Exploring the effects of creative CEO leadership on innovation inhigh-technology firmsMarianna Makri ⁎,Terri A.Scandura 1Dept.of Management,University of Miami,Jenkins Building,414L,5250University Drive,Coral Gables,FL,33146,United Statesa r t i c l ei n f o a b s t r a c t This study introduces two dimensions of strategic leadership,termed operational and creative speci fically developed for top executives of high-technology firms.Creative leadership re flects a CEO's emphasis on developing social and human capital and investing in the firm's internal knowledge development.We contrast this with operational leadership which re flects a CEO'sability to explore new paths of growth as well as exploit existing ones by rede fining andextending the boundaries of the firm to new product and market domains.Hypotheses relatingthese two dimensions of leadership with innovation quantity,innovation resonance andnovelty are tested using a sample of 77high-technology firms.©2009Elsevier Inc.All rights reserved.Keywords:StrategyLeadershipInnovationCEO More than half of economic growth during 1945–2002is attributed to innovations within the high-technology sector (Leary,2002).For high-technology firms,innovation,organizational learning and the creation of new knowledge are vital for long-term survival and renewal because they have to deal with rapid and discontinuous change (Makri,Lane,&Gomez-Mejia,2006).As such,executive leaders are constantly challenged to leverage the intellectual capital of their firms.This scenario raises the question:how might creative leadership behaviors must executives of technology-intensive 2organizations balance in order to enhance innovation quantity,innovation quality and innovation novelty?Although leadership and the in fluence tactics leaders use affect follower's willingness to engage in creative ventures (Mumford,Scott,Gaddos,&Strange,2002),research in the area of leader in fluence on creativity and innovation has been scarce (e.g.Cummings &Oldham,1997;Mumford et al.,2002;Tierney,Farmer,&Graen,1999).Most studies in strategic leadership that looked at this issue (e.g.Elenkov,Judge,&Wright,2005;Jung,Chow,&Wu,2003)have used the traditional conceptualizations of transactional and transformational leadership (e.g.Bass,1985)to capture CEO leadership characteristics.While these traditional conceptualizations can re flect the CEO's relationship with followers,the concept of strategic leadership in the context of high-technology firms calls for constructs re flective of the CEO's overall effectiveness in spearheading invention,innovation and commercialization.More speci fically,there is a need for re finement of the constructs that measure creative leadership to re flect the CEO's ability to create new knowledge as well as commercialize existing knowledge and derive pro fit from it.In this study,we examine the relationship between innovation quantity,quality,and novelty and creative leadership.Because the innovation value chain involves idea generation (invention),idea development,and idea commercialization,effective leaders are those who can simultaneously explore and exploit,while at the same time can lead creatively and operationally.The contribution of our research is twofold.First,we bridge the existing gap between creative leadership and organizational innovation (Bontis,Crossan,&Hulland,2002;Jung et al.,2003;Vera &Crossan,2004).While several studies examined the relationship between CEO leadership and firm performance,only a handful addressed the effects of leadership on innovation albeit using the traditional measures of transactional and transformational leadership (Elenkov &Manev,2005;Elenkov et al.,2005;Jung The Leadership Quarterly 21(2010)75–88⁎Corresponding author.Tel.:+13052488586;fax:+13052483655.E-mail addresses:mmakri@ (M.Makri),tscandura@ (T.A.Scandura).1Tel.:+13052483746;fax:+13052483655.2Consistent with much of the literature,we use the terms “high technology,”“technology intensive,”and “R&D-intensive ”interchangeably.1048-9843/$–see front matter ©2009Elsevier Inc.All rights reserved.doi:10.1016/j.leaqua.2009.10.006Contents lists available at ScienceDirectThe Leadership Quarterlyj o u r n a l h o m e p a g e :w ww.e l s e v i e r.c o m /l o c a t e /l e a q u a76M.Makri,T.A.Scandura/The Leadership Quarterly21(2010)75–88et al.,2003;Vera&Crossan,2004).Second,we develop a perspective on creative leadership that complements existing theories (e.g.personality theory,transformational/transactional leadership theory,visionary leadership theory,theory of cognitive complexity,social intelligence,and behavioral complexity,Cannella&Monroe,1997;Boal&Hooijberg,2000),while better representing the essence of strategic leadership for high-technologyfirms.Simply put,the goal of this study is to attend to existing gaps in the literature between creative leadership and innovation using a sample of high technology,knowledge-intensivefirms to examine what leadership characteristics are significant