Original Article

Exploring the Relationships Global Business Review

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Between Organizational Culture, © 2019 IMI
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DOI: 10.1177/0972150919870341
Organizational Innovation journals.sagepub.com/home/gbr

Ibrahim Bader Alharbi1

Rossilah Jamil1
Nik Hasnaa Nik Mahmood2
Awaluddin Mohamed Shaharoun3

Abstract
Organizations consist of numerous tangible and intangible factors. Many of these factors were individually
studied in relation to each other, but several factors still need a more thorough investigation. This
study aims to examine the direct and indirect effects of organizational culture (OC) on organizational
innovation (OI) through the management control system (MCS) as a mediating factor. To achieve this
aim, studies were comprehensively conducted in regard to the effects of OC on OI, the effects of OC
on the MCS and the effects of MCS on OI. This study attempts to focus on the effects of OC and the
MCS as mediating factors for OI among universities in Saudi Arabia. In this study, SmartPLS was used to
validate the measurement model and relations between variables. The study results found that OC was
significantly and directly related to OI, and it was significantly and indirectly related through the MCS
as the mediating factor. This finding confirmed previous findings and supported the important roles of
both constructs in university improvements.

Keywords
Organizational culture, organizational innovation, management control system

1
Azman Hashim International Business School, Universiti Teknologi Malaysia, Jalan Sultan Yahya Petra (Jalan Semarak), Kuala
Lumpur, Malaysia.
2
Razak Faculty of Technology and Information, Universiti Teknologi Malaysia, Jalan Sulta Yahya Petra (Jalan Semarak), Kuala
Lumpur, Malaysia.
3
Engineering College, Islamic University of Madinah, Kingdom of Saudi Arabia.

Corresponding author:
Ibrahim Bader Alharbi, Azman Hashim International Business School, Universiti Teknologi Malaysia, Jalan Sultan Yahya Petra (Jalan Semarak),
Kuala Lumpur 54100, Malaysia.
E-mail: [email protected]
2 Global Business Review

Introduction
The dynamic nature of today’s contemporary world depends on a rapidly competitive society. An
organization that is capable of adjusting to change and transformation is of great value. Innovation
management is essential to ensure that the organization has a competitive edge over its competitors
(Tohidi & Jabbari, 2012). Innovation plays an essential role in the competitiveness (Hartono &
Kusumawardhani, 2018). For this purpose, successful organizations, particularly those with efficient
managers, give top priority to the development of tools and systems to achieve greater innovations. It is
an indisputable fact that organizational innovation (OI) is a significant factor to ensure future improvement
and survival in any business. Innovation helps institutions to synchronize with changes in the market,
customer needs and the environment. However, there are internal factors that will influence OI, namely
organizational culture (OC; Acar & Acar, 2012; Valencia, Valle, & Jiménez, 2010) and management
control system (MCS; Lopez-Valeiras, Gonzalez-Sanchez, & Gomez-Conde, 2016). Due to the intricate
nature of contemporary organizations, OC may have an impact on OI. The impact of OC on innovation
has already been studied by previous researchers (Abdi & Senin, 2014; Adelekan, 2016; Barbosa, 2014;
Büschgens, Bausch, & Balkin, 2013; Martins & Martins, 2012; Shahzad, Xiu, & Shahbaz, 2017; Smit,
2015; Yeşil & Kaya, 2012).
However, the research in both OC (e.g., Cameron & Quinn, 2011; Schein, 1984) and MCS (e.g.,
Burns & Design, 1996; Ouchi, 2006; Tessier & Otley, 2012) focuses on achievement of organizational
aims with corresponding individuals goals on one hand, while fostering employee creativity,
empowerment for innovation and commitment to change on the other hand. While OI is a much more
organization-oriented type of innovation than the others, it is an impressive field for investigating the
OC (the pattern of fundamental assumptions that emerge from a set of norms, values, beliefs and
attitudes) and also the role of the MCS (Janka, Heinicke, & Guenther, 2019). Where the MCS employed
the information based on the procedures, processes and routines by the managers to ensure that the
behaviour of employees and the decisions made are associated with organizational goals (Merchant &
Van der Stede, 2012).
OI is a method of creating or selecting a new idea in order to provide services, products, processes and
structures that are unique to the organizations (Li, Bhutto, Nasiri, Shaikh, & Samo, 2018). Innovation is
necessary not only for competitiveness but also for social development and economic prosperity (Alharbi,
Jamil, Mahmood, & Shaharoun, 2019). Innovation is one of the most important factors integral for
vision-oriented organizations in a competitive environment that OC can encourage or discourage, which
finally affects the overall performance of universities, institute, firms and other sectors (Naranjo-
Valencia, Jiménez-Jiménez, & Sanz-valle, 2016). Moreover, it was also considered that MCS might be
contributing to promoting the development of innovation (Simons, 1995, 2000). Despite the close
relationship between OI and these factors, the management literature did not examine the nature of the
relationship between OC, MCS and OI.
In recent years, empirical researchers have begun to focus on the relationships between OC and MCS
(e.g., Bhimani, 2003; Heinicke, Guenther, & Widener, 2016; Henri, 2006), because the OC consists of
norms and values for clarifying the structures and tools of control (Anthony & Govindarajan, 2007). For
instance, Henri (2006) finds that organizations in a high degree of OC stability use performance
measurement as part of MCSs, which is consistent with Heinicke et al.’s (2016) study, where they found
that there is a link between flexible culture and control system. Therefore, this study assumes that
organizations employ MCSs for a mediating role in the relationship between OC and OI.
Alharbi et al. 3

