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Influence of Personal Mastery on Organizational Performance through

Organizational Learning and Innovation in Large Firms and SMEs

Article in Technovation · September 2007

DOI: 10.1016/j.technovation.2007.02.013

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 ARTICLE IN PRESS

Technovation 27 (2007) 547–568

www.elsevier.com/locate/technovation

Influence of personal mastery on organizational performance through

organizational learning and innovation in large firms and SMEs
Vı́ctor J. Garcı́a-Moralesa,, Francisco Javier Lloréns-Montesa, Antonio J. Verdú-Joverb
a
Faculty of Economics and Business, University of Granada, Campus Cartuja, s.n., Granada 18071, Spain
b
Faculty of Social and Juridical Sciences, University Miguel Hernández, Edificio La Galia. Avda. del Ferrocarril, s/n, Elche (Alicante) 03202, Spain

Abstract

This paper analyzes the influences of personal mastery on organizational performance, both directly and indirectly through the
dynamic capabilities of organizational learning and innovation. Although these indirect interrelations are very important for improving
organizational performance, they are not usually explored in research. We confirm these influences empirically in both large firms and
SMEs, basing our research on a sample of 401 Spanish firms. The results reveal that in both types of firms: (1) personal mastery
influences organizational performance directly and indirectly through organizational learning and innovation; (2) organizational learning
influences organizational performance positively, both directly and indirectly through organizational innovation; (3) organizational
innovation influences organizational performance positively.
r 2007 Elsevier Ltd. All rights reserved.

Keywords: Organizational innovation; Organizational learning; Personal mastery; Performance; Size

1. Introduction firms with a source of sustainable competitive advantage,

since these capabilities are usually valuable, rare and
This research seeks to analyze several influences on difficult to imitate or replace (Barney, 1991; Grant, 1996).
organizational performance in both large firms and small Personal mastery is the capability to grow and learn on a
and medium enterprises (SMEs): first, how personal personal level. It concentrates on the aspects of learning in
mastery influences organizational performance positively, the learning organization that belong to the individual. It
not only directly but also indirectly through organizational enables us to delve deeper into our personal vision, into
learning and innovation; secondly, how organizational what we truly desire, concentrating all our efforts on
learning affects organizational performance positively, developing our personal and professional skills and
both directly and indirectly through innovation; and capabilities (Senge, 1990; Senge et al., 1994). Firms should
thirdly, how innovation influences organizational perfor- produce wealth but should also enable personal develop-
mance positively. ment and values in the firm’s human resources (e.g.,
In today’s knowledge society, personal mastery (perso- workers, middle management, upper management), as
nal and professional development), organizational learning these are the foundation and starting point of all
and innovation are three key capabilities that enable the entrepreneurial competencies (Senge et al., 1994).
firm to identify, create, exploit, renew, and apply knowl- Organizational learning is the firm’s capability to
edge flows in new ways to obtain improvement in maintain or improve performance based on experience.
organizational performance (Nonaka and Takeuchi, This activity involves the acquisition of explicit and tacit
1995). Managing these capabilities effectively can provide knowledge (development or creation of skills, insights,
relationships), knowledge sharing (dissemination to others
Corresponding author. Tel.: +34 958 24 09 16; fax: +34 958 24 62 22. of what has been acquired by some), and knowledge use
E-mail addresses: victorj@ugr.es (V.J. Garcı́a-Morales), fllorens@ (integration of learning so that it is assimilated and broadly
ugr.es (F.J. Lloréns-Montes), ajverdu@umh.es (A.J. Verdú-Jover). available and can be generalized to new situations) (Dibella

0166-4972/$ - see front matter r 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.technovation.2007.02.013
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548 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

et al., 1996). Such learning facilitates behavioral change direction and plans, as well as for guiding the actions
that leads to improved performance (Fiol and Lyles, 1985; undertaken to achieve them (Westhpal and Fredrickson,
Senge, 1990). Senge (1990, p. 3) notes that ‘we can then 2001). Therefore, the CEO’s perception of personal
build this learning organization when people continually mastery, organizational learning and innovation is funda-
expand their capacity to create the results they truly desire’; mental to encouraging these capabilities. To make sense of
in other words, their personal mastery is encouraged. The the complex environment surrounding them, CEOs tend to
dynamics of mastery and organizational learning are form simplified internal cognitive representations (mental
inseparable. models). Using these models, CEOs focus on certain
From this newly learned knowledge, innovation cap- variables that they judge to be critical. They make decisions
ability generates a base for the improvement of organiza- and measure performance or innovation based on these
tional performance (Hurley and Hult, 1998; Larsen et al., variables (Porac and Thomas, 1990).
1991). Among the different definitions of innovation that This article is divided into several sections. Section 2
have been proposed (Dooley and O’Sullivan, 2003; Knight, introduces the background research and suggests a series
1967; Pierce and Delbecq, 1977; Zaltman et al., 1973), this of hypotheses in a global model. Section 3 presents the
study will use the definition of innovation given by the data and the method used to achieve an empirical analysis
Product Development and Management Association of the hypotheses developed in Section 2 using Spanish
(PDMA, 2004): a new idea, method, or device. The act of firms. Section 4 presents the results obtained. Section 5
creating a new product or process. The act includes discusses the results. Finally, Section 6 outlines the
invention as well as the work required to bring an idea or implications for research and practices and points out
concept into final form. This capability is closely linked to some limitations of this study and directions for future
organizational learning and personal mastery (Leonard- research.
Barton, 1992; Senge, 1990). The most innovative firms are
effective learning systems where human resources are 2. Research background and hypotheses
developed and where firms learn to maintain today’s
competitive advantages while aggressively preparing for The sources responsible for the creation of wealth and
tomorrow. improvement of performance have changed over time,
Firms that foster these capabilities are widely described evolving from the ‘Agricultural Society,’ where the main
as firms that improve organizational performance. How- sources were the land and manual labor, to today’s
ever, many firms do not or cannot develop capabilities ‘Society, Era or Economy of Knowledge,’ where the key
properly, for they focus on direct effects and forget the factors of competitive advantage are related to knowledge
indirect interrelations between these capabilities. Although (Drucker, 1993). Knowledge is the result of a combination
these indirect influences are very important, research often of experiences, values, information and know-how that
neglects them. Our study seeks to address the need to form a framework for the inclusion of new experiences and
investigate how personal mastery influences performance information useful for action (Nonaka and Takeuchi,
through organizational learning and innovation; and how 1995).
organizational learning influences performance through In the Knowledge Society, numerous special issues of the
organizational innovation. Only so can we enable the journals with the greatest scientific impact in management
organizational synergy between them. (Management Science, Strategic Management Journal,
We seek to confirm that these capabilities are necessary Journal of MIS) have focused on knowledge management.
in both large firms and SMEs. Because large-firm manage- They indicate the need to analyze the strategic variables
ment is fundamentally different from that of SMEs, related to knowledge that influence the improvement
conclusions drawn from many studies cannot be applied of organizational performance. As tangible assets and
to SMEs without empirical confirmation. Other problems resources offer fewer competitive advantages, we are
arise concerning the accurate measurement of personal starting to concentrate on the development of distinctive
mastery, innovation and organizational learning in SMEs. capabilities, on intangible assets and resources related to
This fact highlights the need for research that uses both knowledge that enable the improvement of organizational
large firms and SMEs to generate new ideas concerning the performance (Whitehill, 1997). As resource- and capability-
impact of these variables on business performance and the based perspectives show, these strategic variables must be
interrelations between them. valuable, rare, imperfectly imitable, and not substitutable
Finally, we should emphasize the fundamental role of (Barney, 1991). Personal mastery, organizational learning
the CEOs’ perceptions of these strategic variables in and innovation are among the factors most frequently
stimulating organizational performance. CEOs play a recommended in the literature on knowledge management
major role in informing and molding these variables by as it influences organizational performance (Glynn, 1996;
determining the types of behavior that are expected and Nonaka and Takeuchi, 1995; Senge et al., 1994). Our main
supported (Baer and Frese, 2003). Although numerous focus has been the simultaneous and global consideration
actors may be involved in the management process, the (direct and indirect) of the relevant antecedents of
CEO is ultimately responsible for plotting the firm’s organizational performance.
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 549