for executives in high-technologyfirms.Innovation and the associated scientific and technological knowledge it involves have increasingly become important features for value creation in many industries;R&D investments are one of the most important decisions that executives of high-technologyfirms must make(Greve,1998).First,it is important to define innovation.We espouse the1991OECD definition of innovation as:“an iterative process initiated by the perception of a new market and/or service opportunity for a technology-based invention which leads to development,production and marketing tasks striving for the commercial success of the invention”(Garcia&Calantone,2002;p.112).This definition suggests that the process of innovation starts with idea generation,then moves to idea development which involves the technological development of an invention and ends with the commercialization of that invention and the diffusion to end-users(Hansen&Birkinshaw,2007;Mumford et al.,2002).Stated differently,at the origin of the innovation value chain are inventions,and while innovations and inventions are related,they are not identical.The distinction is that innovation is a“process that begins with an invention,proceeds with the development of the invention and results in the introduction of a new product,process,or service to the marketplace(Edwards&Gordon,1984;p.1)”(Acs&Audretsch,2005). While innovation refers to the development and commercialization of an invention,invention refers to the act of creating something new(Ahuja&Lampert,2001).We adopt this conceptualization and suggest that innovation quantity,quality,and novelty will be the outcomes of this three-step innovation value chain.We introduce two dimensions of strategic leadership,termed creative and operational,to suggest that an effective leader is one who is able to simultaneously invent,develop,and commercialize.More specifically,our conceptualization of operational leadership reflects a CEO's ability to sense new market needs,develop new concepts for products and services,and increase the firm's knowledge diversity by diversifying into new products/markets via mergers,alliances,or acquisitions.Advances often emerge from the margins of a knowledgefield(Kuhn,1970)thus a successful operational leader would be a good scout in terms of identifying important advances.Further,because organizations must exploit existing knowledge stocks as well as explore new knowledge paths,an effective operational leader plays a boundary spanning role.A high-technologyfirm may produce a large number of inventions,but these may be of little value unless the CEO is able to push them through the pipeline,commercialize them,and derive a profit from them.As projects move to the development and implementation phase,an effective leader demonstrates operational skills in terms of securing resources,and communicating with external constituencies(e.g.FDA)to manage the project development cycle(Mumford et al.,2002).Put differently,a CEO who exhibits characteristics of operational leadership would have an external focus when it comes to innovation and would be skilled at communicating with the external environment and broadening thefirm's knowledge-creation opportunities by external knowledge acquisition.Creative leaders,on the other hand,tend to be characterized by a focus on developing human and social capital as well as the ability to create a supportive environment within the organization(Mumford et al.,2002).They tend to focus on expanding the firm's existing knowledge stocks internally and they are skilled at stimulating creative staff intellectually,trusting and supporting them,and providing them latitude.Further,they promote individual initiative while promoting integration of group activities and teamwork(Mumford et al.,2002).Several studies support that an organization's climate for innovation is an important determinant of innovation(Bain,Mann,&Pirola-Merlo,2001;Jung et al.,2003;Scott&Bruce,1994).Hambrick,Black, and Fredrickson(1992)found that high-technologyfirms benefit from CEOs who are capable of fostering innovation by “catalyzing and exploiting the talents of thefirm's technical professionals…these[successful]CEOs are very collaborative,open-mined,and energetic.Even though these seem like universally ideal qualities for a CEO,they appear to be particularly important in the high-technologyfirm which has to deal with rapid and discontinuous change,with value-creation hinging on a staff of high-grade technical professionals”(p.11).Similarly,in a series of case studies of Japanese high-technologyfirms,Kodama(2005) found that the most important determinant of CEO success in thosefirms is“building a knowledge-creation environment”(p.153).Thefirst step in the innovation value chain,idea generation,is distinct from the other two in that it is the most people-centered and internally-focused.In contrast,idea development and commercialization,involve facilitating development either