Nevertheless, universities are critical in today’s society, where change is continual and every change
is affected by innovation (Fritsch & Slavtchev, 2007; Vlok, 2012). However, the economy can barely
achieve success if innovation is absent. According to the new World Economic Forum report 2018, it was
found that around 133 million new jobs will be provided by 2022, and 75 million jobs are shifting to
technical innovation (WEF, 2018). Moreover, the McKinsey report reveals that around 84 per cent of
managers recognized that the success in future is based on innovation, which allows organizations to
succeed and contribute to economic growth in competitive markets (Myllylä, 2019). Therefore,
universities should not be isolated from their role in social and economic growth, but they should be
involved in development through investment in scientific research, and the consequence would be
progress in innovation, society and economy (Viana-Baptista, 1999). The theoretical discussions and
empirical studies on the relationship between OC and OI are slightly ambiguous, and it may be affected
by the role of the MCS (Janka et al., 2019). Therefore, the aim of this study is to examine the mediating
effect of the MCS on the relationship between OC and OI in Saudi universities, which finally this study
contributes to the literature by expanding the empirical research on OI (Crossan & Apaydin, 2010;
Keupp, Palmié, & Gassmann, 2012).

Literature Review
Innovation was studied at different levels, such as individual, national and organizational levels, including
products, services and marketing innovations (Ganzer, Chais, & Olea, 2017; Kjellberg, Azimont, &
Reid, 2015; Lee, 2007; Mothe & Thi, 2010). Although these studies contributed to the growth of
innovation literature, they also obscured in-depth knowledge on the subject. The fundamental proposition
of RBV theory is that the organizations are different in terms of the strategic resources they hold and
control, where is focused on the basic questions of why nations or organizations are different, and how
organizations sustain a competitive advantage by using their available resources and how organizations
thrive (Poazi, Tamunosiki-Amadi, & Fems, 2017). The OC and control system are considered as
resources to the organization. No doubt, the resources are the bases of organizations. In other words,
resources are permanently linked to the organization (Maijoor & Witteloostuijn, 1996). Therefore, in this
study, the innovation analysis was done at an organizational level. The RBV theory will be used for the
formulation of hypotheses and the structural model as follows:

Organizational Culture and Organizational Innovation

Innovation is an important factor for organizations in a competitive environment, and the OC can
encourage or discourage the innovation, which finally may affect the overall performance of organizations,
firms, institutions and universities (Naranjo-Valencia et al., 2016). According to Szczepańska-Woszczyna
(2015), members in organizations are recognized as assets and can also be considered as liabilities. OC
is embodied in values, beliefs, assumptions, attitudes, artefacts and behaviours of members (Gochhayat,
Giri, & Suar, 2017). However, if the OC is hard, closed and difficult to comply, it may resist new
thoughts, preventing creative minds, therefore discouraging innovation processes (Li et al., 2018).
OC is one of the main parts of contemporary organizations. Many scientists have observed how OC
affected OI. For example, Martins and Martins (2012) studied how OC can support creativity and innovation.
4 Global Business Review

