The Leadership Quarterly 21 (2010) 339–349

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The Leadership Quarterly

j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / l e a q u a

The importance of innovation leadership in cultivating strategic fit and

enhancing firm performance
Abraham Carmeli a,⁎, Roy Gelbard a,1, David Gefen b,2
a
Graduate School of Business Administration, Bar-Ilan University, Ramat-Gan 52900, Israel
b
Management Department, LeBow College of Business, Drexel University, United States

a r t i c l e i n f o a b s t r a c t

Keywords: This study examines the importance of innovation leadership in cultivating the strategic fit of
Innovation leadership
an organization with its environment, and enhancing various economic, relationship, and
Strategic fit
product performance outcomes. It thus explores how innovation leadership enables a firm to
Adaptability
Change
change and adapt to its external environment and by implication enhance its performance. The
Firm performance results of data collected from 117 firms show that innovation leadership, both directly and
through increased strategic fit, significantly enhances firm performance. Implications for
research on strategic and innovation leadership and adaptive organizational systems are
discussed.
© 2010 Elsevier Inc. All rights reserved.

1. Introduction

Strategic fit has attracted considerable research interest in such fields as organizational change (Zajac, Kraatz, & Bresser, 2000),
evolutionary organizational processes (Siggelkow, 2001, 2002), and population ecology theory (Hannan & Freeman, 1989). Nadler
and Tushman (1980, p. 40) define fit as “the degree to which the needs, demands, goals, objectives and/or structure of one
component are consistent with the needs, demands, goals, objectives, and/or structure of another component.” Here, fit is
conceptualized in terms of change and adaptation, the twin core elements that create consistency between components that are
central to this definition (Nadler & Tushman, 1980).
Organizations constantly seek ways to develop both internal strategic fit (Miller, 1996; Porter, 1996) and external strategic fit
(Aldrich, 1979; Miles & Snow, 1994; Venkatraman, 1989; Venkatraman & Camillus, 1984; Venkatraman & Prescott, 1990). This is
because strategic fit is not only crucial to a firm's ability to change and adapt to unforeseen contingencies, but also can act as a
deterrent to imitation (Rivkin, 2000; Siggelkow, 2002). As Aldrich (1979, p.40) puts it, every organization faces the challenge of
adapting to its environment and thereby either surviving or failing.
Despite its centrality in organization science, there is a dearth of research on the concept of strategic fit (Zajac et al., 2000).
Relatively little is known about how organization leaders cultivate strategic fit or how this can enhance firm performance. Here,
we draw on leadership research that has demonstrated the role of leaders in shaping contexts and followers' behaviors (Barling,
Loughlin, & Kelloway, 2002; Lewin, Lippitt, & White, 1939; McGregor, 1960; Schneider, Ehrhart, Mayer, Saltz, & Miles-Jolly, 2005),
which is a necessary precondition for change and adaptation (i.e., strategic fit). Most of these studies have concentrated on generic
leadership (i.e., transformational and transactional behavior that occurs across situations and outcomes) to account for behaviors
and processes in organizations, with much less attention paid to specific leadership (behaviors focusing on specific outcomes such
as safety and service) (Schneider et al., 2005). We concentrate on a specific type of leadership; namely, innovation leadership that
cultivates the kind of climate and orientation the management team pursues and develops (Van de Ven & Chu, 1989). Our

⁎ Corresponding author. Tel.: + 972 3 531 8917; fax: + 972 3 738 4040.
E-mail addresses: carmelia@mail.biu.ac.il (A. Carmeli), r_gelbard@yahoo.com (R. Gelbard), gefend@drexel.edu (D. Gefen).
1
Tel.: + 972 3 531 8905; fax: + 972 3 738 4040.
2
Tel.: + 1 215 895 2148.

1048-9843/$ – see front matter © 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.leaqua.2010.03.001
340 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349

definition of innovation leadership covers the encouragement of individual initiatives, clarification of individual responsibilities,
provision of clear and complete performance evaluation feedback, a strong task orientation, emphasis on quality group
relationships and trust in organizational members (Van de Ven & Chu, 1989). Specifically, we argue that through innovation
leadership, organization's leaders can cultivate the type of climate and orientation which eventually create better fit between the
organization and its environment.
By presenting and testing a model of innovation leadership linking it to strategic fit and firm performance we attempt to make
several contributions to the literature. First, strategy and organization theorists have directed substantial efforts towards
explaining the relationship between strategic fit and organizational performance (e.g., Ginsberg & Venkatraman, 1985; Mintzberg,
1973; Segev, 1987). Little, however, is known about the mechanisms that enable and build strategic fit. Second, the tendency to
rely solely on secondary data when studying strategic fit may not capture the richness of the concept which reflects both change
and adaptation. Third, we address the recent research call (Schneider et al., 2005) to examine innovation leadership as a key
mechanism for cultivating strategic fit and enhancing the performance of the firm. Fourth, we address the need to capture the
multi-dimensionality of firm performance by examining various performance measures (Carmeli & Tishler, 2004a,b, 2006). We
attempt to avoid over-simplification in assessing firm performance because success, even when studied through contingency
theory, may have many distinct features (Ketokivi & Schroeder, 2004).