If we wish to create intelligent organizations based on professional development. People with a high degree of
knowledge with the capability of learning and innovating personal mastery are more committed to continuous
(Argyris and Schön, 1996; Nonaka and Takeuchi, 1995; personal development and have a high level of systems
Senge, 1990), we must foster firms in which human capacity thinking, qualities that favour organizational learning
may be unleashed and where we can tap the fullness of (Garcı́a-Morales, 2004). They achieve greater communica-
human potential (Senge et al., 1994). A firm needs the tion between the conscious (a conscious mind) and the
commitment of qualified employees to its mission and subconscious (an automatic or unconscious mind), mean-
vision. However, to be committed and thus more produc- ing that they are able to carry out extremely difficult tasks
tive, employees must understand their personhood, for they with great ease. They have a constant spirit of inquiry and
must know who they are and what they have to offer in learning that enables them to analyze the turbulent,
order to leverage their capabilities. Experts call the changing environment as something that is not a tragedy
discipline that enables personal growth and learning (learning from it) and to remain committed to their own
personal mastery. development (Senge, 1990; Senge et al., 1994). We can only
Personal mastery is the fine art of managing one’s mind. manage to create an intelligent organization if the members
It involves a desire to understand and learn for its own sake constantly strive to improve their knowledge, skills and
(Senge, 1990; Senge et al., 1994). By concentrating on the competences, in other words, if people grow both
realm of individual learning in the intelligent organization, professionally and personally while they work (Hodge
it allows us to clarify and deepen our personal vision et al., 1998).
continuously, and thus to focus consistently on what we Numerous studies have demonstrated the relationship
really desire. Personal growth allows us to concentrate our between personal mastery and organizational learning
energies, develop patience and see reality objectively, both from different perspectives. From the perspective of
expanding personal aptitude and capability to learn and resources and capacities theory, Garcı́a-Morales (2004)
encouraging others to learn. analyzes personal mastery in depth—particularly its
Personal mastery allows us to pursue personal vision (the elements and the characteristics of people with a high
goal we all wish to achieve), to manage creative tension (the degree of this strategic factor for organizational learning
distance between future vision and current reality) and to and innovation—and shows the tools to stimulate it.
reduce structural conflict (the conflicting forces that prevent Cullen (1999) grounds research in a social perspective to
us from achieving personal vision, forces arising from our examine the relationship between personal mastery and
inability or unworthiness to attain this vision). As the learning organizations. Flood (1998) investigates how
product of creative orientation and systematic perspective, systemic thinking influences personal mastery, which
personal mastery increases aptitude and personal capability fosters the motivation to learn continuously. Thomas
to learn and innovate (Maani and Benton, 1999; Senge et (1994) uses the lens of planning to emphasize how personal
al., 1994). It nourishes individuals’ reflection on and mastery focuses on the learning elements of the firm that
analysis of their actions and preferences and of their belong to the individual. Finally, Leonard-Barton (1992)
personal and professional lives. shows the importance of personal growth in learning
Personal mastery generates improved performance with- laboratories.
in the firm. It originates in the internal motivation of Innovation is also based on a re-combining of resources,
each member of the entity to develop personally and skills and other assets. It is a qualitative re-combining of
professionally, for both his or her own good and that of the know-how present in capital and human assets. Thus,
firm. No one can increase the personal mastery of another much of the innovative orientation lies in innovative people
person; to force someone’s personal growth is counter- with a greater creative capacity and a higher degree of
productive (Senge et al., 1994). Thus, people who show personal mastery (Glynn, 1996). People with high personal
commitment to their personal and professional develop- mastery have the capacity to observe the distance between
ment—who constantly better their capacity, aptitudes, current reality and their personal vision and to transform
knowledge and skills and strive for continuous improve- this creative tension into an innovative impulse that can
ment—contribute to the firm, directly or indirectly bring reality closer to their vision by means of innovation.
(through organizational learning and innovation), obtain- In contrast, people with a low level of personal mastery
ing more favorable results (Lloréns-Montes et al., 2005; resolve creative tension by reducing the creative tension
Senge, 1990; Senge et al., 1994). Such people pursue pole under their command (vision) to bring their vision
improvement on their own initiative, not because they are closer to reality. This eliminates the innovative spirit and
forced to do so by the firm. Satisfying their own needs to generates emotional tension (tension caused by the
achieve better individual results leads to better organiza- negative emotions that appear when they are faced with
tional performance. critical situations) or structural tension. Thus, the more
Organizational learning can only occur if there is prior personal mastery grows, the greater the firm’s chances of
individual learning (a necessary but insufficient condition becoming innovative will be, since personal mastery
for organizational learning). To encourage individual nurtures the different forces driving innovation, such as
learning, we must begin with the subject’s personal and motivation to innovate, personal training development,
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550 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

shared vision, creative capacity and systems thinking To understand how organizational learning affects
(Glynn, 1996; Lefebvre and Lefebvre, 1992; Senge, 1990). organizational performance directly or indirectly is quite
Stronger emphasis on individual learning and develop- complex, as we have little understanding of the mechan-
ment (personal mastery) infuses the firm with new ideas, isms through which organizational learning is transformed
enhances the capacity to understand new ideas and into improvement in performance (Snyder and Cummings,
enhances creativity and the ability to recognize new oppor- 1998). To complicate matters further, we must remember
tunities (Damanpour, 1991). that there is a lag or time delay in the connection between
Personal mastery and human resource development have organizational learning and performance. Today’s learning
primarily concentrated on the largest firms. SMEs are affects tomorrow’s performance, making empirical obser-
under-represented in the literature of personal mastery vation even more difficult. If learning is to improve
(Senge et al., 1994). This may be partly because early performance, it must be put into practice correctly (Huber,
studies using the PIMS database (Strategic Planning 1991). Thus, while knowledge shared among the members
Institute, 1977) reinforced the idea that large firms and the resulting organizational learning encourage orga-
possessed numerous advantages over SMEs. SMEs were nizational performance, there can also be a deficiency or
often marginalized as a residual class of firms that had error in knowledge sharing, which has serious negative
failed to become big, frequently used old-fashioned consequences for performance. This error is defined as a
managerial approaches, occupied secondary labor markets ‘glitch,’ a costly error that could have been avoided if the
and niches (Scranton, 1999), and/or were less likely to use learning had been carried out appropriately (Hoopes and
strategic analysis and planning practices (Shuman et al., Postrel, 1999). Further, the benefits created by learning
1985). However, there is currently agreement in the may be masked for different reasons and not captured by
strategic management literature that more research should the managers due to inadequate perceptions of learning
be performed on SMEs (Barney et al., 2001). Particular within the firm (Senge et al., 1994). Thus, the real
emphasis must been placed on personal mastery in SMEs, connection between organizational learning and perfor-
since they play a pivotal role in sustaining employment and mance is a point that must be determined empirically and
creating income and prosperity (Senge et al., 1994). not assumed in the definition, as is often the case (Tsang,
The largest firms devote substantial budgets and estab- 1997).
lish internal structures to help their personnel develop Except in the case of errors such as these, organizational
skills. They usually have the economic resources and time learning usually has a direct and positive influence on
to confront this challenge. This expenditure must be made improvements in performance (Argyris and Schön, 1996;
up front, even though the benefits reaped from change Carayannis et al., 2006; Fiol and Lyles, 1985; Senge et al.,
are frequently realized not in the short term but in a 1994). Firms that show a greater breadth, depth and speed
medium- to long-term timeframe (Kerr and McDougall, of learning have higher performance levels (Hurley and
1999). However, SMEs have certain characteristics and Hult, 1998). The main aim of knowledge management and
capabilities that enable them to develop personal mastery organizational learning is to enhance performance quality
in their members. Flexibility and innovativeness, which and quantity, allowing the firm to improve its sales, achieve
have been cited as important characteristics of SMEs more support and create, maintain and enlarge its
(Chen and Hambrick, 1995; Fiegenbaum and Karnani, customer base. Furthermore, firms that learn and learn
1991; Yu, 2001), are traits that encourage personal mastery quickly gain a greater strategic capability that enables them
and human development opportunities (Argyris and to maintain a position of competitive advantage and
Schön, 1996; Glynn, 1996; Senge et al., 1994). improve their results (Senge et al., 1994). These attitudes,
Finally, the management of the firm, whether large firm behaviors and strategies of learning will guide them to
or SME, must be involved in creating a climate that enables superior long-term performance (Garcı́a-Morales, 2004).
members to feel committed to their firm and to their per- The process of creating organizational knowledge, by
sonal mastery (Larsen et al., 2002). This is how the indi- which new knowledge is drawn from existing (organiza-
vidual achieves continuous improvement of his or her tional learning), is also the cornerstone of innovative
knowledge, abilities and competencies, also fostering activities. It is the process, not knowledge in itself, which
organizational learning and innovation and improving strengthens innovation. Organizational innovation is
organizational performance (Hodge et al., 1998). The dependent on the firm’s knowledge base, which, in turn,
management’s involvement is conditioned by its perception is improved by organizational learning (Cohen and
of the development of personal mastery in the firm (Senge Levinthal, 1990). Many scholars stress the importance of
et al., 1994). Taking all of this into account, we can such learning in enhancing innovation capability (Calan-
formulate the following hypothesis: tone et al., 2002). For innovation capability to come to the
fore in firms, a high degree of effective learning capability is
Hypothesis 1. Personal mastery influences organizational required (e.g. Glynn, 1996; Leonard-Barton, 1992; Park
performance positively, both directly and indirectly and Kim, 2006). An increasing number of firms (both large
through organizational learning and innovation in large firms and SMEs) are analyzing innovation as an organiza-
firms and SMEs. tional learning process. Thus, a firm committed to learning
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 551

increases its innovation capability, as it is less likely to miss inter-organizationally (Yli-Renko et al., 2001). However,
the opportunities created by emerging market demand. SMEs favour organizational learning and organizational
It has the ability and knowledge required to anticipate and performance, since they are better able to detect errors and
understand customer needs, possesses more state-of-the art learn from them (Argyris and Schön, 1996). These firms
technology, uses that technology in innovations and has a have a greater affinity with values and styles of leadership
stronger capacity to understand the strengths and weak- that favour learning and structures that make communica-
nesses of rivals and to learn from their successes and tion and knowledge transfer easier. The small or medium
failures. Such a firm can generate greater innovation size of the firm also facilitates the sharing of experience,
capability than its competitors (Calantone et al., 2002). learning and innovation among its members (Nonaka and
Through its influence on innovation, organizational Takeuchi, 1995; Senge et al., 1994). However, the questions
learning influences organizational performance indirectly of whether organizational learning influences organiza-
(Nonaka and Takeuchi, 1995; Senge et al., 1994). tional performance indirectly through innovation in both
Firm size has also been recognized as a key variable kinds of firms (Garcı́a-Morales, 2004) or whether SMEs
affecting organizational learning and can be a major are efficient learners are better explored empirically
hindrance to the creation of intelligent organizations (Simonin, 1997, p. 1168). Taking all of this into account,
(Marquardt and Reynolds, 1994). Although the organiza- we can formulate the following hypothesis:
tional learning literature is dominated by research on large
Hypothesis 2. Organizational learning influences organiza-
corporations (Adams et al., 1998), there are some excep-
tional performance positively, both directly and indirectly
tions (Chipika and Wilson, 2006). Chipika and Wilson
through innovation in large firms and SMEs.
(2006), for example, analyze technological learning in
SMEs. Hendry et al. (1995), identify SMEs as an area that Firms with greater innovation capability will achieve a
has been neglected in the field. They describe the notion of better response from the environment, obtaining more
learning in SMEs in terms of developing existing routines easily the capabilities needed to increase organizational
and building redundancy into those routines to spread performance and consolidate a sustainable competitive
explicit knowledge. Wyer and Mason (1999) describe advantage (Calantone et al., 2002; Hall and Bagchi-sen,
organizational learning as strategic learning processes in 2002; Hurley and Hult, 1998; Zaltman et al., 1973). There
small firms that successfully sustain development. Chaston is a positive link between innovation capability and
et al. (2001) also consider the introduction of organiza- organizational performance and between different aspects
tional learning in the SME sector to be a highly attractive of innovation (e.g. innovation design or speed, flexibility)
proposition. Thus, organizational learning is a mechanism and performance (Capron, 1999; Danneels and Kleinsch-
for assisting SME survival, and higher-order learning midt, 2001).
influences certain managerial competencies (Oyelaran- Most previous publications agree that organizational
Oyeyinka and Lal, 2006). Studies have revealed that the innovation influences performance positively. Irwin et al.
learning process in SMEs is also a crucial part of their (1998) used a resource-based view to show the positive
evolution. Other research analyzes specific issues concern- relationship between technological innovations and orga-
ing organizational learning in SMEs, such as communicat- nizational performance and stated that the innovation
ing through self-directed work teams and participating in characteristics of rarity, value, and inimitability moderated
collaborative projects or alliances. Some studies even this relationship. Hurley and Hult (1998) demonstrated
compare the perceptions of large firms and SMEs to positive relationships between organizational innovation, a
improve overall understanding and synthesis of the market orientation, and organizational learning, showing
philosophy and to develop sector-specific learning in the that all of these elements together influenced the potential
SME sector (McAdam and Reid, 2001). Despite this for good performance. Capron (1999) showed similar
research and although the advantages of applying organi- relationships after mergers and acquisitions, and Lööf
zational learning to SMEs are manifold, this approach is and Heshmati (2002) showed the negative impact that
still not widely used. avoiding innovation has on organizational performance.
We have seen that organizational learning occurs in both Thus, the relationship between organizational innovation
large firms and SMEs (McAdam and Reid, 2001). Nothing and organizational performance is still relevant and
indicates that organizational learning should be a phenom- remains a matter of interest in business and academic
enon pertaining exclusively to large firms (McGill and circles (Brio and Junquera, 2003). Senge (1990) also
Slocum, 1993). Large firms have greater resources at their indicates that leaders’ positive view of innovation is an
disposal, which facilitates learning and performance in the essential factor for its implementation and development
firm to a greater extent. Thus, if we use structural within the firm and for the resulting improvements in
equations to analyze the relationship between the different organizational performance.
firms in a network and the ability to acquire competitive Numerous researchers confirm the existence of a positive
advantages, we see that large firms are better placed to relationship between innovation and organizational per-
acquire these competitive advantages (McEvily and Zah- formance in large firms (Damanpour, 1992; Nystrom et al.,
eer, 1999) and have a greater capacity to learn and innovate 2002). Still, this study intends to analyze the relationship
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552 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

