Damanpour, Walker, Avellaneda - 2009 PDF

Journal of Management Studies 46:4 June 2009
doi: 10.1111/j.1467-6486.2008.00814.x
Combinative Effects of Innovation Types and

Organizational Performance: A Longitudinal Study
of Service Organizations
Fariborz Damanpour, Richard M. Walker and

Claudia N. Avellaneda
Rutgers University; University of Hong Kong; University of North Carolina at Charlotte
abstract Innovation research suggests that innovation types have different attributes,
determinants, and effects. This study focuses on consequences of adoption of three types of
innovation (service, technological process, and administrative process) in service organizations.
Its main thesis is that the impact of innovation on organizational performance depends on
compositions of innovation types over time. We examine this proposition by analysing
innovative activity in a panel of 428 public service organizations in the UK over four years.
Our findings suggest that focus on adopting a specific type of innovation every year is
detrimental, consistency in adopting the same composition of innovation types over the years
has no effect, and divergence from the industry norm in adopting innovation types could
possibly be beneficial to organizational performance. We discuss the implications of these
findings for theory and research on innovation types.
INTRODUCTION
The study of innovation hardly needs justification as scholars, policy makers, business
executives, and public administrators maintain that innovation is a primary source of
economic growth, industrial change, competitive advantage, and public service (Borins,
1998; Boyne et al., 2006; Christensen et al., 2004; Tidd et al., 2001). Organizations
adopt innovation in response to changes in technological and managerial knowledge,
industry competition, constituents’ expectation, or top executives’ aspiration to gain
distinctive competencies and improve the level of performance. The adoption of inno-
vation is a means for organizational adaptation and change to facilitate achieving the
firm’s performance goals, especially under the conditions of intense competition, rapidly
changing market, scarce resources, and customer and public demand for higher quality
and better products and services (Boyne et al., 2003; Jansen et al., 2006; Roberts and
Address for reprints: Fariborz Damanpour, Rutgers University, Department of Management and Global
Business, 111 Washington Street, Newark, NJ 07102-3027, USA (damanpour@business.rutgers.edu).
© Blackwell Publishing Ltd 2009. Published by Blackwell Publishing, 9600 Garsington Road, Oxford, OX4 2DQ, UK
and 350 Main Street, Malden, MA 02148, USA.
Innovation Types and Performance 651
Amit, 2003). This study focuses on the consequences of the adoption of innovation in
organizations and examines the innovation-performance relationship by recognizing
four research needs in this body of work.
First, we distinguish between types of innovation and examine the combinative effect
of adoption of innovation types on organizational performance. To help maintain and
improve their performance, organizations offer new products and services to existing or
new customers or clients, and introduce innovations in the organization’s production or
operating systems and administrative or managerial processes (Camison-Zornoza et al.,
2004; Edquist et al., 2001; Hipp et al., 2000). Theory development and empirical studies
of innovation types have thus far focused on their antecedents; namely, environmental
and organizational conditions that enhance or hamper the process of generation or
adoption of each type ( Jansen et al., 2006; Kimberly and Evanisko, 1981; Tornatzky
and Fleischer, 1990). This study adds by developing theory and examining empirically
the combinative outcomes of innovation types for organizational effectiveness or
performance.
Second, historically research on innovation types has followed a technological impera-
tive. It assumes that firms mainly organize their innovation efforts through R&D activi-
ties and has thus focused on a narrow definition of product and process innovations
associated with the R&D function in manufacturing organizations (Gallouj and
Weinstein, 1997; Miles, 2001). Studies of organizational or administrative innovations
have been relatively scarce (Daft, 1978; Lam, 2005). The socio-technical system theory
challenged the technological imperative and argued that changes in the technical (oper-
ating) system of the organization should be coupled with changes in the social (admin-
istrative) system in order to optimize organizational outcome (Cummings and Srivastva,
1977; Damanpour and Evan, 1984; Trist and Murray, 1993). We build on this perspec-
tive and contribute by comparing performance consequences of innovation activity in
organizations that focus primarily on introducing one innovation type or seek balance
among different types.
Third, theories of innovation have been developed mainly by studying firms in the
goods industries. More recently innovation researchers have emphasized the differences
in the nature of activities of manufacturing and service organizations and the importance
of developing innovation models for the service industries (Barras, 1990; Gallouj and
Weinstein, 1997; Miles, 2001). Whereas innovations in the manufacturing sector follow
a technological trajectory, innovations in the service sector do not; therefore, the pre-
vailing logic of the generation of innovations in manufacturing organizations cannot be
used to explain the adoption of innovations in service organizations. We develop hypoth-
eses on the impact of innovation activity on organizational performance for service
organizations and test them with a sample of public service organizations, a category of
service organizations that has experienced fundamental changes over recent decades.
The global New Public Management (NPM) movement questioned public organizations’
functioning and performance and championed the belief that they had become too costly
and self-serving and should be transformed based on market mechanisms and private-
sector techniques in order to become effective (Boyne et al., 2003; Osborne and Gaebler,
1992; Pollitt and Bouckeart, 2004). Consequently, public service organizations sought to
develop innovative capacity and use innovation to achieve higher levels of organizational
© Blackwell Publishing Ltd 2009

652 F. Damanpour et al.
performance (Borins, 1998; Light, 1998; Walker, 2006), making them a fertile setting for
the study of influence of innovation on performance.
Fourth, the majority of the studies of innovation in organizations are cross-sectional.
Scholars emphasize the importance of longitudinal studies in understanding the man-
agement of innovation in organizations (Pettigrew, 1990; Van de Ven and Huber, 1990).
This view is particularly applicable to this study because the innovation–performance
relationship is path dependent and takes place over time. An organization’s success
relates more to its history of innovation activity than to the introduction of certain new
products or processes (Roberts and Amit, 2003). Thus, the adoption of an innovation at
a point in time, or multiple innovations of the same type over time, will not sufficiently
explain the expected impact of innovation on firm performance over time. We address
this issue by conducting a fine grain longitudinal examination of the success or failure of
the adoption of compositions of different types of innovation over time in public service
organizations.
In summary, considering organizations as adaptive systems, and innovation as a
means to facilitate adaptive changes to the environment, this study departs from prior
research by proposing that: (1) innovations in service organizations do not follow a
technological imperative; (2) impact of innovation on organizational performance
depends on co-adoption of different innovation types rather the adoption of a single type;
and (3) combinative effects of innovation types on performance can best be examined
over time, not at one point in time. We develop hypotheses on compositions of adoption
of three types of innovation (service, technological process, and administrative process)
and organizational performance and test them by analysing innovative activity in a panel
of 428 public service organizations in the UK over four years. Our findings vary from
existing research and suggest that focus on adopting a specific type of innovation every
year is detrimental, consistency in adopting the same composition of innovation types
over the years has no effect, and divergence from the industry or organizational popu-
lation norm in adopting innovation types could possibly be beneficial to organizational
performance.
THEORY
Adoption of Innovation
This study focuses on innovation at the organizational level. In this context, innovation
has generally been defined as the development and/or use of new ideas or behaviours
(Daft, 1978; Walker, 2006; Zaltman et al., 1973). A new idea can pertain to a new
product, service, market, operational and administrative structures, processes and
systems. An innovation can be considered new to the individual adopter, to an orga-
nizational subunit, to the organization as a whole, or to the entire sector, industry, or
organizational population. Like the majority of the studies of the adoption of innova-
tion at the firm level, we define innovation as new to the adopting organization (Bantel
and Jackson, 1989; Damanpour and Evan, 1984; Walker, 2006). Organizations inno-
vate because of pressure from the external environment, such as competition, deregu-
lation, isomorphism, resource scarcity, and customer demands, or because of an