2. Theory development and hypotheses

2.1. Strategic fit

The concept of fit has a long tradition in both strategy (e.g., Andrews, 1971; Chandler, 1962; Miles & Snow, 1994) and
organizational theory (e.g., Lawrence & Lorsch, 1967; Thompson, 1967). In what follows, we discuss research on both internal and
external fit.
Most research on strategy has focused on organizational fit in relation to the environment and strategic relationships formed
between the organization and its external stakeholders. This is known as external fit. By contrast, organizational fit has also been
studied by organization theorists, who primarily concentrate on the structure of the relationship between intra-organizational
elements, known as internal fit.
There has been a recent revival of research investigating internal fit as a key source of sustainable competitive advantage
(Porter, 1996; Rivkin, 2000; Siggelkow, 2002). This school of thought suggests that it may be difficult for a system of mutual and
collective reinforcing activities (Porter, 1996), complex strategy-related elements (Rivkin, 2000), or interconnected choices
(Siggelkow, 2001) to adapt itself to fit changes in the environment (Levinthal, 1997). In addition, such organizational systems may
not be appropriate to addressing dynamic issues (Ghemawat & Pisano, 2001); thus a core challenge is to create a system that is
capable of synthesizing contradictions (see Nonaka & Toyama, 2002). Nonetheless, tightly interactive organizational elements
may enhance performance (Carmeli & Tishler, 2004b), create entry barriers which make it harder for competitors to imitate a
firm's strategies and activities (Porter, 1996; Rivkin, 2000), and increase the strategy, structure and system balance (Miller, 1996).
The main focus of this paper, external fit, is conceptualized as a construct that encompasses change and adaptation, the two key
elements that enable consistency between components (Nadler & Tushman, 1980). While internal fit is of importance, by itself it is
of little value unless the organizational system as a whole is aligned with its external competitive environment. Hence, how
organizations adapt (Mahoney, 2005) and create value is a key theoretical issue in the field of management (Zahra, Sapienza, &
Davidsson, 2006). Failure of the management team to respond and adapt the organizational system to changing environmental
conditions may result in a process of decline and incapacity to adapt to market swings (Cameron, Kim, & Whetten, 1987; Carmeli &
Schaubroeck, 2006; Carmeli & Sheaffer, 2008; Weitzel & Jonsson, 1989; Whetten, 1988). For example, in an in-depth analysis of Liz
Claiborne, a U.S. manufacturer of women's fashion apparel, Siggelkow (2001) showed that this company experienced a period of
decline because its production and distribution systems were not adapted to emerging changes in its competitive environment. In
addition, researchers have long emphasized the role of external fit in the viability of organizations including adapting to
environmental jolts (Meyer, 1982). Burns and Stalker (1979) pointed out the differences in coping behaviors between organic and
mechanistic organizations with regard to their competitive environments. Lawrence and Lorsch (1967), in their contingency
approach, showed that organizations operating in unstable and uncertain environments with a high degree of fluctuation adopt a
more decentralized configuration, whereas organizations facing relatively stable and certain environmental conditions tend to be
more centralized. Miles and Snow (1994) showed that misfit is a key source of organizational failures, and results from either
inappropriate responses to changes in the environment (external misfit), and/or organizational structure and configuration that
are not aligned with the organization's goals and activities (internal misfit). Overall, organizational failure is thus often the result
of an inability to adapt to internal and external changes, and the related tendency to stick to the old way of doing things even when
conditions have changed drastically (Christensen, 1997; Hammer & Champy, 1994; Rogers, 1983).

2.2. Innovation leadership and strategic fit

How can strategic fit be cultivated and enabled? Scholars have raised doubts regarding the ability of organizations to adapt
themselves, arguing that organizations lack the power and/or the flexibility to create such an alignment (Hannan & Freeman,
1989). Making a change such as reengineering, requires a drastic upheaval in organizational culture, the type of change most
organizations are reluctant to make and which requires the active commitment of senior management (Hammer & Champy, 1994;
 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349 341