by securing resources internally or acquiring them externally as well as expanding thefirm's reach to new markets.Being able to shift from new knowledge creation and exploration,to new knowledge application and exploitation highlights the challenge of leading effectively in high-technologyfirms.Because of the synergistic benefit between creative and operational leadership,there is a need to manage the balance between the two.Tushman and O'Reilly(1996)suggest that an ambidextrousfirm able to simultaneously explore and exploit,able to simultaneously invent and innovate,will outperformfirms that emphasize one at the expense of the other.Simply put,CEOs who are able to simultaneously focus on the external and internal environment,will be more effective leaders.1.Theory development and hypothesesThere are various definitions of strategic leadership in management research.Strategic leadership has been defined as“a person's ability to anticipate,envision,maintainflexibility,think strategically,and work with others to initiate changes that will create a viable future for the organization”(Ireland&Hitt,1999;p.45).It has also been defined as the creation of an overall senseof purpose and direction which guides integrated strategy formulation and implementation in firms (Shrivastava &Nachman,1989).Strategic leadership theory has focused largely on CEOs because they shape strategic decisions (Hambrick &Mason,1984;Zahra &Pearce,1989).CEOs are the central strategic decision makers and they have great power to affect the process of innovation by creating the organizational structure,processes,and culture that support innovation (Elenkov &Manev,2005).Strategic leadership theory claims that companies re flect their top management team and in particular,the chief executive of ficer (Child,1972).Organizations are “re flections of the values and cognitive bases of powerful actors,”(Hambrick &Mason,1984:198)and CEOs have the ability to signi ficantly in fluence the direction of the firm.Some even suggest that the most important people in an organization are the CEO and the top management team formed by the CEO (Ireland &Hitt,1999).Since CEOs are the ones who have the ultimate responsibility of setting the strategic direction of the firm,they are involved in making decisions relating to diversi fication,mergers and acquisitions,alliances and joint ventures and they play an important role in creating a corporate environment that fosters or inhibits innovation (Daft,2002).Only a few studies empirically examined the relationship between leadership behaviors and organizational innovation (e.g.,Amabile,1997;Elenkov et al.,2005;Howell &Avolio,1993;Jung et al.,2003).Elenkov et al.(2005)investigated the relationship between strategic leadership behaviors and product –market as well as administrative innovation and found a positive relationship between the two.Further,Jung et al.(2003)found transformational leadership to positively affect organizational innovation captured as the number of patents granted to the firm.While these studies are an important step towards explicating the relationship between strategic leadership and organizational innovation,they captured strategic leadership using Bass and Avolio's (1992)Multifactor Leadership Questionnaire (MLQ).While it is one of the most utilized sets of measures of all leadership studies (Lowe,Kroeck,&Sivasubramanian,1996)the MLQ does not capture the behaviors of a CEO which are most associated with the dimensions of the innovation value chain mentioned earlier.Also,the construct validity of this measure has been questioned (Tejeda,Scandura,&Pillai,2001)because it has not shown discriminant validity between the subscales in a number of studies.Multifactor leadership theory does not completely capture the unique challenges of a high-technology firm CEO.Further,the multifactor leadership questionnaire (MLQ)contains content that re flects relationships between leaders and members (e.g.,individualized consideration)that are less relevant to CEOs who in fluence organizational members more broadly by creating a structure and a climate supportive of innovation.The role of the CEO in a high-technology firm is more related to the creation of a culture that supports innovation rather than with direct interactions with employees.As such,we introduce two new concepts of leadership (termed creative and operational)that consider the role of a high-technology firm CEO and examine their effects on innovation.The context for these leadership concepts is the role that science and technology play in innovation.1.1.The role of science and technology in innovationScience-based research initiatives are research projects aimed at the general advancement of knowledge that do not yet have speci fic commercial objectives (Henard &McFayden,2005).Science is knowledge about the general characteristics and relationships of natural,social,and technological phenomena.It facilitates a better understanding of how