internal organizational choice, such as gaining distinctive competencies, reaching a
higher level of aspiration, and increasing the extent and quality of services. Either way,
the adoption of innovation is intended to ensure adaptive behaviour, changing the
organization to maintain or improve its performance.
This view of innovation adoption was mainly influenced by the perspective of orga-
nizations as open systems. From this perspective, performance is the ability of the
organization to cope with all systematic processes relative to its goal-seeking behaviour
and carry out its organization-adapting and organization-maintaining functions effec-
tively (Damanpour and Gopalakrishnan, 2001; Scott, 1992). Thus, organizations are
viewed as adaptive systems that introduce change in order to function effectively. Many
theories of organizations are grounded on the open system perspective. For example, the
resource dependence theory (Pfeffer and Salancik, 2003) emphasizes ‘managerial choice’
in the organization–environment interactions in responding to the key environmental
constraints such as scarcity of resources, and demands of clients, suppliers and creditors.
To manage environmental dependencies and gain critical resources, organizational
leaders would be motivated to change internal processes and offer new products or
services to establish and maintain linkages with customers or the government that
provide these resources. The resource-based view (RBV) of organizations, on the other
hand, focuses on the heterogeneity of resources and capabilities across the organization
and points out the importance of rare, valuable, non-substitutable and inimitable orga-
nizational resources in developing distinctive competencies for organizational effective-
ness (Barney, 1991; Bryson et al., 2007). It suggests that complementary resources and
capabilities would help an organization capitalize on innovation (Christmann, 2000),
increasing the positive influence of innovation on organizational conduct and outcome.
The implication of these theories for this study is that combinative adoption of different
types of innovations in different parts of the organization would increase the organiza-
tion’s capacity for adaptive change. We therefore assume that organizations adapt to the
competitive and/or institutional pressures from the external environment by adopting
compositions of new services and internal practices to attain and maintain distinctive
competencies that help them to perform continuously well.
Types of Innovation
Innovation research has distinguished between innovation types because they have
different characteristics and their adoptions are not affected identically by environmental
and organizational factors ( Jansen et al., 2006; Kimberly and Evanisko, 1981; Light,
1998). Prior research also suggests that the process of generation of different innovation
types at the industry level, and their adoption at the organizational level, is not similar
(Abernathy and Utterback, 1978; Daft, 1978; Tornatzky and Fleischer, 1990).
Innovation researchers have introduced many conceptual typologies of innovation.
For instance, Zaltman et al. (1973, p. 31) identified approximately 20 innovation types
grouped in terms of the state of the organization, and the focus and outcome of
innovation. The variety of innovation types notwithstanding, the best known and most
widely studied typology of innovation is the distinction between product and process
innovations (Abernathy and Utterback, 1978; Kotabe and Murray, 1990; Light, 1998).

Another widely recognized but less researched typology is the distinction between tech-
nological (also called ‘technical’) and administrative (also called ‘organizational’ and
‘management’) innovations (Birkinshaw et al., 2008; Kimberly and Evanisko, 1981;
Lam, 2005).
Edquist and colleagues (Edquist et al., 2001; Meeus and Edquist, 2006, p. 24) juxta-
posed these two established typologies and offered a taxonomy that distinguishes
between two types of product innovations (‘in goods’ and ‘in services’) and two types of
process innovations (‘technological’ and ‘organizational’). Hamel (2006) distinguished
between two types of process innovation that resemble Meeus and Edquist’s distinction:
innovations in operational processes (such as customer services, logistics, and procure-
ment) and innovations in management processes (such as strategic planning, project
management, and employee assessment). From Meeus and Edquist’s (2006) four inno-
vation types, we employ three that are applicable to service organizations: service
innovations, technological process innovations, and administrative process innovations.
Service innovations. Barras (1986) defines a product as a good or service offered to the
customer or client. Innovation research has not generally distinguished between product
and service innovations; that is, services offered by organizations in the service sector are
conceptualized to be similar to products introduced by organizations in the manufac-
turing sector (Miles, 2001; Sirilli and Evangelista, 1998). This view has been prevalent
because product and service innovations have external focus, are primarily market
driven, and their introduction results in differentiation of the organization’s output for its
customers or clients (Abernathy and Utterback, 1978; Damanpour and Gopalakrishnan,
2001). Hence, like product innovations, the drivers of service innovations are mainly
clients’ demand for new services and executives’ desire to create new services for existing
markets or find new market niches for exiting services (Matthews and Shulman, 2005;
Osborne, 1998). Given the focus on meeting client needs in the service sector, the nature
of service innovation is best understood through its relationship to service user. Thus, we
define service innovations as the introduction of new services to the existing or new clients
and offer of existing services to new clients.
Process innovations. Contrary to product or service innovations, process innovations have

an internal focus and aim to increase efficiency and effectiveness of the internal organi-
zational processes to facilitate the production and delivery of goods or services to the
customers (Abernathy and Utterback, 1978; Boer and During, 2001). The new processes
can be associated with the ‘technological core’ or the ‘technical system’ of the organi-
zation (technological process innovations) or to the ‘administrative core’ or the ‘social
system’ of the organization (administrative process innovations) (Daft, 1978; Damanpour
and Evan, 1984; Meeus and Edquist, 2006).
Technological process innovations are new elements introduced into an organization’s
production system or service operation for producing its products or rendering its
services to the clients (Abernathy and Utterback, 1978; Damanpour and Gopalakrish-
nan, 2001). The drivers of these innovations are primarily reduction in delivery time,
increase in operational flexibility, and lowering of production costs (Boer and During,
2001). Technological process innovations, therefore, modify the organization’s operating

processes and systems (Meeus and Edquist, 2006). In service organizations, these inno-
vations are primarily innovations associated with information technology (Barras, 1990;
Miles, 2001; Uchupalanan, 2000). For parsimony, from now on we refer to this inno-
vation type as ‘technological innovation’.
Administrative process innovations are new approaches and practices to motivate and
reward organizational members, devise strategy and structure of tasks and units, and
modify the organization’s management processes (Birkinshaw et al., 2008; Daft, 1978;
Light, 1998). Whereas technological innovations are directly related to the primary work
activity of the organization and mainly produce changes in its operating systems, admin-
istrative innovations are indirectly related to the organization’s basic work activity and
mainly affect its management systems (Damanpour and Evan, 1984). Administrative
process innovations pertain to changes in the organization’s structure and processes,
administrative systems, knowledge used in performing the work of management, and
managerial skills that enable an organization to function and succeed by using its
resources effectively. From now on we refer to this innovation type as ‘administrative
innovation’.
Innovation and Performance

