The impact of outsourcing new technologies on integrative capabilities and performance

Outsourcing plays an important role for firms adopting new technologies. Although outsourcing provides access to a new technology, it does not guarantee that a firm can subsequently integrate the technology with existing business processes and leverage it in the marketplace. This distinction, however, has rarely been made in the literature. In the context of business process enhancing technologies, this study builds on the resource‐based and knowledge‐based views to study the impact of outsourcing on firms' subsequent performance in the market and their integrative capabilities, that is, a firm's capacity to use and assimilate a new technology with its business processes and build upon it. The study argues that greater reliance on outsourcing may reduce a firm's learning by doing, internal investment, and tacit knowledge applications, thereby impeding a firm's integrative capabilities and performance in the market. The study uses survey and archival data on banks' outsourcing strategies for Internet adoption to test for the performance consequences of outsourcing, which are found to be negative. However, the findings also show that outsourcing is less detrimental for firms with experience in prior related technology. Copyright © 2009 John Wiley & Sons, Ltd.     

Customer capabilities,switching costs,and bank performance

Customers develop switching costs when they invest time and effort to develop capabilities required to optimally use a given product. Such capabilities are likely to be firm specific and cannot be transferred perfectly to competitors' product offerings. Customers who face switching costs are likely to remain with the same firm and consume complementary products that meet their needs. Thus, firms can achieve competitive advantage by exploiting customers' switching costs. In this paper, we hypothesize that the extent to which firms can benefit from customers' switching costs is contingent upon the firms' internal cross‐selling capabilities. We use online banking data to test our hypotheses and find that customers' switching costs contribute to banks' profitability only in the presence of high levels of internal cross‐selling capabilities. Copyright © 2012 John Wiley & Sons, Ltd.     

Market orientation,marketing capabilities,and firm performance

Drawing on traditional resource‐based theory and its recent dynamic capabilities theory extensions, we examine both the possession of a market orientation and the marketing capabilities through which resources are deployed into the marketplace as drivers of firm performance in a cross‐industry sample. Our findings indicate that market orientation and marketing capabilities are complementary assets that contribute to superior firm performance. We also find that market orientation has a direct effect on firms' return on assets (ROA), and that marketing capabilities directly impact both ROA and perceived firm performance. Copyright © 2009 John Wiley & Sons, Ltd.     

Strategic capability architecture: The role of network capability

A firm's network capability refers to its ability to build, handle and exploit relationships. These capabilities are interwoven in a complex configuration with the other capabilities and competencies of the firm and in practice, are very difficult to separate from them. Rather than assuming that firms inherently possess network capability, our aim is to discover if the shared managerial logic of top management teams confirms its presence. In order to understand how managers perceive, process and interpret network capability, we guided the management teams of five industrial suppliers through a novel five-step process of introducing, identifying, critically screening, challenging and verifying the capabilities of the firm. The paper introduces a framework for strategic capability architecture and investigates how network capability emerges from among the configuration of other capabilities in industrial firms. We found that network capabilities are central to the formation of customer capabilities. Network capabilities also play an important role as assets contributing to the formation of other capability sets. Furthermore, we found that the networking capabilities act in unison with other capabilities through three different strategic logics termed partnering, value streaming, and horizontal allying.     

Where do capabilities come from and how do they matter? A study in the software services industry

Recent years have witnessed a surge of interest in the notion of capabilities as an important source of competitive advantage. This recognition has, in turn, placed emphasis on the question of where and how these capabilities emerge and how they influence firm performance. The present paper is an attempt to address this question. Using a large sample of detailed project‐level data from a leading firm in the global software services industry, we attempt to empirically study the importance of capabilities. We find that two broad classes of capabilities are significant. The first class, which we label client‐specific capabilities, is a function of repeated interactions with clients over time and across different projects. This learning from repeated interactions with a given client reduces project execution costs and helps improve project contribution. The second class, termed project management capabilities, is acquired through deliberate and persistent investments in infrastructure and systems to improve the firm's software development process. Our empirical results suggest that the marginal returns to acquiring different capabilities may be different and an understanding of such trade‐offs can improve firm decisions to improve and/or acquire such capabilities. We discuss the key contributions of our paper and the implications for future research on capabilities. Copyright © 2004 John Wiley & Sons, Ltd.     