technologies work,and it can help engineers screen different alternatives before actually testing them.Also,it can help extrapolate patterns or theories that could be applied to similar problems (Nightingale,1998).Technology-based research initiatives on the other hand,revolve around the development of commercially successful products and involve exploiting,adapting,and combining what is known to respond to pressures from markets for products and services (Balmer &Sharp,1993;Clark,1987;Rip,1992).Put differently,technology involves an innovation process quite different from science.The process of technological development considers unexpected findings as useless and when a solution to a technological problem is not evident,engineers work backwards from preconceived ends and evaluate potential starting points (means)until an optimal one is found (Nightingale,1998).Science-based research is associated with the process of invention while technology-based research is associated with the process of innovation.Unlike technology,scienti fic knowledge values unexpected findings (Barnes &Edge,1982;Mulkay,1977).This unexpected branching of research streams can help engineers break out of their scenario thinking and the exploratory nature of science can lead to the development of new technologies by overturning the core design concepts underlying existing technologies (Henderson &Clark,1990).In sum,conducting science-based research internally can help firms more effectively evaluate the most recent technological advancements developed externally,which in turn increase the ef ficiency of the firm's internal technology-based research (Cassiman et al.,2005;Cockburn &Henderson,1998).While scienti fic knowledge provides the base for advances in technological knowledge,technological knowledge advances also facilitate the further development and application of scienti fic knowledge.The result is an on-going series of interactions in which science and technology are “dancing partners ”that evolve around each other yet follow different steps to do so (Rip,1992).As such,the interaction between technological and scienti fic knowledge has a positive effect on the quality and quantity of innovations (Henard &McFayden,2005;Afuah,2003;Cohen &Levinthal,1990).Because of the exploratory nature of scienti fic research,new technologies can evolve (new knowledge content)which in turn creates opportunities for new areas of applicability (new knowledge context).New knowledge context can emerge when the firm diversi fies internationally,into new markets or when it enters joint ventures.As such,new knowledge context can stimulate new knowledge content because it infuses the firm's knowledge base with new technologies that can be recombined in novel ways to generate new ideas.These ideas are discussed next.77M.Makri,T.A.Scandura /The Leadership Quarterly 21(2010)75–8878M.Makri,T.A.Scandura/The Leadership Quarterly21(2010)75–881.2.The role of creative and operational leadership in innovationCEOs of high-technologyfirms are responsible for making decisions regarding investments in innovation.Afirm's absorptive capacity,its ability to exploit new knowledge acquired externally or developed internally,depends on their in-house R&D capability(Cohen&Levinthal,1990).Such capability is very much affected by the characteristics of leaders heading those organizations.Thus,a CEO's leadership style is related to creativity and innovation and her skills affect people's willingness to engage in the success of creative ventures(Mumford et al.,2002).As Mumford et al.(2002)note,creative work is people-centered but it is also contextualized“with the success of creative ventures depending on an awareness of the capabilities of and pressures on extant socio-technical systems”(p.709).This suggests that in order to successfully invent and innovate,CEOs must have expertise in managing creative people internally,as well as communicating with the environment,and identifying new knowledge contexts and opportunities externally.The arguments presented above regarding the interactive effects of science and technology on innovation suggest that for high-technologyfirms,effective leadership calls for a CEO who is adept at fostering invention internally by catalyzing and supporting the talents of thefirm's technical professionals and encouraging science-based as well as technology-based initiatives.Effective leadership also calls for a CEO who can also simultaneously create opportunities for new knowledge creation and existing knowledge application by identifying and exploiting opportunities in the external environment.This highlights two important skills that a CEO should possess;one of a creative leader,who is people-centered and focuses on internal knowledge development and one of an operational leader,who is constantly on the lookout to identify and exploit new opportunities externally.In terms of thefirst dimension of strategic leadership,the creative one,as Hitt and