As stated earlier, the adoption of innovation is a means towards organizational change.
Opportunities, threats, and changes in the environment motivate organizations seek
adaptive change. Hence, by adopting innovations over time organizations intend to
adjust their external and internal functions so that they could respond to environmental
demands, operate efficiently and effectively, and maintain or improve their performance.
Although innovation is risky, and its success is not guaranteed, innovation researchers
have posited that it affects firm’s performance positively based on two theoretical argu-
ments. First, organizations innovate to gain first or early mover advantage that would
deliver superior performance (Lieberman and Montgomery, 1988; Roberts and Amit,
2003). For example, Zajac et al. (2000) found that performance implications of insuffi-
cient change are worse than those of excessive change. Jansen et al. (2006) found that
exploratory innovations in dynamic environments, and exploitative innovations in com-
petitive environments, are beneficial to the innovative unit’s financial performance. In
general, engaging in innovation activity enables first and early mover organizations to be
aware of the latest developments, absorb new and related knowledge, and increases their
chances of benefiting from innovation activities over time (Cohen and Levinthal, 1990;
Roberts and Amit, 2003).
Second, performance gap – the difference between what an organization is actually
accomplishing and what it can potentially accomplish – creates a need for change in the
organization which would in turn provide motivation to adopt innovations in order to
reduce the perceived gap (Zaltman et al., 1973). Contrary to the first mover advantage
that has mainly been applied to for-profit organizations, the performance gap theory of
innovation is applicable to all organizations whether for-profit, public, service or manu-
facturing. Its logic does not only encompass introducing change in low-performance
organizations; senior managers or administrators of high-performance organizations
may also introduce major changes when they foresee impending environmental

pressures that may compromise their organization’s ability to be effective, or perceive
attractive new opportunities that can be seized or new products and services that can
contribute to performance (Wischnevsky and Damanpour, 2006).
A quantitative review of the findings of 30 empirical studies from 1984 to 2003 showed
that innovation influences performance positively (Walker, 2004). The studies used in
this review, however, were predominately cross-sectional and did not examine cumula-
tive consequences of the adoption of different types of innovation over time. We propose
that when the external resources are limited yet organizations face constantly changing
environmental conditions to improve the quality and delivery of their services, they
would rely on their internal resources to innovate (Pablo et al., 2007). The internal focus
requires that different parts of the organization innovate, resulting in the adoption of
different types of innovation. The adoption of each type may contribute to a certain
aspect of the organization’s sustained performance; however, when cumulated over time,
the overall adoption of different types across the organization would more fully change
the organization towards achieving its performance goals. Similar to RBV that empha-
sizes the role of bundles of rare and unique resources to reduce cost, create differentiation
and gain competitive advantage (Barney, 1991), the adoption of sets of innovation types
over time would provide the organization with required capabilities and distinctive
competencies to continually outperform other organizations in its population.
Hypothesis 1: The greater the cumulative adoption of innovation types over time, the
better an organization’s performance.
Combinative Effects of Innovation Types on Performance

Scholars have advanced that superior and sustained organizational performance root in
a firm’s ability to introduce streams of innovations (He and Wong, 2004; Tushman and
O’Reilly, 1996). As stated earlier, however, most empirical studies of the innovation–
performance relationship have been cross sectional, based on a single innovation type.
Moreover, because the primarily goal of research on innovation types has been to
address the problem of inconsistent results in determining characteristics of innovative
organizations, most empirical studies have focused on developing contingency theories to
differentiate the factors that predict each type (Bantel and Jackson, 1989; Fritsch and
Meschede, 2001). To the best of our knowledge, with one exception (Roberts and Amit,
2003), combinative effects of the adoption of different innovation types over time on firm
performance has not been examined.
Roberts and Amit (2003) argued that performance does not result from stand-alone
innovations, but from composition of effects of several types. They examined three
compositions (focus, commitment, and divergence) of three innovation types (product,
process, and distribution) in Australian retail banking organizations. In this study, the
type of organizations (public service), the types of innovation (service, technological, and
administrative), and theoretical justifications of the innovation–performance relationship
(details below) differ from Roberts and Amit’s pioneering study. However, on the
assumption that similarity in terms of definition of constructs and their operationaliza-
tion would help the advancement of knowledge and theoretical progress of the field (Bell

et al., 2006; Tsang and Kwan, 1999), we have adopted Roberts and Amit’s conceptu-
alization and operationalization of three composite innovation variables. As variations in
the industry or organizational populations are likely to suggest different conclusions, we
expect that using the same measures facilitate comparison of the results of the two
studies, contributing to a more general understanding of the association between inno-
vation activity and performance over time.
Focus in adopting a specific innovation type. Two views can be offered on how focus on
adopting a specific type of innovation over time would influence firm performance. The
first view is driven from the literature on absorptive capacity. Cohen and Levinthal
(1990) argue that organizations add new knowledge by building upon their previous
knowledge. Prior experience with a specific innovation type will support further appli-
cation of the same body of knowledge, as organizations tend to rely on knowledge in
areas where they had success (Cohen and Levinthal, 1990). Therefore, organizations
tend to focus on adopting one innovation type because they possess knowledge in that
type and can thus more easily integrate new knowledge and create new opportunities to
gain performance advantage from it (Roberts and Amit, 2003).
We adopt an alternative view for several reasons. First, the logic that focus on a specific
innovation type positively influences firm performance has been derived from the
evolutionary models of technological change at the industry or product class level
(Abernathy and Utterback, 1978; Anderson and Tushman, 1991) and applies to the
production of goods that embody a new technology (Barras, 1990; Gallouj and
Weinstein, 1997; Miles, 2001). The patterns of adoption of innovation types in the
service industries differ. The most prominent model reflecting the evolution of innova-
tion types in the service or user industries is known as ‘reverse product cycle’ model
(Barras, 1986). It advances that in the first phase, service organizations use the adopted
technology to increase the efficiency of existing services (incremental process innova-
tions); in the second phase, the technology is applied to improving the quality and
effectiveness of the services (radical process innovations); and in the third phase, it assists
in generating wholly transformed or new services (Barras, 1986, 1990). Second, the
evolutionary models of technological change focus on the process of generation of
technological innovations at the industry level, which is different from the process of
adoption of service or administrative innovations at the organizational level. Third,
innovations in service organizations are primarily incremental because services are often
consumed at their point of production, making major departure from existing services
unlikely (Miles, 2001; Normann, 1991). Radical innovations require reliance on more
external knowledge and recombination of more specialized information than incremen-
tal innovations; hence, transformation and assimilation barriers that may motivate the
organization to focus on a specific type of radical innovation are not central to decisions
to adopt incremental innovations.
According to this alternative view, therefore, the rationale that because of time and
resource limitations organizations benefit from focusing their innovation activity on one
type (Roberts and Amit, 2003) is not applicable to service organizations. Because inno-
vations are mainly incremental, organizations rely primarily on their internal expertise
and coordinated actions of different parts and functions to innovate (Pablo et al., 2007).

