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Ben-Jebara and Alahmad Board of Directors Capital effect on Innovation

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The Effect of Board of Directors Capital

on Innovation Outputs

Marouen Ben-Jebara and Yaser Alahmad

College of Business and Innovation, University of Toledo

Toledo Ohio, 43607. USA

[email protected], [email protected], 419-530-5690

ABSTRACT

The current study conceptualizes how the Board of Directors’ Depth and Breadth will impact the

firm’s innovation outcomes (types of innovation and degree of novelty). The paper proposes the

firm’s strategic orientation (exploration vs. exploitation) and transformational leadership as

moderators to the relationships between board capital and innovation outcomes.

Key Words: Board of Directors, Board Composition, Innovation, Transformational Leadership,

Exploitation, Exploration.

Purpose: The current study aims to assess how the board of directors of an organization, as a

firm’s resource, will help organizations increase its innovation capability. The study will draw a

parallel design analyzing the impact of board formation (breadth and depth) on innovation

outputs. The relationship between board capital and innovation outputs will be moderated by the

firm’s strategic orientation and transformational leadership.

Research Questions: The study will investigate the impact of board of director’s capital as a

firm’s resource on the innovation capabilities and how it will be reflected in financial

performance. Moreover, we will study the contingency factors of explorative and exploitative

orientations. Finally, this study will draw a parallel structure analyzing board breadth and board

depth impact on innovation.

Research Gap and Contribution: The concept of board capital is relatively new. No prior study

addressed the relationship between innovation as a capability and a board capital as a firm

resource. The study will contribute the existing literature by addressing the research questions.

This will provide more insights about the optimal board composition that will lead to particular

type of innovations.

mailto:[email protected]

mailto:[email protected]


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INTRODUCTION

“Innovation distinguishes between the leader and the followers”. Steve Jobs

Innovation has proven itself as the new business religion and main driver of competiveness in

business landscape (The Economist, 1997). Organizations are showing a great emphasis on

innovation as a driver of sustainable competitive advantage. The topic of innovation outcomes is

capturing both practitioners and academic. Innovation’s mechanisms and the resources needed to

insure innovation success are among the questions that always need further research.

Top management commitment to innovation path is important to the success of the any

innovation initiative. In large companies, top management will follow the board member

instructions and directive influencing the firm’s results.

In this paper, we are viewing the board of directors as a firm resource derived from the human

and structural capital. The board of director capital was divided into board depth and board

breadth (Haynes & Hillman, 2010). The firm capital will impact the firm’s strategic decisions.

We propose that the board capital represents an interesting area of research that requires more

detailed research. One venue of research would be how the resources are transformed into

capabilities. In fact, firm’s resources are bundled together creating firm’s specified routines that

will lead to capabilities (Barney, 1991). These capabilities are considered to create and sustain

firm’s competitive advantage. One of these capabilities is innovation outcomes.

Innovation represents the firm’s ability to transfer an idea into useful outcomes. The topic of

innovation was studied for almost a century with multiple perspectives. In this study we will

focus on the nature of innovation (process vs. radical) and the degree of novelty (incremental vs.

radical). The innovation outcome is related to the organization management style and the firm’s

strategic orientation.

Miles at al. (1978) addressed the issue of business strategic orientation. The firm strategic

orientation will influence the firm’s results. This paper will draw on March (1991) work to

conceptualize exploitative and explorative strategic orientation. We will attempt to assess the

contingencies between the strategic orientation and capital board. To our knowledge, no prior

studies examined board capital and innovation capabilities and assessed this issue in the context

of strategic fit.

The current study will attempt to draw a parallel design assessing how the board capital structure

as a resource will impact the innovation outcomes. We will investigate the impact of board of

director’s capital as a firm’s resource on the innovation capabilities and how it will be reflected

in financial performance. Moreover, we will study the contingency factors of explorative and

exploitative orientations. Finally, this study will draw a parallel structure analyzing board

breadth and board depth impact on innovation.

The paper will be presented as follows: the next section will address the conceptual section and

construct definition. Then, we will address the theoretical background and hypotheses building.

Finally, we will provide the future directions of the current research.


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CONCEPTUAL PART

The following section will focus on the literature review and the conceptualization of the study

constructs. The study will mainly draw on the intellectual capital perspective to better understand

and conceptualize the board capital construct.

Intellectual Capital

Intellectual Capital is defined as the collection of elements of intangible assets that consist of or

utilize human intellect and innovation to create wealth (Johnson, 1999). Researchers have

classified organization intellectual capital as: Human Capital, Structural Capital, and Social

Capital.