between innovation and organizational performance in of scale and scope, financial and technological resources),
SMEs as well. Large firms have certain characteristics that while those of SMEs are generally argued in terms of
encourage innovation and the improvement of perfor- behavioral characteristics (e.g. entrepreneurial dynamism,
mance (Koc and Ceylan, 2007). They are capable of both flexibility, efficiency, proximity to the market, motivation).
mobilizing the resources required for innovation and Thus, there are arguments in favour of both large firms
offering the scale economies and scope in R&D required and SMEs with regard to innovation and improvement of
to use them cost-effectively after adoption. Large firms organizational performance. It would be a mistake to
will be in a good position to exploit an unforeseen assume that innovation and its role in improving organiza-
innovation and to obtain learning curve economies tional performance are the sole competence of large firms.
through investment in production. They can support the The differences in results in the literature may be due to a
establishment of a large R&D laboratory and have the time variety of issues, such as the disparity of measures used
and resources to establish comprehensive external science when analyzing both variables, which can give rise to
and technology networks, comprehensive distribution and different results (e.g. SMEs are much more innovative than
servicing facilities, the capacity for absorption of new large firms when an output measure of innovation is used—
knowledge/technology and access to external capital. They direct innovation counts). Despite the differences in
are also able to fund diversification and synergy. They have defining and measuring used in the various studies, the
formal management skills and specialized, professional results can be compared (Damanpour, 1996).
and skilled workers. They are able to erect entry barriers. Finally, size affects the relation between innovation and
Finally, they have expertize in staff functionaries and are organizational performance, not only directly but also
experienced in the development of new products (Daman- indirectly, through its effects on other properties of the firm
pour, 1992; Nystrom et al., 2002; Vossen, 1998). These (Damanpour, 1992; Stock et al., 2002). Furthermore, the
characteristics encourage innovation and improvement in relationship between organizational size and innovation
organizational performance. may be either stronger or weaker, depending on some third
Innovation and improvement in performance are also variable (e.g. organizational learning) for which past
commonly found in SMEs (O’Regan et al., 2006; Sub- studies have not controlled (Nystrom et al., 2002). Taking
rahmanya, 2005). Greater flexibility may enable these firms all of this into account, we can formulate the following
to be even more innovative and improve performance hypothesis:
more, as they are better able to adapt to market changes
and improve and have shorter and faster decision chains Hypothesis 3. Innovation influences organizational perfor-
(less bureaucratic inertia). SMEs can dominate narrow mance positively and directly in large firms and SMEs.
market niches through R&D efficiency. They have greater
capacity for customization and are capable of learning 3. Research methodology
quickly and adapting routines and strategy to improve
organizational performance. Furthermore, their engineers 3.1. Sample and procedure
and scientists may be highly motivated, since the contribu-
tion of an individual is likely to have a strong and visible The population for this study consisted of the large firms
impact on the firm’s overall performance and the incentives and SMEs which, according to the Duns and Bradstreet
are subject to fewer obstacles (Damanpour, 1992; Uddin, Spain (2000) database, demonstrated the greatest turnover
2006; Vossen, 1998). in Spain in the four sectors we wish to examine (food-
In short, large firms tend to have relative innovative farming, manufacturing, construction and services). We
advantages in industries that are capital-intensive, concen- chose these sectors because they represent a greater
trated and highly unionized and that belong to industries percentage, billing volume and employment volume of
that produce differentiated goods. Large firms are prob- the Spanish economy. Choosing a sample of firms located
ably better at the kind of innovations that require large in a relatively homogeneous geographical, cultural, legal
teams of specialists (e.g. fundamental, science-based and political space enables us to minimize the impact of the
innovations and large-scale applications) or make use of variables that cannot be controlled in the empirical
economies of scale and scope. SMEs tend to be seen as research. The Spanish market is relatively well developed
having a relative innovation advantage in highly innovative and wholly integrated in the European Union. It has had a
industries that use a substantial component of skilled labor slightly better rate of growth in recent years than the
and that contain a fairly high proportion of large firms. European market overall. However, Spain is in a geogra-
SMEs are likely to be stronger in innovations where effects phical area that has received relatively little attention from
of scale are not important and where they can make use of organizational researchers.
their proximity to market demand or their flexibility, such Drawing on our knowledge about key dimensions of this
as modifications to existing products for niche markets and research, previous contacts with interested CEOs and
small-scale applications or new products (Vossen, 1998). scholars and new interviews with four CEOs and five
Thus, the relative strengths of large firms lie mostly in academics interested in the topic and familiar with the
resources and are predominantly material (e.g. economies Spanish market, we developed a structured questionnaire
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 553

to investigate how firms face learning and innovation or scales of measurement is a complex task, we followed
issues. These developmental interviewees did not provide the suggestion made by Prajogo and Sohal (2004) and
data for the empirical investigation. wherever possible used pre-tested constructs from past
We decided to use the CEOs as our key informants, since empirical studies to ensure their validity and reliability.
they receive information from a wide range of departments Following different previous studies on the variables
and are therefore a very valuable source for evaluating the analyzed, we used a Likert-type 7-point scale in this study
different variables of the firm (Baer and Frese, 2003). In (Aragón-Correa et al., 2007; Garcı́a-Morales et al., 2006;
addition, the same types of informant were chosen, since Hult et al., 2000; Hwang, 2003; Jerez-Gómez et al., 2005;
this means that the level of influence among the firms is Ju et al., 2006; Lloréns-Montes et al., 2005).
constant, increasing the validity of the variables’ measure-
ments (Glick, 1985). Surveys were mailed to the CEOs of 3.2.1. Personal mastery
the 900 selected firms along with a cover letter. To reduce Following the line established by prior studies that have
possible desirability bias, we promised that we would keep developed reliable valid scales to measure personal mastery
all individual responses completely confidential and con- (Gardiner and Whiting, 1997), we drew up a Likert-type
firmed that our analyses would be restricted to an 7-point scale (1 ‘‘totally disagree’’ and 7 ‘‘totally agree’’)
aggregate level that would prevent the identification of that included the 3-item scale by Edmondson (1999) and
any firm. another two theory-based items (shown in the Appendix
We mailed each CEO who had not yet responded three A). Using a confirmatory factor analysis we validated the
reminders. Four-hundred and twenty CEOs finally an- scale indicating the deletion of Item 2 (w22 ¼ 85.75, normed
swered the questionnaire but, because of missing values, fit index (NFI) ¼ 0.96, goodness of fit index (GFI) ¼ 0.98,
only 401 questionnaires were included in the research. The comparative fit index (CFI) ¼ 0.96, incremental fit index
approximate response rate was 45% (Table 2). A series of (IFI) ¼ 0.96). We subsequently verified the scale’s uni-
t-statistics, ANOVAs and w2 revealed no significant dimensionality. After this deletion, item loadings were as
differences in type of business, between the respondents proposed and significant (po0.001), showing evidence for
and the sample or between early and late respondents. convergent validity. Cronbach’s a coefficient was also
Furthermore, since all measures were collected in the same computed to test the reliabilities of the personal mastery
survey instrument, the possibility of common method bias scale and found to be higher than the 0.7 threshold
was tested using Harman’s one-factor test (see Konrad and recommended by Cronbach (1951) as satisfactory
Linnehan, 1995; Scott and Bruce, 1994). A principal (a ¼ 0.845).
components factor analysis of the questionnaire measure-
ment items yielded four factors with eigenvalues greater 3.2.2. Organizational learning
than 1.0, which accounted for 70 percent of the total Various research works have measured learning within
variance. Since several factors, as opposed to one single firms (Edmondson, 1999; Hurley and Hult, 1998). Due to
factor, were identified. Since the first factor did not account the fact that there is a closer link with our research, that
for the majority of the variance, a substantial amount of they reflected the different prior trends well and that the
common method variance does not appear to be present scale’s validity was verified in detail, we used the first two
(Podsakoff and Organ, 1986). items from the scale developed by Kale et al. (2000) and
European Union Member States traditionally had their added two items based on Edmondson’s (1999) work. We
own definitions of what constitutes an SME. For example, developed a confirmatory factor analysis to validate our
the traditional definition in Germany had a limit of 500 scales (w22 ¼ 4.04, NFI ¼ 0.99, GFI ¼ 0.99, CFI ¼ 0.99,
employees, while in Belgium it was 100. The European IFI ¼ 0.99) and showed that the Likert-type 7-point scale
Union (EU) has standardized these concepts, however. Its (1 ‘‘totally disagree’’ and 7 ‘‘totally agree’’) of four items
current definition categorizes companies with fewer than 50 (shown in the Appendix A) was unidimensional and had
employees as ‘‘small’’ and those with fewer than 250 as high reliability (a ¼ 0.919). Item loadings were as proposed
‘‘medium-sized’’. We used a cut-off of 250 employees. With and were significant (po0.001), showing evidence of
this EU criterion, (the sample was obtained in Spain, a convergent validity. We also requested information on
country that belongs to the EU), we identified 159 large specific aspects of organizational learning (shown in the
firms (39.65%) and 242 SMEs (60.35%). Appendix A).