Organizations may benefit more from learning to innovate in all areas than focusing on
acquiring knowledge in one because innovating across organizational units could influ-
ence exchanges with clients, customers and other key constituencies, enable managers to
choose strategies to manage resource dependencies with the external units, and maintain
the flow of resources to the organization to ensure adaptive behaviour (Pfeffer and
Salancik, 2003; Scott, 1992). Therefore, instead of focusing on a specific type of inno-
vation, service organizations have incentive to introduce different types of innovation
with a more balanced rate simultaneously (Damanpour and Gopalakrishnan, 2001;
Light, 1998; Walker, 2006). The synergy from innovating across types affects the orga-
nization’s ability to introduce and deliver services to its clients and meet its multiple goals
more than focus in adopting one type. This view of the adoption of innovation types
assumes that strong interdependencies among internal organizational attributes
are fundamental to achieving organizational effectiveness over time (Wischnevsky and
Damanpour, 2006). As RBV in general and combinative capabilities and internal
dynamic capabilities in particular imply (Eisenhardt and Martin, 2000; Van den Bosch
et al., 1999), adopting innovations of different types across the organization would ensure
that the organization renews its ability to build, reconfigure, and integrate internal
and external competencies to cope with environmental change and remain effective
over time.
Hypothesis 2: Focus on adopting a specific type of innovation over time will negatively
affect organizational performance.
Consistency in adopting a similar composition of different types. Innovation types have often been
conceived as distinct phenomena that contribute to organizational competitiveness,
growth, and performance in different ways (Damanpour and Aravind, 2006). This view
reflects the dominance of the industrial organization perspective in the studies of tech-
nological product and process innovations, where the homogeneity of firms within the
industry and the role of industry characteristics in determining firm performance are
emphasized (Cohen and Levin, 1989; Tidd et al., 2001). It also associates with the
evolutionary theories of technological innovations at the product class level, which
suggest a lead–lag relationship in introducing product and process innovations over time
(Anderson and Tushman, 1991; Utterback, 1994).
The RBV offers an alternative view by emphasizing the role of internal resources and
the organization’s capability in integrating them for gaining distinctive competencies and
sustained high performance. The application of RBV to innovation activity at the firm
level emphasizes the complementary role of innovation types and their joint influence on
organizational outcome. Organizational performance is induced by the synergistic use of
the organization’s internal resources (e.g. product, technological process and adminis-
trative knowledge resources) leading to continuous adoption of multiple types of
innovation (MacDuffie, 1995; Pablo et al., 2007; Walker, 2004). This perspective of
innovation types, as stated earlier, is also supported by the socio-technical systems (STS)
theory. The STS theory advances that the relationship between the technical and social
systems is not strictly a one-to-one relationship; rather it is a correlative relationship
representing a ‘coupling of dissimilarities’ (Damanpour and Evan, 1984; Scott, 1992).

However, any change in one organizational sub-system (e.g. as a result of adopting an
innovation) sets certain constraints and requirements and necessitates a corresponding
change in the other sub-system to produce positive outcomes (Cummings and Srivastva,
1977; Damanpour and Evan, 1984). Overall, the view adopted in this study assumes
the magnitude of performance effect is greater when the organization adopts multiple
innovations to introduce system-wide rather than local changes (MacDuffie, 1995;
Walker, 2004).
Studies of the adoption of innovation types at the organization level provide partial
evidence for balance in adopting different types of innovation. For example, a study of
public libraries in the United States reported that the association between technical and
administrative innovations is stronger in high-performance than in low-performance
organizations (Damanpour and Evan, 1984). Ettlie (1988) also found that successful
manufacturing firms adopt technological and administrative innovations simultaneously,
and the congruency between the two types is especially important in hostile and com-
petitive conditions. Similarly, research on the adoption of product and (technological)
process innovations suggests that these innovation types are intertwined such that con-
tinual improvement in one would lead to the other (Fritsch and Meschede, 2001; Kotabe
and Murray, 1990). Product and process innovations are complementary and organiza-
tions that pursue both simultaneously would derive full benefits and better performance
(Damanpour and Aravind, 2006). Roberts and Amit (2003) argued that the commitment
to the same composition of innovative activity over time has a positive effect on a firm’s
financial performance because ‘at different times, different innovation categories may
be associated with more profitable opportunities for improvement’ (p. 114). Overall, as
Rosenberg (1982) stated, innovation types are interdependent and can be viewed as
related sets, where the introduction of one type could enhance the value of another type.
Hypothesis 3: Consistency in adopting a similar composition of innovation types over

time will positively affect organizational performance.
Divergence from industry norm in adopting innovation types. Theoretical perspectives differ in
their portrayal of the extent to which divergence from industry or organizational popu-
lation norm would affect organizational transformation and performance (Wischnevsky
and Damanpour, 2006). For example, the institutional theory depicts that organizations
mainly change to conform to industry, professional, and societal patterns (Scott, 1992).
From an institutional perspective, public service organizations adopt new practices in
their strategy, structure and services that are associated with the New Public Manage-
ment (NPM) movement in order to comply with the functional and political pressures
from the external environment (Ashworth et al., 2009). The imitative nature of organi-
zational change, hence, makes it unlikely that divergence from norms in adopting
innovations would lead to the attainment of distinctive competencies that result in better
performance (Wischnevsky and Damanpour, 2006). Alternatively, rational models of
organization in general, and the first/early mover advantage view in particular, consider
innovation and change as deliberate organizational choices that seek the explicit goal of
seizing an attractive opportunity, gaining new knowledge, and closing the performance
gap leading to performance improvements (Lieberman and Montgomery, 1988;

Wischnevsky and Damanpour, 2006). We assume that in the context of limited external
resources and environmental pressure for change, senior executives and administrators
regard innovation necessary for improving organizational effectiveness. Therefore, the
adoption of every type of innovation would be encouraged and enhanced as innovation
is perceived to be essential for achieving the performance goals (Roberts and Amit, 2003;
Wischnevsky and Damanpour, 2006).
The external pressure due to environmental change strengthens arguments offered by
the performance gap and first/early mover advantage views in support of perceived
positive influence of innovation on organizational performance. The environmental
pressure alleviates legitimacy concerns, which ‘provide an incentive to engage in a
pattern of innovative activity that tracks the overall industry norm’ (Roberts and Amit,
2003, p. 114). Although consequences of innovation are difficult to predict and can be
the result of desirable and undesirable, direct and indirect, and anticipated and unan-
ticipated outcomes (Rogers, 1995), the environmental pressure for organizational
change, especially when external resources are limited, encourages top executives and
administrators to view innovation based on its direct, desirable and anticipated outcomes
and focus on its positive impact on performance. In this context, divergence from the
norm by engaging in a range of innovation activities is perceived to transform the
organization, enabling it to improve its services and produce desirable performance
outcomes.
Hypothesis 4: Divergence from industry norm in adopting innovation types over time
will positively affect organizational performance.
METHODS
Sample and Data
Local governments in England are the public service organizations we examine in this
study. Following the election of the Blair Labour Government in 1997, expectations for
them to do things in different ways were increased, and robust methods to measure their
performance were established. Governmental expectations and the NPM movement
together make the English local authorities suited for an examination of the innovation–
performance relationship over time. Local authorities are elected bodies, operate in
specific geographical areas, employ professional career staff, and receive approximately
two-thirds of their income from the central government. They are multi-purpose orga-
nizations and deliver services including education, social care, land-use planning, waste
management, housing, leisure and culture, and welfare benefits. In urban areas, unitary
authorities deliver all of these services; in predominately rural areas, a two-tier system
prevails, with county councils administering education and social services, and district
councils providing welfare and regulatory services. In this study, we do not include
district councils because our dependent variable (organizational performance) is only
available for the unitary and upper tier authorities.
The data come from multiple sources. For the dependent variable, the data are taken
from a dataset created by the Audit Commission (2002) for the years 2002 to 2005