Human capital reflects the human capability to solve work related issues and problems. In

advanced manufacturing and technology management literature, human capital is defined as tacit

and explicit knowledge manifested through the technical skill levels of the work force and

relative organizational learning capabilities (Maddocks & Beaney, 2002; Menor, Kristal, &

Rosenzweig, 2007). Hillman and Dalziel (2003) argued that firm’s board of directors represents

a firm human capital by the nature of knowledge and know how it contributes.

Structural Capital is defined as the supportive infrastructure, processes and databases of the

organization facilitating human capital to function (Maddocks & Beaney, 2002). Structural

capital includes tangible assets such as buildings, hardware, software, as well as intangible like

processes, patents, and trademarks. In addition, structural capital includes such things as the

organization’s culture, organization, and information technology capabilities. Some researchers

classified structural capital into organization, process and innovation capital. The board of

directors’ documented inputs during the meeting has a significant impact on the organizational

structure. In this case, the board of directors’ capital does not represent a structural capital on

itself; however, the board of capital input can be viewed as structural capital.

Social capital is an intermediary form of intellectual capital consisting of knowledge resources

embedded within, available through, and derived from networks of relationships (Adler & Kwon,

2002; Nahapiet & Ghoshal, 1998). Recent researches emphasize the importance of social capital

in achieving sustainable competitive advantage. Hillman and Dilzel (2003) argued that the board

of director’s relationships and connections represents a firm’s social capital and therefore a

valuable asset to the firm.

Board Capital

Board capital is conceptualized as the combination of the human and social capital of the board

of directors which is reflected by the board’s ability to provide resources to the firm (Hillman &

Dalziel, 2003). The board of directors has mainly two functions. First, it monitors the work of the

managers in order to preserve the stockholders investment (Dalton, Daily, Certo, & Roengpitya,

2003). Second, the board of directors represents a valuable resource for the firm’s management

team providing strategic and technical advice (Dalton, Daily, Johnson, & Ellstrand, 1999). More

recent studies have built on the previous research to conceptualize the board capital as the

breadth and the depth of the director’s human and social capital (Haynes & Hillman, 2010). This


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paper will draw on Haynes and Hillman (2010) study and elaborate on the concept of board

capital breadth and board capital depth.

Board Capital Breadth reflects the board member demographics and expertise heterogeneity

which can be drawn from previous research of management team heterogeneity (Pegels, Song, &

Baik, 2000). The management team diversity is reflected by educational and functional diversity

(Pegels, et al., 2000). Haynes and Hillman (2010) extrapolated the concept of heterogeneity to

the board member and created and validated a new construct, Board Capital Breadth. In this

study, board capital breadth is defined as the portfolio of directors’ functional occupational,

social, professional experiences and extra-industry ties. This construct will capture the diversity

of the directors’ human and social capital (Haynes & Hillman, 2010).

Board capital depth reflects the board member embeddedness in the firm’s principal industry.

The board member embeddedness can be reflected through the “industry interlocking

directorates” (Haynes & Hillman, 2010). Interlocking directories happens when members of a

firm board of director serves in multiple corporations (J. Scott, 1997). Interlocking is possible via

three main ways: (1) horizontal—among competing organizations; (Gilmore & Pine 2nd)

vertical—among organizations located in adjacent stages of production; and (3) symbiotic—

among complementary organizations (Pennings, 1980). In this paper, board capital breadth refers

to the embeddedness of directors in the firm’s primary industry through interlocking

directorships, managerial positions, or occupational experience in the primary industry of the

firm. It is also measured by the sum of the directors’ intra-industry human and social capital

(Haynes & Hillman, 2010).

Classification of innovation

For almost 100 years, scholars investigated innovation and defined it in multiple ways

emphasizing different features e.g. (Galunic & Eisenhardt, 2001; Knight, 1967; Schumpeter,

1934). For example, innovation has been defined based on the outcomes (Tushman & Nadler,

1986). Moreover, innovation was identified as the process of transforming ideas into new

outcomes (Baregheh, Rowley, & Sambrook, 2009).