3.2. Measures 3.2.3. Innovation

Numerous researchers have analyzed organizational
The use of constructs has played an important role in innovation capability using reliable valid scales that allow
designing a survey instrument in management research. In its measurement (Becheikh et al., 2006; Torkzadeh et al.,
any research concerning behavioral elements, no device can 2005). Of all previous scales, the one that best addresses the
measure precisely by means of a single metric unit, and objectives of our research is Miller and Friesen’s (1983),
researchers usually employ two or more measures to gauge so we adapted it and used a Likert-type 7-point scale
a construct or scale. Given that developing new constructs (1 ‘‘totally disagree’’, 7 ‘‘totally agree’’) with three items,
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554 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

encouraging CEOs to value as ‘‘new’’ anything that of scales in which performance is evaluated in comparison
represented a real change and suggesting that this change with the main competitors is one of the most common
did not have to be new for the industry or the market— practices in recent studies (Steensma and Corley, 2000).
being new for the firm itself sufficed. We developed a Many researchers have used subjective perceptions of
confirmatory factor analysis to validate our scales (shown CEOs to measure beneficial outcomes for firms, while
in the Appendix A). The scale was unidimensional. Item others have preferred objective data, such as return on
loadings were as proposed and significant (po0.001), assets. In principle, objective measurements have greater
showing evidence of convergent validity and high reliability validity, although it has been widely demonstrated in
(a ¼ 0.778). We also included questions that allowed the the literature that there is a high correlation and concur-
CEOs to offer precise quantitative data on organizational rent validity between the objective and subjective measure-
innovation (shown in the Appendix A) and calculated the ments of performance, which means that both are
correlation between the objective and subjective data. valid when establishing a firm’s performance (Dess and
These were high and significant. Robinson, 1984; Homburg et al., 1999). We included
questions tapping both types of assessment in our inter-
3.2.4. Organizational performance views (shown in the Appendix A), but the CEOs were
Having reviewed how performance is measured in more open to offering their general views than to offering
different strategic research works (Gunasekaran et al., precise quantitative data. We calculated the correla-
2005; Homburg et al., 1999; Venkatraman and Ramanu- tion between the objective and subjective data, and these
jan, 1986), we drew up a Likert-type 7-point scale (1 ‘‘much were high and significant. Previous research has also
worse than my competitors’’ and 7 ‘‘much better than my shown that perceived performance can be a reason-
competitors’’) of six items to allow CEOs to express the able substitute for objective measures of performance
firm’s performance with respect to its competitors. We (Venkatraman and Ramanujan, 1987) and that both
developed a confirmatory factor analysis to validate our types of measurement are valid when establishing the
scales (w29 ¼ 207.61, NFI ¼ 0.95, GFI ¼ 0.97, CFI ¼ 0.95, firm’s performance (Homburg et al., 1999). Table 1
IFI ¼ 0.95) and showed that the scale (shown in the shows the validity, reliability and internal consistency of
Appendix A) was unidimensional. Item loadings were as the selected items for the scales of personal mastery,
proposed and significant (po0.001), showing evidence of organizational learning, innovation and performance
convergent validity and high reliability (a ¼ 0.862). The use (Table 2).

Table 1
Validity, reliability and internal consistency of scales

Variables Items Validity, reliability and internal consistency

a
l* R2 b
A.M.c

Personal mastery MASTERY1 0.86*** (32.67) 0.75 ad ¼ 0.845

MASTERY3 0.91*** (37.62) 0.82 C.R.e ¼ 0.936
MASTERY4 0.94*** (34.47) 0.88 S.V.f ¼ 0.786
MASTERY5 0.83*** (33.76) 0.70

Organizational learning OL1 0.91*** (46.53) 0.83 ad ¼ 0.919

OL2 0.88*** (30.82) 0.78 C.R.e ¼ 0.926
OL3 0.87*** (32.27) 0.76 S.V.f ¼ 0.759
OL4 0.82*** (25.82) 0.67
Innovation INNOVA1 0.76*** (15.80) 0.57 ad ¼ 0.778
INNOVA2 0.80*** (15.70) 0.65 C.R.e ¼ 0.798
INNOVA3 0.70*** (15.30) 0.49 S.V.f ¼ 0.569

Performance PERFOR1 0.84*** (30.82) 0.71 ad ¼ 0.862

PERFOR2 0.87*** (40.21) 0.75 C.R.e ¼ 0.944
PERFOR3 0.86*** (43.04) 0.75 S.V.f ¼ 0.742
PERFOR4 0.83*** (30.21) 0.70
PERFOR5 0.93*** (45.18) 0.87
PERFOR6 0.96*** (45.58) 0.92

***po0.001.
a
l* ¼ standardized structural coefficient.
b 2
R ¼ reliability.
c
A.M. ¼ adjustment measurement.
d
a ¼ Cronbach a .
e
C.R. ¼ composite reliability.
f
S.V. ¼ shared variance.
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 555

3.2.5. Size second-grade endogenous latent variables. Through its

We analyzed the need to use firm size to control for flexible interplay between theory and data, this structural
potential differences. The size indicators initially used were equation model approach bridges theoretical and empirical
annual turnover and number of employees. Both indicators knowledge for a better understanding of the real world.
were highly and significantly correlated in this sample, and Such analysis allows for modeling based on both latent and
we chose to use the number of employees. manifest variables, a property well suited for the hypothe-
sized model where most of the represented constructs are
abstractions of unobservable phenomena. Furthermore,
3.3. Model and analysis
structural equation modeling takes into account errors in
measurement, variables with multiple indicators and multi-
The LISREL 8.30 program was used to test the
ple-group comparisons.
theoretical model. Fig. 1 shows the basis of the model
proposed, together with the hypotheses to be contrasted.
We used recursive non-saturated models, taking personal 4. Analysis of results
mastery (x1) as the exogenous latent variable, organiza-
tional learning (Z1) as the first-grade endogenous latent This section presents the main results of our research.
variable and innovation (Z2) and performance (Z3) as the Firstly, Table 3 shows the inter-factor correlations matrix in
order to evaluate the significance level of the existing
relationships. The correlations between large firms and
Table 2
Technical details of the research SMEs have been separated. In both cases there are

Sector Food-farming, manufacturing, Table 3

construction and services Correlations between large firms and SMEsa
Geographical location Spain
Methodology Structured questionnaire Variables 1 2 3 4
Procedure Stratified sample with proportional
allocation (size) 1 Personal mastery 1.000 0.500*** 0.339*** 0.430***
Universe of population 50,000 companies 2 Organizational learning 0.395*** 1.000 0.640*** 0.574***
Sample size 900 companies 3 Innovation 0.379*** 0.564*** 1.000 0.599***
Response size 401 companies 4 Performance 0.373*** 0.504*** 0.495*** 1.000
Sample error 4.9%
Confidence level 95%, p–q ¼ 0.50; Z ¼ 1.96 *** po0.001.
a
Period of collecting data From September to December 2001 Above, diagonal large firm correlations. Below, diagonal SME
correlations.

Fig. 1. Proposed structural model in firms.

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556 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

significant and positive correlations among personal mas- tion required to use some of the common estimation
tery, organizational learning and innovation constructs, and methods (maximum likelihood—ML or generalized least
also between these constructs and performance. squares—GLS). Table 4 summarizes the results of the
Secondly, in order to estimate the relations of multiple multivariate normality test for the observed variables of the
and crossed dependence established in the hypotheses models obtained using the LISREL 8.30 PRELIS proces-
stated above, we designed structural linear equation sor. These results reveal, for a 5% significance level,
models, verifying them empirically with the help of the substantial differences in skewness (p ¼ 0.001), kurtosis
LISREL 8.30 software package. This type of analysis has (p ¼ 0.001) and the joint evaluation of skewness and
the advantage of correcting for unreliability of measures kurtosis (w2 ¼ 289.748, w2 ¼ 515.491 in large firms and
and provides information on the unique paths between SMEs respectively; p ¼ 0.001). Since the results do not
constructs after controlling for potentially confusing meet conditions of normality, the use of ML or GLS as
variables. Fig. 1 allows us to see the interrelations between estimation methods for the measurement model is not
the variables analyzed, using different kinds of lines to advisable. We therefore decided to use the weighted least
connect them to the related hypotheses. squares (WLS) procedure, which has the advantage of not
Initially, we checked whether the variables observed placing demanding restrictions on the distribution of the
verified the hypothesis of multivariate normality distribu- variables observed, giving efficient estimates in the absence
of normality. To apply and estimate the models, we
Table 4 decided to use as input data the polychoric correlations
Test of multivariate normality matrix and asymptotic covariance, via the PRELIS
application.
Skewness Kurtosis Skewness and Kurtosis
We verified the presence of good standardized structural
z-score p-value z-score p-value w2 p-value coefficients and individual reliabilities for the construct
items, as well as of correct composite reliabilities and
Large firms 14.688 0.001 8.603 0.001 289.748 0.001
shared variance for the latent variables (Table 5).
SMEs 19.304 0.001 11.952 0.001 515.491 0.001
Convergent validity can be supported. A series of w2

Table 5
Validity, reliability and internal consistency of scales for large firms and SMEs