The study found that management support, trust in relationship, workplace environment and customer
orientation affected the degree at which employees will become creative, and thus lead to OIs. Similarly,
Adelekan (2016) investigated the effects of OC on the innovative capacity of small and medium-sized
enterprises (SMEs) in Nigeria. The study found a significant and positive relationship between OC and the
innovative capacity of SMEs. However, the extent of the effect varied from the least effective (culture of the
hierarchy) to the most effective (clan culture). Therefore, with regard to family businesses, Laforet (2016)
analyzed the effects of OC on the performance of OI in SMEs. The study used a postal survey of small and
medium businesses in various sectors in the UK. The study found that the types of patriarchal culture and
founder were not positively related to the performance of a family enterprise innovation. However, a culture
that was similar to a flexible, active and long-term business initiative had positive effects on innovation.
These results corresponded to those found by Yeşil and Kaya (2012) in a study conducted on OC and its
effects on OI. Their results showed that the adhocracy form of OC was positively and significantly associated
with OI. Moreover, Abdullah, Shamsuddin, Wahab, and Hamid (2014) studied the impact of OC on SME
innovation in southern Malaysia. The study involved 36 small companies at different OC dimensions; it was
found that mission, consistency and involvement were greatly related to product innovation.
All studies in this section unequivocally showed that the relationship between OC and OI was
extensively studied from different perspectives and contexts. However, as shown in the following
section, other studies had considered other variables that mediate the relation between OC and OI.
Hypothesis (H1). There is a significant relationship between organizational culture and
organizational innovation.

Organizational Culture and Management Control System

Schein (1984) explains OC as

the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope
with its problems of external adaptation and internal integration and that have worked well enough to be
considered valid, and, therefore, to be taught to new members as the correct way to perceive, think, and feel in
relation to those problems.

OC is a factor that has an indirect effect either on a group or on an individual behaviour, whereas MCS
is shown as a mechanism that directly affects the behaviour to achieve organizational goals (Flamholtz,
Das, & Tsui, 1985).
The current empirical researchers have begun to examine the relationships between OC and MCS
(Bhimani, 2003; Heinicke et al., 2016; Henri, 2006) because the OC consists of norms and values for
configuring the structures and control tools (Anthony & Govindarajan, 2007). However, the studies on
the relationship between OC and management control are still very rare. A scholar of OC, like Hofstede
(2011), noted that the MCS is based on culture, where culture is observed as an element that creates
particular forms of control (Andersen & Lueg, 2016). Cultural aspects and management of individuals,
with control techniques, played an important role in achieving the organizational goals, which is
consistent with the findings of Child, Faulkner, and Pitkethly (2003) and Larsson and Lubatkin (2001).
A study by Calori, Lubatkin, and Very (1994) investigated the impact of national culture on the
mechanisms of integration and control of 75 transnational acquisitions in the UK and France. The study
indicated that the control system in these transactions was heavily influenced by experience and the
managerial structure of home countries, which were the national culture. The study concluded that there
Alharbi et al. 5

was an insufficient study on the relationship between OC and MCS. A study on the impact of OC on
post-acquisition MCS of a Brazilian company showed that changes in the post-acquisition MCS were
based on the oriented culture changes (Jordão, Souza, & Avelar, 2014).
Hypothesis (H2). There is a significant relationship between organizational culture and management
control system.

Management Control System and Organizational Innovation

The relation between the MCS and OI was studied by Bisbe and Otley (2004), and it was found that the
MCS did not have an interaction effect to favour innovation. Nevertheless, they claimed that this was
seemingly the case in organizations with a weak innovation, whereas organizations with a strong
innovation will have positive influences. Furthermore, Lopez-Valeiras et al. (2016) examined the
interactive MCS that affected the process and OI. The study surveyed 230 organizations. The results
revealed that the interactive use of the MCS promoted the process and OI. Likewise, Frezatti, de Souza
Bido, da Cruz, and Machado (2017) investigated the relationship between the MCS and process
innovation using the model offered by Simons (1995). The study showed that there were impacts exerted
by external dynamic and stimuli tensions in the way of innovation strategies.
A review article by Haustein, Luther, and Schuster (2014) was on the relation between the MCS and
OI. The study was expanded into many aspects of the MCS. It found that there were 11 specific external
and organizational determinants and OI-specific contingency factors on the MCS in innovative
organizations. The study eventually proposed a contingency model of the MCS, which expected the
impact of the MCS on OI.
All studies reviewed here examined the relationship between the MCS and OI. This indicated that
there was a moderate amount of literature on these two variables.
Hypothesis (H3). There is a significant relationship between management control system and
organizational innovation.