Scholars have studied innovation from a content perspective and as a process. The content

perspective is reflected by the type of innovation (product, process, organizational…) and the

nature of innovation (radical, incremental, modular, and architectural) (Damanpor, 1996;

Henderson & Clark, 1990). The process perception includes the generation, development,

adoption, implementation, and eventual termination of a new idea or behavior. The majority of

the studies emphasized the content perspective: type of innovation, breadth of innovation, depth

of innovation time to market (Argyres & Silverman, 2004). The current study focuses on content

aspect (product and process) and the degree of novelty (incremental vs. radical) as a part of the

firm capability or outcome. In fact, this study focuses on the transformation of resources into

capability and therefore we view the firm’s ability to innovate as a capability that can be

measured by the outcomes.

Radical product innovation is defined as the introduction of new products (services) with

significant technological difference from the existing products. On the other hand, incremental

product innovation is defined as the introduction of products (services) with minor


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improvements to the existing product (Chandy & Tellis, 1998; Herrmann, Gassmann, & Eisert,

2007; Valle & Vázquez-Bustelo, 2009).

Radical process innovation refers to the introduction of new or significantly improved practices

into the firm’s operations aiming to reduce the cost of operations and/or improve the quality of

products (services). In contrast, incremental process innovation reflects the implementation of

minor practices with the goal to achieve lower cost and/or improved quality of product (services)

(Ettlie, 1983; Gatignon, Tushman, Smith, & Anderson, 2002; Kim, Kumar, & Kumar, 2012;

Reichstein & Salter, 2006).

Firm’s Strategic Orientation

The firm strategic orientation interested scholars who attempted to identify different approaches

to assess and measure the strategic orientation. Organizations are identified as prospector,

defender, analyzer, and reactor (Miles, Snow, Meyer, & Coleman, 1978). Miles et al.

classification reflects the firms’ aggressiveness in the market. Other than the aggressiveness, the

firm’s strategic orientation is reflected in the firms’ intentions (Venkatraman, 1989).

Organizations are required to maintain a balance between exploration and exploitation is a

primary factor in system survival and prosperity (Levinthal & March, 1993; March, 1991). The

concept of exploration and exploitation is widely researched in multiple for the past two decades.

Exploitation and exploitation was mainly assessed as a firm’s competence. The concept of

exploitation and exploration was after moved into different context other than learning. More

recent studies approached the exploitation exploration area of research from strategic point of

view (Kristal, Huang, & Roth, 2010; Yalcinkaya, Calantone, & Griffith, 2007). In fact,

exploitation and exploration can be view as strategic decision that firms will adopt.

Exploitative and Explorative Strategies

Previous researches did not provide a clear definition of exploitative strategy. However, drawing

from similar studies, we can define exploitative strategy as the firm’s deployment of the

resources (material and non-material) to improve continuous improvement of the operations. The

resources can be investment on material aiming to improve the processes or extensive employee

training aiming to improve their current tasks. In contrast, we will define exploratory strategic

orientation as the firm’s deployment of resources (materiel and non-material) to seek new ways

of operations and enhancing the organizational external know how. For example, firms’ with

strong exploratory strategic orientation will invest in employees cross training so they can

acquire new competencies. The strategic orientation will also be manifested in the firm’s general

guidelines and employees’ job description.

Transformational leadership

Many scholars consider leadership as one of the most important aspects determining

organizational learning and organizational success (Bryant, 2003). Most leadership literature has

focused on leader traits, style, behavior, power, transactional leadership, and transformational

leadership (Northouse, 2012). Transformational Leadership began with Burns (1978) when he

tried to find relationships between leadership and followership amongst political leaders (Burns,

1982) . Then his work was expanded by (Bass, 1985) who considered the first scholar to apply


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TL theory in business. Bass labeled transformational leaders those who are successful in

managing their organizations via radical changes (Bass, 1985).

Transformational practices can increase employees’ trust in the leaders and this trust leads to

improved individual performance (Ismail et al., 2010). Transformational leaders try to make

changes that reach and increase performance and organizational effectiveness. The existence of

this kind of leadership is reflected in subordinates who are enthusiastic about the leader’s

opinions and ideas (Schermerhorn, 2008).

Transformational Leadership consists of four elements. First, idealized influence: transformation

leader acts as role model and display charismatic personality that influences others to want to

become more like the leader. Second, Inspirational motivation: refers to the leader’s ability to

inspire, confidence, motivation, and a sense of purpose in his followers. Third, Intellectual

stimulation: is when the leaders encourage the followers to try new approaches. Fourth,

Individualized consideration: the degree, to which the leader attends to each follower's needs,

acts as a coach to the follower and listens to the follower's needs. These four behavioral patterns

positively affect followers by elevating them to the best they can be, motivated by achievement

and self-development (Bass, 1985).

