Cultural influences on national rates of innovation

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<ul><li><p>NATIONAL RAmS </p><p>OF INNOVATION SCOTT SHANE </p><p>EXECUTIVE The purpose of this research was to examine ihe e&amp;et of fhe ~~~furo~ vu&amp;es of i~iv~d~iism, power distance, u~certa~n~ avoidance, aid mas- </p><p>~U~~AR~ calinity on ~t~o~~ rates of ~~~ovat~o~ in 33 countries in 1975 and 1980. The study found that rates of innovation are most closely associafed with the guttural value of uncertainty acceptance, but that lack ofpower distance and i~ividua~ism also are related to high rates of innovation. This research </p><p>suggests that mztiuns may di@er in their rates of innovation because of the cultural values of their citizens. </p><p>These fiindings have important implications for managers and policy-makers. First, culture mutters. Countries may not be able to increase their rates of innovation simply by increasing the amount of money spent on research and development or indusrrial infrastructure. They also may need to change the values of their citizens to those that encourage innovative activity. This concept, in turn, suggests that national rates of innovation are driven by more fu~mental forces than economic conditions, and that societal change may be necessary to make less i~novaiive societies mm-e ~nnovati~?e~ </p><p>Second. the values associated with high national rates of ~n~vation are those that many scholars have tong argued are important at the&amp;m level. An acceptance of~~ertain~ appears to be necessary, pro~biy because ~nnovat~on reguire~ a tolerance for risk and change. ~~~v~dua~isrn seems to be ~mportant~ perhaps because of its ~so~iation with autonomy, independen~e~ a~ freedom. Lack of power distance appears important, perhaps rejecting the role that tolerance of change in the social order and distribution of power play in the innovation process. </p><p>Third, the study indicates that the strength of the relationship between innovation and two cultural values-individualism and lack of power distance-were stronger in 1975 than in 1980, </p><p>Address correspondence to Scott Shane, Department of Management, 2000 Steinberg Hall-Dietrich Hall, The Wharton School of the University of Pennsylvania, Philadelphia, PA 191046370. </p><p>I thank tbe So1 C. Snider Entrepreneurial Center at the Wharton School of the University of Pennsylvania and the Graduate School of Business and Public Management at Victoria Unive~ity of Wellington, New Zeatand fur the financial support that made this research possible. i aiso thank Ned Bowman, Lars Kolvereid, Hans Pennings, and Russ Root for their comments on an earlier draft of this article. </p><p>Ioumal of Business Venturing 8,59-73 8 I993 Elsevier Science Publishing Co., Inc.. 655 Avenue of the Americas, New York, NY 10010 </p></li><li><p>60 S. SHANE </p><p>suggesting, perhaps, that these values are becoming less important in spurring the innovation process. This finding supports the anecdotal evidence that many collectivist and hierarchicaf Asian nations are becoming more innovative. </p><p>Fourth, this study shows that per capita income is a more important economic variable than industrial structure in determining national rates of innovation. This finding confirms previous work that has shown that as nations become wealthier, they become more innovative. The reason may be that wealthier countries have more demand for innovations, both because innovations are often labor- saving. and because wealthier nations have greater demand for new and difSerentiated consumer goods. </p><p>To increase a ~ount~s rate of technological change, policy-makers need to understand the forces that drive national rates of innovation. Economists have found national rates of innovation to be associated with two macro-economic characteristics: industrial structure (Nelson and Winter 1977; Pate1 and Pavitt 1989), and national income level (Vernon 1966, 1970). However, other researchers have suggested that cultural values also influence national rates of innovation (Moulin 1961; Shaper0 and Sokol 1982; Wallace 1970). This article tests the proposition that cultural values influence national rates of innovation by comparing national scores on Hofstedes (1980) survey of cultural values with per capita rates of innovation in 1975 and 1980 across 33 countries. </p><p>CULTURAL DI~E~N~ES IN CANAPES BE~V~OR </p><p>Societies are endowed by nature with different physical environments. To succeed in a given environment, the members of a society must adopt environmentally reievant patterns of behavior. For example, to succeed in wet rice cultivation, group effort is needed to transplant rice seedlings. Consequently, societies dependent on rice agriculture have developed social systems that encourage the group effort necessary for survival in their given environment. </p><p>These environmentally relevant patterns of behavior lead to the formation of different cultural values in different societies. Cultural values are what Hofstede (1980, p. 25) calls the collective programming of the mind which distinguishes the members of one