Van de Ven & Drazin, 1985). This makes it crucial to understand which mechanisms enable strategic fit (Hammer & Champy,
1994).
The strategic leadership literature (Boal & Hooijberg, 2001) forms the basis for the argument here that innovation leadership
plays a key role in cultivating strategic fit. Innovation leadership covers encouraging individual initiatives, making individual
responsibilities and performance evaluation systems clear and explicit, emphasizing task fulfillment, creating an environment in
which quality relationships are valued, and fostering trust. Innovation leadership has been explored in creativity research
(Mumford, Scott, Gaddis, & Strange, 2002; Redmond, Mumford, & Teach, 1993), innovation studies (Van de Ven & Chu, 1989), and
entrepreneurial research (Gupta, MacMillan, & Surie, 2004; McGrath & MacMillan, 2000). Research shows that innovation
leadership promotes and supports an exploratory orientation by cultivating a context for change and adaptation (Christensen,
1997; Hammer & Champy, 1994) among organizational members (Van de Ven & Chu, 1989).
Innovation leadership shapes a context that promotes a capacity to learn, change and adapt in high-velocity environments
(Beer, Voelpel, Leibold, & Tekie, 2005). For a firm to adapt its structure, policies, resources, and activities to environmental
conditions, or create a strategic fit, it must be attentive and sensitive to changes in its competitive landscape (Weick, 1976).
Research indicates that an organizational climate which fosters trust among its employees and creates ways of resolving conflicts
is a key determinant of firm performance (Burton, Lauridsen, & Obel, 2004). Through information exchange and collaborative
behaviors organizations are able to increase their capacity to notice external signs of change, thus increasing the likelihood that the
organization will respond effectively to complex and uncertain events in the external environment.
It is important to look at the innovation leadership of the management team because leadership is often shared (Pearce &
Conger, 2003). Although leadership researchers often note the significant role of the individual leader (e.g., CEO, group leader), a
growing body of evidence suggests “that the top team, rather than the top person, has the greatest effects on organizational
functioning” (O'Reilly, Snyder, & Boothe, 1993, p. 150). Strategic leadership and upper echelon theories have pointed to the need
to further investigate how the top management team influences organizational processes and outcomes (Boal & Hooijberg, 2001;
Edmondson, Roberto, & Watkins, 2003; Finkelstein & Hambrick, 1990; Hambrick & Mason, 1984).
A management team is the key to facilitating a context that enables organizational change and adaptation. In a strategic fitness
process (SFP) people share their expertise and knowledge, which ultimately become valuable inputs for informed decision-
making. SFP research indicates that the ability to respond and solve problems creatively often derive from members at different
levels in the organization (Beer et al., 2005, p. 19). When the leaders display innovation-related behaviors they are cultivating a
context that enables people to come up with creative ideas to solve problems, thus enhancing the capacity of the system to
respond to changing conditions in the external environment. In information system projects, for example, it is essential to have
both executive support along with the involvement of developers and users. It is often the case that employees recognize critical
issues while working with both outsiders (e.g., customers) and insiders.
Our view is also consistent with complexity leadership and complex adaptive systems theories (Marion & Uhl-Bien, 2001).
Complexity Leadership Theory describes conditions in which adaptive dynamics emerge and generate creative and adaptive
knowledge that can impact to create change (Uhl-Bien, Marion, & McKelvey, 2007). Uhl-Bien et al. (2007) point to the role of
adaptive leadership, which is an emergent, interactive dynamic that produces adaptive outcomes in a social system. Change is
collaborative in nature and emerges nonlinearly from interactive exchanges (Lichtenstein et al., 2006). Thus, adaptive leadership is
a key source of change in an organization (Lichtenstein et al., 2006).
Strategic leadership, by cultivating a balance between bureaucracy and anarchy, as well as influencing the structure of
interconnections of organizational systems, constructs a system with creative and innovative responsiveness which is a key to
enabling change and adaptation (Boal & Schultz, 2007). Ordinary systems with a low degree of freedom in the variety of their
activity pattern have a diminished ability to adapt to changes. Complex adaptive systems, on the other hand, provide just enough
constraints to allow agents to cooperate, and thus release energy for adaptation and the creation of new system properties (Boal &
Schultz, 2007). This, however, does not mean that the administrative element in leadership is dissipated. In fact, effective
adaptation calls for a dynamically, collectively-led system where structure is built around a desired order (Osborn & Hunt, 2007).
When there are high quality exchanges among members, this indicates there is harmony within the organization. Strategic fit is
all about an organization that is in harmony with the external environment. We suggest that there is an overlap between what is
happening within the organization and between the organization and its external environment. By displaying innovation
leadership, managers cultivate an atmosphere that is conductive to change and adaptation. We predict that innovation leadership,
through a set of behaviors such as encouraging individual initiatives, instilling trust and building quality exchanges, is a key for
cultivating strategic fit.

Hypothesis 1. Innovation leadership (manifested by behaviors that include encouragement of individual initiatives, clarification
of individual responsibilities, provision of clear and complete performance evaluation feedback, maintaining a strong task
orientation, emphasizing quality group relationships, and demonstrating trust in organizational members) is positively related to
strategic fit.

2.3. Innovation leadership, strategic fit, and firm performance

Strategy is successful if it both (1) matches the organization internally in a way that generates added value to the organization
as a whole in its competitive environment, and (2) matches the organization with its external environment in a way that shields
the organization from threats and ensures its viability (Ghemawat & Pisano, 2001). An organization must be able to adapt its
342 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349

structure, policies, resources, and activities to environmental conditions (Weick, 1976). The literature provides a substantial body
of research that indicates positive implications of strategic fit and various organizational performance measures (e.g., Siggelkow,
2001, 2002; Zajac et al., 2000). For example, Tuominen, Rajala and Möller (2004) reported on a positive relationship between
adaptability and innovativeness among industrial manufacturing companies, and Zajac et al. (2000) investigated strategic change
and organizational performance in terms of profitability (ROA) and failures.
However, most research studies on strategic fit have tested this profitability outcome in terms of ROA or ROI. This approach,
though valuable, does not capture the multi-dimensional nature of organizational performance and, as a result, might overlook the
need to differentiate among different, yet related, elements that should be taken into account when assessing the effectiveness of
the organization (Carmeli & Tishler, 2004a; Ketokivi & Schroeder, 2004). To overcome this limitation, organizational performance
is defined in this study, as in Delaney and Huselid's (1996), on the basis of 11 performance criteria. These 11 criteria are
categorized into three dimensions (see the Method section and Table 1): economic performance, relationship (process) performance,
and product performance. Accordingly, it is hypothesized that organizations enjoying a higher degree of strategic fit are more likely
to achieve a higher level of performance on these three dimensions.

Hypothesis 2. Strategic fit is positively associated with organizational performance.