Firm’s Performance

Firm’s ultimate goal is generating profit and satisfying its stakeholders. The studies investigating

firm’s financial performance are numerous and have investigated the firm’s financial

performance from multiple facets. Firms’ performance can be evaluated from long term results

versus short term. For example, the firm’s financial performance was conceptualized in term of

growth and profitability (Venkatraman, 1989). The growth dimension reflects the performance

trend of the business in terms of sales gains and market share gains, while profitability dimension

reflects an efficiency view of current performance. This conceptualization fits perfectly in our

framework of assessing the exploration exploitation tandem.

THEORETICAL DEVELOPMENT

The paper mainly assesses the classical transformation of resources into capabilities. In this case,

we have conceptualized the board capital as a firm specific asset composed of human and

structural capital. The resource based view of the firm is adequate theory strengthening the link

among the constructs.

Resource Based View of the Firm

The resource based view (RBV) of the firm suggests that organizations compete and create value

on the basis of resources that are unique, rare, valuable, and not easily imitable or substitutable

(Barney, 1991). Firm Resources is defined as set of “... all assets, capabilities, organizational

processes, firm attributes, information, knowledge, etc. ...” that a firm controls and that facilitates

the implementation of strategies that create value for the firm (Barney, Wright, & Ketchen Jr,

2001). Capabilities are developed when these resources are combined to create a firm specific

ability. Therefore, a capability is the firm’s ability to deploy resources to create a capability. The


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organization board represents a firm specific resource that can be deployed in an effective way to

lead to capability. The board capital in fact provides the organization with the strategic

orientations which will influence the firm’s output.

In this paper, we will focus on the innovation as firm capability. The resource based view of the

firms helps understand the transition from resources to capabilities (Board capital into innovation

outcomes). Therefore, we will argue that RBV is the main driver for the translation of board

capital into innovation.

Contingency Theory

Contingency theory is widely used in the Management of Information System field and its

impact on innovation capabilities (Weill & Olson, 1989). The contingency theory however was

the subject of multiple debates and generates numerous critiques about its validity. The

contingency theory was developed first at the organization level in the middle of the 20th century

to explain the relationship between the different components of the organization. “The

contingency approach attempts to understand the interrelationships within and among

organizational subsystems as well as between the organizational system as an entity and its

environments. It emphasizes the multivariate nature of organizations and attempts to interpret

and understand how they operate under varying conditions.”(Kast & Rosenzweig, 1973). In the

case of this paper, both board of directors and strategic orientation are considered as subsystems.

Board of director structure and firm’s strategic orientation must have proper fit to ensure

organizational success.

The contingency theory has been widely criticized by scholars because the variables used in a

study are small compared to all the factors that might influence the firms’ performance (Weill &

Olson, 1989). Because of the narrowed scope of the study (Innovation outcomes), the theory can

be adopted to justify some of the theoretical linkage between the variables.

PROPOSITIONS DEVELOPMENT

Board Capital and Innovation Type

Board capital depth implies a greater understanding of the firm’s industry. The board member

will show high knowledge of the industry practices. Previous study showed that the board capital

depth will lead to less strategic change and more focus on incremental improvement (Haynes &

Hillman, 2010). The board depth will favor more incremental changes and will make the firm

strategic position more as a defender. Drawing on Miles and Snow (1978) typology, we can

argue that the board depth is tightly related defenders strategy. In fact, more “deep” board will

promote activity aiming to improve firm’s effectiveness by focusing mainly on the practices

available on the firm’s acting industry. Therefore, we expect that firms with high capital depth

will lead to more process innovation inside the organizations in comparison with product

innovation.

In contrast, the board breadth will lead to more strategic change such as expanding in new

markets or diversifying the available product and services offered (Haynes & Hillman, 2010).

The diverse background and expertise as shown in the board members will provide firms with

different perspectives as targeting different markets. Moreover, drawing on the strength of weak


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ties perspectives (Granovetter, 1973), board breadth will reflect the diversity of resources such as

different industry backgrounds or diversified expertise. Tin fact, the strength of weak ties states

that a relationship made of two or more entities that are different will represents a source of extra

knowledge and will make the relationship more beneficial. The same logic can be applied to the

board member made of people with different backgrounds and expertise. The board will be

expected to generate more diversity will help the company explore more opportunities. Previous

studies associated the relationship between explorative depth will impact exploration potential

which will lead to product innovation (Bryant, 2003). Therefore, we expect that board capital

breadth will create more product innovation in comparison with process innovation.