(details below). The Audit Commission acts on behalf of central government and is
therefore an important external stakeholder for local governments. For control variables,
the data come from the 2001 UK census (details below). For independent variables
(innovation types), the data are from a survey of the management reform regime called
‘Best Value’, conducted annually from 2001 to 2004. In each year a representative
sample of 100 English local authorities were surveyed and in 2001 and 2004 a census was
undertaken. Hence, the data set consists of unbalanced panels as not all the authorities
returned surveys in each year. The numbers of local authorities in our sample in the
years 2001, 2002, 2003, and 2004 are 121, 76, 73, and 136 respectively. Over the
four-year period, the survey provides 428 local authority observations with 168 unique
cross-sectional units.
The survey was pre-tested in 17 local authorities (and 378 respondents) and conducted
electronically (Enticott, 2003). Questionnaires were delivered as Excel files attached to
email. They were self-coding. Informants had eight weeks to return the file by email.
Three reminders were sent to informants who had not responded. There were no
statistically significant differences between late and early respondents. The survey was a
multiple information survey (MIS). MIS aims to capture internal organizational variety in
a compatible format (Phillips, 1981; Walker and Enticott, 2004) collecting data from
informants from several managerial levels or ‘echelons’. Aiken and Hage define an
echelon, or social position in an organization, as ‘the level of stratum in the organization,
the department or type of professional activity’ (1968, p. 918). Hence, in each local
authority questionnaires were sent to two echelons – three corporate officers and seven
officers in each of the seven service areas mentioned above. Corporate officers include the
chief executive officer and corporate policy officers with cross-organizational responsi-
bilities for service delivery and improvement. Service officers include chief officers, who are
the most senior officer with specific service delivery responsibility, and service managers
or front-line supervisory officers. For the years 2001, 2002, 2003, and 2004, the total
number of corporate respondents were, respectively, 312, 139, 156, and 196, and the total
number of service respondents were, respectively, 1190, 825, 991, and 860. All survey
questions were in the form of a seven-point Likert scale and informants were asked to rate
their authority (for corporate officers) or service area (for service area officers).[1] To
calculate an organizational mean we first calculated a mean of corporate officers and a
mean of service officers, giving equal weight to each tier; the organizational score is then
derived from these two means (Aiken and Hage, 1968). This procedure maintains
variations across organizations and categorical data is converted to continuous data.
Furthermore, data from two tiers help overcome the sample bias problem faced in
surveying informants from one organizational level only (Bowman and Ambrosini, 1997).
Measures
Dependent variable. We measured organizational performance by the core service perfor-
mance (CSP) score constructed by the Audit Commission (2002). For each of the seven
service areas, the CSP score is based largely on archival performance indicators, supple-
mented by the results of inspection and assessment of statuary plans (Andrews et al.,
2005). The archival performance indicators cover six aspects of organizational perfor-

mance: quantity of outputs (e.g. number of home helps for the elderly), quality of outputs
(e.g. number of serious injuries on highways), efficiency (e.g. cost per benefit claimed),
formal effectiveness (e.g. average school passes at 16), equity (e.g. equal access to public
housing), and consumer satisfaction (e.g. satisfaction with waste collection). Inspection of
services draws upon internal improvement plans, field visits and other documentation.
Statutory plans are assessed against the criteria of the service’s relevant central govern-
ment department. All assessments are conducted by evaluators external to the local
authority. Each service area is given a performance score by the Audit Commission from
1 (lowest) to 4 (highest).
After calculating the CSP score for each service area, the Audit Commission derives
a score for the whole organization by weighting services to reflect their relative impor-
tance by budget (the weight for education and social services is 4, for environment health
and housing is 2, and for libraries and leisure, benefits, and management of resources is
1). The Commission then combines these weights with the performance score (1–4) for
each service area to calculate the CSP. The resulting scores range from a minimum of 15
(12 in the case of county councils that do not provide either housing or benefits) to a
maximum of 60 (48 for county councils). To make the CSP scores comparable across all
authorities we calculated the percentage of the maximum possible CSP score for the
given local government. Therefore, the measure of organizational performance in this
study is an aggregate measure across the key services areas of local governments and
includes multiple indicators of performance for each service area.
Independent variables. The three types of innovation were measured by perceptual data
from the surveys. Service innovation scale has three items (Osborne, 1998), rating the extent
to which the organization is providing ‘new services to new users’, ‘new services to
existing users’ and ‘existing services to new users’ (a = 0.87). Technological innovation is
measured by two items reflecting the adoption of the ‘new information technology’ and
‘new management information systems’ (a = 0.67). Administrative innovation is a three-item
measure reflecting the organization’s new approaches to ‘service planning and budget-
ing’, ‘improvement’ (via quality management, re-engineering) and ‘management
processes’ (e.g. new job description, establishing new teams) (a = 0.66).[2] To test mea-
surement validity of the three innovation types, we conducted principal component
analysis including the eight items constituting their measures. The results with varimax
rotation showed three components, each one grouping the items as we expected: three
items for service, two items for technological, and the three items for administrative
innovations. Total innovation, which reflects the cumulative adoption of all innovation
types, was measured by adding measures of service, technological and administrative
innovations (a = 0.79).
The three composite measures of innovation types over time were computed using the
same mathematical formula employed by Roberts and Amit (2003, pp. 115–16);
however, while Roberts and Amit’s measures are accumulative over the previous five
years, our measures are annual. Nevertheless, the interpretation of these measures are
the same as offered by Roberts and Amit (2003, p. 116). When the organization’s
innovative activity is evenly distributed across the three innovation types, its annual
innovative focus will be 33, but as an authority’s innovative activity concentrates on a

single type the value of focus will increase towards 100. If a local authority’s innovative
activity has been constant across the three types, the value of consistency will be zero;
however, as an organization’s devotion to each innovation type becomes instable, this
variable will show larger negative values. The formula for measuring consistency
requires innovations adopted in the previous year; hence, for this variable we lose the
year 2001 cases, as there are no values for the year 2000 innovation, leaving us with a
span of three years’ data. When a local authority’s innovation activity equals the total
authorities’ average, divergence will be zero, but as the authority’s innovative activity
increases above average, this variable will have a larger positive number.
Control variables. We controlled for four variables, two of which are expected to enhance
organizational performance (organizational size and urbanization) and two to constrain
performance (service need and service diversity). These variables reflect both internal
and external controls and have been used in past studies of public organizations
(Andrews et al., 2005; Pettigrew et al., 1992). These four control measures were logged
to reduce the problem of skewed distribution. We also included three dummies for the
years 2001–03 (2004 is the baseline) in all the models to adjust for potentially significant
year effects and obviate biased estimation.
Organizational size was operationalized by the size of the population of the local author-
ity. This measure was selected because data on the number of employees, the commonly
used measure of organizational size, vary with the level of contracting out the services
and also because larger populations require larger organizations to deliver the requisite
level of service. Urban authorities are likely to achieve higher levels of organizational
performance because they are not operating across large geographical areas, their
citizens and users are more readily accessible and communication is easier (Aiken and
Alford, 1970). We measured urbanization by the average population density within each
local authority. This captures the differences between highly urban city authorities, from
those with mixed urban and rural areas to those with predominately rural authorities.
Both measures were derived from the 2001 UK census (UK Office for National Statistics,
2003).
Service need was measured by the Average Ward Score from the Index of Multiple
Deprivation (UK Department of the Environment, Transport and the Regions, 2000),
which provides an overview of the different domains of deprivation (e.g. income, employ-
ment and health) and is the standard population-weighted measure of deprivation
employed by the central government in England. Service diversity was measured by a
Herfindahl–Hirschman Index, squaring the proportion of each ethnic group (taken from
the 2001 census, UK Office for National Statistics, 2003) within a local authority and
then subtracting the sum of the squares of these proportions from 10,000. This measure
gives a proxy for ‘fractionalization’ within a local authority area, with a high level of
ethnic diversity reflected in a high score on the index. Higher levels of service need and
service delivery make the task of achieving higher levels of organizational performance
more demanding because opportunities for co-production of services are reduced. More-
over, as the range of service users becomes more varied it becomes harder to determine
the relative needs of different groups and to provide standardized services that meet their
requirements (Andrews et al., 2005).