We posit that innovation leadership is likely to enable strategic fit, which, in turn, will result in enhanced firm performance. We
reason that innovation leadership affects firm performance by cultivating a context that enables change and adaptation.
Innovation leadership shapes a conducive context where there is a high level of attention and sensitivity to signals emerging from
the competitive landscape (Weick, 1976) and one which encourages building and enhancing the capacity to learn, change and
adapt in high-velocity environments (Beer et al., 2005).
A management team is an important facilitator for a context that enables organizational change and adaptation. In the SFP,
people share their expertise and knowledge, which ultimately become valuable inputs for informed decisions on strategic change.
These changes and adaptations, in turn, enhance the performance of the firm (Beer et al., 2005, p. 19).
Complexity leadership theory (Marion & Uhl-Bien, 2001; Uhl-Bien et al., 2007) suggests that change is a collaborative task and
emerges nonlinearly through interactive exchanges between organizational agents which enable the system to adapt
(Lichtenstein et al., 2006). By balancing bureaucracy and anarchy and structuring interconnections in a system, creative and
innovative responsiveness are facilitated. Complex adaptive systems release energy for adaptation and create new system
properties (Boal & Schultz, 2007). These processes are a key for enabling change and adaptation (Boal & Schultz, 2007), which, in
turn, result in enhanced firm performance. On the basis of this logic, the following hypothesis is suggested:

Hypothesis 3. Strategic fit will mediate the relationship between innovation leadership (manifested by behaviors that include
encouragement of individual initiatives, clarification of individual responsibilities, provision of clear and complete performance
evaluation feedback, maintaining a strong task orientation, emphasizing quality group relationships, and demonstrating trust in
organizational members) and firm performance.

3. Method

3.1. Participants and data collection

The data were collected as part of a larger research project designed to study the processes and effectiveness of leadership and
management teams. This target population was taken from a study involving thirty senior managers participating in an executive
training program. These senior managers were asked to list organizations from various industries with at least 20 employees each. Each
manager was then asked to identify at least five organizations that would constitute a varied list. This was done to increase the generality

Table 1
Principal factor analysis as completed by each firm's CEO.

Item Economic performance Relationship (process) performance Product performance

Quality of products/services − 0.05 0.12 0.69

Development of new products/services 0.07 0.01 0.69
Attracting and retaining talented employees 0.18 0.54 − 0.01
Customer satisfaction 0.21 0.41 0.20
Relations between management and employees − 0.14 0.98 0.07
Relations among employees 0.02 0.50 0.01
Growth in revenues 0.71 − 0.11 − 0.16
Net profit 0.88 0.06 − 0.02
Return on assets 0.85 0.15 − 0.20
Return on equity 0.84 0.14 − 0.09
Market share 0.58 − 0.05 0.26
Eigenvalues 4.90 1.42 1.26
% of variance 41.35 10.21 7.43

Bold data are significant at p b .01.

 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349 343

of the results. This resulted in a target population of two hundred and seventeen organizations from different industries (e.g., agriculture,
chemical, food, paper, printing, electronics, software, communication, textile, and pharmaceutical) identified in this manner.
The data collection process took place in two stages. First, a questionnaire was pre-tested with 30 senior managers for clarity and
construct validity. Second, after some minor refinements of the instrument, two separate structured questionnaires were administered
to the CEO and to one of the senior executive vice-presidents of each organization. This procedure was employed to reduce common
method errors associated with collecting data from one source. The survey that was given to senior executive vice-president CEOs
yielded data on innovation leadership and strategic fit. The questionnaire given to the CEO provided performance organization data.
To encourage participation, respondents were ensured complete anonymity and promised the results and conclusions of the
study. One hundred and six usable (that could be matched) responses from both the CEO and a senior executive vice-president of
each organization were obtained, for a response rate of 48.8%. Participant organizations did not differ from non-participants in
terms of number of employees (p N 0.10). The average organizational size (in terms of number of employees) was about 358, with a
standard deviation of about 948, and the average organizational age was 26.89 years, with a standard deviation of 26.31.

3.2. Measures

3.2.1. Organizational performance

We adapted the 11-item measure of perceived organizational and market performance developed and used in Delaney and
Huselid (1996) to create the multi-dimensional construct of organizational performance. Respondents were asked to assess their
organization's performance in relation to its key competitors. The items were assessed on a Likert-type scale ranging from
1 = “much worse than the competitors”, to 4 = “much better than the competitors”. These 11 items converged to three factors
with eigenvalues above 1 in a principal components factor analysis (see Table 1). These three factors were labeled economic
performance (sample items are “growth in sales” and “return on assets”), relationship (process) performance (sample items are
“relations between management and employees” and “relations among employees”), and product performance (sample items are
“quality of products/services” and “development of new products/services”). Together, these three factors explained 59% of the
variance. The reliability of these scales and Cronbach's alphas were 0.89, 0.67, and 0.75 for economic performance, relationship
(process) performance, and product performance, respectively.

