Creating and implementing dynamic capabilities: An exploration of the senior manager's role

The purpose of this dissertation was to identify and assess what senior management actions (interventions, behaviors) facilitated the creation and implementation of dynamic capabilities (timely, purposeful change) within organizations. Dynamic capabilities (DCs), for this dissertation, were defined as the abilities of firms to systematically solve problems, formed by sensing opportunities and threats in order to make timely and market-oriented decisions, and to change their resource base (Barreto, 2010). Prior research suggested that organizations that created DCs were better positioned to adapt to changes in the marketplace and create and sustain competitive advantages than those firms that did not. While dynamic capabilities were extensively explored in the scholarly literature, the scholarship was scant on how DCs were created, from the senior manager point of view. This dissertation aimed to show what interventions and techniques senior managers had used to help their organizations develop dynamic capabilities in order to better adapt to change. Using a systematic review of the literature and applying thematic synthesis, this dissertation identified and analyzed a final set of 67 scholarly studies which revealed that senior managers devoted a significant amount of management focus on sensing (and sensemaking), repetitively reviewing the firm’s existing resource base and capabilities, and then optimizing (or balancing) strategic initiatives with tactical initiatives. In order to provide additional clarity to the specific activities where senior managers played a role, secondary behaviors, such as firm boundary reframing and alliance building, were also presented and evaluated.CREATING AND IMPLEMENTING DYNAMIC CAPABILITIES: AN EXPLORATION OF THE SENIOR MANAGER’S ROLE By Calvin Joel Martin A Thesis Submitted To the Graduate Faculty of University of Maryland University College in Partial Fulfillment of the Requirements For the Degree of Doctor of Management Faculty Committee: Kathleen F. Edwards, Ph.D. James P. Gelatt, Ph.D. 2 3 Table of Contents Acknowledgements ......................................................................................................................... 8 Abstract .......................................................................................................................................... 9 Chapter 1: Introduction ................................................................................................................. 10 Background and Problem Statement ......................................................................................... 10 Purpose of Dissertation and Research Question ....................................................................... 18 Significance of the Problem and Importance to Management .................................................. 20 Propositions ............................................................................................................................... 21 Definitions of Key Terms .......................................................................................................... 22 Organization of Dissertation ..................................................................................................... 23 Chapter 2: Systematic Review of the Literature ........................................................................... 25 Chapter Overview ..................................................................................................................... 25 Evolution of the Dynamic Capabilities Concept ....................................................................... 25 Substantive Organizational Capabilities versus Dynamic Capabilities .................................... 29 The Theoretical Underpinnings of DCs as Management Mechanisms ..................................... 30 Absorptive Capacity Theory and DCs ................................................................................... 31 Resource-Based Theory and DCs .......................................................................................... 37 The Constructs of DCs: Bundles of Routines and Organizational Capabilities ........................ 40 Routines: The Building Blocks for Organizational Capabilities ........................................... 40 Organizational Capabilities: Building Blocks for DCs ......................................................... 42 The Advent of Dynamic Capabilities: An Evolution of Definitions ..................................... 53 Criticisms of the DCs Construct ............................................................................................ 56 Three Significant DCs: Senior Manager Mechanisms to Create and Implement DCs ............ 57 Organizational Ambidexterity (OA) ...................................................................................... 58 Organizational Agility (OAg) ................................................................................................ 78 Communication of Senior Management Vision (CoMV) ..................................................... 87 Creating and Implementing Dynamic Capabilities-Summary ................................................ 110 Support for Research Propositions .......................................................................................... 111 4 Chapter 3 Theoretical Framework .............................................................................................. 113 Introduction to Chapter 3 ........................................................................................................ 113 The Constructs of DCs ............................................................................................................ 114 The Origin of DCs and Historical Context.............................................................................. 115 DCs as an Organizational Construct ....................................................................................... 116 Three DCs: OA, OAg, and Senior Manager’s Communication of Vision .............................. 116 Organizational Ambidexterity ............................................................................................. 117 Organizational Agility ......................................................................................................... 118 Communication of Senior Management’s Vision ............................................................... 118 Theoretical Framework ........................................................................................................... 119 Model and Framework ............................................................................................................ 121 Innovative Change and Its Relationship to Kuhn and Popper ................................................ 122 Summary of Model and Framework ....................................................................................... 124 Chapter Four: Methodology ........................................................................................................ 125 Introduction ............................................................................................................................. 