human group from another . . . the interactive aggregate of common characteristics that influence a human groups response to its environment. Over time, the values developed as a way of coping with environmental conditions become institutionalized through the use of rules, authority structures, and standard operating procedures (Meyer and Rowan 1977). The result is persistent differences in human behavior in different countries. </p><p>Consequently, when people establish organizations, the characteristics of these insti- tutions reflect their cultural values. Organizational behavior reflects societal attitudes toward authority, trust, loyalty, commitment, motivation, control, discipline, communication, con- sultation, participation, coordination, and uncertainty (Tayeb 1988). As differences in or- ganizational behavior have been found to influence rates of innovation (Kanter 1982), cul- turally determined differences in these behaviors might explain national differences in rates of innovation. </p><p>FOUR BASIC VALUES </p><p>In a massive study of the cultural values of 88,000 managers, Hofstede (1980) found that cultural differences across societies can be reduced to four quantifiable dimensions: uncer- </p></li><li><p>CULTURE AND RATES OF INNOVATION 61 </p><p>tainty avoidance, individualism, masculinity, and power distance. Uncertainty avoidance represents discomfort with unstructured or ambiguous situations and preference for certainty. Individualism stands for a preference for acting in the interest of ones self and immediate family, as opposed to collectivism, which stands for acting in the interest of a larger group in exchange for their loyalty and support. Power distance represents the acceptance of inequality in power and authority between people. Masculinity stands for a belief in ma- terialism and decisiveness rather than service and intuition (Hofstede 1980). </p><p>Hofstede (1980) found that these four cultural values are unequally represented across countries. Differences in these values might explain differences in national rates of innovation if some of the values are more likely than others to promote innovation. We now turn to the relationship between Hofstedes (1980) cultural values and innovation-enhancing be- havior. </p><p>Power Distance </p><p>Hofstedes (1980) power distance index represents five beliefs that discourage innovation. These are importance of hierarchy, vertical communication patterns, centralization of power, control over subordinates, and resistance to change in the distribution of power. We start with hierarc:hy. </p><p>Thompson (1967) and Bums and Stalker (1961) have found that minimizing hierarchy increases innovation; while other researchers have noted that policies that reduce equality among the members of an organization reduce innovation in the United States (Maidique and Hayes 1984), Europe and Japan (Quinn 1985). Hofstede (1980) found that managers in power distant societies use wealth, power and prestige to create and reinforce social inequality. This finding supports previous research on hierarchicai differences across societies (Brossard and Maurice 1974; Vlassenko 1977; Whyte 1969). </p><p>Free communication across levels of the organizational hierarchy has been found to increase innovation in the United States (Thompson 1967; Aiken and Hage 1971; Evan and Black 1967; Kanter 1982) and Japan (Nonaka and Yamanouchi 1989; Nonaka 1990). Hofst- ede (1980) found that power distant societies lack informal communication between people of different hierarchical levels. This finding confirms what other authors have written about information exchange between superiors and subordinates in hierarchical societies (Whyte 1969; Harbison and Burgess 1954; Williams et al. 1965). </p><p>Research has shown that decentralized authority increases innovation both in the United States (Hage and Aiken 1970; Aiken and Alford 1970; Zaltman et al. 1973; Hull and Hage 1982) and Japan (Imai et al. 1985). Hofstede (1980) found that people in power distant societies favor the concentration of authority and decision-making. These results support the findings OF earlier researchers (Brossard and Maurice 1974; Child and Kieser 1979). </p><p>Trust in subordinates spurs innovation. Trust allows managers to overcome the in- accuracies of venture plans and forecasts (Quinn 1979), while rigid control has been found to hinder the flexibility necessary for innovation (Block and MacMillan 1985; Sathe 1988). Tight control also reduces creative thinking (Schollhamer 1982), while freedom from rigid rules and job definitions enhances idea generation. This finding has been validated in studies undertaken in the United States (Kanter 1982) and Japan (Westney and Sakakibara 1985). Hofstede (1980) found that control systems based on trust are more common in non-power distant societies than in power distant countries. Moreover, managers in power distant societies believe in giving subordinates detailed inst~ctions with I&amp;tie autonomy to interpret them (Hofstede 1980). </p></li><li><p>62 S. SHANE </p><p>Successfully innovating organizations accept change in the