3.2.2. Strategic fit
We constructed a five-item scale based on an extensive literature review (Hammer & Champy, 1994; Nadler & Tushman, 1980;
Siggelkow, 2002; Zajac et al., 2000). Our conceptualization of strategic fit encompasses two key elements: change and adaptation.
Respondents were asked to assess the extent to which the organization fits its respective environment as reflected in such
statements as: “this organization encounters difficulties to respond to environmental changes”, “this organization has no real
desire to implement the required changes”, “this organization overextended itself without having the compatible resources”, “the
strategy of this organization is not suitable to its real needs”, and “a true change is required in this organization”. All responses
were assessed on a five-point scale ranging from 1 = “to a large extent” to 5 = “not at all”. To further validate our scale we used a
pilot study on 30 senior executives who were asked to assess the extent to which the items reflected the conceptualization of
strategic fit as change and adaptation. As noted below, we factor analyzed the items measuring innovation leadership together
with the items measuring strategic fit. This strategic fit measure had a Cronbach's alpha of 0.82.

3.2.3. Innovation leadership

This measure was developed as part of the Minnesota Innovation Survey to assess innovation group leadership (Van de Ven &
Chu, 1989) and was employed by Lovelace, Shapiro and Weingart (2001). The respondents were asked to assess on a five-point
scale (1 = strongly disagree to 5 = strongly agree) the extent to which their organization's leaders (i.e., top management team,
TMT) exhibited the following six leadership behaviors: “encouraging individual initiative”, “clarifying individual responsibilities”,

Table 2
Principal factor analysis for innovation leadership and strategic fit.

Item Innovation leadership Strategic fit

The top management team emphasizes teamwork. 0.80 0.21

The top management team clarifies individual responsibility. 0.79 0.01
The top management team provides clear feedback to the employees. 0.77 − 0.05
The top management team emphasizes task orientation. 0.72 − 0.12
The top management team encourages initiatives. 0.70 − 0.07
The top management team trusts the employees. 0.63 − 0.20
There is no real desire to make the required changes. 0.06 0.80
The strategy is not suitable to the organization's real needs. − 0.11 0.75
The organization has difficulty responding to environmental changes. 0.06 0.75
The organization has overextended itself without having compatible resources. 0.08 0.73
A real change is needed. − 0.35 0.58
Eigenvalues 4.89 1.55
% of variance 44.47 14.12

Bold data are significant at p b .01.

344 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349

“providing clear and complete performance evaluation feedback”, “maintaining a strong task orientation”, “emphasizing group
relationships”, and “demonstrating trust in organizational members”. Items measuring innovation leadership together with the
items measuring strategic fit were factor analyzed. This factor analysis yielded a two-factor solution that explained about 59% of
the variance with eigenvalues above 1 (see Table 2). The Cronbach's alpha for innovation leadership was 0.84, similar to the
reliability of 0.83 that was recently reported by Lovelace, Shapiro, and Weingart (2001).

3.2.4. Control variables

We controlled for organizational age and organizational size. We measured size using a natural logarithmic of a firm's number
of full-time employees. Research indicates that size often denotes economies of scale and greater resources, giving a firm an
advantage over smaller-sized competing firms in terms of ability to innovate (Autio, Sapienza, & Almeida, 2000). Age, measured as
the number of years since the founding of the firm, was controlled for because younger firms may be characterized by a higher
level of innovation orientation than more mature companies. We also controlled for sector type by creating a dummy variable
(1 = service sector and 0 = non-service sector). This was aimed to examine the effect of the predictors on firm performance after
controlling for impacts associated with potential differences across sectors. Finally, since task environments or industries vary in
their conditions, we controlled for a general aspect of the task environment — hostility. As noted by Slevin and Covin (1997),
hostile environments pose constant threats to the viability of organizations and can affect the decision-making process of the
incumbent organization and its performance. Two items developed by Slevin and Covin (1997) were used as the environmental
hostility measure in this study (“my industry is very risky, such that one bad decision could easily threaten the viability of my
business unit” and “the failure rate of firms in my industry is high”). Responses were assessed on a five-point scale (1 = strongly
disagree to 5 = strongly agree). As in Slevin and Covin (1997), higher scores for this measure indicate greater environmental
hostility, whereas lower scores indicate a more benign or munificent environment. The Cronbach's alpha for this scale was 0.71.

3.2.5. Analytical techniques

To test the first two research hypotheses, we performed regression analyses in which the control variables were entered in the
first step followed by the inclusion of the independent variable in the second step. We also tested the mediating effect of strategic
fit on the relationship between innovative leadership and the three dimensions of organizational performance (Hypothesis 3).
Baron and Kenny (1986) suggested that for establishing a mediation model, three basic conditions must be met: (1) establishing a
significant relationship between the dependent variables and the independent variables; (2) establishing a significant relationship
between the mediator and independent variables; and (3) showing that the significant relationship between the dependent
variables and the independent variables becomes non-significant when the mediator was specified in the model. A more recent
development was suggested by Kenny, Kashy, and Bolger (1998) according to which a variable (M) mediates the relationship
between an antecedent variable (X) and an outcome variable (Y) if (a) X is significantly related to Y; (b) X is significantly related to
M; (c) after X is controlled for, M remains significantly related to Y; and (d) after M is controlled for, the X–Y relationship is zero.
Kenny et al. describe these steps as “the essential steps in establishing mediation.” The first step “is not required, but a path from
the initial variable to the outcome is implied if [the two middle steps] are met" (1998, p. 260). Furthermore, the last step is
necessary only to prove a complete mediation effect. Accordingly, we tested the mediating effect of strategic fit on the relationship
between leaders' behaviors and the three dimensions of organizational performance.