Clarifying the conditions and limits of the contributions of ordinary and dynamic capabilities to relative firm performance

Strategy scholars have argued that capabilities can influence firm performance through a variety of means and mechanisms. However, the role of capabilities and their proposed contributions have been narrowly theorized and insufficiently tested. We contribute to resolving these issues by considering the conditions under which ordinary and dynamic capabilities contribute to higher relative firm performance. We do so by examining the positive and negative contributions of capabilities to relative firm performance as well as the effects of environmental dynamism and the degree of capability heterogeneity. We utilize measures of relative firm performance at both the process and firm level within a sample of Chilean firms, which due to a dynamic environment allows for a clearer link between the environment and the use of capabilities. We find that environmental dynamism negatively affects the contribution of ordinary capabilities and positively affects the contribution of dynamic capabilities to relative firm performance. Further, heterogeneity strengthens the contribution of dynamic capabilities to relative firm performance, but is less important for ordinary capabilities. Interestingly, we find support for the direct effects of capabilities to be stronger with a process‐level performance measure, whereas the influences of environmental dynamism and heterogeneity are stronger with a firm‐level measure. Copyright © 2010 John Wiley & Sons, Ltd.     

The strategic role of relational capabilities in the business-to-business service profit chain

This paper extends the original service profit chain by examining the role of relational capabilities with employees, customers and strategic partners on process and performance outcomes in a business-to-business context. More specifically, we demonstrate how satisfied and loyal employees are better in developing relationships with customers and strategic partners. These relationships enable firms to be more responsive towards customers and become more innovative, which increase customer satisfaction and loyalty and, ultimately, financial performance. Our results provide support for the development of relational capabilities in a business-to-business environment by extending the service profit chain (SPC) model. However, we find that while the development of strong customer relationships contributes to an improved service responsiveness of the firm, strategic partners do not.     

Dynamic capabilities and the emergence of intraindustry differential firm performance: insights from a simulation study

This paper explores how the dynamic capabilities of firms may be linked to differential firm performance within an industry. A formal model is presented in which dynamic capabilities are treated as a set of routines guiding the evolution of a firm's resource configuration. The model centers on the endogenous choice firms make between resource deployment through imitation and experimentation in order to generate alternative resource configurations. Three performance‐relevant attributes of dynamic capabilities are proposed: timing, cost, and learning of resource deployment. Theoretical propositions are developed that suggest how these attributes contribute to the emergence of differential intraindustry firm performance. Simulation analysis offers insights into the trajectories of evolutionary change engendered by dynamic capability, and serves to refine the theoretical propositions. It is found that timing, cost, and learning effects foster the emergence of robust performance differences among firms with strikingly similar dynamic capabilities. Moreover, the results show that even small initial differences among firms can generate significant intraindustry differential firm performance, especially when the effects of timing, cost and learning are combined. Copyright © 2002 John Wiley & Sons, Ltd.     

Bridging inter- and intra-firm boundaries: management of supplier involvement in automobile product development

Outsourcing has become an important strategy for many firms. Yet, firms need to compete with their competitors who also outsource and may share the same suppliers. This article explores how a firm could outperform others in managing the division of labor with a supplier in product development. Drawing on the empirical data collected from the Japanese auto industry, this paper shows that an automaker needs capabilities to coordinate various activities both externally with a supplier and internally within its own organization, in order to gain better component development performance. Overall, the results imply that outsourcing does not work effectively without extensive internal effort. Copyright © 2001 John Wiley & Sons, Ltd.     