distribution of power. Knight (1987, p. 288) found that innovating companies believe that anyone can become an innovation champion. Even the janitor should be able to champion an idea all the way through to its development. If the person generating the idea is not the person who gets to run with it as champion, the chances for success are decreased dramatically, perhaps by as much as 50%. Tushman (1977) notes that innovation alters the distribution of power in organizations. Hofstede (I 980) found that managers in power distant societies show an unwillingness to accept change in the distribution of power, and demonstrated strong negative correlations between the power distance index and measures of social mobility. These results support Webers (1958) argument that hierarchical social systems reduce occupational mo- bility, technical change, and innovation. These arguments lead to the first hypothesis: </p><p>HI: Less power distant societies will be more innovative than more power distant societies. </p><p>Individualism </p><p>Hofstedes individualism index represents three beliefs that have been found to encourage innovation. These are a belief in freedom, an outward orientation, and a belief in the importance of contact with senior managers. </p><p>Freedom of managers to take the actions they see as most worthwhile has been found to be important to successful innovation in organizations in the United States (Kanter 1982; Sathe 1988; Bums 1975; Twiss 1980) and Japan (Nonaka and Yamanouchi 1989; Jolly and Kayama 1990; Imai et al. 1985). Hofstede (1980) has found that individualistic societies are more likely than collectivist ones to stress the importance of freedom. </p><p>Outward orientation is important to innovation. Contact with outsiders stimulates creativity (Utterback 1974; Pavitt 1971; Mueller 1962). So does the diversity of a devel- opment team. This has been found in studies of firms in the United States (Feldman 1988; Katz and Allen 1982), Japan (Imai et al. 1985; Nonaka 1990), and Europe (Bessant and Grunt 1985). Hofstede (1980) found that individualism is associated with an outward ori- entation. Lynn and Hampsons (1975) measure of national rates of extroversion was sig- nificantly correlated with Hofstedes (1980) individualism index. </p><p>Researchers have found that innovation requires the support and interest of senior managers both in the United States (Fast and Pratt 1981; Maidique 1980; Quinn and Mueller 1963; Roberts 1968, 1980; Block et al. 1986; MacMillan and George 1985; Susbauer 1973; Kierulff 1979; Maidique and Hayes 1984) and Japan (Nonaka and Yamanouchi 1989; Imai et al. 1985). Hofstede (1980) found that managers in individualistic societies are more likely than managers in collectivist societies to believe in the importance of making contacts with senior managers. These arguments lead to our second hypothesis: </p><p>H2 Individualistic societies will be more innovative than collectivistic societies. </p><p>Uncertainty Avoidance </p><p>The cultural value of uncertainty acceptance is also associated with innovation. By inno- vating, managers initiate change; researchers have found that this change increases mana- gerial perceptions of uncertainty in firms in the United States (Kanter 1982) and Japan (Imai </p></li><li><p>CULTURE AND RATES OF INNOVATlON 63 </p><p>et al. 1985; Nonaka and Yamanouchi 1989). However, people in uncertainty accepting countries are more tolerant of this uncertainty than people in uncertainty avoiding societies (Hofstede 1980). Philips and Wright (1977) found that southeast Asians are more accepting of uncertainty than Britons, and so favor more new ideas. Yates et al. (1989) found similar results for Asians and Americans; Wright et al. (1978) showed that uncertainty is evaluated less by decision-makers in China than by decision-makers in the United States. This argument leads to our third hypothesis: </p><p>H3: Uncertainty avoiding societies will be less innovative than uncertainty accepting so- cieties. </p><p>Masculinity </p><p>Hofstedes (1980) work has shown that the cultural value of masculinity is related to two organizational characteristics common to innovative organizations: rewards and recognition for performance, and training and improvement of the individual. Research has shown that innovative managers are motivated by financial rewards, prestige, and a sense of accom- plishment (Gee and Tyler 1976; Quinn 1979). Bessant and Grunt (1985) found that this is true both in the United Kingdom and in Germany. Hofstede (1980) found that masculine societies place greater emphasis on individual achievement and rewards than do feminine societies. </p><p>Successfully innovating companies invest in employee development (Kanter 1982). Bessant and Grunt (1985) found that this emphasis on training holds both in Great Britain and Germany. Hofstede (1980) found that a second aspect of masculinity is a belief in the importance of training. This argument leads to our fourth hypothesis: </p><p>H4: Masculine societies will be more innovative than feminine societies. </p><p>ECONOMIC VARIABLES </p><p>To provide...</p></li></ul>