4. Results

The means, standard deviations, and correlations among the research variables are presented in Table 3. Innovation leadership
was significantly associated with strategic fit (r = 0.44, p b 0.001) and the three dimensions of organizational performance —
economic performance (r = 0.28, p b 0.01), relationships (process) performance (r = 0.41, p b 0.001), and product performance
(r = 0.29, p b 0.01). Strategic fit was significantly related to all three dimensions of organizational performance — economic
performance (r = 0.34, p b 0.001), relationships (process) performance (r = 0.51, p b 0.001), and product performance (r = 0.29,
p b 0.01).

Table 3
Means, standard deviations (s.d.), and correlations.

Variable M SD 1 2 3 4 5 6 7 8 9

1. Organizational age (LOG) 28.66 26.43 1

2. Organizational size (LOG) 4.90 1.48 0.36⁎⁎⁎ 1
3. Industry type (1 = Service, 0 = Industrial) – – 0.13 0.03 1
4. Environmental hostility 2.98 0.98 − 0.13 − 0.16 − 0.21⁎ 1
5. Innovation leadership 3.50 0.58 − 0.02 0.01 0.10 − 0.01 1
6. Strategic fit 2.34 0.69 − 0.05 0.04 0.01 0.03 0.44⁎⁎⁎ 1
7. Organizational performance (products) 3.05 0.57 0.03 0.08 − 0.05 − 0.05 0.29⁎⁎ 0.29⁎⁎ 1
8. Organizational performance (relationships/process) 2.76 0.50 0.08 0.01 − 0.01 − 0.05 0.41⁎⁎⁎ 0.51⁎⁎⁎ 0.31⁎⁎⁎ 1
9. Organizational performance (economic) 2.51 0.59 0.01 0.09 − 0.04 − 0.04 0.28⁎⁎ 0.34⁎⁎⁎ 0.41⁎⁎ 0.54⁎⁎⁎ 1

Listwise N = 117, two-tailed test.

*
p b 0.05, **p b 0.01, ***p b 0.001.
 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349 345

4.1. Hypotheses testing

Hypothesis 1, which predicted that innovation leadership would be positively associated with the organization's strategic fit,
was supported. Model 4 in Table 4 shows the regression of strategic fit onto the control variables and innovation leadership. As
hypothesized, the beta coefficient for innovation leadership was significant and positive (β = 0.45, p b 0.001).
Hypothesis 2 predicted that strategic fit would be positively associated with organizational performance. Models 5, 6, and 7
indicate a positive and significant relationship between strategic fit and all three dimensions of organizational performance —
economic performance (β = 0.28, p b 0.01), relationships (process) performance (β = 0.42, p b 0.001), and product performance
(β = 0.19, p b 0.05), thus, providing support for Hypothesis 2.
To test Hypothesis 3, which predicted that the relationship between innovation leadership and organizational performance
would be mediated by strategic fit, we employed Baron and Kenny's (1986) mediation test. Models 1, 2 and 3 in Table 4 show
regressions of organizational performance measures (economic, relationships and product performance) onto leaders' behaviors.
All beta coefficients were significant and positive in sign (β = 0.26, p b 0.001; β = 0.44, p b 0.001; β = 0.30, p b 0.001), in support of
the first mediation condition. Model 4 in Table 4 shows the regression of strategic fit onto innovation leadership. The beta
coefficient was significant and positive in sign (β = 0.45, p b 0.001), supporting the second mediation condition. Models 5, 6 and 7
in Table 4 show regression equations for the three organizational performance measures (the dependent variables — economic
performance, relationships (process) performance, and product performance) on both the independent variable and on the
mediator. As can be seen from both Table 4 and Fig. 1, the coefficient of innovation leadership in relation to the three
organizational performance measures became non-significant or decreased; economic performance (β = 0.26, p b 0.001 vs.
β = 0.14, p = n.s.), relationships (process) performance (β = 0.44, p b 0.001 vs. β = 0.25, p b 0.01), and product performance
(β = 0.30, p b 0.05 vs. β = 0.21, p b 0.05), whereas the significance of strategic fit remained constant (β = 0.28, p b 0.01; β = 0.42,
p b 0.001; β = 0.19, p b 0.05). These results indicate that strategic fit fully mediates the relationship between innovation leadership
and economic performance, and partially mediates the relationship between innovation leadership and relationship (i.e., process)
performance and product performance. Hence, partial support is provided for Hypothesis 3.

5. Discussion

As the business world becomes more global and complex, developing and maintaining adaptive organizational systems that fit
internally and externally are a crucial leadership challenge. While adaptive organizational systems may embody different
structures and configurations as well as a variety of modes of operation, their effectiveness is heavily dependent on the managerial
leadership of the organization. Past research has tied this importance of managerial leadership to creating a vision and an
appropriate organizational atmosphere (Hammer & Champy, 1994). This study provides additional insight into how innovation
leadership cultivates strategic fit and, through it, can enhance the performance of the firm.

Table 4
Hierarchical regression results for the relationship between innovation leadership, strategic fit, and firm performance.