Embedded ties and the acquisition of competitive capabilities

We build on previous research that explores the external acquisition of competitive capabilities through the embedded ties that firms form in networks and alliances. While information sharing and trust have been theorized to be key features of the interorganizational ties that facilitate the acquisition of competitive capabilities, we argue that these mechanisms provide an incomplete explanation because they do not fully address the partially tacit nature of the knowledge that underlies competitive capabilities. Joint problem‐solving arrangements play a prominent role in capability acquisition by promoting the transfer of complex and difficult‐to‐codify knowledge. Drawing on a set of case studies and a survey of 234 job shop manufacturers we find support for the role of joint problem solving with suppliers in facilitating the acquisition of competitive capabilities. Copyright © 2005 John Wiley & Sons, Ltd.     

The rate and potential of capability development trajectories

This paper examines differences in the rate and potential of firms' capability development trajectories. Capability development trajectories are the paths over which firms' capabilities change with experience and other activities. While prior research focused on factors affecting capability development rate (the fraction of the gap between a firm's current and potential capability eliminated with each unit of activity), we argue that capability development trajectories also differ in potential (the maximum capability level a firm could achieve through repeating a given set of activities over time). We develop and estimate a formal model of capability development, showing that larger underwriting projects lead to a lower rate of improvement toward higher potential capabilities, and derive implications for research on industry dynamics and the nature of competitive advantage. Copyright © 2013 John Wiley & Sons, Ltd.     

Bridging ties: a source of firm heterogeneity in competitive capabilities

What explains differences in firms’ abilities to acquire competitive capabilities? In this paper we propose that a firm’s embeddedness in a network of ties is an important source of variation in the acquisition of competitive capabilities. We argue that firms in geographical clusters that maintain networks rich in bridging ties and sustain ties to regional institutions are well‐positioned to access new information, ideas, and opportunities. Hypotheses based on these ideas were tested on a stratified random sample of 227 job shop manufacturers located in the Midwest United States. Data were gathered using a mailed questionnaire. Results from structural equation modeling broadly support the embeddedness hypotheses and suggest a number of insights about the link between firms’ networks and the acquisition of competitive capabilities. Copyright © 1999 John Wiley & Sons, Ltd.     

Predicting the cost of environmental management system adoption: the role of capabilities,resources and ownership structure

This research explores why some facilities accrue greater costs when adopting an environmental management system (EMS) and why costs vary among three different ownership structures. Using survey data of organizations that documented their EMS adoption costs over a 3‐year period, the results show that publicly traded facilities had stronger complementary capabilities prior to EMS adoption and therefore lower adoption costs. By contrast, government facilities and privately owned enterprises had fewer capabilities and accrued higher EMS adoption costs. The development of organizational capabilities and resources therefore appears to be a function of both organizational exploitation of imperfect or incomplete market factors, and the institutional context of these decisions. Copyright © 2006 John Wiley & Sons, Ltd.     

Revisiting the role of the environment in the capabilities–financial performance relationship: A meta‐analysis

Within the capabilities‐based view of the firm, there is debate about the relative importance of ordinary and dynamic capabilities for firm performance and about the extent to which their performance effects are contingent on environmental conditions. We meta‐analyze 115 studies to investigate the relationship between both ordinary and dynamic capabilities and the financial performance of firms in relatively stable versus changing environments. The results suggest that the performance effects of both types of capabilities are positive and similar in magnitude. Environmental dynamism reinforces the effects of both ordinary and dynamic capabilities. Furthermore, the two types of capabilities are closely associated. Our findings provide support for a moderate capabilities‐based view of the firm, rather than one that considers dynamic capabilities as superior to ordinary ones. Copyright © 2015 John Wiley & Sons, Ltd.     