Variables Items Parameter Validity, reliability and internal consistency

Large firm (159) SME (242)

a 2 b c a
l* R A.M. l* R2 b
A.M.c

Personal mastery MASTERY1 lx11 0.95 (f.p.g) 0.90 ad ¼ 0.819 0.86 (f.p.g) 0.74 ad ¼ 0.854 C.
MASTERY3 lx12 0.86*** (57.93) 0.75 C.R.e ¼ 0.938 0.93*** (47.88) 0.86 C.R.e ¼ 0.936
MASTERY4 lx13 0.90*** (59.21) 0.81 S.V.f ¼ 0.792 0.93*** (50.87) 0.87 S.V.f ¼ 0.787
MASTERY5 lx14 0.85*** (47.75) 0.73 0.82*** (48.59) 0.68
Organizational learning OL1 ly11 0.93 (f.p.g) 0.87 ad ¼ 0.933 1.00 (f.p.g) 0.99 ad ¼ 0.911
OL2 ly12 0.95*** (104.46) 0.90 C.R.e ¼ 0.960 0.89*** (60.48) 0.80 C.R.e ¼ 0.946
OL3 ly13 0.90*** (95.26) 0.81 S.V.f ¼ 0.860 0.88*** (60.93) 0.78 S.V.f ¼ 0.817
OL4 ly14 0.93*** (110.80) 0.86 0.84*** (41.30) 0.70

Innovation INNOVA1 ly25 0.75 (f.p.g) 0.56 ad ¼ 0.743 0.83 (f.p.g) 0.69 ad ¼ 0.797 C.
INNOVA2 ly26 0.85*** (40.74) 0.73 C.R.e ¼ 0.904 0.83*** (33.24) 0.70 C.R.e ¼ 0.886
INNOVA3 ly27 1.00*** h (38.09) 1.00 S.V.f ¼ 0.762 0.88*** (38.52) 0.78 S.V.f ¼ 0.721
Performance PERFOR1 ly38 0.80 (f.p.g) 0.65 ad ¼ 0.864 0.81 (f.p.g) 0.66 ad ¼ 0.862 C.
PERFOR2 ly39 0.83*** (46.30) 0.69 C.R.e ¼ 0.967 0.80*** (42.01) 0.64 C.R.e ¼ 0.952
PERFOR3 ly310 1.00*** h (57.46) 1.00 S.V.f ¼ 0.833 0.85*** (47.26) 0.72 S.V.f ¼ 0.771
PERFOR4 ly311 0.94*** (41.67) 0.88 0.87*** (39.36) 0.75
PERFOR5 ly312 0.90*** (51.98) 0.81 0.93*** (43.54) 0.87
PERFOR6 ly313 0.99*** (49.47) 0.97 0.99*** (44.62) 0.99

***po0.001.
a
l* ¼ standardized structural coefficient.
b 2
R ¼ reliability.
c
A.M. ¼ adjustment measurement.
d
a ¼ Cronbach a.
e
C.R. ¼ composite reliability.
f
S.V. ¼ shared variance.
g
f.p. ¼ fixed parameter.
h
Error variances initially gave negative values, their value being set at 0.
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difference tests on the factor correlations showed that mastery has a positive and direct significant impact on
discriminant validity is achieved among all constructs organizational performance for large firms and SMEs
(Anderson and Gerbing, 1988). In particular, discriminant (g31 ¼ 0.22, t ¼ 9.61; g31 ¼ 0.17, t ¼ 4.66, respectively).
validity was established between each pair of latent Likewise personal mastery influences the improvement of
variables by constraining the estimated correlation para- organizational performance by influencing organizational
meter between them to 1.0 and then performing a w2 learning and innovation. The results show the presence of a
difference test on the values obtained for the constrained positive and statistically significant association between
and unconstrained models. The resulting significant differ- personal mastery and organizational learning, at the level
ences in w2 indicate that the constructs are not perfectly of 0.1% for both large firms (g11 ¼ 0.60, t ¼ 26.34) and
correlated and that discriminant validity is achieved. SMEs (g11 ¼ 0.68, t ¼ 28.37). The results also show that
We also checked that there was a good fit of the joint the model explains organizational learning well (R2 ¼ 0.36
model, the measurement model and the structural model for large firms; R2 ¼ 0.46 for SMEs).
both for large firms and SMEs (goodness-of-fit statistics As regards the relationship between personal mastery
columns in Table 6). All of the modification indices for the and innovation, we find a direct, positive, significant
b-pathways between major variables were small, suggesting relationship for large firms (g21 ¼ 0.12, t ¼ 3.67) and an
that additional paths would not significantly improve the indirect relationship (0.49, t ¼ 19.32) by means of organi-
fit. The residuals of the covariance were also small and zational learning (0.60  0.82; see, for instance, Bollen
centered around zero. We provided the estimated values of (1989) for calculation rules). Therefore, the total effect of
the standardized parameters of the structural models personal mastery on innovation, the combination of the
proposed in Table 6, which are represented graphically in direct and indirect effects, shows an overall significant and
Fig. 2. Only paths that are significant at the level 0.05 are positive relationship at a level of 0.1% with a coefficient of
shown in this diagram. This figure shows the values of the 0.60 (t ¼ 27.17). There is also a direct, positive significant
direct relations between the variables, with the upper part relationship for SMEs (g21 ¼ 0.18, t ¼ 4.69) and an indirect
corresponding to large firms and the lower part to SMEs. relationship (0.50, t ¼ 14.62) by organizational learning
The relative importance of the variables is reflected by the (0.68  0.74; see, for instance, Bollen (1989) for calculation
magnitude of the coefficients. rules). Therefore, the total (direct and indirect) effect of
The data from Table 6 reveal that the estimated personal mastery on innovation shows an overall signifi-
coefficients linked to the predicted relationships take the cant and positive relationship at a level of 0.1% with a
expected direction and are statistically significant. Personal coefficient of 0.68 (t ¼ 25.84).

Table 6
Parameter, relationship and goodness of fit statistics for size

Parameter and relationship Large firm (159) SME (242)

a
l* Goodness of fit l* Goodness of fit
statistics statistics

Direct effects
g11 Personal mastery-OL 0.60*** (26.34) w2 ¼ 756.08 0.68*** (28.37) w2 ¼ 745.57
(p ¼ 0.01) (p ¼ 0.01)
g21 Personal mastery-Innovation 0.12*** (3.67) NCP ¼ 641.08 0.18*** (4.69) NCP ¼ 632.57
g31 Personal mastery-Performance 0.22*** (9.61) GFI ¼ 0.99 0.17*** (4.66) GFI ¼ 0.94
b21 OL-Innovation 0.82*** (27.84) ECVI ¼ 5.78 0.74*** (18.84) ECVI ¼ 3.74
b31 OL-Performance 0.51*** (10.15) 0.12y (1.76)
b32 Innovation-Performance 0.29*** (5.09) 0.60*** (8.12)
Indirect effects
Personal mastery-Innovation 0.49*** (19.32) AGFI ¼ 0.99 0.50*** (14.62) AGFI ¼ 0.91
NFI ¼ 0.99 NFI ¼ 0.90
Personal mastery-Performance 0.48*** (25.51) NNFI ¼ 0.99 0.49*** (17.19) NNFI ¼ 0.90
OL-Performance 0.24*** (4.80) CFI ¼ 0.99 0.44*** (7.05) CFI ¼ 0.92
IFI ¼ 0.99 IFI ¼ 0.93
RFI ¼ 0.99 RFI ¼ 0.88
Total effects
Personal mastery-Innovation 0.60*** (27.17) PGFI ¼ 0.75 0.68*** (25.84) PGFI ¼ 0.69
Personal mastery-Performance 0.70*** (42.23) PNFI ¼ 0.84 0.66*** (24.39) PNFI ¼ 0.75
OL-Performance 0.75*** (45.36) CAIC ¼ 983.20 0.56*** (14.71) CAIC ¼ 1001.68
AIC ¼ 832.08 AIC ¼ 825.57

*po0.05, **po0.01, *** po0.001.

a
l* ¼ Standardized structural coefficient.
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558 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

Fig. 2. Standardized structural parameters in firms.

Table 7
Analysis of interaction effects in the parameter estimates

Relationship Large firm (159) SME (242)

Personal Mastery * Organizational Learning-Performance 0.69*** (13.98) 0.62*** (15.92)

Personal Mastery * Innovation-Performance 0.74*** (13.38) 0.62*** (15.30)
Organizational Learning * Innovation-Performance 0.75*** (13.65) 0.63*** (15.00)

*** po0.001.

If we analyze the indirect influence of personal mastery effects of personal mastery and organizational learning on
on organizational performance, we see that personal innovation in large firms (R2 ¼ 0.79) and SMEs (R2 ¼
mastery influences indirectly through organizational learn- 0.76) indicates that the effect of organizational learning on
ing (0.60  0.51 in large firms; 0.68  0.12 in SMEs), innovation is significantly larger than the effects of
organizational innovation (0.12  0.29 in large firms; personal mastery on innovation in both models.
0.18  0.60 in SMEs) and organizational learning-organi- Finally, innovation is positively and significantly related
zational innovation (0.60  0.82  0.29 in large firms; to performance in both large firms (b32 ¼ 0.29, t ¼ 5.09)
0.68  0.74  0.60 in SMEs). Thus, the indirect influence and SMEs (b32 ¼ 0.60, t ¼ 8.12), confirming Hypothesis 3.
of personal mastery on organizational performance is 0.48 Comparing the magnitudes of the total effects of personal
(t ¼ 25.55) in large firms and 0.49 (t ¼ 17.19) in SMEs. mastery, organizational learning and innovation on per-
This supports Hypothesis 1, that personal mastery formance in large firms (R2 ¼ 0.87) and SMEs (R2 ¼ 0.69)
influences organizational performance both directly and indicates that the effect of organizational learning on
indirectly, through organizational learning and innovation. organizational performance is larger than the effects of
The overall influence is 0.70 (t ¼ 42.23) in large firms and personal mastery and innovation in large firms (the
0.66 (t ¼ 24.39) in SMEs. influence of personal mastery is only somewhat less), while
The same verification can be given to Hypothesis 2; that the effect of personal mastery on performance is signifi-
is, organizational learning affects organizational perfor- cantly larger than the effects of organizational learning and
mance in large firms and SMEs directly (b31 ¼ 0.51, innovation in SMEs.
t ¼ 10.15 in large firms; b31 ¼ 0.12, t ¼ 1.76 in SMEs) Table 7 shows the results of the analysis of interaction
and indirectly through innovation (0.82  0.29 ¼ 0.24, effects in the parameter estimates using partial least
t ¼ 4.80 in large firms; 0.74  0.60 ¼ 0.44, t ¼ 7.05 in squares. This procedure has been gaining interest and use
SMEs). Thus, the global influences of organizational among researchers in recent years (Compeau and Higgins,
learning in large firms are 0.75 (t ¼ 45.36) as opposed to 1995) because of its ability to model latent constructs under
0.56 (t ¼ 14.71) in SMEs. The research also shows that conditions of non-normality and small-to-medium sample
organizational learning influences organizational innova- sizes, like our sample. It is similar to regression analysis but
tion in both large firms (b21 ¼ 0.82, t ¼ 27.84) and SMEs simultaneously models the structural paths (i.e., theoretical
(b21 ¼ 0.74, t ¼ 18.84). Comparing the magnitudes of the relationships among latent variables) and measurement
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 559