Condition 1: leaders' behaviors and organizational Condition 2: leaders' Condition 3: strategic fit (mediator) as specified
performance behaviors and in the model
strategic fit

Model 1 β (t) Model 2 β (t) Model 3 β (t) Model 4 β (t) Model 5 β (t) Model 6 β (t) Model 7 β (t)

Economic Relationship Product Strategic fit Economic Relationship Product

performance (process) performance performance (process) performance
performance performance

Constant a 1.46 1.74 2.08 2.55 2.59 3.04 2.78

Organizational age − 0.01 (− 0.14) 0.11 (1.24) 0.01 (0.09) − 0.04 (− 0.52) 0.00 (0.02) 0.13 (1.57) 0.01 (0.16)
Organizational size 0.07 (0.73) − 0.05 (− 0.54) 0.08 (0.89) 0.04 (0.51) 0.05 (0.59) − 0.06 (− 0.83) 0.07 (0.79)
(Log)
Industry type − 0.04 (− 0.38) − 0.07 (− 0.84) − 0.13 (− 1.39) 0.01 (0.19) − 0.04 (− 0.45) − 0.08 (− 1.02) − 0.13 (− 1.42)
(1 = Service,
0 = Industrial)
Environmental 0.00 (0.00) − 0.06 (− 0.68) − 0.05 (− 0.57) 0.07 (0.85) − 0.02 (− 0.21) − 0.09 (− 1.12) − 0.06 (− 0.68)
hostility
R2 0.01 0.01 0.02 0.01 0.01 0.01 0.02
F for R2 0.18 0.40 0.57 0.26 0.18 0.40 0.57
Strategic fit 0.28 (2.86⁎⁎) 0.42 (4.91⁎⁎⁎) 0.19 (1.97⁎)
R2 0.12 0.28 0.08
F for R2 14.99⁎⁎⁎ 45.41⁎⁎⁎ 10.46⁎⁎
Innovation leadership 0.45 (5.40⁎⁎⁎) 0.44 (5.21⁎⁎⁎) 0.30 (3.39⁎⁎⁎) 0.45 (5.40⁎⁎⁎) 0.14 (1.48) 0.25 (2.92⁎⁎) 0.21 (2.20⁎)
ΔR2 0.20 0.19 0.09 0.20 0.01 0.05 0.04
F for ΔR2 29.25⁎⁎⁎ 27.21⁎⁎⁎ 11.52⁎⁎⁎ 29.25⁎⁎⁎ 2.21 8.56⁎⁎ 4.88⁎
*
p b 0.05, **p b 0.01, ***p b 0.001.
a
Unstandardized coefficient.
346 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349

Fig. 1. The relationship between innovation leadership, strategic fit, and firm performance@.

The results of this study suggest that 1) innovation leadership is positively related to strategic fit; 2) there is a positive
relationship between strategic fit and three dimensions of firm performance: economic performance, relationships (process)
performance, and product performance; and 3) that innovation leadership, both directly and through increased strategic fit,
significantly enhances the performance of the firm.
Our study aimed to capture the richness of the concepts of change and adaptation, the two components of strategic fit, by
constructing a perceptual measurement. We also followed an emergent line of research and thinking that suggests studying the
impact of specific rather than generic leadership (Schneider et al., 2005), and examined innovation leadership as a key for
cultivating strategic fit and enhancing the performance of the firm. Finally, we contribute to the literature by examining various
performance measures, thus capturing the multi-dimensionality of firm performance (Carmeli & Tishler, 2004a,b, 2006; Ketokivi &
Schroeder, 2004).
From a theoretical point of view, this study shows the importance of innovation leadership for cultivating a context that
enables more effective adaptive organizational systems, and the role of strategic fit in enhancing firm performance. While
organizational and strategy research have recognized the need for effective adaptive systems in theory, the mechanisms that
enable them have remained somewhat unexplored. The present study addresses the importance of innovation leadership that
provides a work environment climate where individual initiatives are encouraged, individual responsibilities and performance
evaluation feedback are explicit and clear, a strong sense of task orientation is maintained, and group relationships and trust
among members are emphasized. Drawing on strategic leadership, upper echelon theories and complexity leadership theory, we
showed that innovation leadership may create a context in which signals are noticed and knowledge and expertise are shared.
This, in turn, enables change and adaptation (Beer et al., 2005). Furthermore, our study suggests how innovation leadership, which
is somewhat akin to adaptive leadership, fosters interactive exchanges between agents in a system (Lichtenstein et al., 2006;
Marion & Uhl-Bien, 2001; Uhl-Bien et al., 2007), which enhances the system's capacity to adapt. Our study extends research that
indicates complex adaptive systems release energy for adaptation (Boal & Schultz, 2007), which, in turn, results in enhanced firm
performance.
The conceptualization of adaptive leadership as an emergent, interactive dynamic that produces adaptive outcomes in a social
system (Uhl-Bien et al., 2007), as well as a form of shared leadership (Pearce & Conger, 2003) may shed light on the ability of
organizations to provide innovative responses. Considering the dominance of incremental over radical changes (e.g., Dutton,
Ashford, O'Neill, & Lawrence, 2001; Tushman & Romanelli, 1985), and the continuous nature of changes that tends to be “ongoing,
evolving, and cumulative” (Weick & Quinn, 1999, p. 375), innovation leadership that cultivates a way to pinpoint issues and
encourage individual initiatives is a key for successful change and adaptation. Specifically, innovation leadership, by providing
effective management of adaptive emergent changes, enables the creation of strategic fit and fosters continuous efforts to upgrade
and adapt the organization to its external environment. In this respect, this study is consistent with Beer and colleagues' view of
(1) fit as a continuous process (Beer et al., 2005) and (2) the role of leadership in augmenting or undermining (“killing”)
organizational fitness (Beer & Eisenstat, 2000). In addition, innovation leadership also augments the complex influence process in
which individuals can take a leadership role in a specific situation while stepping back in others. This complex leadership process
 A. Carmeli et al. / The Leadership Quarterly 21 (2010) 339–349 347

