Empirical Study on the Relationships between Climate for Innovation and Business Performance Outcomes in Design Firms

Abstract

Innovation has been widely regarded as a determinant of a firm's business performance. This paper reports on a study of “climate for innovation”, which plays an important role in driving a firm's diffusion of innovation. Three major constructs underlying climate for innovation – organisational culture, leadership and team climate – are examined. A conceptual model was developed to study the relationships between such constructs and their effects on innovation diffusion outcomes, which can, in turn, influence business performance. Quantitatively, the model was assessed using Structural Equation Modelling (SEM) technique, based on the data collected from a survey of Australian Architecture and Engineering Design (AED) firms. The final model derived from the analysis indicates that leadership is a key predictor of innovation diffusion outcomes, functioning indirectly through team climate and organisational culture. More importantly, the outcomes of innovation diffusion were found to predict business performance, thus highlighting the benefits of design innovation in AED firms. Finally, the model was validated through explanatory case studies of two Australian design firms using pattern matching analysis.