M.Sc Thesis

M.Sc StudentMorgensztern Deborah
SubjectCould bureaucracy enhance innovation in Chinese companies?
DepartmentDepartment of Industrial Engineering and Management
Supervisor PROFESSOR EMERITUS Miriam Erez
Full Thesis textFull thesis text - English Version


In today’s global market, innovation has become a core competence for organizations to ensure their growth. Research conducted in the West showed that bureaucratic organizations of high levels of centralization and formalization inhibit innovation, because bureaucracy blocks the flows of knowledge and it sets specific procedures, rather than letting the employees explore new directions that lead to innovation. In contrast, knowledge integration, defined as the transfer, adaptation and application of knowledge, was found to have a positive effect on innovation. Knowledge integration enables to merge a broad set of competences and experiences, which enhances innovative ideas. The objective of this study is to test whether the negative effect of bureaucracy on knowledge integration and innovation is generalized to other cultures. We hypothesized that in China, unlike the West, the bureaucratic structure will have a positive effect on innovation through its positive influence on knowledge integration, and that this effect will be stronger under market uncertainty. Participants in this study were R&D managers in 347 firms in a variety of industries located in Jiangsu province, in China. The participants responded to a research questionnaire, which assessed the research variables: Centralization, Formalization, Knowledge integration, Innovation and Market uncertainty. The dependent variable, the firms’ Profitability was obtained from archive data. The model was analyzed using sequential equation modeling. The results showed that in China, as in the West, Knowledge integration had a positive impact on Innovation, which enhanced firms’ profitability. However, as predicted, in the Chinese cultural context of high power distance, collectivism and uncertainty avoidance, the bureaucratic structure positively affected Knowledge integration and its consequent Profit. Moreover, the positive effects of Centralization and Formalization on Knowledge integration were positively moderated by Market uncertainty. Our findings highlight the importance of contextualization in management research.