paths (i.e., relationships between a latent variable and its to the stimulation and development of personnel, which
indicators). Rather than assuming equal weights for all generates less motivation and high indices of rotation,
indicators of a scale, this method allows each indicator to strongly affecting their organizational performance in the
vary in how much it contributes to the composite score of long term. SMEs usually have greater difficulty fostering
the latent variable. Thus, indicators with weaker relation- personal mastery and personal development of their
ships to related indicators and the latent construct are members, mainly due to greater scarcity of qualified labor,
given lower weightings (Aiken and West, 1991). Following since they lack their own means for training and possess
a series of ordinary least squares analyses, partial least fewer economic resources. There are also fewer possibilities
squares optimally weights the indicators, such that a for training, career paths and self-realization. Further,
resulting latent variable estimate can be obtained. The there is more pressure in the SME to show that the
weights provide an exact linear combination of the investment made in personal mastery of the organization’s
indicators for forming the latent variable score, which is members is reflected in the organizational results, since
not only maximally correlated with its own set of indicators their resources (financial, structural, and, above all, time)
(as in components analysis) but also correlated with other are fewer than those of large firms (Argyris and Schön,
latent variables according to the structural model. 1996; Garcı́a-Morales, 2004; Senge et al., 1994; Yu, 2001).
In testing the theoretical framework, we fit several nested Poor structure forces SMEs to make unplanned
models, each incorporating different assumptions about responses to their real needs in issues of personal
parameters. Comparison with reasonable alternative mod- development. In most cases, there is no strategic plan for
els is considered to be an important part of assessing model personal development linked to the strategic goals of the
fit (Bollen and Long, 1993; Kelloway, 1995). Length firm, that is, a plan from which specific action programs are
restrictions prevent a detailed discussion of each model (a developed and assigned to specific people, a plan with
full report is available from the authors). The resulting responsibilities, deadlines, methods of control of execution
values also supported our final model, shown in Fig. 2. and evaluation of impact. This is shown in the fact that, for
We then performed a t-test for equality of means between decades, the development of human resources has been
large firms and SMEs to analyze whether there are significant analyzed as an expense and not an investment (Kerr and
differences in personal mastery, organizational learning, McDougall, 1999; Senge, 1990; Senge et al., 1994).
organizational innovation and organizational performance. It is necessary to begin to put into practice measures to
The results of these tests can be seen in Table 8. For each retain talent, make the work position attractive for the
construct, the table provides the mean score, the Levene’s test worker, and motivate and involve workers in their personal
for equality of variances and the t-value. Significant mastery (Nonaka and Takeuchi, 1995). Those responsible
differences can be observed for personal mastery. Large for the development of human capital in SMEs should be
firms usually have greater economic resources and stronger able to lead processes, transfer knowledge and develop
possibilities for satisfying the upper needs of the Maslow employees in their firms. The value of a work position is
pyramid and thus have better prospects for training, career not measured only by its economic value but also by the
paths and self-realization possibilities and favour the personal mental salary, the development of the individual (Senge,
development of their members (Senge et al., 1994). This does 1990; Senge et al., 1994).
not mean that the level of personal mastery in the SMEs is SMEs exhibit a series of problems that make it more
low (5.42), but that the level of personal mastery achieved in difficult than in large firms to put good learning systems
large firms (5.59) is somewhat higher. into practice. They usually lack the precise capacity to
define their real organizational learning needs in the
5. Discussion context of modernization of the firm and of processes of
technological innovation, for they also lack their own
If we contrast large firms with SMEs, we can see some means to plan, organize and impart learning programs.
differences concerning personal mastery, organizational The production of specialized learning programs for a
learning and innovation. SMEs usually pay less attention small number of workers is also usually too expensive for

Table 8
Independent samples t-test

Variables Means Levene’s test for equality of variances t-test for equality of means

Large firm SME F Sig. (two-tailed) t Sig. (two-tailed)

Personal mastery 5.5943 5.4244 6.393 0.012 2.037* 0.042

Organizational learning 5.3931 5.3517 0.300 0.584 0.352 0.725
Innovation 4.8083 4.5767 1.518 0.219 1.869 0.062
Organizational performance 4.7756 4.7514 0.252 0.616 0.222 0.824

* po0.05.
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560 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

them to use. The narrow economic margins with which related to human resources continues to inspire questions
SMEs operate, as well as the small number of workers, and research on the subject by professionals and aca-
make it very difficult to grant employees permission to demics. Employees should be considered the firm’s most
attend learning and training courses outside the firm. valuable resource, a resource for which large firms and
Likewise, SMEs usually have fewer means of their own to SMEs must take responsibility and whose professional
foster organizational learning and achieve the integration development it must promote.
of work with learning, thus requiring external professional CEOs of large firms and SMEs have an important job to
help. Therefore, to transform the SME into a learning do, creating the conditions that facilitate the development
organization, it is necessary to integrate work and learning of personal mastery in the firms’ members. They must
in a single system. This involves the orientation of specific encourage the firm’s members to achieve high levels of
key professionals in the firm toward training and toward personal mastery, since this development will enable them
learning processes (Aragón-Correa et al., 2007; Argyris and to take more initiative, to broaden and deepen their sense
Schön, 1996; DiBella et al., 1996; Garcı́a-Morales, 2004; of responsibility for their work and to learn and innovate
Senge et al., 1994). faster (Senge, 1990; Senge et al., 1994).
Finally, large firms and SMEs need to promote CEOs must possess a series of qualities (innate) and
innovation, but the size of the organization will determine capabilities (both innate and learned) if we wish to
its strong and weak points in achieving this objective and transform the firm into a firm that learns and innovates.
the strategies to follow. If we look deeper, SMEs have Further, employees who value human resources and their
advantages over large firms in that they: lack bureaucracy. development more highly should hold the decisive posi-
Their managers usually react quickly to new situations, as tions in the firm, as they will succeed most easily in acting
they are closer to market tastes and changes in these tastes, on the individual mental models to initiate the shared
favoring rapid adaptation to them. Their size enables the process of development and transformation of these
work capital to adapt more easily to new production models into shared mental models. Shared mental models
processes, as there is usually good communication between will enable an increase in the firm’s capability to obtain
managers and between managers and personnel. They are sustainable competitive advantages based on organiza-
more flexible and maintain a closer relationship to their tional learning and innovation and on using the resources
clients, thus becoming informed more rapidly of changes in and capacities with which the firm’s size provides them
consumer demand. They can specialize, that is, develop (Argyris and Schön, 1996).
specific capacities in certain technical areas, attending to A CEO or owner who enables and facilitates personal
smaller but very sophisticated markets, which will stimu- mastery will achieve the conditions under which excellent
late their innovative activity. These characteristics enable ideas are put into practice and are not obstructed by
SMEs to have greater innovative efficiency than large firms internal personal models (Nonaka and Takeuchi, 1995;
when they perform innovation activities, due to ease of Senge et al., 1994). He or she will also guide the firm’s
internal communication, the firm’s adaptability to external members on their professional trajectories, supporting
changes, and the need to be extremely careful in the use and them in their organizational growth. Personal mastery
commitment of each investment share (Aragón-Correa becomes the motor and transmitter of an innovative
et al., 2007; Damanpour, 1992; Drucker, 1986; Uddin, culture and of the dissemination of knowledge oriented
2006; Vossen, 1998). to seeking the best possible organizational performance.
However, SMEs also have significant disadvantages Both knowledge and innovation constitute an essential
when compared to large firms. They lack or have only a base for ensuring that personal mastery will guide the firm
very limited number of technicians and highly qualified to sustainable competitive advantages (Damanpour, 1991;
specialists. They do not have sufficient capital to develop Grant, 1996).
research processes favorable to innovation. Communica- However, some CEOs of large firms or owners of SMEs
tion with the outside (with the international market, the still reject firms that favour personal mastery for materi-
government, other firms) is usually poor. They do not have alistic reasons (for them, it is absurd to waste time on non-
their own capital or risk capital, nor do they have third material concepts inherent in personal mastery, such as
party loans to confront R&D expenses. They lack scale and vision, tension and intuition) in favour of old, frustrated
thus growing economies of scale. In the face of increased ideals; or for fear of permitting personal mastery, as they
demand that drives them to grow faster, they encounter think that this give power to people and take it away from
limitations in their own or external capital. They rarely the firm (this can occur if the people are not aligned in the
patent their innovations but are often limited by patents same direction as the firm by sharing a common vision and
registered by others (Damanpour, 1992; Drucker, 1986; some shared mental models). They thus create large firms
Nystrom et al., 2002; Vossen, 1998). and SMEs in which personal mastery is not stimulated
Now that we have defined the differences, we should (Senge et al., 1994).
point out that all firms, independent of size, are interested However, we must create intelligent firms that encourage
in knowing what influences the results they achieve, how personal mastery by means of organizational learning and
and why they succeed or fail. Belief that the results are innovation, by moving from an instrumental perspective in
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 561

