Microfoundations of dynamic capabilities: Insights from circular economy business cases

Circular economy is a key strategy to achieve corporate sustainability. However, so far, most firms are unable to translate the concept of circular economy into their corporate strategies, business models, and operations. Some scholars have argued that firms need to develop new (and dynamic) capabilities for circular economy implementation. Yet there is a little discussion on how firms can develop such capabilities. Notably, there is a paucity of research on specific skills, processes, and organizational activities (microfoundations of dynamic capabilities) that may facilitate circular economy implementation. To address this knowledge gap, using a multiple‐case studies approach, we explore microfoundations of dynamic capabilities in successful circular economy business cases. Our findings indicate that dynamic capabilities positively contribute to circular economy implementation. Our case studies show that case firms identified circular economy opportunities by using four microfoundations of sensing capability. Further, case firms acted on the identified opportunities by using simultaneously three microfoundations of seizing capability and four microfoundations of reconfiguring capability. This paper contributes to the literature on the relations between dynamic capabilities and corporate sustainability by providing insights on how sensing, seizing, and reconfiguring dynamic capabilities act in successful operationalization of circular economy strategies.     

Building External Corporate Venturing Capability*

ABSTRACT How firms build new capabilities to adapt to changing environments is at the core of strategic management. However, research has addressed this question only recently. In this paper, I propose a model that describes how firms develop a capability to create and develop ventures through corporate venture capital, alliances, and acquisitions. The model is based on two longitudinal case studies of large corporations operating in the information and communication technology sector in Europe. At the core of this model are learning processes that enable the firm to build up an external corporate venturing capability, by utilizing learning strategies both within and outside venturing relationships. To build this new capability, firms engage in acquisitive learning. Critical to deepening the capability acquired is adaptation of all knowledge to the firm specific context through experiential learning mechanisms. I also discuss the important role that initial conditions and knowledge management practices play in determining the direction and effectiveness of specific learning processes that lead to an external corporate venturing capability.     

How do established firms improve radical innovation performance? The organizational capabilities view

The paper examines organizational capabilities for improving performance, with respect to radical innovation (RI), in established firms. These organizational capabilities are (1) openness capability, (2) autonomy capability, (3) integration capability and (4) experimentation capability. The paper proposes four research hypotheses, to examine the relationship between four types of organizational capabilities and radical innovation performance. A dataset of 112 corporate RI-specific capabilities and innovation performance data, from the top 500 Taiwanese manufacturing firms, is collected via a postal questionnaire survey. The multiple regression results reveal a positive relationship between organizational capabilities and radical innovation performance. Finally, some managerial recommendations, to develop radical innovation capabilities, are provided.     

Learning and technological capability building in emerging economies: The case of the biomass power equipment industry in Malaysia

There is increasing recognition that the transfer of foreign technology to developing countries should be considered in light of broader processes of learning, technological capability, formation and industrial development. Previous studies that have looked at this in the context of cleantech industries in emerging economies tend to overlook firm-level specifics. This paper contributes to filling this gap by utilising in-depth qualitative firm-level data to analyse the extent to which the use of different learning mechanisms can explain differences in the accumulation of technological capabilities. This is explored via an examination of eight firms in the biomass power equipment industry in Malaysia during the period 1970–2011. The paper finds that firms relying on a combination of learning from foreign technology partners and internal learning by planned experimentation make most progress in terms of technological capability. Nevertheless, local spill-over effects were found to be important for some firms who learned principally from imitation of local competitors, although significantly, firms learning from local spillovers failed to advance beyond extra basic operating technological capabilities. Those firms who proactively pursued learning from foreign partners, on the other hand, advanced further, reaching basic innovative levels of technological capabilities. These findings are relevant for a wider range of industrial sectors in emerging economies.     