Mediating Organizational Culture and Organizational Innovation

As described in the previous sections, there was insufficient literature on the direct effects of OC on OI.
However, there were several studies that recognized these effects as indirect and were not directly
affected as shown in the studies mentioned in previous sections (Abdi & Senin, 2014; Janka et al., 2019).
The effect of OC on OI is mediated by different factors. Abdi and Senin (2014) examined learning as
a mediating factor in the relationship between OC and OI. The results indicated that there was a positive
mediate impact of organizational learning on the relationship between OC and OI, although OC and OI
had a direct effect.
Also, Janka et al. (2019) examined that managerial innovation is influenced by OC and MCS. The
study found that the stability in OC has a negative relationship with managerial innovation, while a
positive relationship exists between the MCS and managerial innovation.
Finally, it has been shown that there is a mediating effect of different variables on the relationship
between OC and OI. This meant that OC might have some direct and indirect effects on OI. In this study,
the MCS employed a mediating role between OC and OI to fill the gap in the literature. The framework
of this study is presented in Figure 1.
6 Global Business Review

H4

H2 H3
OC MCS OI

H1
Figure 1. Study Framework
Source: The authors.

Hypothesis (H4). There is a significant mediating role of the management control system between
organizational culture and organizational innovation.

Method

Survey Design, Administration and Sample

The present study followed an empirical approach that analyzed the relationship between OC and OI
among high-level managers and the management control choices that these managers adopted. The study
applied probability sampling (Sekaran & Bougie, 2013). The target sampling is (top managers) in Saudi
universities. The data were collected as part of a large research project by means of an online survey
from July to September 2018. Participants were in top-level management from governmental universities
in Saudi Arabia. The questionnaires were distributed randomly among Deans and Vice Directors of
seven universities in Saudi Arabia. Out of 300 distributed questionnaires, only 181 were responded. A
total of 181 members participated in the study with a response rate of 60.3 per cent. Respondents were
mostly males (79.6%), followed by females (20.4%). The majority of them are in the age range of 41–50
years (52%), 51–60 years (30%), 31–40 years (16%), and more than 60 years old (2%). All of them have
PhD degree. The majority work in college (70.2%), followed by deanship (24.8%), whereas only a few
are in university agency (4.9%). Most of them are Deans (85.1%), followed by those who are Vice
Directors (14.9%). In terms of experience, 35.9 per cent have experience of 3–5 years, followed by 21.5
per cent with an experience of 6–10 years. In addition, 18.2 per cent of respondents have more than 15
years of experience, followed by 13.8 per cent with less than 3 years of experience. Only 10.5 per cent
of respondents have 11–15 years of experience. They were selected based on their general understanding
of the organizational processes’ nature and their privilege in decision-making.

Variable Measurement
The main variables were measured as latent constructs with multiple indicators. The measures of the OC
survey were adopted from Denison’s Model (Denison, Janovics, & Young, 2006). This model includes
60 items, all of which are 5-point Likert scales with anchors ‘strongly disagree’ (=1) to ‘strongly agree’
(=5). The MCS included 20 items measured by two main dimensions, like formal and informal control.
The formal control consisted of actions and results control, and 10 items were adopted from
Hutzschenreuter (2009), Wargitsch (2010), Widener (2007). The informal control consisted of personal
and culture control, with 10 items adopted from Hutzschenreuter (2009) and Jaworski and Macinnis
Alharbi et al. 7

(1989), all of which were 5-point Likert scales with anchors ‘strongly disagree’ (=1) to ‘strongly agree’
(=5). The measurement of the OI was adopted from the model T&B by Tidd and Bessant (2009) which
included 40 items, all of which were 5-point Likert scales with anchors ‘strongly disagree’ (=1) to
‘strongly agree’ (=5). The model in T&B has conceptualized the five major innovation traits as second
order. Eight items measure each one of these five major components. In adopting the questionnaire, the
items in the original questionnaire were first translated into the Arabic language by academic and back-
translated into English by another academic to make sure the validity of the contents.