125 Identification of Evidence ....................................................................................................... 129 Search String Development ................................................................................................. 129 Inclusion and Exclusion Criteria ......................................................................................... 131 Examining the Evidence.......................................................................................................... 134 PRISMA Diagram ................................................................................................................... 135 Evaluation of Quality of Research .......................................................................................... 136 Data Extraction .................................................................................................................... 136 Qualifying the Evidence by Research Type ........................................................................ 140 Expert Panel Feedback Discussion ......................................................................................... 142 Chapter 5: Findings ..................................................................................................................... 146 Introduction to Chapter Five ................................................................................................... 146 Scholarly Review Process ....................................................................................................... 147 Identification of Themes ...................................................................................................... 151 Synthesis of Primary Themes .................................................................................................. 151 Environmental Scanning...................................................................................................... 153 Existing Capabilities Assessment ........................................................................................ 159 5 Secondary Themes ............................................................................................................... 160 Links to Systems and Complexity Theories ............................................................................ 162 Weak Links and Alternative Views Found in the Literature .................................................. 163 Support for Propositions.......................................................................................................... 164 Summary of Findings .............................................................................................................. 165 Chapter 6: Conclusions ............................................................................................................... 167 Introduction to Chapter 6 ........................................................................................................ 167 Overall Conclusions ................................................................................................................ 167 Implications of Management Trends....................................................................................... 168 Implications for Management Practice ................................................................................... 169 Implications for Management Theory ..................................................................................... 170 Thoughts on Kuhnian versus Popperian Innovation and DCs Development .......................... 172 Implications for Future Research ............................................................................................ 174 Limitations of this Dissertation ............................................................................................... 176 Summary of the Dissertation ................................................................................................... 177 Appendix A: Selected Papers for Preliminary Literature Review for Search Strings ................ 178 Appendix B: Search Strings ........................................................................................................ 180 Appendix C: Data Abstraction Template ................................................................................... 181 Appendix D: Data Abstraction Example ................................................................................... 182 References .................................................................................................................................. 184 6 List of Figures Figure 1: Antecedents to Dynamic Capability Theory (partially adapted from Coh, 2005) ..... 26 Figure 2: How Senior Managers Create and Implement Dynamic Capabilities ...................... 122 Figure 3: Theoretical Model Featuring Kuhnian and Popperian Change ................................ 123 Figure 4: Raw DCs Related Search Terms Harvested from the Scholarly Literature ............. 129 Figure 5: PRISMA Diagram .................................................................................................... 135 Figure 6: Incorporated Studies by Firm Locations by Continent (N=67) ................................ 147 Figure 7: Distribution of Included Studies by Year of Publication (N=67) ............................ 149 Figure 8: Distribution of Sample Sizes in Included Studies (N=67) ....................................... 150 Figure 9: Sample Distribution by Included Study Type (N=67) ............................................. 151 Figure 10: Number of Themes Found in Included Studies ........................................................ 175 7 List of Tables Table 1: Key Term Definitions .................................................................................................. 22 Table 2: Key Definitions of DCs from Extant Literature .......................................................... 54 Table 3: Synthesized Definitions from Key Systematic Reviews ............................................. 55 Table 4: Senior Leaders’ Perception of the Agility of Their Organizations .............................. 78 Table 5: Organizational Agility Definitions Proposed in Scholarly Literature ......................... 79 Table 6: Doz-Kosonen Model with Evidence (Doz & Kosonen, 2010) .................................... 83 Table 7: Sample for Search Strings Use in Thematic Synthesis .............................................. 130 Table 8: Inclusion Criteria (Adapted from Lock, Silverman, & Spirduso, 2010) ................... 132 Table 9: Data Extraction Tool (Adapted from Newbert, 2007) ............................................... 137 Table 10: Quality of Research Model (adapted from Newbert, 2007) ...................................... 140 Table 11: Evidence Type Weights ............................................................................................. 140 Table 12: Sample of Final Qualification of Evidence Scoring .................................................. 141 Table 13: Key Senior Manager Behavior Discussed in the Literature Reviewed for this Dissertation ................................................................................................................................ 