Organization cultural factors for innovation capability 41

Many previous researches tried to find value of IT in terms of financial value. However, measuring the values that are created by IT could be a complex problem because of the IT impact dilution (Weill and Broadbent, 1998). Non-financial measure for IT governance outcome is needed, since IT governance outcome can be delivered in an intangible form. Generally, intangible assets are harder to measure by financial measurements than tangible assets.

Many companies are trying to keep their competence by leveraging their intangible assets. Culture and innovation capability are the kinds of this intangible asset. (Kaplan and

Norton, 2004)

Organizations’ innovation can be influenced by IT governance arrangements (Peterson, 2004). However, it is difficult to find research activities that studied IT governance outcome regarding innovation or innovation related culture.

According to Weill et al. (2004), organizations tend to adopt decentralized governance arrangement to pursue their innovation and customer responsiveness. Inversely, firms tend to adopt centralized governance arrangement to pursue their reuse, sharing, and asset utilization which help cost efficiency. There is a tradeoff between centralized or decentralized decision making structure for their innovation or standardization.

Organizations have interest to develop suitable IT governance arrangement for their intended IT governance outcome. If centralized IT governance improved organizations’ cost efficiency, this outcome is relatively easier to measure into financial result than innovation or culture outcome. Inversely, organization’s manager would want to measure IT governance outcome for innovation related culture or innovation capability by taking decentralized IT governance arrangement.

Previous researches showed that innovation related cultural aspects affect organization’s capacity to innovate (Hurley and Hult, 1998). However, causal relationship between IT governance arrangement and innovation related culture is not yet certainly determined in previous researches. There are two

arguments for this causal relationship perspective.

Weill et al. (2004) conceptually defines the causal relationship.

The authors claim that effective IT governance encourages consistent behavior with culture. Deshpande' and Zaltman's (1993) also found no relationship between firm structure centralization and market orientation (one of cultural variable for innovation capability). These notions are implying that IT governance arrangements are not influenced by the culture.

In other perspective, Pelham & Wilson (1995) conducted longitudinal studies for relationship between firm structure and market orientation culture. The study result showed that market orientation culture is influenced by organization structure.

Marcoulides and Heck (1993) conducted an empirical study, and it also found that organization culture is influenced by organizational structure. Based on the result, Marcoulides and Heck (1993) claimed that organizational culture variable are influenced by some extent through management manipulation (such as setting method of decision-making process). Jaworski &

kohli (1993) suggest that formalization, centralization and departmentalization can inhibit innovative behavior.

Based on previous research results on impact of organization structure on organization culture, this study posits that IT governance arrangement affects organization’s culture for innovation capability.

Hurley and Hult (1998) conducted empirical study on the

influence on performance from cultural characteristics. As the result, learning and development culture, participation decision-making culture, support and collaboration culture and power sharing are showed as predictors of organization’s innovation capacity (Hurley and Hult, 1998).

Therefore, this study adopted four cultural constructs from Hurley and Hult (1998) as organization’s cultural factors for innovation capability, and posits that IT governance arrangements influence organization’s culture factors for innovation capability

H6a. IT principle governance arrangement centralization negatively influences Learning and development culture

H6b. IT architecture governance arrangement centralization negatively influences Learning and development culture

H6c. IT infrastructure governance arrangement centralization negatively influences Learning and development culture

H6d. Business application needs governance arrangement centralization negatively influences Learning and development culture

H6e. IT investments governance arrangement centralization negatively influences Learning and development culture

H7a. IT Principle governance arrangement centralization

negatively influences Support and collaboration culture

H7b. IT architecture governance arrangement centralization negatively influences Support and collaboration culture

H7c. IT infrastructure governance arrangement centralization negatively influences Support and collaboration culture

H7d. Business application needs governance arrangement negatively influences Support and collaboration culture

H7e. IT investments governance arrangement centralization negatively influences Support and collaboration culture

H8a. IT principle governance arrangement centralization positively influences Power no-sharing culture

H8b. IT architecture governance arrangement centralization positively influences Power no-sharing culture

H8c. IT infrastructure governance arrangement centralization positively influences Power no-sharing culture

H8d. Business application needs governance arrangement centralization positively influences Power no-sharing culture

H8e. IT investments governance arrangement centralization positively influences Power no-sharing culture

H9a. IT principle governance arrangement centralization negatively influences Participative Decision-Making Scale

H9b. IT architecture governance arrangement centralization negatively influences Participative Decision-Making Scale.

H9c. IT infrastructure governance arrangement centralization negatively influences Participative Decision-Making Scale

H9d. Business application needs governance arrangement centralization negatively influences Participative Decision-Making Scale

H9e. IT investments governance arrangement centralization negatively influences Participative Decision-Making Scale

2.3 Absorptive Capacity

Cohen and Levinthal (1990) defined Absorptive capacity with

“Absorptive capacity refers not only to the acquisition or assimilation of information by an organization but also to the organization's ability to exploit it”. The authors also claim that Absorptive capacity “is a critical component of innovative capabilities”. (Cohen and Levinthal, 1990)

Absorptive capacity is innovation related culture value. This study posits that IT governance arrangement centralization negatively influences Absorptive capacity because decentralized governance is suitable for innovation focus (Peterson, 2004).

H10a. IT principle governance arrangement centralization negatively influences Absorptive capacity

H10b. IT architecture governance arrangement centralization negatively influences Absorptive capacity

H10c. IT infrastructure governance arrangement centralization negatively influences Absorptive capacity

H10d. Business application needs governance arrangement centralization negatively influences Absorptive capacity

H10e. IT investments governance arrangement centralization negatively influences Absorptive capacity