Stages of Organizational Transformation in Transition Economies: A Dynamic Capabilities Approach

How do organizations previously dominated by the state develop dynamic capabilities that would support their growth in a competitive market economy? We develop a theoretical framework of organizational transformation that explains the processes by which organizations learn and develop dynamic capabilities in transition economies. Specifically, the framework theorizes about the importance of, and inter‐relationships between, leadership, organizational learning, dynamic capabilities, and performance over three stages of transformation. Propositions derived from this framework explain the pre‐conditions enabling organizational learning, the linkages between types of learning and functions of dynamic capabilities, and the feedback from dynamic capabilities to organizational learning that allows firms in transition economies to regain their footing and build long‐term competitive advantage. We focus on transition contexts, where these processes have been magnified and thus offer new insights into strategizing in radically altered environments.     

Innovation as a driver of eco‐innovation in the firm: An approach from the dynamic capabilities theory

The aim of this study is to investigate how innovative capabilities of the firm affect eco‐innovation from a dynamic capability lens. We build on OECD research to conceptualise eco‐innovation as the capacity with which firms modify, redesign, and create products, processes, procedures, and organisations in order to reduce environmental impact. We propose and test the temporal and relational properties of eco‐innovation as a capability. We demonstrate that eco‐innovation possesses two properties of innovative capabilities, namely, persistence over time and interrelation with other innovations. We thus shed new light on the mechanism through which firms engage in eco‐innovation. We also provide empirical evidence to the debate on the relationship between the “normal” innovation (technological or nontechnological) and eco‐innovation. We show that eco‐innovation and innovation are interrelated both simultaneously and sequentially. Moreover, we show that innovation capabilities and eco‐innovation are not only related, but they also have a complementary nature, which facilitates the development of future eco‐innovation.     

How CEOs and TMTs Build Adaptive Capacity in Small Entrepreneurial Firms

Research suggests that a CEO may have more influence in the context of small entrepreneurial firms, but it is still unclear how a company's chief executive facilitates strategic decision‐making. Little is known about the ways in which these individuals build strategic capabilities, such as the capacity to adapt to changing environments. This study addresses these issues and develops a model indicating that transformational leadership facilitates behavioural integration and comprehensiveness in the decision process among members of the top management team (TMT), which in turn enhances organizational capacity to adapt to environmental changes. Survey results shed light on the complex way in which CEOs facilitate processes within the TMT and enhance small entrepreneurial firms’ capacity to adapt, thereby increasing their viability. This study contributes to the literatures on Upper Echelon Theory, strategic decision‐making, and dynamic capabilities by shedding light on the ways in which transformational leaders influence behavioural and decision‐making processes.     

External corporate venturing modes as new way to develop dynamic capabilities

Today, firms encounter scarce resources and rapid technology change which render formerly successful business models obsolete. Research shows that some firms perform better than others in continuously discovering, evaluating, and exploiting opportunities in volatile environments and that this is dependent on firm’s dynamic capabilities. Besides obtaining dynamic capabilities through internal R&D activities, firms have open up their innovation process to pursue dynamic capabilities outside their organizational boundaries through external corporate venturing by accessing startup's technological capabilities necessary to innovate. External corporate venturing is a means to develop new distinctive capabilities and businesses by exploring and exploiting business opportunities outside a firm’s existing boundaries. Drawing on the dynamic capability literature, we use a multiple case study approach to examine the contribution of external corporate venturing to firms’ dynamic capabilities. Our results reveal that firms indeed use corporate venturing to identify and exploit startup’s technological knowledge and competencies to increase firm’s dynamic capabilities. But our empirical data also shows that not every firm is fully profiting from all dynamic capability phases as their corporate venturing modes are not linked with each other and cumulative effects are not realized.     

Reputation Management Capabilities as Decision Rules*

We draw on a detailed grounded theory study of the reactions of Dutch food firms to the recent introduction of genetically modified foods to inductively identify the capabilities that firms develop in response to reputational threats. Central to the view on capabilities we propose are the decision rules organizations use to link individual actions to organizational outcomes. Four reputation management capabilities were identified, which were aimed at, respectively: (1) engaging in a cooperative dialogue with relevant stakeholders; (2) presenting the organizational point of view favourably in the eyes of external beholders; (3) avoiding organizational ‘ownership’ of critical reputational threats; and (4) communicating meaningfully with affected parties, even under conditions of high adversity and time‐pressure.     