Data Analysis
This study used partial least squares (SmartPLS), which is a variance-based approach of structural
equation modelling (SEM) used to analyze and test multiple construct relation between variables.
SmartPLS is a non-parametric method that is used, especially when the available data are non-normal
distribution (Hair, Hult, Ringle, & Sarstedt, 2017; Ringle, Sarstedt, & Straub, 2012), and the model is to
be tested for (a) a number of latent variables with indicators (Hair et al., 2017), and (b) high-order
constructs (Becker, Klein, & Wetzels, 2012). Moreover, SmartPLS is used in causal predictive research
contexts. It is applied when the empirical and theoretical knowledge about the relation between causal
constructs is still fluid (Hartmann, Naranjo-Gil, & Perego, 2010). The model of OC, MCS and OI
analyzed by SmartPLS 3 is represented in Figure 2.

MIC MIP MFR

MFA

MI MF

MCS
OIS

OCI

OIO
OI
OC
OCA

OIP
OIL
OCC
OCM OID

Figure 2. The Model of Organizational Culture, Management Control System and Organizational Innovation
Source: The authors.
8 Global Business Review

Results

Measurement Model
The measurement model was assessed in terms of indicator reliability, internal consistency reliability,
convergent validity and discriminant validity. The indicator reliability was rated at satisfactory factor
loading that reached and exceeded the threshold of 0.4 (Hair et al., 2017). However, most of the items
fell slightly at this threshold and some of the items that were below the threshold of 0.4 were deleted.
They were (OCA13 = −0.558, OCA4 = −0.330, OCA9 = −0.409, OCC10 = −0.410, OCC15 = −0.265,
OCI15 = −0.264, OCM12 = −0.177 and OCM4 = −0.569). Internal consistency was analyses by
Cronbach’s alpha (CA) and Composite Reliability (CR). The threshold of critical values was 0.7 and
above for CA and CR (Hair, Sarstedt, Hopkins, & Kuppelwieser, 2014), and all latent variables showed
high values for CA and CR, indicating high internal consistency. The convergent validity of the variables
can be determined using the Average Variance Extracted (AVE) (Fornell & Larcker, 1981). The results
were sufficient as none of the AVEs fell below the critical threshold of 0.5 (Byrne, 2013). Table 1 shows
all the results of the measurement model.

Finally, discriminant validity will exist at the construct level if the square root of the AVE of a latent
variable is higher than the correlations of this variable with all other latent variables (Hair et al., 2017).
Table 2 shows that this was supported as the diagonal elements were higher than the off-diagonal
elements. Discriminant validity at the item level was assessed through an evaluation of the HTMT
criterion. Table 2 shows that the latent variables were below the critical threshold −1 < HTMT < 1
(Henseler, Ringle, & Sarstedt, 2015).

Table 1. Measurement Model Results

Cronbach’s Composite Average Variance

Construct Items Loading Alpha Reliability Extracted (AVE)
Management Form MFA 0.954
control system MFR 0.936
0.957 0.962 0.564
MIC 0.939
Inform
MIP 0.955
Organizational OCA 0.946
culture OCC 0.965
0.983 0.984 0.542
OCI 0.940
OCM 0.928
Organizational OIDL 0.946
innovation OIL 0.933
OIO 0.934 0.984 0.985 0.619
OIP 0.935
OIS 0.937
Source: The authors.
Alharbi et al. 9

Table 2. HTMT Analysis

MCS OC OI
Management control system
Organizational culture 0.850
Organizational innovation 0.876 0.890
Source: The authors.

