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IJMRR/Feb 2017/ Volume 7/Issue 2/Article No-10/148-159

Mukhtar Baba et. al., / International Journal of Management Research & Review

*Corresponding Author www.ijmrr.com 148

THE MODERATING ROLE OF ENVIRONMENTAL TURBULENCE ON THE

RELATIONSHIP BETWEEN ORGANIZATIONAL LEARNING AND FIRM

INNOVATIVENESS

Mukhtar Baba*ˡ, Rosli Mahmood², Azizi Halipah³

ˡPhD student, College of Business, School of Business Management Universiti Utara

Malaysia, Malaysia

²Prof, College of Business, School of Business Management Universiti Utara Malaysia,

Malaysia.

³Senior Lecturer, College of Business, School of Business Management, Universiti Utara

Malaysia, Malaysia.

ABSTRACT

It is generally agreed that innovation is critical to firm competitive advantage. This study

evaluates the moderating role of environmental turbulence on the relationship between

organizational learning and SMEs innovativeness in Kano Nigeria. Accordingly, a sample of

320 SMEs aged between 5 to 20 years from four different sectors participated in the study.

Moreover, Structural Equation Modelling (using Smart PLS) approach was applied to assess

the measurement model and the relationships between the constructs. Consequently, the

findings show that both organizational learning and environmental turbulence have positive

effect on SMEs ability to innovate. Similarly, the result demonstrates that during turbulent

environment, organizational learning predicts SMEs innovativeness. The research expands

the innovation literature by confirming the influence of organizational learning on SMEs

innovativeness in a developing nation (Nigeria). Moreover, this finding will help managers of

SMEs on how to improve their firms’ ability to innovate by considering learning culture in

their respective organizations.

Keywords: Organizational Learning, Environmental Turbulence firm innovativeness, SMEs

1. INTRODUCTION

As today’s business environment becomes highly uncertain and competitive, innovation

becomes a critical to firm success. Hult et al., (2004) argued that with the unpredictable

managerial environment, innovativeness is one of the essential elements influencing business

performance. Moreover, firm’s ability to innovate is essential to firm for achieving innovative

performance (Hurley & Hult, 1998) which in turn lead to competitive advantage (Prajogo &

Ahmed, 2006).Similarly, Several studies proves that organizational learning inspire

innovation activities (e.g. Narver & Slater, 1995). Therefore, firms should emphasize on

organizational learning in their management practice. Equally important, firms innovate

through continuous learning procedure which creates new technological knowledge (Nonaka

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Copyright © 2017 Published by IJMRR. All rights reserved 149

& Takeuchi, 1995). This shows that organizational learning is critical to organizational

innovativeness and success.

To date numerous body of literature within the innovation field have tried to recognise the

environmental factors that influence innovative ideas and activities (Jansen et al., 2006).

However, the effect of various dimensions of environmental turbulence on firm

innovativeness lacks similar attention (Jahanshahi, Zhang, &Brem, 2014). Furthermore,

several empirical studies conducted on the association between organizational learning and

firm innovativeness however, studies regarding this relationship under different

environmental situations are limited. Thus, little empirical studies have been conducted on

the moderating role of environmental turbulence on the relationship between organizational

learning and SMEs innovativeness.

Similarly, most of the studies of innovation focuses on large scale firms rather than SMEs.

Besides, small and medium enterprises are considered a powerful engine for nation’s

economic development. Consequently, in most developed and developing nations, SMEs

becomes essential source of employment generation (Rahnama, Mousavian & Eshghi 2011;

Mahmood & Hanafi 20 13), and innovation (Uwalomwa & Ranti 2009) which in turn

stimulates capacity building and diffusion of skills. For example, in Nigeria over the years,

SMEs offers employment opportunities to a greater percentage of above 70 percent, thus

making the citizens very productive, which the result helps in capital formation (Dauda &

Akingbade, 2010).Accordingly, it has been highlighted that, one of the significant ways

through which SMEs are anticipated to execute these task is by involving as well as

commercializing innovation (Radas, & Bozic, 2009).This is because innovation might be

more important for SMEs than for large firms. As Fritz (1989) argues, regarding the use of

product innovation as a way of becoming competitive, SMEs outperformed their large scale

counterparts. This is because “smaller firms are thought to be more innovative than larger

firms for many reasons (e.g. respond faster to market shifts and needs, accept and implement

change easier)” (Salavou & Avlonitis, 2008).Moreover, many large firms depend upon the

creativity of SMEs. To fill the aforementioned gaps, the present study seeks to answer the

following three questions: (1) does organizational learning positively related to SMEs

innovativeness? (2) Does environmental turbulence positively related to SMEs

innovativeness (3) does environmental Turbulence moderate the relationship between

organizational learning and SMEs innovativeness?

