In progress Social Network Dynamics
- ERIM PHD 2007 STR 01 HV_FvdB
Although we realize the importance of the generation of fundamental and new technological knowledge (technological innovations), we think that an often neglected determinant of innovation is the managerial and organization capacity to recognize this knowledge, assimilate it, and apply it to commercial ends (Cohen and Levinthal, 1990; Van den Bosch et al. 2003). We define these managerial and organizational innovations as novel managerial capabilities and new organizing principles for using the existing knowledge-base to carry out combinations that are new to the firm and the industry. Managerial and organizational innovations are thus innovations that have a more significant impact on the relationships between the constituting technologies and knowledge components, than on the technologies themselves (Henderson and Clark, 1990). Many strategy scholars applying an evolutionary perspective (Grant, 1996; Kogut and Zander, 1992; Nelson and Winter, 1982) argue that these managerial innovations are limited to deploying and extending existing capabilities rather than constantly recreating new capabilities. However, firms such as Microsoft, Honda, and Benetton were able to continuously recreate new managerial capabilities and novel organizational forms in various competitive rounds resulting from their management's extensive absorptive capacity and learning ability. These managerial capabilities and organizing principles opened up new sources of innovations and productivity growth resulting in competitive advantage. There is great unanimity among strategy scholars that the need for these new managerial capabilities and organizing principles in hyper competitive environments is even greater than ever (Pettigrew et al., 2003). Expanding worldwide competition, fragmenting markets, and emerging technologies force established firms to renew themselves continuously by transforming stagnant businesses and creating new sources of wealth through new combinations of resources (Guth and Ginsburg, 1990) and new knowledge integration patterns (de Boer et al 1999). According to Porter (1996), downsizing, restructuring, reengineering, and benchmarking often only improve operational effectiveness, but do not provide strategic advantage. Likewise, Hamel and Prahalad (1994) contended that instead of `more of the same' or `try harder' approaches ("How to be better"), firms should fundamentally reconsider their core activities ("How to be different"). Not a static strategy, but strategy innovation and industry transformation are much more important (Volberda, 2003). The position of the Netherlands in the Global Competitiveness Index of the World Economic Forum regarding innovativeness and productivity growth is disappointing. The Dutch degraded from the top-10. This could have serious consequences for the international competitive advantage of firms and organizations in the Netherlands. At present, the primary focus of government and business in the Netherlands is on efficiency and exploitation instead of innovation and strategic renewal. Such a focus will not result in a fundamental improvement of our innovation capacity (March 1991; Van den Bosch and Volberda, 2003; Volberda and Van den Bosch, 2004). This raises important problems. This research project contributes to these problems by investigating as research question “How do managerial and organizational determinants of innovative organizations contribute to sustained competitive advantage of Dutch firms?
Time frame2007 - 2012
In elaborating the research problem we will focus on (1) dynamic managerial capabilities for innovation and the associated managerial roles in creating these capabilities and on (2) underlying strategic organizing principles for innovation. In this research project these two broad set of constructs are considered to be key managerial and organizational determinants of knowledge absorption, innovation and productivity growth (Jansen, Van den Bosch, Volberda, 2005). Below, we will briefly elaborate on dynamic managerial capabilities and underlying strategic organizing principles.Dynamic managerial capabilities denote the managerial ability to respond reactively or proactively to various demands from changing competitive environments. They are based on dynamic models of competition that suggest the capacity to change is an important source of competitive advantage (cf. Teece, Pisano and Shuen, 1997; Eisenhardt and Martin, 2000). These capabilities permit rapid response (speed) to a variety of unpredictable contingencies and demand changes (Ittner and Kogut, 1995). Many of them are developed in functional areas like manufacturing, supplier relationships or human resource management. However, the more complex ones are more broadly based (Stalk, Evans and Shulman, 1992), encompassing the entire value chain such as short product development capabilities or fast product and process innovation capabilities. Dynamic capabilities must be clearly distinguished from specialized routines (see Table 1). Table 1 Managerial requirements of dynamic capabilities Specialised routinesDynamic capabilities · limited expertise· low absorptive capacity· fixed managerial mindsets and no experimentation· lower-level learning · broad and deep knowledge-base· high