enables enhanced organizational sensitivity and the ability to respond to new environmental demands, thus enabling strategic fit
between the organization and its competitive environment.
Another way of viewing the research model and its results is through the lens of organizational politics. Change management is
not merely a superficial organizational modification in work procedures. It is also a social process, which can be very distressing at
times. Therefore, it requires that leadership support the employees and managers through this transition. This is partly because
change management is an extremely political process which often prevents “honest conversation” among organizational members
(Beer & Eisenstat, 2000). A direct consequence of change is the need for employees and managers to adapt their work procedures
and organizational knowledge to the new environment and procedures as dictated by the new system. Inevitably, in many cases,
such changes render the current expertise and knowledge, and hence prestige and political power, of the employees and the
managers obsolete.
Innovation leadership, by providing the necessary guidance and atmosphere, can assist and encourage these employees and
managers to adjust to new changes. Moreover, a crucial aspect of these leaders' behaviors relates to getting managers and
employees involved in the change process. As Beer et al. (2005, p. 19) noted, “the most creative ideas and novel approaches to
solving problems originate from members in various parts of the organization, especially those at lower levels who are in touch
with customers, the competitive environment and the subtle discontinuities that take place.”
The results of this study also corroborate and extend previous research which showed a constructive relationship between
strategic fit and firm performance (e.g., Zajac et al., 2000). However, since strategic fit is a dynamic process, organizations may
encounter fit and misfit during their life cycle. Greiner (1972) explained that organizations grow through evolutions (i.e., fit) and
revolutions (i.e., misfit). Leaders could benefit by conducting a constant analysis of their evolutionary process and evaluating the
degree to which the organizational system is aligned with ever-changing environmental demands.
Like any other study, this one also leaves unanswered questions that are worth further considerations and developments.
Although this study attempted to view strategic fit as a dynamic concept, it did not examine the evolution and devolution of
strategic fit. Longitudinal studies, although complex in large samples, could provide more accurate and richer explanations. In
addition, there may well be unobserved variables that could provide insight as to how organizational fit is created and maintained.
Although leaders' behaviors imply a greater sensitivity to the competitive environment, a direct assessment of organizational
sensitivity was not conducted. Organizational values, norms and practices that constitute the concept of organizational culture
could also be examined to provide more insight into these processes.
Survey data, as with any other research method, add limitations to the analyses and, consequently, pose the need for additional
research. A major limitation of survey research, and of this study as well, is that the data analysis could not examine causation per
se. Additional research with experimental controls is needed to establish actual causation. Another limitation in the use of survey
data when analyzing models is the need to rely on subjective reporting. Although this method may contain response bias, the
present study attempted to reduce common method errors resulting from cross-sectional designs by incorporating data from
different sources to reach this conclusion. We used Harman's one-factor test, which estimates whether a single dominant factor
emerges when all items are factor analyzed. The results of this procedure indicated that the first factor accounted for only a
relatively small part of the variance. Although this does not rule out the potential for common method bias, this finding together
with the fact that we used different respondents for the independent variables and the dependent variables suggest that this bias
may not be severe in our data.

6. Conclusion

Strategic fit is a cornerstone of strategy and organization research. This study proposed and tested a model that evaluated one
important mechanism–innovation leadership–for enabling strategic fit and enhancing the performance of the organization. The
study constructed a perceptual measure of strategic fit, and tested it and leaders' behaviors with respect to multiple organizational
performance measures. The findings shed light on the importance of specific leaders' behaviors for creating strategic fit and
enhancing organizational performance.

Acknowledgements

We would like to thank the editor and three anonymous reviewers of this journal for their helpful comments and suggestions.
We also thank Gideon Markman and Esther Singer for their helpful comments on earlier drafts of this paper. An earlier version of
this paper was presented at the 2006 National Academy of Management meeting in Atlanta, Georgia. All remaining errors are
entirely our own.

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Abraham Carmeli is Professor of Management and Strategy at the Graduate School of Business Administration, Bar-Ilan University. He received his Ph.D. from the
University of Haifa. His current research interests include complementarities and fit, top management teams, knowledge creation, learning from failure, crisis
management, interpersonal relationships, organizational identification, creative and innovative behaviors.

David Gefen is Professor of MIS at Drexel University, where he teaches Strategic Management of IT, Database analysis and design, and VB.NET. He received his Ph.
D. from GSU and a Masters from Tel-Aviv University. His research focuses on psychological and rational processes in ERP, CMC, and e-commerce implementation.
David's interests stem from twelve years of experience developing and managing large IT projects. His research findings have been published in MISQ, ISR, IEEE
TEM, JMIS, JSIS, DATABASE, Omega, JAIS, CAIS, among others. David is a senior editor at DATABASE and the author of a textbook on VB.NET.

Roy Gelbard received his Ph.D. from Tel-Aviv University. He is now a faculty member in the Information System Program at the Graduate School of Business
Administration, Bar-Ilan University. His research focuses on system analysis and design, software project management, and technical aspects of knowledge
management. His work has appeared in Communication of the ACM, Computer and Operation Research, and International Journal of Project Management, among
others. Roy served on the editorial board of Information & Management.