2. CONCEPTUAL BACKGROUND AND HYPOTHESES DEVELOPMENT

2.1 Firm Innovativeness

Firm’s innovativeness manifest its competence in creating, developing and implementing

novel ideas, product or process that would assist them in achieving and sustaining

competitive advantage over its rivals. The essential role innovation plays in achieving

competitive advantage has led firm, organizations and researchers shown more interest in the

area of innovation and innovativeness (Porter, 1980). Accordingly, the research on

innovativeness has led to the evolution of two different constructs. These are consumer or

individual innovativeness and firm or organizational innovativeness (Kamaruddeen, Yusof &

Said, 2009). The term consumer innovativeness was developed from the disciplines such as



marketing, sociology, and psychology (Clark & Goldsmith, 2006), which focus on behaviour

of consumers towards adoption and purchasing new product presented into the market. While

the second construct which is firm innovativeness was developed from the marketing,

management and economic disciplines (Hult, et al., 2004), and tend to measure firm’s

capability to innovate. Thus, the focus of this study is innovativeness at organizational level.

Therefore, firm innovativeness has been defined in many ways by different authors. For

example, the term according to Thomson (1965) refers to as “the generation, acceptance and

implementation of innovations”. Furthermore, Lumpkin and Dess (1996) defined

innovativeness as a firm's tendency to engage in and support new ideas, novelty,

experimentation, and creative processes that may result in new products, services, or

technological process.

2.2 Organizational Learning

In the present dynamic business environment as well as economic uncertainty, several

organizations are determined to survive and remained competitive. Thus, organizational

learning has been considered as one of the strategic weapons for attaining organizational

success (Santos-VijandeSanchez, & Trespalacios, 2012). Despite the aforementioned vague

and multidisciplinary views of organizational learning, there are some unique definitions

regarding the concept. For example, most famous definition came from Fiol and Lyyles

(1985), who viewed organizational learning as a “process of improving actions through better

knowledge and understanding. In the same view earlier on by Daft and Weick (1984), relate

the construct with the environment. According to them, “organizational learning is a process

by which knowledge about action outcome relationship between the organization and the

environment is developed”. According to Di Bella et al., (1996) organizational learning is the

“capacity (or process) within an organization to maintain or improve performance based on

experience”. To cab it up, after reviewing about seventy eight (78) definitions regarding

organizational learning, Templeton et al., (2002:189) argued that organizational learning “is a

set of action (knowledge acquisition, information distribution, information interpretation and

organizational memory) within the organization that intentionally and unintentionally

influence positive organizational change”.

2.3 Environmental Turbulence

Researchers and practitioners generally agreed that for organizations to be successful and

sustain competitive advantage must assess its external environmental forces as well as

making a proper response to such environment (Galbraith, 2002). However, the current

environment is characterized as dynamic, uncertain and turbulence that affect organizational

activities. A turbulent environment is an “environment with high degree of inter-period

change that causes dynamism and uncertainty” (Samson, & Mahmood, 2015).Consequently,

there are several views regarding the meaning of environmental turbulence. For example, as

stated by Boyne and Meier (2009: 801), turbulence is one factor of general models of the task

environment that constrains organizational behavior and performance. Khandwalla (1977)

defined environmental turbulence as a “dynamic, unpredictable, expanding, fluctuating

environment”; it is an environment in which the components are marked by change. Emery

and Trist (1965) characterized the turbulent environment as one that has a high rate of



“interconnectedness with the organization together with a high degree of change in the

environment itself”. In the same way, Baburoglu (1988) attribute environmental turbulence

“as an environment with increased complexity, relevant uncertainty, and dynamic and

unexpected directionality of occurrences in a transitional state”.

