Turkey. He is an Associate Professor of Science and Technology Studies in the School of Business Administration, Gebze Institute of Technology. His research has been published in the the IEEE Transactions on Engineering Management, and Information & Management. His research interests include technology and innovation management, knowledge management, organizational memory and human resource management in high-tech firms.

John C. Byrne received his Ph.D. degree in technology management from Stevens Institute of Technology, Hoboken, NJ, and his M.B.A. degree from Pace University, New York. He is an Assistant Professor of Management at Lubin School of Business, Pace University. Prior to his academic career, he spent more than 30 years in several technology fields: biotechnology, electronic instrument manufacturing, and precision optics. He has managed capital biotechnology projects for many of the world’s leading biotechnology companies, and acted as a corporate liaison with facilities in France, Switzerland, and England. He maintains a consulting practice addressing the pharmaceutical and biotechnology industries. He has published on organizational learning, emotional intelligence, and peer feedback.

Selim Aren received his Ph.D. in Accounting and Finance from the Gebze Institute of Technology, Gebze-Kocaeli, Turkey. He is an Assistant Professor of Accounting and Finance in the School of Business Administration, Gebze Institute of Technology. His research interests include financial management and financial engineering.