Analysis
We analysed cross-organizations pooled time series data, which holds the potential for
three methodological problems (Beck and Katz, 1995; Harrinvirta and Mattila, 2001).
First, the error terms may differ from organization to organization, generating panel
heteroscedasticity. Second, the errors across panels might be time correlated; that is, an
organization’s errors at a year might be correlated with another organization’s errors at
the same year. Finally, there may be within panel autocorrelation, as there is in any time
series (Harrinvirta and Mattila, 2001). Therefore, we report random effects estimations
with Huber–White standard errors for several reasons. First, random-effects estimation
fits cross-sectional time-series regression models by using the GLS estimator. Second, by
using this estimation (STATA’s xtreg command with the ‘robust’ option), we correct for
heteroscedasticity across panels. Third, the random-effects estimation assumes that inter-
cepts and/or slopes vary randomly across units (local authorities in our case) while the
fixed-effects estimator takes account of the fact that intercepts and/or slopes vary across
units. Plots of the dependent variable for each local authority over time, however, suggest
relatively parallel intercepts across them, justifying the selection of the random-effects
estimation. Fourth, unlike the fixed-effects regression, the random-effects estimation
allows the inclusion of time invariant variables, thus permitting us to include our four
control variables, which do not vary across time but whose inclusion is theoretically
justifiable. Fifth, the inclusion of year dummies in each model reduces the potential
problems for within panel autocorrelation. Finally, when we calculated panel-corrected
standard error estimates (STATA’s xtpcse command), which assume that the distur-
bances are heteroscedastic and contemporaneously correlated across panels, we found
similar results.
RESULTS
Descriptive statistics and correlations for all variables are shown in Table I. Two pairwise
correlations report high values (r > 0.70) and statistical significance at the 0.05 level. The
composite measures of focus and divergence are correlated (r = 0.71), which theoretically
makes sense because as a local authority’s innovative activity becomes more focused on
a single innovation type, the more divergent it is going to be from all authorities’ annual
proportion average. In addition, urbanization is correlated with service diversity
(r = 0.71). Service diversity is operationalized with ethnic diversity; therefore, the larger
the population density, the more ethnic diversity. Although high correlations usually
point to potential multicollinearity problems, this is not a concern here because the mean
variance inflation factors (VIF) for regression models range between 1.80 and 2.01,
showing no significant multicollinearity.
Table II reports the random-effects estimates for the influences of innovation on
organizational performance for three accumulative models. Model 1 includes only the
control variables, Model 2 adds the total innovation variable, and Model 3 adds the three
composite innovation variables. For each model, we ran the influence and leverage
diagnostics to ensure no single authority influenced the estimations. Whereas few obser-
vations were influential, they were isolated (not accumulated over years); therefore, we

Table I. Descriptive statistics and correlation
Variables Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12
1. Organizational performance 68.05 9.12

2. Total innovation 14.38 1.72 0.13*
3. Focus 34.04 0.93 -0.09 -0.38*
4. Consistency -43.89 50.77 0.08 0.23* -0.26*
5. Divergence 35.95 59.88 0.09 -0.31* 0.71* -0.37*
6. Organizational size 12.08 0.76 0.10* 0.27* -0.18* 0.10 -0.19*
7. Urbanization 6.51 1.47 -0.02 0.18* -0.14* 0.25* -0.12* 0.19*
8. Service need 3.06 0.50 -0.11* 0.12* -0.14* 0.17* -0.12* 0.10* 0.38*
9. Service diversity 7.15 0.88 -0.08 0.11* -0.09* 0.13* -0.09* 0.25* 0.71* 0.08*
10. Year 2001 0.46 0.49 -0.16* -0.21* 0.43* – 0.22* -0.30* -0.16* -0.17* -0.16*
11. Year 2002 0.15 0.35 -0.02 -0.01 -0.17* -0.26* -0.10* 0.10* 0.04 0.06 0.05 -0.39*
12. Year 2003 0.14 0.35 0.21 0.10* -0.14* 0.12* -0.07 0.09* 0.03 0.05 0.04 -0.38* -0.17*
Innovation Types and Performance
13. Year 2004 0.24 0.42 0.00 0.17* -0.24* 0.13* -0.12* 0.18* 0.12 0.10* 0.10* -0.52* -0.23* -0.23*
* p < 0.05.
665

Table II. The random-effects estimates for the influence of innovation types on organizational performancea
Variable Model 1 Model 2 Model 3
Constant 62.86 (11.82)** 57.72 (12.09)** 195.77 (72.72)**

Total innovation 0.59 (0.25)* 0.99 (0.38)**
Focus -4.32 (2.13)*
Consistency -0.00 (0.01)
Divergence 0.05 (0.03)†
Organizational size 1.92 (0.86)* 1.62 (0.88)† 1.22 (1.01)
Urbanization 1.74 (0.75)* 1.53 (0.76)* 1.73 (0.93)†
Service need -3.96 (1.46)** -3.95 (1.48)** -3.76 (1.81)*
Service diversity -2.50 (1.08)* -2.29 (1.08)* -1.94 (1.41)
Year 2001 -2.11 (0.78)** 1.78 (0.78)* –
Year 2002 0.07 (0.82) 0.31 (0.83) 1.11 (1.02)
Year 2003 4.09 (0.80)** 4.05 (0.79)** 4.71 (0.89)**
R-sq within 0.16 0.18 0.24
R-sq between 0.11 0.10 0.11
R-sq overall 0.10 0.11 0.12
Number of observations 428 427 246
Number of panels 168 168 102b
Notes:
a
Huber–White standard errors are in parentheses.
b
In computing the composite measure of consistency, we lose the year 2001 observations.
† p < 0.10; * p < 0.05; ** p < 0.01.
included all observations. Model 3 includes only 246 observations from 102 panels
because, as stated earlier, in computing the composite measure of consistency we lose the
year 2001 observations. However, we reran analysis on Models 1 and 2 with the 246
observations from the 102 panels included in Model 3, and the results report no
significant changes.
Model 3, the fully specified model, returned a within panel R-square of 0.24, which is
considerably greater than the 0.16 and 0.18 values reported for Models 1 and 2
(Table II). Model 3 also reported an overall R-square of 0.12, which is slightly greater
than the 0.10 and 0.11 values returned from Models 1 and 2. The value of the between
panels R-square, however, is almost similar across all the three models (0.11, 0.10, 0.11).
We ran the Akaike Information Criterion (AIC) test to compare model specifications.
The AIC score for Model 3 (1759.54) is considerably smaller than those for Model 1
(3074.11) and Model 2 (3065.15), suggesting a better fit for the data.
Model 1’s results justify the inclusion of our four control variables, as they are
statistically significant at the 0.05 level and although not predicted, they are in the
expected direction. That is, the greater the organizational size and urbanization, the
better the local authority’s performance, and the greater the service need and service
diversity, the lower the local authority’s performance. Results from Model 1 also suggest
that performances for the years 2001 and 2003 are statistically different from year 2004
– the baseline or comparison category.