However, some authors view environmental turbulence from three different dimensions

which include: “technological turbulence, competitive intensity and market turbulence”

(Ottesen & Grønhaug, 2004). Technological turbulence refers to the “rapid pace and the

amount of unpredictability of change in technology within an industry” (Slater and Narver,

1994, p. 51); competitive intensity refers to the strength of competition a firm face up within

a given industry it operate (Paladino, 2007); and market turbulence “refers to the extent and

volatility of changes in the composition, behavior and preferences of customers” (Kohli and

Jaworski, 1990; Slater and Narver, 1994).

2.4 Organizational Learning and Firm Innovativeness

Current digital economics and business necessitate the creation, sharing and application of

knowledge and expertise (Brockman, Beverly and Morgan, Robert, 2003). Lemon and Sahota

(2004) also confirmed that mastery of knowledge can increase the ability for innovation and

is gradually accepted as a key resource for innovation. Organizational learning (OL) is an

increasingly significant field of study that determine how organizations learn and therefore

improve their levels of “competitive advantage”, “innovativeness”, as well as effectiveness.

Thus, firms must ensure the employee to continue absorbing new knowledge, and sustaining

an internal eminent knowledge management system, because knowledge is the key that

combines organizational learning and innovative activities. It is clear that when one view

both learning as well innovativeness in an organization, the working environment is an

extremely essential determining factor in terms of organizer or “inhibitor of learning and

creative behaviour on the job” (Van der Sluis, 2004).

To date several studies explained organizational learning and its influence on firm

innovativeness. For example, according to the study conducted by Liao et al. (2008) after

they collected data from “government organizations, as well as state-run and private firms in

Taiwan Province”, their result show the positive impact of organizational learning on

innovation. Furthermore, Jiménez-Jiménez and Sanz-Valle (2011) simultaneously examined

the relationship between organizational learning, innovation and performance and they found

that firm innovativeness was predicted by organizational learning. In the same token using

the sample of 150 SMEs in Banyumas Regency in Indonesia, Rahab and Sudjono (2012)

depicts a positive result between “market orientation and organizational learning” on SMEs

“innovativeness”.

Based on the aforementioned discussions, the present study propose the following hypothesis:

H1: There is a positive relationship between organizational learning and SMEs

innovativeness

2.5 Environmental Turbulence and Firm Innovativeness

The relationship between environmental turbulence and organizational learning has been

found in several studies. Some of these include; Uzkurt et al., (2012) who conducted a study



among 156 SMEs in Turkey. Environment turbulence were used as independent variable

predicting firm innovativeness. The result of their study discloses that “market or demand

turbulence and technological turbulence have a positive consequence on the innovativeness

of SMEs”. However, regarding the product innovativeness it is believes to be high during

turbulent situation. This was proved by Calantone, Garcia and Droge (2003) who studied four

different industries. Their finding shows that during technological turbulence the route form

innovativeness to “strategic planning and from risk-taking to new product development is

very speed. Thus, turbulence environment predict innovativeness as well as new product

development. Similarly this result was later confirmed by Denneels (2011) who used the

sample of 145 U.S firms. The finding of the study reveal that the “relationship of willingness

to cannibalize with explorative products is stronger under customer turbulence”. While in In

contrast, the relationship of “future-oriented market scanning with explorative products”

appeared to be is weak during customer as well as competitive turbulence and stronger under

technological turbulence. Therefore environmental turbulence helps organization regarding

explorative product. Consequently, this study proposes the following hypothesis:

H2: Environmental turbulence is positively related to firm innovativeness

2.6 Environmental Turbulence as a Moderator

Environmental turbulence organizational learning relationship, researchers conducted several

studies. For instances, Srivastava and Frankwick (2011) conducted a conceptual paper

regarding this relationship. The authors proposed that, “for organizational learning to take

place, both top management attitude toward learning and environmental turbulence will affect

the way organizational learning takes place”. Furthermore, it has been expected that under

market turbulence, the value of learning orientation rise. This is due to the fact that it can

deliver variety of ideas that widen the number of possible, valuable as well as profitable

actions in organizational settings (Moorman & Miner, 1997). Thus, under high rate of market

turbulence, orientation towards learning facilitates firms to increase organizational

innovativeness and performance.

