The role of climate for innovation in enhancing business performance The case of design firms

Purpose - Innovation and the process of diffusion have been widely acknowledged as hinging upon the complex social psychological process. Invariably, such a process manifests itself in the form of "climate" in an organisation, which influences people's behaviours. The purpose of this paper is to empirically investigate the roles of a facet-specific climate, namely "climate for innovation" in determining innovation- related outcomes. In particular, this paper focuses on interrelationships and roles of specific constructs forming such climate. Additionally, this paper attempts to determine the efficacy of innovation by examining the relationship between outcomes of innovation diffusion and business performance. Design/methodology/approach - A conceptual model incorporating three climate for innovation constructs including leadership, team, and organisational culture along with two constructs addressing innovation diffusion outcomes and business performance was developed. Statistical analyses, specifically exploratory factor analysis (EFA) and structural equation modelling (SEM), were conducted based on the data collected from a questionnaire survey of 181 design professionals employed in Australian architecture and engineering design (AED) firms. EFA was employed as a preliminary step to ascertain the factors underlying each construct, and SEM was sequentially utilised to determine the factor structure of the model and to assess the relationships between model constructs. Findings - The results revealed that perceived organisational culture functions as a gateway to the diffusion of innovation, by mediating the relationships between leadership and team climate, and innovation diffusion outcomes. More importantly, it was found that all pathways to innovation diffusion outcomes originated from the leadership construct, highlighting its critical role in creating a supportive culture that fosters and nurtures innovation. Finally, the findings warranted the benefits of innovation by demonstrating its significant contribution to business performance in AED firms. Originality/value - The study presents an empirically developed model depicting pathways that explain the mechanisms of climate for innovation constructs in determining the degree of innovation diffusion outcomes and business performance. The model can potentially form the foundations of a framework for firms seeking to diagnose their existing condition and use such findings to enhance the diffusion of innovation that could, in turn, strengthen their business performance.