152 Table 14: Secondary Literature Themes Found that Linked to Primary Themes ...................... 161 Table 15: Illustrative Examples Characterizing the Primary Themes Found in the Literature . 162 8 Acknowledgements I would like to express my deepest gratitude and appreciation to my faculty advisors, Dr. Kathleen F. Edwards and Dr. James P. Gelatt, who both provided tremendous mentorship for me during the dissertation process. I would also like to thank Dr. Deborah M. Wharff for her scholarly advice and encouragement throughout this process. I am grateful for you all because you pushed me when I needed to be pushed. Without your desire to see me succeed, I would not have completed my dissertation journey. I would also like to thank my family, friends, and coworkers who all made great sacrifices during this process that enabled me to be successful in this endeavor. I am extremely blessed to have people like you in my life. 9 Abstract The purpose of this dissertation was to identify and assess what senior management actions (interventions, behaviors) facilitated the creation and implementation of dynamic capabilities (timely, purposeful change) within organizations. Dynamic capabilities (DCs), for this dissertation, were defined as the abilities of firms to systematically solve problems, formed by sensing opportunities and threats in order to make timely and market-oriented decisions, and to change their resource base (Barreto, 2010). Prior research suggested that organizations that created DCs were better positioned to adapt to changes in the marketplace and create and sustain competitive advantages than those firms that did not. While dynamic capabilities were extensively explored in the scholarly literature, the scholarship was scant on how DCs were created, from the senior manager point of view. This dissertation aimed to show what interventions and techniques senior managers had used to help their organizations develop dynamic capabilities in order to better adapt to change. Using a systematic review of the literature and applying thematic synthesis, this dissertation identified and analyzed a final set of 67 scholarly studies which revealed that senior managers devoted a significant amount of management focus on sensing (and sensemaking), repetitively reviewing the firm’s existing resource base and capabilities, and then optimizing (or balancing) strategic initiatives with tactical initiatives. In order to provide additional clarity to the specific activities where senior managers played a role, secondary behaviors, such as firm boundary reframing and alliance building, were also presented and evaluated. Key words: Dynamic capabilities, organizational agility, organizational ambidexterity, strategic management, senior manager 10 Chapter 1: Introduction Background and Problem Statement The environments in which organizations function are increasingly changing (Adner, 2002). Much of the environmental dynamism in which organizations operate stems from relentless competition, new technologies, and globalized economies (Ambosini, Bowman, & Collier, 2009). Even the most stable industries have entered into extremely aggressive competitions between established firms and so-called nimble start-ups (e.g., the personal computing industry) (Judge & Elenkov, 2005). There are even those that believe that what constitutes stable industries has morphed in recent times (Teece, 2012). The boundaries of competition have also changed dramatically (Keupp, Palmie, & Gassman, 2012) and firms are experiencing threats from new competitors from very different, unanticipated sectors (Fulsang & Mattsson, 2011). A recent, prominent example of this phenomenon included Amazon.com morphing from an online book sales company to a full service retail supplier of many consumer products (e.g., clothes, toys, jewelry, etc.). Changing environments greatly affect an organization’s ability to sustain satisfactory performance. The resultant routine for organizations, therefore, is one of complexity and unpredictability (Ford, 2008; Hazy, 2011). The need to adapt to change, while seemingly a straightforward concept, is troublesome for many organizations simply because they do not know how to do it and therefore are unsuccessful at it (Wernerfelt, 1984). Some believe that the firms are not able to adapt because of a poor understanding of how their market(s) are changing as well as a lack of awareness of the value of their internal resources to meet change (Wernerfelt, 11 1984; Stebbings & Braganza, 2009). An abundance of recent research also suggests that many organizations simply do not have the proper managerial mechanisms in place to sense (identify a pending change or potential opportunity), seize (strategically plan for change), or react (reconfigure resources to match the change) to environmental stimuli such as new market entrants or significant changes in customer behavior patterns (Augier & Teece, 2009; Gebauer, 2011). Because of this growing importance between an organization’s strategic maneuvers and its changing operating environment, academics and scholar-practitioners have developed an increasing interest in understanding the link between the two (Augier & Teece, 2009). The standing question that has been posed by scholars and practitioners has been, in the face of these identified challenges to firm survival, ‘how does a firm develop sustained competitive advantages?’ In recent years, then, it has been seen that scholarly literature has placed much emphasis on how organizations need to strategize to enable flexibility and sustainability to address these environmental dynamics (Teece, Pisano, & Shuen, 1997; Helfat, Finkelstein, Mitchell, Peteraf, Singh, Teece, & Winters, 2007). Many management theorists believe that senior managers (e.g., decision makers) play a pivotal role in organizational performance (Nelson & Winter, 1982; Andriopoulos & Lewis, 2010; Augier & Teece, 2011; James & Lahti, 2011) in rapidly change environments. Senior managers, for the purposes of this dissertation, are defined as managers that operate at the C-level (i.e., CEO, CTO, CFO, etc.) or have multiple tiers of management under their purview. Some even suggest that more than ever, senior managers need to act entrepreneurially (Roy & Khokhle, 2011) and execute change maneuvers at the firm level with very few errors in judgment (Corbett & Neck, 2010). Given the scholarly research performed around senior managers’ role in creating and recognizing opportunities, this issue of managing adaptive change produces a 12 research problem suitable for both evidence based management (EBMgt) and evidence based research (EBR). Briner, Denyer, and Rousseau (2009) propose that EBMgt is concerned with making decisions based on a variety of evidence including existing expertise, judgment, local evidence (previous corporate experience), stakeholder perspectives, and evaluation of available research. EBR efforts, such as this dissertation, attempt to tie management research to practical management problems and sometimes are even conducted at the request of management practitioners. Ideally, this dissertation will inform theory and contribute to the creation