Product location choice and firm capabilities: evidence from the U.S. automobile industry

We test theories of product differentiation and firm capabilities using data from the U.S. automobile industry. We find managers introduce new models close to their existing ones but far from rival models. We also find entrants and foreign manufacturers locate models closer to rival models. These results are consistent with both economic models of product differentiation and theories of firm capabilities Copyright © 2000 John Wiley & Sons, Ltd.     

Non-linear relationship between industrial service offering and sales growth: The moderating role of network capabilities

In an effort to approach the mixed findings regarding the relationship between a firm's industrial service offering and its performance, this study analyzes the impact of the industrial service offering on sales growth and the moderating role of network capabilities. The proposed research model is tested based on data from 91 Finnish manufacturing firms. Our results demonstrate a non-linear effect of the service offering on sales growth. We also find that network capabilities enhance the effect of the service offering on sales growth. For managers of manufacturing firms, the results imply that the active development of a comprehensive service offering should be implemented in conjunction with the development of organizational capabilities, such as network capabilities, to create value and promote improved performance.     

Firm capabilities and technology ladders: sequential foreign direct investments of Japanese electronics firms in East Asia

This paper investigates how investments in capabilities offer platforms for the upgrading or downgrading of overseas subsidiaries' activities along a ‘technology ladder’ in response to macroeconomic changes. By analyzing panel data on Japanese electronic firms in East Asia from 1988 to 1994, the empirical results confirm the importance of capabilities at host country, parent company, and local subsidiary levels in sequential foreign investment decisions. The results show that subsidiary capabilities offset macroeconomic factors influencing location decisions of multinational corporations. Copyright © 2002 John Wiley & Sons, Ltd.     

Firm performance,rent appropriation,and the strategic resource divestment capability

Dynamic capabilities manifest the organizational capacity to purposefully create or modify the firm's resource base. In this paper, we consider resource divestment an important firm‐level resource management capability that manifests a two‐step organizational change routine. Firms must first be motivated to engage in resource divestment, and then decide which resources should be ‘sold off.’ In exploring this firm‐level capability, we employ factor market theory to consider the ‘seller side’ of the market, and provide a useful framework for conceptualizing how firms generate competitive advantage through resource divestment. We test our model of the resource divestment capability with a dataset of professional baseball franchises during the period 1969–83. Copyright © 2007 John Wiley & Sons, Ltd.     

Decomposing the effect of supplier development on relationship benefits: The role of relational capital

Buyers invest considerably in developing their suppliers, yet the performance effects of such investments are not universal. Drawing on social capital theory, this research investigates whether the relationship between supplier development and relationship benefits may be facilitated by the generation of relational capital. The authors examine mediating and moderating roles of relational capital in the relationship between two aspects of supplier development (capability development, supplier governance) and two dimensions of relationship benefits (supplier benefits, buyer benefits), using survey data collected from 185 suppliers of a large manufacturing firm. Investment in supplier development does not automatically result in benefits for the supplier or reciprocated benefits for the buyer. Rather, relational capital “bridges” supplier development and relationship benefits. Without relational capital, benefits from capability development do not accrue, and the impact of a supplier governance regime can be even detrimental. In conditions of high relational capital, capability development results in lower perceived buyer benefits. The results can help managers ensure that the benefits from their supplier development efforts fully materialize.     

The role of relational capabilities in the organization of international sourcing activities: A literature review

Multinational companies (MNCs) establish subsidiaries in various countries, spreading the value chain internationally and fostering the involvement of external partners. The global supply network has become a major source of the total value generated by MNCs, which are pushed to develop “relational capabilities” to interact with their suppliers. The main objective of this article is to assess the current understanding in the academic literature of the intra-organisational dimension of relational capabilities, focussing on the adoption of internal mechanisms supporting international sourcing activities. A total of 47 articles are identified and assessed. The literature review shows that thus far fragmented and in some areas limited research has been conducted on the development of relational capabilities by MNCs within international sourcing activities. Research efforts have been placed mainly on the examination of organisational units active in international sourcing and on control and management processes, while less attention has been paid to knowledge management solutions.