which we work for money and do not do what we really will have a negative effect on productivity and organiza-
want to do when we are working (we do not fulfill ourselves tional performance (Lööf and Heshmati, 2002).
at work) to a perspective in which work is valued in itself Finally, both large firms and SMEs should adapt to
and not only for the money it provides (Senge, 1990). modern times. Leveraging their human resources and
It is thus necessary to foster leaders in both kinds of personal and professional development, they should
firms who stimulate organizational learning (Senge, 1990). manage organizational learning and innovation appropri-
Promotion of organizational learning requires transforma- ately. Only so will they succeed in exploiting these
tional leadership (Senge, 1990; Senge et al., 1994) to tackle intangible resources that are the basis of modern society
the intellectual-capital-based new economy. This style (Cohen and Levinthal, 1990; Senge et al., 1994; Nonaka
allows the firm to learn through experimentation, commu- and Takeuchi, 1995).
nication, dialog (McGill and Slocum, 1993), personal
mastery (Senge, 1990) and the process of organizational 6. Conclusions
knowledge creation (Nonaka and Takeuchi, 1995). Large
firms and SMEs that learn should adopt more transforma- Our conclusion discusses the implications of this study
tional styles of leadership that encourage intellectual for research and practice. It then indicates some limitations
stimulation, individualized consideration and inspirational due to the nature of the sample studied and directions for
motivation (Coad and Berry, 1998). The leader should be a future research.
catalyst, mentor, facilitator and trainer in organizational
learning (Ulrich et al., 1993). 6.1. Implications for theory and practice
Such leaders also play a key role in innovation (Stata,
1989) and in creating a climate that encourages the abilities This investigation has enabled us to confirm empirically
and practices needed to promote it (Kanter, 1983). If we the direct and indirect impact (through organizational
analyze the determinants of innovative conduct in firms, it learning and organizational innovation) of personal
becomes clear that the CEO’s or owner’s characteristics mastery on organizational performance in both large firms
and leadership style are essential to encouraging this and SMEs. Prior research has focused mainly on large
innovation. There is currently a broad consensus that firms and direct effects, with few empirical contributions
collaborative and participative leadership style is more that contrast indirect influences in both kinds of firms.
likely to encourage innovation within the firm (Farr and Both kinds of firms have some advantages due to their
Ford, 1990; Kanter, 1983). respective sizes that enable the development of personal
Organizational learning should also be fostered for its mastery and the direct and indirect improvement of
strong direct and indirect influence on organizational performance. While large firms have greater economic
performance. Directly, large firms and SMEs that show resources and more time to face challenges or substantial
greater breadth, depth and speed of organizational learning budgets that can foster personal mastery (Kerr and
have greater performance levels (Hurley and Hult, 1998; McDougall, 1999), SMEs benefit from flexibility and
Zahra et al., 2000). This normally occurs in firms from all innovativeness (Argyris and Schön, 1996; Chen and
sectors, for both manufacturing firms (Schroeder et al., Hambrick, 1995; Fiegenbaum and Karnani, 1991; Yu,
2002) and technological companies (Decarolis and Deeds, 2001; Senge et al., 1994).
1999). Indirectly, organizational learning influences per- We should thus analyze the level at which the CEO
formance by organizational innovation. The deeper in- perceives personal mastery and achieves the involvement of
novation reaches, the greater the degree of learning the firm’s management, independently of firm size, to
required. Thus, the process of creating organizational create a work environment that enables members to feel
knowledge by which new knowledge is drawn from existing committed to their firm and their personal mastery (Larsen
knowledge (organizational learning) is the cornerstone of et al., 2002). This fosters organizational learning and
innovative activities. It is the process that strengthens innovation, instruments that enable improvement in the
innovation, not knowledge in itself (Nonaka and Takeuchi, knowledge, capabilities and competencies of the firm’s
1995). Furthermore, organizational innovation is depen- members and the improvement of organizational perfor-
dent on the firm’s knowledge base, which in turn is pro- mance (Hodge et al., 1998).
moted by organizational learning (Cohen and Levinthal, Nevertheless, the human resources of large firms and
1990). SMEs are not usually treated as if they were the most
The more valuable, imperfectly imitable and rare important capital in firms. This may occur because a
innovations (e.g. technological) are, the higher perfor- considerable number of CEOs are experts at administrating
mance will be (Irwin et al., 1998). Firms with greater technical and financial capital but have not yet learned to
innovation will achieve a better response from the administrate intellectual capital. Long-term competitive
environment, obtaining more easily the capabilities needed advantage is the result of exploiting the different central
to increase organizational performance and consolidate a capacities of abilities and tangible and intangible assets,
sustainable competitive advantage (Hurley and Hult, but intangible resources and knowledge grant strategic
1998). Not promoting innovative projects and activities success in the current economy (Roos and Roos, 1997).
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562 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

We therefore need a drastic change in how CEOs view Third, the CEO should be a good mentor, that is, should
administration of the firm (large firm or SME). CEOs must be able to guide others in their career paths. The CEO
recognize that the greatest part of the value accumulated in should support the growth of all people who form part of
the products and services derives from knowledge and the firm through faith in their capacity to learn and
intelligence, that is, from the personal development of the innovate. He or she should know how to motivate, teach
members of the firm (personal mastery). CEOs with the and involve others in a common project (Smith, 1997). This
capacity to understand these new premises will develop means that planning of professional careers with good
organizational competitive advantages, while those who training should be initiated. It is essential that SMEs do
ignore them will be at a clear disadvantage (Argyris and this as well, but in many cases they do not. It is thus
Schön, 1996; Senge et al., 1994). necessary to identify the possible courses for personal
This means that the CEO should possess and stimulate a development within the organization and establish efficient
series of traits in the current Information and Knowledge internal communication about the personal and profes-
Society to stimulate personal mastery. Among the recom- sional trajectories possible within the firm, such that all
mendations we derive from this research, we would first employees know their possibilities for development within
emphasize that the CEO should be a good designer of the the organization (Garcı́a-Morales, 2004).
firm’s structure, which involves the functions of evaluation Fourth, the CEO should challenge the firm with goals.
of the firm’s members and needs; design of policies, The more challenging the goal we face, the greater the
strategies and systems appropriate to each time and place; acceleration in learning and innovation, as people need
and design of learning and innovation processes that challenges to learn and innovate. These challenges are
improve these policies, strategies and structures continu- usually greater in large firms. If a challenge produces an
ously (Senge et al., 1994). This last function requires error, the CEO should help the employee to learn from the
considerable technical knowledge to analyze, modify and mistake (Guns, 1996). Fifth, the CEO should make
simulate the behavior of complex human systems (Nonaka decisions and carry out actions, but only after having
and Takeuchi, 1995; Stata, 1989). However, it is not easy to dedicated time to reflecting, developing mental models and
achieve this function correctly when most CEOs have designing learning processes from these actions (Senge,
reached their positions due to their ability to make 1990). Sixth and finally, the CEO should promote shared
decisions and solve problems rather than their capacity vision. In intelligent firms, CEOs are beginning to stop
to instruct and teach others (Senge, 1990; Senge et al., focusing on their own visions and to recognize that their
1994). personal vision forms part of a larger whole influenced by
This recommendation implies that firms should foster the visions of others, thereby creating a shared vision that
the creation of a personnel development area in the provides a vehicle through which the firm’s members
organization, since if they have human capital with a high commit themselves to the firm. In theory, it is easier to take
degree of personal mastery they will achieve greater into account all visions in SMEs than in large firms, where
organizational performance. However, unlike large firms, there are many individuals and stakeholders to consider
many SMEs do not have an internal personnel develop- (Senge et al., 1994). Independent of size, CEOs should act
ment area due to lack of time or resources. They should, from a conviction that their efforts will produce more
however, at least stimulate a commitment to personal productive firms capable of achieving greater personal
mastery from management and personnel, thus facilitating satisfaction and levels of organizational success higher than
the acquisition, dissemination and implementation of the traditional ones (Kofman and Senge, 1993).
knowledge needed to improve the competences, knowledge We have also verified empirically that organizational
and ability of the organization’s members (Senge et al., learning influences both large firms and SMEs, directly and
1994). indirectly through innovation in organizational perfor-
Second, CEOs should act on individual mental models mance. Organizational learning influences the organiza-
and achieve shared mental models. Mental models are like tional performance of both kinds of firms, primarily
cognitive mental maps that enable us to observe the directly (Argyris and Schön, 1996; Fiol and Lyles, 1985;
complex environments of our world. These maps are Garvin, 1993; Hurley and Hult, 1998; Senge et al., 1994)
extremely useful, due to the guides and opportunities that but also indirectly in innovative activities (Cohen and
they allow us to produce (Nicolini, 1999). Shared mental Levinthal, 1990; Nonaka and Takeuchi, 1995; Senge et al.,
models will enable an increase in the firm’s capability to 1994). While organizational learning in large firms is
obtain sustainable competitive advantages based on favored by factors such as having more resources at their
organizational learning and innovation and on using the disposal or better networks that enable them to learn or
resources and capacities provided by the firm’s size innovate inter-organizationally (McEvily and Zaheer,
(Argyris and Schön, 1996). The process of analyzing 1999; McGill and Slocum, 1993; Yli-Renko et al., 2001),
individual mental models and achieving shared mental SMEs benefit from other characteristics, such as their
models is achieved more easily in SMEs than in large firms, increased ability to detect errors and learn from them,
where there is greater complexity due to the organization’s possession of a greater affinity for the values and style of
size (Argyris and Schön, 1996; Senge et al., 1994). leadership that favour learning, and development of
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structures that make communication and knowledge with respect to organizational learning. Learning should be
transfer easier or make it easier to share experience, continuous, that is, a permanent phenomenon that never
learning and innovation among their members. SMEs also ends. This requires the creation of a corporate culture that
adjust more easily and can maintain a closer relationship stimulates the process of continuous learning. Moving toward
with clients, which gives them more opportunities for an intelligent firm also requires that people commit
feedback and learning (Argyris and Schön, 1996; Nonaka themselves personally, creating a community of learning,
and Takeuchi, 1995; Senge et al., 1994). since without communities of committed people there will be
The CEO should be openly committed to learning. He or no opportunity for real change. We should generate processes
she should be a catalyst, driving and putting forth all that is directed toward improving the capacity, or the aptitudes, for
necessary to overcome internal skepticism and external knowledge and the characteristics to renew and reinvent
difficulties. In SMEs, his or her actions are observed more ourselves. We must also emphasize contributions; that is, we
closely than in large firms. This leader should demonstrate should permit different people to contribute to creating the
commitment to learning capacity, whether by converting it intelligent organization, using all of the talent of each of the
into a central element of his or her strategic intention, firm’s members. There should be strong collaboration
investing in and speaking publicly of it, trying to measure it between all of the members of the entity, as this develops
or creating symbols of learning. The CEO should eliminate teamwork and personal relationships. Lastly, there is—or
negative group dynamics that impede learning and instill should be—conscience, certain values and guiding principles
positive dynamics that nurture collaborative learning. If in the firm (Senge et al., 1994).
the firm’s own leader is not committed to learning, it will Finally, we confirmed empirically the influence of
create a wave of cynicism in the firm (Maani and Benton, innovation on performance in large firms (Damanpour,
1999). 1992; Nystrom et al., 2002). Large firms have scale
In this process of openness to learning, the CEO should economies, greater resources, learning curve economies,
succeed in changing and in causing the firm and other large R&D laboratories, time and resources for external
members to change. For learning in large firms and SMEs, science and technology networks, synergy and access to
it is thus necessary for CEOs to have a strong commitment, greater external capital (Damanpour, 1992; Nystrom et al.,
this being one of their most important dissemination tasks 2002; Vossen, 1998). These characteristics favour innova-
in the learning process on all levels of the firm. One way to tion and improvement in organizational performance. In
develop a learning organization is to ensure that the SMEs, innovation also influences performance, but this
managers who are well-disposed toward learning are in relationship is stimulated by flexibility, shorter and faster
decisive positions (Swieringa and Wierdsma, 1992). This decision chains, less bureaucratic inertia, market niches,
means that organizations should constantly foster the R&D efficiency, greater capacity for customization and
presence of a chief knowledge officer or chief learning greater motivation of their employees (Damanpour, 1992;
officers, although this occurs much more in large firms due Vossen, 1998).
to their economic capacity. However, SMEs must become The relative strengths of large firms lie mostly in
aware of the need to have such professionals, as this resources and are predominantly material (e.g. economies
enables them to take advantage of their greater flexibility to of scale and scope, financial and technological resources,
face and learn from different market needs, adapting more and so on), while those of SMEs are generally argued in
quickly to the variations in client preferences. It also fosters terms of behavioral characteristics (e.g. entrepreneurial
greater capacity in SMEs to improve and perfect products dynamism, flexibility, efficiency, proximity to the market,
developed by large firms (Garcı́a-Morales, 2004). motivation). In innovative activities that require large,
On the other hand, the CEO should constitute an modern laboratories, large firms clearly prevail. However,
integrating link between the different processes of cycles of in design or improvements in design, imitation, and
learning. He or she should integrate the operating cycle, development of new products, smaller firms usually have
that is, learning in the area of operations in the large firm innovation advantages over large firms (Drucker, 1986).
or SME, which makes it possible to detect and correct Thus, there are arguments in favour of both large firms and
discrepancies between the results planned and obtained SMEs with regard to innovations and improvement of
(adaptive learning), and the policy cycle, which is proactive organizational performance. It would be a mistake to
learning on the highest hierarchical level of the firm assume that innovation and its ability to improve
(generative learning) and which involves a restructuring organizational performance are solely the competence of
of the context in which the firm’s activity develops. CEOs large firms (Damanpour, 1992).
should be the key integrating mechanism among the The CEO’s support for innovation is critical both within
different processes to construct a firm with the capacity the firm (large firm and SME) and outside. Within the
to learn. In SMEs, these processes are more unified, and it firm, the CEO’s work focuses on the creation of a context
is easier to achieve their integration (Garratt, 1987; Senge that favors innovation and organizational learning.
et al., 1994). Outside the firm, one must consider a series of cultural
Further, the CEO should encourage continuity, commit- contributions and resources that society provides and
ment, capacity, contribution, collaboration and consciousness that affect innovation (Van de Ven, 1986). The CEO
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564 V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568

