Organisational Risk Culture and Firm Performance: The Mediating Role of Innovation

The overriding objective of any profit-making organisation is to attain the desired level of competitive advantage and superior performance. Among the different factors which contribute towards achieving such a goal is organisational culture. While substantial studies have investigated the relationship between organisational culture and firm performance, a very limited number of studies examine the association between organisational risk culture, which is an aspect of organisational culture, and firm performance. Most of these previous studies examined the financial perspectives of a firm’s performance, with little research dealing with organisational risk culture and the non-financial perspective of a firm’s performance. None of these studies examined the nature of the relationship between organisational risk culture and a firm’s non-financial performance. In addition, several researchers have studied firm innovation as a driver of firm performance, but none of the studies has studied organisational risk culture as an enabler of firm innovation. This study, therefore, aims to examine the relationship between organisational risk culture, firm innovation, and a firm’s non-financial performance. An explanatory sequential mixed method design was utilised to achieve this study’s aim, consisting of a quantitative survey followed by semi-structured interviews. For the quantitative phase, a multi-stage sampling technique was used to select 810 respondents from various organisational levels in the Nigerian insurance industry, in which 257 questionnaires were completed on time, creating a response rate of 31.7%. The quantitative data was analysed using sequential equation modelling. Qualitative data collection was then undertaken to expound and explain the relationships uncovered by the statistical test. For this phase, a purposeful sampling technique was used to select interview participants from the larger quantitative sample. In total, 12 semi-structured interviews were conducted, having achieved data saturation. Using resource-based theory to shed light on the relationship between organisational risk culture, firm innovation, and non-financial performance, the study found that organisational risk culture significantly influences a firm’s non-financial performance. The finding revealed that risk culture could impact on firm’s nonfinancial performance when there is accountability amongst the employees, when compensation structure and employee behaviour are synchronised, and when employees are constantly trained. Furthermore, the study found that firm innovation mediates the relationship between organisational risk culture and a firm’s non-financial performance. The findings showed that organisational risk culture fosters firm innovation when there are high levels of understanding and positive attitude towards risk, constructive dissent and openness to divergent opinions, and organisations learn from their past experiences and that of their competitors. Although product and process innovation were found to influence non-financial performance, it was interesting to find that process innovation impacts on firm’s internal business process more than product innovation. Based on the integrated research findings, the main theoretical contribution of this study is the development of a comprehensive framework that explains how a firm’s non-financial performance can be strategically fostered through organisational risk culture. This thesis also contributes to and extends the existing literature on organisational risk culture by revealing the value of absorptive capacity for a stronger risk culture. Moreover, this study provides a novel contribution to the growing literature on resource-based literature by establishing that organisational risk culture is an internal resource which can be aligned with firm innovation (capability) to achieve superior performance. This study also provides meaningful implications for practice, especially in building an organisational risk culture that fosters firm innovations, which would result in superior firm performance.