The Moderating Role of Organizational Context on the Relationship Between Innovation and Firm Performance

Abstract

This study examines how two cross-functional conditions (decision autonomy and trust) and a key managerial attitude toward the organization (organizational commitment), both individually and collectively, act as catalysts of the firm's ability to convert its innovation pursuits into performance outcomes. An analysis of the performance of 232 firms offers support for the hypothesized interaction effects. The positive relationship between innovation and firm performance is stronger for higher levels of decision autonomy, trust, and organizational commitment. In addition, consistent with a system's approach to organizational contingencies, the contribution of innovation to firm performance is stronger when the firm's context comes closer to an “ideal” configuration of these three factors. The authors discuss the study's implications, limitations, and directions for further research.

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