should play a crucial role as the link between the firm and desirability bias in this study was indicated by several
its environment, from which he or she must achieve CEOs who commented at the end of their questionnaires
acceptance (from consumers, clients and other interest that it made no sense at all for their companies to go
groups) and support (resources, knowledge, laws) for beyond regulatory compliance. Nonetheless, the responses
innovation (Van de Ven, 1993). are subject to interpretation by individual CEOs. Third,
Those responsible for firms should begin to define another limitation is the lack of an objective measure of
innovation as intelligent risk-taking that requires the use organizational learning. However, the external validation
of appropriate tools (Wigston, 1994). Innovation is a leap of this variable and some of the other variables (e.g.
into the unknown. Errors and setbacks can occur in the organizational performance, organizational innovation)
innovative pathway. But detecting, confronting, learning from the archival data of a subset of respondents increased
from and overcoming these setbacks will generate a confidence in the self-reports and reduced the risk of
significant tradition of learning in the firm, creating common method variance. Further, the possibility of
professionals in the management of innovation (Drucker, common method bias was tested using Harman’s one-
1986). factor test and does not appear to be present (Konrad and
CEOs can do much to prepare the minds of their firm, Linnehan, 1995; Podsakoff and Organ, 1986).
but we must emphasize that innovation is not an individual Fourth, the cross-sectional nature of the research on a
but a collective achievement. Considerable work is required series of dynamic concepts (personal mastery, organiza-
to create a context that encourages and motivates tional learning and innovation) allows us to analyze only a
innovation, a context that legitimates innovative behavior, specific situation in time of the firms studied, not their
dedicates resources to innovation and assumes the struc- overall behavior over time. Our approach has reduced the
ture and culture that nurture and nourish the development magnitude of this problem, however, for the items show
and implementation of innovation (Senge et al., 1994; Van that dynamic characteristics and causal affirmations can be
de Ven, 1993). made if the relationships are based on theoretical rationales
If we differentiate between SMEs and large firms, we (Hair et al., 1999). This is why we began with a theoretical
will see that SMEs have more difficulty performing investigation that allowed us to identify and confirm the
innovations, which implies the need for different actions formal existence of the different cause-effect relationships.
on the part of the CEO. The CEO should encourage Nonetheless, future research should focus on longitudinal
more fluid internal communication, a structure that en- study.
ables faster adaptation of results obtained through research Fifth, other questions related to our topic could become
and greater care in the use and purpose of investment the object of additional research and discussion. Our
share, as resources are usually scarcer than in large research has analyzed perception of personal mastery,
firms. Further, in SMEs we can foster specialization, that organizational learning, organizational innovation and
is, the development of specific capacities in certain organizational performance in large firms and SMEs. It
technical areas, as they attend to smaller but very was necessary to limit our model to be able to offer
sophisticated markets, which stimulates innovative activity. empirical evidence for our arguments. However, other
We can also develop cooperative industrial relations with variables, such as flexibility, structure or organizational
other firms, stimulating innovation in SMEs. The CEO in strategy, could also be analyzed. Sixth and finally, the age
large firms should stimulate the presence of structures that of the data obtained in the questionnaire is another
take advantage of scale economies and learning curve limitation of the research.
economies, generating significant external science and CEOs and managers, clients, suppliers, public adminis-
technology networks. He or she should create synergies tration, investors, strategic allies, the financial system,
that enable optimal use of the professional and skilled accountants and the academic world would welcome a
workers (Damanpour, 1992; Nystrom et al., 2002; Vossen, more in-depth investigation of the evaluation and measure-
1998). ment of personal mastery and its direct and indirect
consequences on organizational learning, organizational
6.2. Limitations and directions for future research innovation and organizational performance. Some compa-
nies with vast resources may not obtain competitive
This study has several limitations that may suggest advantage without proper development of the firm’s
further possibilities for empirical research. First, we have members. Development of a collaborative scheme between
concentrated exclusively on four sectors (food-farming, academics and practitioners would enable generation of an
manufacturing, construction and services). Futures studies organizational strategy around the concept of ‘personal
should be based on a larger sample, preferably in other mastery’ and to the further study of the processes, means
sectors. Second, survey data based on self-reports may be and mechanisms by which to transform this development
subject to social desirability bias (Podsakoff and Organ, into sustainable competitive advantage. It would also be
1986). However, an assurance of anonymity can reduce interesting to study similar characteristics with information
such bias even when responses relate to sensitive topics provided by lower levels of management and employees of
(Konrad and Linnehan, 1995). The low risk of social the firm.
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V.J. Garcı´a-Morales et al. / Technovation 27 (2007) 547–568 565

Acknowledgements 1. The rate of introduction of new products or services into

the firm has grown rapidly.
The author thanks the Spanish Ministry of Science and 2. The rate of introduction of new methods of production
Research for providing partial funding for this research or rendering of services in the firm has grown rapidly.
through project SEC 2003-07755. 3. In comparison to its competitors, the firm has become
much more innovative.
Appendix A
During the last 3 years:
Personal mastery
In general, in the past 3 years, the employees in your a. How many new products and services has your firm
firm: introduced?
b. How many new methods of production or of rendering
1. Have increased their self-esteem through doing their services has your firm introduced?
jobs correctly.
2. Have felt great personal satisfaction with a job well Performance
done.
3. Have achieved satisfaction of personal aspirations Relative to your main competitors, what is your firm’s
through the job they perform. profitability in the last 3 years in the following aspects:
4. Have achieved the development of their personal
competences, skills and abilities. 1. The firm’s profitability measured as profits over assets
(economic profitability).
Organizational learning 2. The firm’s profitability measured as profits over own
resources (financial profitability).
1. The firm has acquired and used much new and relevant 3. The firm’s profitability measured as profits over sales
knowledge that provides competitive advantage over the (percentage of profits over billing total).
last 3 years. 4. The firm’s market share in its main products and
2. The firm’s members have acquired some critical markets.
capacities and skill that provide competitive advantage 5. The degree of employee satisfaction.
over the last 3 years. 6. The capacity for acquiring, transmitting and using new
3. The firm’s improvements have been influenced funda- knowledge learned.
mentally by new knowledge entering the firm over the
last 3 years. Answer the following questions, taking into account the
4. The firm was a learning organization. situation of your firm in the last 3 years. Indicate:

During the last 3 years: a. The firm’s profitability measured as profits over assets.
b. The firm’s profitability measured as profits over own
resources.
a. What is the main and most relevant knowledge acquired
c. The firm’s profitability measured as profits over sales
and used by the firm? What competitive advantage has it
(percentage of profits over billing total).
provided?
d. The firm’s market share in its main products and
b. What are the main critical capacities and skills acquired
markets.
by the firm’s members? What competitive advantage
e. The increase in remuneration and salaries for employees.
have they provided?
f. The different products, processes/services or systems
c. What organizational improvements have been influ-
used with new knowledge learned.
enced fundamentally by new knowledge entering the
firm?
Size
d. What shows that your firm is moving toward becoming
a learning organization?
1. Number of employees in the firm.
Innovation

Considering as ‘‘new’’ anything that represents a References

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