Organizational learning and compensation strategies: Evidence from the Spanish chemical industry

This study explores the role of compensation strategies in promoting organizational learning capability. By analyzing a sample of 111 Spanish firms from the chemical industry, we highlight how compensation strategies can be used to influence employees' commitment to learning and shape their understanding of the overall purpose of the organization. We also show that inappropriate strategies can lead to short‐term efficiencies but damage longer‐term learning. © 2005 Wiley Periodicals, Inc.     

Alliance Capability as a Mediator Between Experience and Alliance Performance: An Empirical Investigation into the Alliance Capability Development Process*

abstract This study centres around the way in which firms can enhance alliance performance through the development of alliance capabilities. Whereas most research has focused on inter-firm antecedents of alliance performance, research on intra-firm antecedents pointing to prior experience and internal mechanisms to foster knowledge transfer has only recently emerged. As little is known about how firms develop alliance capabilities, this study aims to uncover how differences in sources of alliance capabilities explain performance heterogeneity. The data are derived from a detailed survey held among alliance managers and Vice-Presidents of 151 firms. The survey covers over 2600 alliances for the period 1997–2001. This study not only finds that alliance capabilities partially mediate between alliance experience and alliance performance, but also yields novel insights into the micro-level building blocks underlying the process of alliance capability development.     

Capability hierarchy in electronic procurement and procurement process performance: An empirical analysis

This paper examines the interrelationship between two hierarchically structured functional capabilities pertinent in the organizational procurement process, and the impact of these capabilities on procurement process performance. These functional capabilities operate at different levels in an organization's procurement process. We draw upon resource- and knowledge-based views of the firm to theorize that in this hierarchy of information technology-enabled procurement capabilities, the higher-level capability – procurement integration competence – enables firms to develop and deploy a lower-level capability – digital procurement competence. Further, we theorize that the lower-level capability impacts procurement process performance directly and completely mediates the relationship between higher-level capability and performance. Thus, although performance is impacted directly only by the lower-level capability, the higher-level capability facilitates the development and use of the lower-level capability. Our research model is tested using survey data from a large sample of 412 manufacturing firms. The results provide strong support for the proposed research model. In particular, we find that as hypothesized, the impact of procurement integration competence on performance is completely mediated by digital procurement competence. Our results suggest that when examined at the procurement process level, the impact of higher-level capabilities may be manifested completely through the lower-level capabilities. Theoretical and practical implications of the research are discussed.     

Green Product Innovation in Manufacturing Firms: A Sustainability‐Oriented Dynamic Capability Perspective

Despite environmental sustainability being identified as one of the key drivers of innovation, extant literature lacks a theoretically sound and empirically testable framework that can provide specific insights into green product innovation from a capability perspective. This study develops a theoretical framework from a sustainability‐oriented dynamic capability (SODC) perspective. We conceive SODCs as consisting of three underlying processes (external resource integration, internal resource integration, and resource building and reconfiguration) that influence the change/renewal of sustainability‐oriented ordinary capabilities (SOOCs) (green innovation capability and eco‐design capability). This study answers two key questions: which SODCs are needed to develop green innovation and eco‐design capabilities? Which of these capabilities lead to better market performance of green products? We test a structural model linking SODCs to market performance in 189 Italian manufacturing firms. First, we find that the nature of the SODC–performance link (direct or indirect) depends on the SODC type. Specifically, resource building and reconfiguration is the only SODC with a direct effect on market performance. Second, all three types of SODC affect the eco‐design capability, which mediates the link between SODCs and market performance. Third, we find that external resource integration is the only SODC affecting the green innovation capability, which mediates the link between external resource integration and market performance. Resource building and reconfiguration is the SODC with the overall (direct and indirect) highest impact on market performance. This study, among the first to consider capabilities for green product innovation under a dynamic capability perspective, provides implications for scholars, managers and policy makers. Copyright © 2016 John Wiley & Sons, Ltd and ERP Environment     