Structural Model
The structural model was evaluated by path coefficients (P values), the significance of (t values),
variances of the endogenous constructs (R2), effect sizes (f2) for the paths and (Q2) measures for the
endogenous variables (Hair et al., 2017). The path coefficients of the structural model were obtained by
means of bootstrapping with 500 runs for 181 cases. The hypotheses H1, H2, H3 and H4 were positive
effects of OC, MCS and OI. Our empirical results supported the hypothesis that there is a direct
relationship between OC and OI (H1: β = 0.537, t = 6.267, p < 0.01). The results of hypothesis OC and
MCS showed that there was a relationship between the constructs. Therefore, this hypothesis was
accepted (H2: β = 0.832, t = 27.167, p < 0.01). The results of the MCS and OI hypothesis showed that
there was a relation between the constructs and this hypothesis was accepted (H3: β = 0.411, t = 4.833, p
< 0.01). The hypothesis H4 investigated the mediating effects of the MCS between OC and OI, and the
results supported the mediating effect, and hence this mediation hypothesis was accepted (H4: β = 0.342,
t = 4.985, p < 0.01), the results of the structural model are summarized in Table 3.

Table 3. Structural Model Results

Path Standard
coefficient Error t-Values p-Values f2 R2 Q2 Decision

H1: OC → OI 0.537 0.086 6.267 0.000 2.252 Supported

H2: OC → MCS 0.832 0.031 27.167 0.000 2.252 Supported

Supported
H3: MCS → OI 0.411 0.085 4.833 0.000 0.293

H4: OC → MCS → OI 0.342 0.069 4.985 0.000 Supported

Management control 0.692 0.360

system

Organizational 0.823 0.472

innovation
Source: The authors.
Note: p value <0.01 and t value >2.58 (two tailed).
10 Global Business Review

Discussion and Conclusion

Earlier, scientists have proposed that OC is a determinant of organization innovativeness (e.g., Naranjo-
Valencia, Jiménez-Jiménez, & Sanz-Valle, 2011). They also claimed that organizations profit from their
OC, which tends to have fewer problems and reduced dependence on coordination and formal controls.
However, there has been limited research that examines the effect of OC on OI, which uses MCS as a
mediating factor between these two concepts, and the issue remains that OC and MCS would bring or
hinder about innovation.
The management literature contained a rich body of research, indicating that OC has an effect on OI.
At the same time, management scholars claimed that MCSs served as important tools in influencing OI.
Despite potential overlaps between the constructs of research, advancements of knowledge are often
made in isolation. The objective of this article is to combine both streams of research by providing a
model of the direct effect of OC on OI and the indirect effect of applying MCS as a mediating factor
between the two conceptuses.
The study has contributed to recent literature. First, the results of this study showed that OC had a
direct positive and significant effect on OI. Second, the results of this study showed that OC also had
a positive and significant effect on the MCS. Third, the results of this study showed that the MCS had a
positive and significant effect on OI. Finally, the MCS acts as a significant mediating factor between OC
and OI. Thus, the OC has an impact on OI, but it enhances when MCS is used.
This study unlocks the doors for several opportunities since an understanding of strength can
strengthen competence. Therefore, without understanding the OC, MCS and other factors in innovative
organizations the organizations could not compete.

Limitations and Future Research

Generally, it is difficult to measure OC through only a quantitative approach as it is instilled in an
individual’s perceptions, values and beliefs, while a qualitative approach would complement the
quantitative approach. Moreover, this study chose a small sample size, whereas a large sample size with
other blended factors can provide a better picture of how to accelerate OI. Furthermore, the results of this
study could not be generalized. In addition, this study has focussed on OI as a whole. Therefore, this will
be the subject of recommending future research.
Future research could discriminate between different types of innovation and types of OC as well as
incorporating other organizational factors of organizations, focussing deeply on the generational effects
of OC that may affect OI in universities using a qualitative approach. Moreover, it is recommended for
examining other internal factors (e.g., flexible structures, technology adoption, continuous improvement,
etc.). Finally, this study can be applied in deferent sectors or countries to discover deferent organizational
cultural values.

Acknowledgement
The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve
the quality of the article; also special thanks to our supervisors in UTM university in Malaysia for their guidance and
motivating, besides we do not forget a special gratefulness to the Community college, Deanship of Scientific
Research, Taibah University, Medina, Saudi Arabia for their supporting usual.
Alharbi et al. 11

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of
this article.

Funding
The authors received no financial support for the research, authorship and/or publication of this article.

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