Hypothesis 1, which suggested that cumulative adoption of innovation types over time
positively influences organizational performance, is supported as the coefficient for total
innovation is significant and positive in both Model 2 (p < 0.05) and Model 3
(p < 0.01).[3] This suggests that the adoption of innovation is a route to higher levels of
organizational performance, irrespective of combinative effects that arise from the adop-
tion of certain compositions of innovation types. Hypothesis 2, which stated that focusing
on a specific type of innovation over time has negative impact on organizational perfor-
mance, was also supported (p < 0.05, Model 3). This result confirms our contention that
service organizations innovate incrementally and gain the greatest performance benefits
from a balanced approach to the adoption of innovation types rather than emphasizing
the adoption of a specific type over time. Hypothesis 3 was not supported as the
coefficient for consistency is not statistically significant (p > 0.05). Thus, our data do not
find evidence that the adoption of the same composition of innovation types over time
positively affects organizational performance. Hypothesis 4, which proposed that diver-
gence from industry norm in adopting innovation types positively impacts performance,
was supported albeit weakly. Results from Model 3 reveal that the coefficient for divergence
is positive and statistically significant at the 0.10 level.
DISCUSSION
This study examined the consequences of adoption of innovation types over time and
found support for the positive effect of innovation on organizational performance (Model
2). The addition of the three composite measures of innovation types in Model 3
increased the fit of the data markedly, indicating that the positive effect of innovation on
performance can be enhanced by the compositions of innovation types. Despite using the
same composite measures, our results differed from Roberts and Amit’s (2003) findings
of innovation activity in the banking industry, illustrating inter-industry differences in the
adoption of innovation types and their consequences for organizational performance.
Below we first discuss the possible role of industry context and then discuss the implica-
tions of our findings for research on the innovation–performance relationship in orga-
nizations.
Adoption of Innovation Types in Service Organizations

Scholars have acknowledged that firms in different industries differ in terms of the degree
to which they engage in innovative activity (Cohen and Levin, 1989; Tidd et al., 2001).
However, studies of inter-industry differences of innovation have mainly focused on the
development of technological innovations in manufacturing industries and have exam-
ined differences in users’ needs, sources of technology, and means of appropriating
benefits that determine the technological trajectories (Cohen and Levin, 1989; Pavitt,
1984).
The dominant model of innovation activity in the manufacturing industries is the
product life cycle (PLC) model that theorizes the dynamics of product and process
innovations at the industry level in three phases (Abernathy and Utterback, 1978;
Utterback, 1994). In the PLC and other technology-driven models (e.g. technological

change cycle model, Anderson and Tushman, 1991), the innovation process begins
typically with a discontinuous (radical) technological change and ends with a period of
stability and continuous (incremental) change. Neither theoretical arguments nor find-
ings from these models are necessarily applicable to innovation activity in the service or
user industries (e.g. Barras, 1990; Gallouj and Weinstein, 1997). In these industries,
organizations usually adopt products or technologies developed in goods industries and
the innovation cycle operates in the opposite direction of the PLC (Barras, 1986).
Subsequent research on innovation in service industries, however, points out that like
product and technology life cycle models, Barras’ reverse product cycle (RPC) model
focuses on technology-based innovations as the primary source of innovation activity in
services (Miles, 2001; Uchupalanan, 2000). According to these authors, whereas RPC
may apply to information-intensive services (e.g. banking, insurance, accounting) that are
affected mostly by the adoption of information technologies (IT), it is not necessarily
applicable to service organizations for which the evolution of IT is not central (e.g. retail,
legal and lobbying services, local governments, consultancy). Therefore, more fine grain
distinction between types of service organizations is necessary for a better understanding
of innovation activity in the service industries.
Both PLC and RPC models mainly associate with the dynamics of innovation activity
at the industry, sector, or product class level. Nevertheless, previous studies of innova-
tion types at the organization level have used the logic of these models to examine
the adoption of innovation types in organizations. For instance, Damanpour and
Gopalakrishnan (2001) relied on the PLC and RPC models and tested the lead–lag
associations between of the adoption of product and process innovations in US banks.
Roberts and Amit (2003) used the logic of the PLC model and absorptive capacity for
transformation and assimilation of external technological knowledge in examining the
relationship between innovation activity and performance of Australian banks.
We differed from these previous studies in three ways. First, we posited that models of
dynamics of the adoption of innovation types in the service sector are not identical to those
in the goods sector. Second, the logic of the models based on technological imperative,
technological trajectories, and absorptive capacity of technological knowledge are not
applicable to innovation activity in service organizations. For example, whether the
introduction of service innovations lead (PLC model) or lag (RPC model) technological or
administrative innovations may not be as crucial as how a balance in the rate of
introduction of both can produce desirable outcomes. Our finding regarding the negative
impact of focus on adopting a specific type of innovation on organizational performance
exemplifies this point. Third, contrary to prior research that emphasized change in the
technical system of the organization and neglected change in the social system, we
included administrative innovations in the portfolio of innovation types because in
effective organizations the technical and social systems operate in balance; that is, the
adoption of technological and administrative innovations are equally important.
Evangelista (2000, p. 184) observed that innovation research has a ‘long way from
having a satisfactory picture of the extent, role and nature of innovative activities in the
service sector’. The distinction between innovation types in the service sector can be
more problematic than the manufacturing sector because of certain peculiar features of
service activities, such as intangibility, simultaneous production and consumption,

limited appropriability, and variability in customization and outcome (Evangelista, 2000;
Sirilli and Evangelista, 1998). Therefore, juxtaposing service industry differences and
innovation types and exploring the interaction between them can be a promising area for
future innovation research. More specifically, we recommend additional longitudinal
analysis of compositions of innovation types and their combinative effects on organiza-
tional outcome in various service industries, especially those that extend the product–
process typology and include management innovations (Birkinshaw et al., 2008).
Innovation Types and Organizational Performance

Roberts and Amit’s (2003) study of innovation in banking organizations was the first to
show the impact of compositions of innovation types on organizational performance over
time. We examined the combinative effects of a different set of innovation types on
performance in another type of service organization. Our study differs from Roberts and
Amit’s study as it derives its theoretical arguments in advancing the hypotheses from an
alternative view more suitable to the adoption of innovation in service organizations and
reports hierarchical models to distinguish the impact of combinative effects (Model 3)
from cumulative effects (Model 2) of innovation types. By finding that the addition of
three composite measures of innovation substantially increases the fit of Model 3 over
Model 2, this study adds to the Roberts and Amit’s (2003) pioneering study by teasing out
unique beneficial effects of the composite measures of innovation types on organizational
performance.
An important finding of this study is the negative association between focus on
adopting a specific type of innovation over time and performance. In attaining knowl-
edge and developing innovative capabilities, organizations may choose between ‘focus’
in adopting one type or ‘breath’ in adopting several types. The majority of researchers
have adopted the absorptive capacity argument assuming that because: (1) accumulating
deep knowledge in multiple areas is unlikely and thin knowledge would not lead to
developing distinctive competencies, and (2) prior experience in the technological knowl-
edge and relatedness of the firm’s existing knowledge to the new knowledge are neces-
sary, organizations tend to focus their innovation activity on one type only (Cohen and
Levinthal, 1990; Grant and Baden-Fuller, 2004; Van den Bosch et al., 1999). Roberts
and Amit (2003, p. 117) applied this logic in the banking industry but their data did not
confirm their hypothesis of positive association between focus and firm performance as
the regression coefficient for focus was not statistically significant (p > 0.10). We pro-
posed that this logic mainly applies to the generation of technological innovations in the
R&D units of organizations and is not suitable to explain the adoption of incremental
innovation in services organizations. In service organizations, therefore, adopting inno-
vation of different types associated with different parts (e.g. IT innovations for back-office
operations and HR innovations in the administrative core) could have more positive
consequences than continually focusing on one type.
Cross-sectional studies of pairs of innovation types have consistently shown statistically
significant correlations between adoption rates (Bantel and Jackson, 1989; Jansen et al.,
2006; Kimberly and Evanisko, 1981). He and Wong (2004) found that while interactions
between two types of innovation (exploratory and exploitative) positively affect firm