Enhancing green product and process innovation: Towards an integrative framework of knowledge acquisition and environmental investment

Despite the increasing interest in green innovation literature, little is known on how and under what conditions firms' knowledge transfer activities affect green innovation. There is lack of research that on how particular organizational capabilities are seen more useful and how it influences on green innovation performance. To address this research gap, we examine a mediation model in which we explore whether a firm's knowledge acquisition capability and investment in environmental management mediate the impact of buyer-driven knowledge transfer activities on green product innovation and green process innovation. On the basis of an analysis of a sample of 239 manufacturing firms, we find that buyer-driven knowledge activities have a greater positive impact on green product innovation than green process innovation. Investment in environmental management fully mediates the relationship between buyer-driven knowledge transfer activities and green process innovation, and knowledge acquisition capability partially mediates the relationship between buyer-driven knowledge transfer activities and green product innovation. The current study provides evidence that internal competencies and the role of buyers in knowledge transfer are critical for explaining the green product innovation and green process innovation. Our results suggest that buyer involvement pushes firms to develop resource acquisition capability to enhance green product innovation. Our results also highlight the importance of investment in environmental management for overcoming the environmental challenges in the manufacturing firms.     

Individual Performance in Turbulent Environments: The Role of Organizational Learning Capability and Employee Flexibility

Organizational learning capability (OLC) and employee flexibility help firms navigate the challenges faced by organizations operating in turbulent environments. OLC includes dimensions such as experimentation, risk taking, openness, dialogue, and participative decision making. Employee flexibility is considered a crucial tool for strategic human resource management in tackling environmental turbulence. Accordingly, we pose the following research question: how, and to what extent, is individual performance enhanced by OLC and employee flexibility in turbulent environments? The major impact that environmental turbulence has on change and flexibility requirements suggests that employee flexibility plays an important role in the impact OLC has on individual performance. However, we found no prior studies that explicitly analyzed this mediating function of employee flexibility. In this study, we tested three hypotheses that link OLC and individual performance, OLC and employee flexibility, and employee flexibility and individual performance. We applied a structural equation methodology, using partial least squares path modeling, to a sample of 174 academics at a Latin American university (a highly turbulent context). Our results show employee flexibility fully mediates the relation between OLC and individual performance given the presence of environmental turbulence. © 2015 Wiley Periodicals, Inc.     

MNEs,technological efforts and channels of export spillover: An analysis of Indian manufacturing industries

The present study provides some empirical evidence for the export spillover effect examining the case of an emerging market economy, namely India, using firm level data for the period 1994–2006. We disentangle different spillover channels, namely the demonstration effect, the imitation effect (R&D spillover) and a proxy to measure spillover effects coming from higher MNEs’ skills. We also account for the heterogeneous technological behaviour of local firms considering how in-house R&D efforts and disembodied technological imports may affect the exporting performance. Our findings show how export spillover effects are mainly mediated by an imitation effect, contrary to the case of other emerging market economies like China, where a demonstration effect is evident. We also recognise that both the decision to export and export intensity are influenced most of all by the technological activities of local firms. Moreover, the findings of the analysis suggest that in-house R&D is more relevant than other external sources of technological knowledge such as disembodied technology imports to internalise the positive spillover effect emanating from MNEs.     