Accordingly, empirical evidence proved that. For example, using a sample of 200 supply

management professionals Hanvanich, Sivakumar and Hult (2006) revealed that, under

turbulence situation, organizational learning orientation is related to firm innovation and

performance. In the same way, Lichtenthaler (2009) confirm that dynamic capabilities are

essential during high rate of technological and market turbulence. Thus, environmental

Turbulence improve learning process. Moreover, Ko and Tan (2012) survey of 66

technology‐based entrepreneurs in China and their findings revealed that under

environmental turbulence that knowledge transfer was positively related to firm innovation.

Based on the above discussions the present study propose the following hypothesis:

H3: Environmental turbulence moderates the relationship between organizational learning

and firm innovativeness.

Research Framework

Organizational Learning Firm Innovativeness

Environmental Turbulence



3. METHODOLOGY

3.1 Measures

Firm innovativeness is operationalized as the firms’ openness mind and willingness to accept

new idea that becomes part of firm’s culture to conduct business. Accordingly, firm

innovativeness was measured using five items adopted from Lee and Tsai (2005) which were

initially developed by Hurley and Hult, (1998). Organizational learning scale was adopted

from. Lee and Tsai (2005 and lastly the scale of environmental turbulence was adopted from

Lichtenthaler (2009).

3.2 Sample and Data Collection

The data collection process took place within Small and Medium Enterprises (SMEs) located

in Kano state Northwest Nigeria. Accordingly, 320 owner/manager of SMEs participated in

the study. Respondents were given self- administered questionnaires to assess the level of

human capital and innovativeness in their respective organizations. Personal visits and

telephone contacts help researchers retrieve 253 (79%) questionnaires which filled up by

owner/ manager of SMEs. These SMEs comprises of 190 from manufacturing, 23 from

agricultural sector, and 40 from service industries. Moreover, these sectors were represented

by several areas.

4. RESULT

4.1 Measurement Model

We used composite reliability to assess internal consistency reliability of the constructs (Hair

et al., 2011). Following Hair et al., (2011)’srule of thumb of threshold of 0.7 and above, we

retained 3 items each for organizational learning and environmental turbulence while 4 items

were retained for firm innovativeness (Figure 1). In addition, the result of indicator reliability

of each latent construct was greater than the minimum of 0.7 (Hair et al., 2011).

Fig. 1: Measurement Mode

Similarly, convergent validity was test using average Varience Extracted (AVE).

Accordingly, the result demonstrate sufficient convergent validity as the AVE of each

construct exceed 0.5 (Hair et al., 2011). (Figure 1). Lastly discriminant validity was assessing

using “Heterotrait-Monotrait (HTMT) ratio (Henseler, Ringle and Sartedt, 2015).



Consequently, the result (Table 1) demonstrates that the discriminant validity has been

established as the values of the correlations among the constructs are less than 0.85 (Henseler

et al., 2015).

Table I: Hetrottrait-Monotrait(HTMT) Ratio Criterion of Discriminant Validity

FIN OGL EVT

Firm Innovativeness

Organizational Learning .72

Environmental Turbulence .83 .75

4.1 Structural Model

In previous section the measurement model has been discussed, therefore, this section

evaluates the structural model of this study. The main assessing criteria for structural model.

The main assessing criteria for structural model are R-square (R²) measure, predictive

relevance (Q²) effect size (f²), and the level of significance of the path coefficient (Hair et al.,

2011). Therefore, this study used a standard bootstrapping process whereby creating a huge

samples i.e. 5,000 (Hair etal., 2011; Hair etal., 2014), and 253 cases to evaluate significance

of the path coefficients. In Table II, below the R² value of endogenous latent variable is

presented.

Table II: Variance Explained in the Endogenous Latent Variables

Latent Variable Variance Explained (R²)

Firm Innovativeness 44%

The result shows that the present research model explain about 44% of the total variance in

firm innovativeness. This advocates that organizational learning and environmental

turbulence) jointly explained 44% of the variance in firm innovativeness. Thus, this result

demonstrates an acceptable R² value which considered as moderate (Hair et al., 2011).

Moreover, f-square (f²) can be assess to see whether the influence of a particular independent

latent variable on dependent latent variable is essential. Therefore, Table III presents the

assessment of effect size (f²) of this model.