In the light of the previous paragraphs, we formulate the following:

P1a: Board Depth will be more associated with process innovation in comparison with

product innovation.

P1b: Board breadth will be associated with product innovation in comparison with

process innovation

Board Capital and Innovation Novelty

Our second set of propositions will relate to the relationship between board capital and the

degree on innovation novelty. In the conceptual section, we have mentioned that we will address

incremental and radical innovation as main novelty typology.

Board capital depth will favor exploitative activities as they seek to improve the firm’s current

practices and will be reluctant to strategic change (Haynes & Hillman, 2010). Exploitative

activity is by nature tied with more incremental change (Bryant, 2003). The level of expertise

and embeddedness to the focal industry will manifest in a continuous emphasis in small

incremental improvement. This aspect will lead to incremental innovation. On the other side, the

board breadth will provide the company with more diverse perspectives. The explorative aspect

will call for more openness to the external world. The firm will increase its knowledge capital

diversity making it more likely to innovate radically. Therefore, we propose the following:

P2a: Board Depth will be more associated with incremental innovation in comparison

with radical innovation.

P2b: Board breadth will be associated with radical innovation in comparison with

incremental innovation

Moderating Effect of Strategic Orientation

Moderating relationships are very interesting since they provide organizations with factors that

influence the strength of the relations. In this study, we will attempt to assess the impact of

firm’s strategic orientation on the innovation capability formation. Board depth has an impact on

the firm’s process and incremental innovation. In case the organization has an exploitative

strategic orientation, we expect that the relationship will be stronger. Analogically, we expect

that exploratory strategic innovation will strengthen the relationship between broad breadth and

radical and product innovation. The rationale behind these relationships is derived from

contingency theory. The strategic orientation will provide a “fit” to the nature of resources

provided by the board of directors and the expected innovation capability.


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P3a: Exploitative strategic orientation will moderate the relationship between BC depth

and process innovation and the relationship between BC depth and incremental

innovation.

P3b: Explorative strategic orientation will moderate the relationship between BC breadth

and product innovation and the relationship between BC breadth and radical innovation.

Moderating Effect of Transformational Leadership

According to Scott and Scott and Bruce (1994), organizational climate is a crucial factor for

innovation. Organizational climate when the employees' perceptions of the extent to which

creativity is encouraged at the workplace and the extent to which organizational resources are

allocated to supporting innovation influence innovation performance (S. G. Scott & Bruce,

1994). An employee's perception of an innovative climate encourages risk taking, and the

challenge to use creative approaches at work. Transformational Leadership will create a climate

promoting innovation. The board of director focus and strategic decision will be craven by the

leader’s transformational spirit. Paulsen et al. (2009) argued that Transformational leader who

can use inspirational motivation and intellectual stimulation is necessary for organizational

innovation. Such leaders have the vision to motivate their employee’s, set increasing challenges,

overcome crises, and stimulate innovation. The stimulation will not be limited at the employee

level, but it will also be reflected at the board of directors. For example, Apple Inc. though Steve

Jobs leadership was be apple to put its self as innovative firm and embedding the innovative

culture inside the organization.

Organization with leadership focusing on changes and promoting initiative as reflected in the

transformational leadership will have greater chances in achieving higher innovation outcomes.

Haynes and Hillman (2010) emphasized the role of CEO power in implementing strategic

changes inside organizations. Drawing on this, we can argue that the transformational leadership

level will play a moderating role in transforming the firm’s resources (board of director capital)

into capabilities (innovation outputs).

The following propositions can be formulated:

P4: Transformational leadership will positively moderate the relationship between BC

capital (depth and breadth) and innovation outputs (type and novelty)

Innovation Capabilities and Performance Outcomes

We have conceptualized outcomes from growth and profitability point of view. Process and

incremental innovation are generally small improvement aiming mainly the reduction of costs

and better utilization of the existing firm’s capital. Therefore, we expect that this will impact the

firm’s profitability. In contrast, product innovation helps meet existing customers demand and

attract more customers. For example, apple’s innovative products and continuous product

improvement helped the company increase its customers and therefore its sales. Moreover,

radical innovations are associated with high technological newness and high customer fulfillment

(Chandy & Tellis, 1998). Radical innovation is characterized by high investment making it not

profitable on the short term. However, it improves the firm’s financial growth (Sorescu, Chandy,

& Prabhu, 2003).