Ireland(2002)suggest,“the essence of strategic leadership is the effectuation of human capital and social capital in and for thefirm.Strategic leaders,thus,configure and leverage human and social capital to create value for thefirm…this type of leadership is critical for thefirm's survival and success”(p.15).Further,CEOs must create a climate that encourages exploration and risk taking.They need to be good at stimulating creative staff intellectually,trusting and supporting them,and providing them freedom(Mumford&Gustafson,1988;Amabile et al.,1996).They have to promote individual initiative while promoting integration of group activities and team work(Mumford et al.,2002).Put differently,in high-technology industries,CEOs play an important role in leveraging thefirm's internal resources and capabilities,especially human and social capital,and in creating a corporate environment that fosters invention and creates new knowledge content(Daft,2002).This ability is what we call creative leadership.As ideas move from the idea generation phase to the development and implementation phase CEOs need to exhibit a different type of skill.Moving from invention to innovation involves more resources and interaction with a wider array of constituencies (Mumford et al.,2002).As such,CEOs must manage communication with external environmental agents such as government agencies.Because advances in technology often emerge from the margins of a knowledgefield(Kuhn,1970),a successful CEO should be able to monitor,scout,and evaluate opportunities in the external environment.Further,leading a knowledge-intensive firm requires a CEO who is adept at expanding thefirm's knowledge domain not only internally(creative leadership)but also externally through diversification via acquisitions,alliances,and joint ventures.Exploring diverse realms of knowledge can increase the probability that a radically different approach to problem solving will emerge(Fiol&Lyles,1985;Levinthal&March, 1993)and exposure to a new set of routines,new modes of reasoning,and challenges to existing cause–effect understandings is likely to help afirm discover novel solutions to its problems.As Ahuja and Lampert(2001)put this:“…the irritant of new, imperfectly understood streams of knowledge can foster the pearls of insight”(p.527).This ability to extend the boundaries of the firm by venturing into new products/markets or change its boundaries to the international competitive arena thus creating new knowledge context is what we call operational leadership.In sum,the role of a high-technologyfirm CEO includes externally expanding knowledge depth and breadth by identifying new areas of knowledge application as well as new sources of knowledge acquisition,but also internally enhancing knowledge breadth and depth by nurturing and leveraging human and social capital.A CEO who exhibits characteristics of creative leadership would put an emphasis on nurturing new knowledge platforms internally by encouraging risk taking,intellectual stimulation,and freedom and by exhibiting support and trust.On the other hand,a CEO exhibiting characteristics of operational leadership would put an emphasis on playing a boundary spanning role by communicating with the external environment,identifying opportunities externally,and creating new knowledge contexts by extending existing product/market domains via mergers and acquisitions, alliances,or joint ventures.The effects of these two types of leadership on innovation outcomes are discussed next.1.3.Creative leadership,operational leadership and innovation outcomesFor afirm to be able to discover novel innovations it needs to open up to a new variety of contexts by extending into new products/markets.A CEO exhibiting operational leadership characteristics would be able to enhance innovation by introducing diverse knowledge.Such changes could include product or market diversification,alliances,joint ventures,or mergers and acquisitions.To be able to expose thefirm to new knowledge domains an operational leader needs tofirst be able to identify those opportunities in the external environment whether that is the technological,political,economic,sociocultural,demographic,or legal environment.In addition to expanding thefirm's knowledge context,a CEO needs to be able to move new ideas from the conceptualization phase to the development and commercialization phases.As such,an operational CEO needs to exhibit competence in exerting influence over external environmental agents such as the press,consultants,governmental agents, suppliers,customers,and alliance partners.On the other hand,CEOs exhibiting creative leadership characteristics would be more likely to invest in developing knowledge internally and as such,would be adept at managing creative people.Further,such CEOs would exhibit competence in intellectually stimulating employees,encouraging risk taking and experimentation,and creating a culture of innovation.Two key aspects of a high-technology