performance, the imbalance between them has a negative effect. Pisano and Wheel-
wright (1995) reported that the congruent development of product and process innova-
tions resulted in a smoother launch of new products, easier commercialization of
complex products, and more rapid penetration of markets. Roberts and Amit (2003)
found that commitment to the same distribution of innovation activity across types over
time positively affects performance. Accordingly, we hypothesized that consistency in
adopting the same composition of innovation types over time will be beneficial, but did
not find a significant effect (p > 0.05). That is, our data suggest that stability in innovation
activity from adopting the same composition of innovation types over time does not
contribute to performance. Coupled with our finding regarding the negative impact of
focus on a specific type of innovation activity, this study’s results suggest that the
composition of innovation activity over time is dynamic and organizations would need to
change it for sustained high performance.
We also found that divergence from industry norm on adopting innovation types has
a weak positive effect (p < 0.10) on performance. This finding, though not strong,
suggests that first/early mover advantage and performance gap arguments presented
earlier to justify the divergence from industry norm can be applicable to public service
organizations. They also adopt innovation in response to environmental and internal
pressures in order to boost performance. Indeed, in English local government imitation
is encouraged by central government through several reward schemes, such as the
Beacons Council Scheme. Yet, to win these reward schemes requires authorities to be
early movers and their leaders to identify the programmes that they can adopt. Future
research could further examine how public service organizations can diverge from the
population norm and adopt a composition of innovation types that is positively evaluated
by their multiple external constituencies. More generally, research in service organiza-
tions can contribute by focusing on breath of innovation activity in multiple service areas,
examining the dynamics of adoption of technological and non-technological innovations
and exploring the impact of adoption of different compositions of innovation types on
organizational conduct and outcome.
Limitations
This study has several limitations that should be considered in the interpretation and
implication of its findings. First, although our indicator of organizational performance
was multidimensional, a true effect of innovation on performance should be assessed by
examining multiple measures of performance representing different stakeholders.
Second, we only tested linear effects of composite measures of innovation on perfor-
mance. As Roberts and Amit (2003) showed for divergence, non-linear effects may also
be significant. We did not test non-linear effects because our data span only four years,
perhaps too short for showing non-linear effects, and because each of the three composite
measures can potentially have a non-linear effect, and testing for one and not the others
seems arbitrary. Third, although we controlled for several internal and external factors,
more environmental and organizational control variables are needed, because according
to organization theory and strategic management literature, organizational change
through innovation influences performance under certain environmental and organiza-

tions conditions (Scott, 1992; Zajac et al., 2000). Additionally, the innovation–
performance relationship may be moderated by factors including innovation attributes
(e.g. complexity) and managers’ characteristics (e.g. pro-change attitude). Moderating
effects were not examined here and would need to be explored in the future. Fourth, our
measures of innovation types each were based on few items; scales using a greater
number of items will more fully and accurately operationalize innovation types. Fifth, the
findings may be peculiar to English local governments and particular practices that the
government policies promote (Walker, 2006). Finally, we have grounded our arguments
on concepts and models from innovation literature, which have mainly been developed
in the context of business organizations, and have tested them in English local authori-
ties. Additional tests of our theoretical argument across other public and business service
organizations and with other measures of performance should add to the conclusiveness
of our findings.
CONCLUSION
This study began with the premise that organizations interact with the environment and
make adaptive changes in response to environmental demands and opportunities under
the guidance of their leaders, and offered two major departures from the extant litera-
ture. First, that the combinative adoption of innovation types over time helps developing
organizational capabilities and affects organizational conduct and outcome. Contrary to
previous research that mainly theorized and examined differences in the antecedents of
innovation types, we focused on the consequences of innovation types and advanced that
certain compositions of innovation types over time will lead to distinctive competencies
that positively influence organizational performance. Second, that organizational success
in service organizations does not follow a technological trajectory and depends on the
adoption of both technological and non-technological innovations. Contrary to past
research that relied on the models of co-evolution of technology-based product and
process innovations at the product class level to explain consequences of innovation
adoption in organizations, we advanced that co-adoption of different innovation types
can better explain performance consequences of innovation in service organizations.
Our analysis provided empirical evidence for this view and demonstrated that the
co-adoption of service, technological process, and administrative process innovations
influence organizational performance in public service organizations. Hence, we con-
clude that the internal dynamic capability and combinative capability perspectives of
RBV (Barney, 1991; Eisenhardt and Martin, 2000; Van den Bosch et al., 1999) are more
appropriate frameworks than the evolutionary product and technology development
theories (Abernathy and Utterback, 1978; Anderson and Tushman, 1991; Utterback,
1994) for studying the innovation–performance association over time in service organi-
zations (Bryson et al., 2007; Matthews and Shulman, 2005; Pablo et al., 2007). From
these perspectives, a service organization’s capability in introducing and integrating sets
of innovation types over time is a unique and rare capability that provides distinctive
competencies, creates value by differentiating the organization from others in its popu-
lation, responds to environmental change and thus improves organizational perfor-
mance. The more unique, integrated and complex the composition of innovation types,

the more inimitable and non-substitutable the organizational capability and distinctive
competency, and the more sustainable organizational performance over time. Since
adaptive change is an ongoing process, beneficial effects of innovation activity over time
will be enhanced by the ability of an organization to modify the composition of innova-
tions introduced across organizational units and attain leadership within its population
by continually adopting innovations over time.
NOTES
[1] Because every authority does not provide all the services, the maximum number of respondents in each
authority could range between 23 and 31. The actual number of respondents in each year ranged
between 1 and 23. The mode, mean, and median of number of respondents for the four-year period
were 9.0, 9.9, and 9.0.
[2] Usually a Cronbach’s alpha of 0.70 is considered adequate; however, for scales with a small number of
items and for new scales, a smaller alpha is considered permissible (Nunnally, 1978). Prior studies have
frequently used Cronbach alphas less than 0.70 under similar conditions (e.g. Amis et al., 2004; Kikulis
et al., 1995).
[3] On the assumption that multiplying the measures of innovation types may be a more accurate proxy for
total innovation than adding them, we also analysed the data using the multiplicative measure. The
results did not change.
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Journal of Management Studies 46:4 June 2009

Combinative Effects of Innovation Types and

Fariborz Damanpour, Richard M. Walker and

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

Process innovations. Contrary to product or service innovations, process innovations have

© Blackwell Publishing Ltd 2009

Innovation and Performance

© Blackwell Publishing Ltd 2009

Combinative Effects of Innovation Types on Performance

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

Hypothesis 3: Consistency in adopting a similar composition of innovation types over

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

Variables Mean s.d. 1 2 3 4 5 6 7 8 9 10 11 12

1. Organizational performance 68.05 9.12

© Blackwell Publishing Ltd 2009

Variable Model 1 Model 2 Model 3

Constant 62.86 (11.82)** 57.72 (12.09)** 195.77 (72.72)**

© Blackwell Publishing Ltd 2009

Adoption of Innovation Types in Service Organizations

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

Innovation Types and Organizational Performance

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

© Blackwell Publishing Ltd 2009

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Constant 62.86 (11.82) 57.72 (12.09) 195.77 (72.72)**