Based on the previous assumptions, we propose the last two propositions


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P5a: Process and incremental innovation will positively impact the firm’s profitability.

P5b: Product and radical innovation will positively impact the organization growth.

Figure 1: Conceptual Model

METHODOLOGY

The set of hypotheses will be tested using secondary data from S&P 500 companies. A list of

companies will be identified as primary targets. These companies will be from industries that are

innovation concentrated such as high tech companies and pharmaceutical firms. The board of

director depth and breadth will be measured by assessing the board of directors’ criteria as

shown in table 1. The innovation outcome will be measured by coding the firm’s patented

innovation and decided whether they are product or process and the incremental or radical. We

plan to have 3 to 5 coders from the industry and the academia to help us code the patents.

Board Capital

• BC Depth

• BC Breadth

Innovation Novelty

• Incremental

• Radical

Firm’s Performance

• Profitability

• Growth

Innovation Type

• Process

• Product

Strategic Orientation

Exploitative

Explorative

Transformational

Leadership


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CONSTRUCTS DEFINITIONS AND MEASUREMENT ITEMS

Table 1: Constructs Definitions and Measurement Items

Constructs Definition Metrics Reference

Board Capital

Depth

The embeddedness of directors in the

firm’s primary industry through

interlocking directorships, managerial

positions, or occupational experience in

the primary industry of the firm, and is

the sum of the directors’ intra-industry

human and social capital.

Depth and linkage to the industry

(Haynes &

Hillman, 2010)

Industry embeddedness

Industry expertise

Years of expertise in the focal Industry

Board Capital

Breadth

The portfolio of directors’ functional

occupational, social, professional

experiences and extra-industry ties and

captures the heterogeneity of the

directors’ human and social capital.

Functional heterogeneity

(Haynes &

Hillman, 2010)

Occupational heterogeneity

Occupational heterogeneity

Heterogeneity of interorganizational linkages

Product

Innovation

The introduction of new product lines

satisfy existing or new customer needs

Product differentiation

(Kim, et al.,

2012)

Product innovation frequency

Frequency of product innovation in

comparison with competition

Reputation for product innovation

Product innovation contribution to sales

Process

Innovation

The implementation of new processes

aiming cost reduction and/or quality

improvement.

Process differentiation

(Kim, et al.,

2012)

Process innovation frequency

Frequency of process innovation in

comparison with competition

Reputation for process innovation

Process innovation cost reduction/quality

Radical

Innovation

The adoption of new technologies to

create a demand not yet recognized by

customers and markets.

Seeking new technologies for improvement

purpose (Jansen, Van

Den Bosch, &

Volberda,

2006)

Exploring external resource for innovation

purpose

Radical Innovation as part the innovation

outcomes

Incremental

Innovation

Minor changes of existing technologies

in terms of design, function, price,

quantity, and features to meet the needs

of existing customers.

The use of existing technologies for

improvement purpose

(Jansen, et al.,

2006)

Exploiting existing resource for innovation

purpose

Incremental innovation as part of the

innovation outcomes

Firm

Performance

The firm’s financial performance in term

of growth and profitability (long and

short term)

Sales growth position relative to competition

(Venkatraman,

1989)

Market share gains relative to competition

Net profit position relative to competition

ROI position relative to competition


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CONCLUSION

This conceptual paper aims to provide a grounding work on assessing the relationship between

organization resources or inputs as manifested on the board of director capital and how it can

lead to capabilities shown by innovation outputs. The study also aims to explore the moderating

effect of the firm’s strategic orientation and the level of transformational leadership in

moderating the relationship. Finally, we are looking into the impact of innovation on the

financial performance at the short run (profitability) and the long run (market positioning). We

are currently working on data collection and coding part to measure the different constructs.

One of the limitations that we are facing is the difficulty to capture process innovation.

Analyzing the patents, it was hard for us to capture as much process innovation as product. We

are afraid that the number obtained will not help us support our hypotheses. Second,

transformational leadership is mainly measured via primary data through questionnaire. Using

secondary data to assess the transformational leadership of a company might be hard to realize

given that some contradictive assessment of leader are available in the press.

The future steps of this paper will be to refine the results obtained and attempt to find more

adequate measure for the moderating variables. We also intend to put the study in cultural

context by addressing some difference between western and eastern society and how this might

affect the model. Another area of future assessment is to capture the level of ambidexterity inside

the board of directors. Can a board of director balance both explorative and exploitative activity

and how this might affect the organization’s performance?

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