Table III: Effect Sizes (f-Square) of the Latent Variables Based on Cohen’s (1988)

Recommendation

f-square (f²) Effect size

Organizational Learning-> Firm Innovativeness .11 Small

Environmental Turbulence-> Firm Innovativeness .33 Moderate

As presented in Table III above, the effect size of organizational learning and environmental

turbulence on firm innovativeness are .11 and .33 respectively. Thus, consisted with the rule

of thumb Cohen’s (1988), the effect size of these exogenous latent variables on firm

innovativeness can be regarded as small and moderate individually. Similarly, the assessment

of predictive relevance is presented in Table IV and the result shown that endogenous latent

construct’s Q² is greater than zero, thus indicating predictive relevance of the model has been

achieved (Chin, 1998; Henseler et al., 2009).

Table IV: Cross Validated Redundancy

Total SSO SSE Q² (=1-SSE/SSO)

Firm Innovativeness 968.00 735.814 .24



Lastly, the following causal paths stated in the hypothesized model were found to be

statistically significant (Table V): from organizational learning to firm innovativeness

(β=.0.24 t=3.22 P<.001), environmental turbulence to firm innovativeness (β= 0.43 t= 6.45

P<.001); environmental turbulence as a moderator (β=0.31 t= 1.54 P<.06).

Table V: Structural Model assessment

Path Original

Sample Std.

Deviation

T-Statistics Sig.

Organizational Learning->firm innovativeness 0.24 0.07 3.22 0.00*

Environmental turbulence->firm innovativeness 0.43 0.06 6.45 0.00*

Organizational Learning->Environmental

Turbulence->Firm Innovativeness

0.31 0.20 1.54 0.06**

Note:* significant at 1% level ** significant at 10% level

5. DISCUSSION

The aim of this paper was to design, present, and tests the model examining the relationship

between organizational learning and SMEs innovativeness: moderated by environmental

turbulence. Our findings demonstrates that organizational learning positively affect firm

innovativeness. This means that the higher the organizational learning employed by SMEs,

the better for firm to be innovative. Moreover SMEs that have sustainable firm’s orientation

towards “organizational learning” will increase firms’ innovative activities both effectively

and efficiently. Thus, to achieve innovative capability and innovative performance firms need

to adopt learning culture. This result is consistent with previous findings (Rahab, 2012;

Tohidi et al., 2011).

Furthermore, regarding environmental turbulence innovativeness relationship, our result

found a positive link between the constructs. This indicates that during turbulent environment

innovativeness believe to be high. In other word, the more the rate of environmental changes

and difficulties the better for the firms to be responsive regarding these changes (Gaur,

Vasudevan & Gaur, 2011). This result is consistent with previous findings (e.g Subramaniam

& Gopalakrishna, 2001; Jahanshahi, Zhang and Brem 2014). Lastly, our finding revealed that

environmental turbulence moderate the relationship between organizational learning and

SMes innovativeness. Specifically the result shows that for organizational learning to take

place, both top management attitude toward learning and environmental turbulence will affect

the way organizational learning takes place”. Furthermore, it has been expected that under

market turbulence, the value of learning orientation rise. This is due to the fact that it can

deliver variety of ideas that widen the number of possible, valuable as well as profitable

actions in organizational settings (Moorman & Miner, 1997). Thus, under high rate of market

turbulence, orientation towards learning facilitates firms to increase organizational

innovativeness and performance. Thus, under turbulence situation, organizational learning

orientation is related to firm innovation and performance. This findings confirm the results of

earlier studies (e.g. Hanvanich, Sivakumar and Hult 2006; Lichtenthaler (2009).

6. CONCLUSION AND IMPLICATION

It is generally agreed that innovation is a critical factor in firms’ performance and survival as

a result of the growth of the competitive and uncertain environment (Wheelwright and Clark,

1992). Therefore it is vital to understand organizational condition that lead to firm innovative



capabilities. Accordingly, researchers consider organizational learning as one of the factors

that influence firm innovativeness. However, empirical studies regarding this link are limited.

In addition, studies regarding this relationship under different environmental situations are

also limited. Consequently, the relationship between the constructs was analysed.

Accordingly, the finding revealed a positive influence of organizational learning and

environmental turbulence on SMEs innovativeness. Similarly, the result shows that during

turbulent organizational learning predict innovativeness. Thus this study contributes to the

innovation literature by confirming that OL and ET influence SMEs innovativeness. The

findings of this research provide valuable information that could be used to make

enhancements in organizational practices. Thus, when seeking to increase firm innovative

capabilities, practitioners should take into account the improvement of learning orientation in

the organizations.

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