absorptive capacity· broad managerial mindsets and much experimentation· higher-level learning Source: Volberda, 1998, 2004Related to a broad knowledge base, dynamic capabilities require a high absorptive capacity of management (Cohen and Levinthal, 1990) for recognizing the need to change. Successfully absorbing signals beyond the periphery of the firm is essential for developing capabilities. The ability of management to recognize the value of new, external knowledge, assimilate, and apply it to commercial ends is critical to its dynamic capabilities (Van den Bosch et al 1999, 2003). Absorptive capacity requires porous boundaries, scanning broadly for new soft information, and identifying and effectively using those employees who serve as gatekeepers and boundary spanners (Leonard-Barton, 1995). Liebeskind et al. (1996) show that successful new biotechnology firms were able to develop dynamic capabilities in new product development because their management developed high levels of absorptive capacity through social networks and boundary spanning. This absorptive capacity helped them to quickly source new knowledge from various universities and research institutes. Management must have an ability to identify and support new ideas rather than to maximally exploit existing routines. Experimentation is limited when knowledge extension is based on routines, which work like well-worn grooves to channel managerial activities. By relying on these routines, management concentrates on its own specialized areas and avoids the need to construct its notion of the whole for new activities. As a consequence, routines exacerbate the separation of functional areas, impede learning processes, and further restrict the development of new capabilities by imposing old understandings. However, experimentation and broad mindsets can contribute to an increasing variety of dynamic capabilities. Dynamic capabilities like flexible manufacturing or fast product development cannot be purchased off the shelf but require strategic vision, development time, and sustained investment (Amit and Schoemaker, 1993). They take time to identify, nurture, and leverage (Jansen et al., 2005) and tend not to be the kind of assets that management can turn on or off with the exercise of an option. Firms simply lack the capacity to develop new capabilities quickly (Teece et al., 1997). That is, dynamic capabilities cannot be easily bought, but they must be built; skill acquisition and learning become fundamental issues. While routines also require learning and take time to develop, they can often be built on an extrapolation of trends, imitation of others, or past experience. These modes of single-loop learning are all based on repetitive reinforcement in which no cognitive change takes place in the organization. By contrast, dynamic capabilities require higher-order learning such as double-loop learning, which hinges on the ability to fundamentally challenge operating assumptions. For the managerial roles in capability development see Volberda (1998, 2004). So far, we have considered the required managerial capabilities for innovation. Besides these managerial capabilities, the underlying organizing principles for innovation constitute the second determinant. The strategy and organization theory literature proposes various organizational forms for managing specific aspects or elements of self-renewing and innovative organizations (Volberda, 2004). On the base of the latest ideas and academic writings on complexity theory (Anderson, 1999a,b; Kauffman, 1995; Gell-Mann, 1995; Holland, 1998; Brown and Eisenhardt, 1998) and practitioner-oriented writings (e.g. Clippinger, 1999) Volberda and Lewin (2003) identify three overarching organizing principles: (1) Innovative organizations focus on managing change, i.e. managing requisite variety by regulating internal rates of change to equal or exceed relevant external rates of change (e.g. competitors, technology, customers, etc) (McKelvey, 2003); (2) Innovative organizations optimize self-organizing, i.e. nurture and maintain self-organization (Anderson, 1999a; Nonaka, 1988);(3) Innovative organizations synchronize concurrent exploitation and exploration (Sidhu et al., 2004; Lewin and Volberda, 1999; March, 1991). In this research project, managing rates of change, nurturing and maintaining self-organization and sustaining a synchronous passion for exploration and exploitation are considered as three complementary organizing principles for enabling innovation. They do require continuous attention. It is exactly this feature of continuous attention or managerial intentionality that distinguishes successful organizations that are permanently able to innovate from the non-innovating organizations with a short-term exploitation focus. On the base of the conceptual frameworks provided in the above discussed literature references, in this research project these frameworks will be integrated and subsequently the various key constructs and attributes of enablers and inhibitors of the managerial and organizational determinants will be operationalized. In these efforts, the research project builds on previous empirical research on knowledge absorption and strategic renewal (e.g. Dijksterhuis, 2003; Flier, 2003; Van Wijk, 2003; Jansen et al., 2005).