firm's knowledge-creation environment that a CEO can in fluence through policies and resource allocations are:the degree to which R&D staffers are encouraged to conduct basic science and the degree to which they conduct them in partnership with leading academic researchers.Zucker,Darby,and Armstrong (2002)found that firms whose researchers collaborate with star academic researchers increase the number and citation rates of their patents.Similarly,McMillan,Hamilton,and Deeds'(2000)study of R&D-intensive firms found a strong positive relationship between a culture supporting academic-style scienti fic research and the number of patents a firm is granted.As argued earlier,because of the relationship between science and technology,for firms to be successful,they need to simultaneously pursue science and technology-based research agendas.March (1991,p.71)stated that firms that invest in science to the exclusion of technology “suffer the costs of experimentation without gaining many of its bene fits.”Conversely,March (1991,p.71)also noted that a reverse orientation is likely to leave firms “trapped in suboptimal stable equilibrium,”where technology-based research yields productive results yet falls short of its potential because the groundwork for future innovation is not fully being developed.He therefore suggests that firms take a mixed research approach and we suggest that CEOs take a mixed leadership approach in terms of emphasizing knowledge investments internally as well as externally.Put differently,because of the interactive relationship between science and technology,an effective CEO is one who is able to simultaneously support a culture for developing science and technology-based research internally (human and social capital focus)as well as exploiting existing knowledge externally (entering new markets)or by expanding it by acquiring it from the market (pursuing acquisitions,alliances,or joint ventures).A simultaneous focus on internal knowledge development as well as external knowledge exploitation and acquisition can help the firm both exploit its exiting knowledge stock as well as enhance it by expanding its knowledge breadth.The iterative nature of innovation which involves a process of recombination (Fleming &Sorenson,2004),in which existing technological components are recon figured,or new ones are discovered suggests that ambidexterity in executive leadership would be associated with higher innovation quantity and quality.Formally stated:Hypothesis 1.In high-technology firms,the interaction of creative and operational leadership will be positively related to innovation quantity.Hypothesis 2.In high-technology firms,the interaction of creative and operational leadership will be positively related to innovation quality.Science-based innovation is a challenging,time consuming,and uncertain process,one that is associated with a high probability of failure (Fleming &Sorenson,2004).Despite the risks associated with investments in science,science can help a firm break out of its existing technology trajectories to develop novel technologies (Ahuja &Lampert,2001;Makri et al.,2006).Earlier it was argued that creative leadership encourages risk taking and exploration which leads us to suggest that creative leadership characteristics would be associated investments in science.When CEOs emphasize operational leadership they would be comfortable with stretching the boundaries of the firm by diversifying into new products or markets by either exploring new areas of technology or exploiting existing ones.While we expect a positive relationship between investments in scienti fic knowledge and operational as well as creative leadership,we expect that the former is more closely related with such investments because of its greater emphasis on the development on human capital and risk taking.Formally stated:Hypothesis 3a.In high-technology firms,creative and operational leadership will be positively related to the use of science in innovation.Hypothesis 3b.In high-technology firms,creative leadership will be more positively related to the use of science in innovation than operational leadership.2.Methods2.1.Sample and data collectionWe test our hypotheses using a random sample of 773high-technology firms representing a variety of industries such as drugs and chemicals (21firms),electronics (17firms),and other manufacturing industries (39firms)including metal,food and kindred products,and miscellaneous machinery.CHI Research Inc 4provided data on the number of U.S.patents granted annually to each3Information on this sample was purchased from CHI and due to budgetary constraints we could only purchase information on 77firms.4CHI Research Inc.,is the source of the patent analyses used in the National Science Foundation's bi-annual science and engineering reports.CHI Research was recently acquired by Thomson Scienti fic's Delphion patent service.79M.Makri,T.A.Scandura /The Leadership Quarterly 21(2010)75–88。