Sustainable Development in Supply Chain Management: The Role of Organizational Learning for Policy Implementation

Implementing sustainable policies in supply chains is a significant challenge for businesses. Recent evidence has shown that failure to manage supply chains responsibly can have significant impacts on firms' reputation and financial performance. In this paper, we develop a conceptual framework, which focuses on organizational learning, and outline specific channels through which firms can generate learning processes and build appropriate capabilities to successfully implement social and environmental supply chain policies. Drawing on 57 in‐depth interviews from a cross‐sectional sample of seven UK and nine German companies, we empirically assess our conceptual framework in accordance with a grounded, in‐depth case study analysis approach. We find compelling evidence to suggest that organizational learning is an important factor for a successful implementation of sustainable supply chain management. Organizational learning is often established as a result of training, knowledge acquisition, stakeholder engagement and collaboration between intra‐organizational and inter‐organizational partners, including suppliers and NGOs. Nonetheless, our results also emphasize that firms often have few systematic processes through which organizational learning is developed, and that such learning processes are often ad hoc at best, which in turn has significant implications for the responsible supply chain practices. Copyright © 2014 John Wiley & Sons, Ltd and ERP Environment     

Enhancing effects of manufacturing flexibility through operational absorptive capacity and operational ambidexterity

A large body of research investigates how manufacturing flexibility in uncertain environments leads to firm performance, with mixed results. The mixed findings could be due to differences across firms in terms of the capabilities to acquire, assimilate, and transform knowledge and to simultaneously pursue both the exploitation of existing operational capabilities and the exploration for new operational capabilities. Building on the literature that suggests that manufacturing flexibility mediates the relationship between environmental uncertainty and firm performance, we explore the applicability of two organizational learning contingencies to the operations environment: operational absorptive capability and operational ambidexterity. Absorptive capacity enables the recognition and assimilation of new knowledge. Ambidexterity determines whether this knowledge will be applied for both exploration and exploitation. Using a sample of 852 manufacturing firms, we find that environmental uncertainty affects firm performance directly and indirectly through manufacturing flexibility. Furthermore, both operational absorptive capacity and operational ambidexterity moderate the relationship between environmental uncertainty and manufacturing flexibility and the relationship between manufacturing flexibility and firm performance. Theoretical and practical implications are discussed.     

Strategic entrepreneurship and competitive advantage of established firms: evidence from the digital TV industry

Although strategic entrepreneurship in established firms is recognized as a vital source of sustainable competitive advantage, this field has no clearly developed research paradigm. This study proposes a conceptual framework to investigate dimensions of strategic entrepreneurship and its function in sustainable competitive advantage of established firms in a modern volatile environment, through the lens of the dynamic capability view. By conducting a systematic literature review of previous research documents and considering conceptual interrelationships between strategic entrepreneurship and dynamic capabilities, we propose categories that comprise dimensions of a firm’s strategic entrepreneurship: environmental sensing, opportunity seizing, strategic flexibility, entrepreneurial orientation and organizational learning. We establish a conceptual framework of strategic entrepreneurship in which entrepreneurs’ managerial capabilities of environmental sensing, opportunity seizing, strategic flexibility and entrepreneurial orientation closely interact with organizational learning, thereby facilitating sustainable performance of established firms. Following empirical studies of established firms in the digital TV manufacturing industry, the proposed conceptual framework suggests that each dimension of strategic entrepreneurship plays a critical role in competitive advantage of firms. In addition, case study results indicate that a firm’s position and evolutionary path form antecedent factors influencing entrepreneurs’ managerial capabilities and organizational learning of established firms.     

Investigating effects of organisational culture and learning on environmental collaboration and performance of Korean exporting firms

This paper presents an empirical study of the effect of organisational culture and learning capability factors on environmental collaboration and performance in green supply chains. A conceptual model and variables were derived from organisational culture, learning, and collaboration theory and tested with Korean exporting firms. Learning capability was found to positively affect environmental collaboration as staff behaviour, attitudes and learning about environmental practices in a focal firm can be increased from suppliers and customers and then disseminated internally. Further, environmental collaboration was found to positively affect environmental performance due to a focal firm sharing these learned capabilities about the environment with other supply chain partners. However, organisational culture was not found to positively affect environmental collaboration. The findings suggest firms can improve environmental capabilities and performance through shared learning with supply chain partners and ensuring they are internally disseminated in the focal organisation.