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Organizational Process Alignment andDynamic Capabilities in High-TechIndustryRichard Yu-Yuan Hung a , Tsungting Chung b & Bella Ya-Hui Lien ca Department of International Business, Toko University, Chia-Yi,Taiwanb Department of Business Administration, National YunlinUniversity of Science & Technology, Yunlin, Taiwanc Department of Business Administration, National Chung ChengUniversity, Chia-Yi, Taiwan

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Organizational Process Alignment andDynamic Capabilities in High-TechIndustry

RICHARD YU-YUAN HUNG,� TSUNGTING CHUNG�� & BELLAYA-HUI LIEN†

�Department of International Business, Toko University, Chia-Yi, Taiwan; � �Department of Business

Administration, National Yunlin University of Science & Technology, Yunlin, Taiwan; †Department of

Business Administration, National Chung Cheng University, Chia-Yi, Taiwan

ABSTRACT Increasing numbers of organizations are responding to competitive challenges byimproving their core competencies. This study examines the adeptness of organizations inmanaging core processes related to organizational process alignment, and particularly theirpotential to generate superior performance using the dynamic capability approach. This studycontends that organizational performance results primarily from organizational processalignment. A questionnaire survey was conducted to test three hypothesizes. The findingsdemonstrate that although organizational process alignment positively affected organizationalperformance in this study, its influence was mediated by organizational dynamic capability. Thedata also demonstrate that the proposed structural equation model has marginal fit. Theimplications of this study for research and management practice are provided. The limitations ofthe study are highlighted and future research directions are suggested.

KEY WORDS: Dynamic capability, process alignment, organizational performance

Introduction

The intensity of business competition has significantly increased, forcing business organ-

izations to adopt non-traditional management techniques and tools. Maintaining competi-

tive advantage is a dynamic and never-ending activity. All organizations face intense and

relentless challenges, including: (1) a rapidly accelerating rate of technological change; (2)

increasing customer expectations; (3) international quality and environmental standards;

and (4) growing employee demand for increased autonomy. Additionally, although

business competition has become significantly more intense, companies are forced to

Total Quality Management

Vol. 18, No. 9, 1023–1034, November 2007

Correspondence Address: Bella Ya-Hui Lien, Department of Business Administration, National Chung Cheng

University, No. 168, University Rd., Ming-Hsiung City, Chia-Yi County 621 Taiwan. Email:

bmayhl@ccu.edu.tw

1478-3363 Print/1478-3371 Online/07/091023–12 # 2007 Taylor & FrancisDOI: 10.1080/14783360701594154

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seek new methods of gaining competitive advantage. Scholars have proposed that to main-

tain competitive advantage, organizations should develop capabilities for improving

business core processes (Hammer, 2001; Zott, 2003). DeToro & McCabe (1997) state

that core processes are those processes that are strategically important to the organiz-

ation’s success, and have a high impact on customer satisfaction. Core processes describe

the end-to-end work that starts from the customer and ends with the customer, and always

using cross-functional activities (Hung, 2001). Specifically, from the Business Process

Management perspective, the ability to improve business core processes involves the inte-

gration of business core operational processes and organizational strategic goals. Some

strategic management scholars, such as Winter (2003), are skeptical regarding the value

of the concept of ‘dynamic capabilities’, while Teece et al. (1997) proposed that

dynamic capability provides a new way for organizations to adapt to accelerating environ-

mental change. Teece et al. (1997) stated that dynamic capabilities are defined as a firm’s

ability to integrate, build, and reconfigure internal and external competencies to address

rapid environmental change. The key issue is how organizations identify core dynamic

capabilities and integrate them with organizational process alignment to maintain com-

petitive advantage. This study focuses on examining an organization adept at managing

core processes in the area of process alignment and, in particular, its potential to generate

superior performance through the dynamic capability approach.

Although extensive studies have been conducted on the outcomes of process alignment

(Gresov, 1989; Lee & Dale, 1998; Powell & Dent-Micallef, 1997), most management lit-

erature stresses the benefits of process alignment separately with dynamic capability.

Three research objectives guided this study: (1) using a literature review to develop con-

structs that improve understanding of dynamic capability and organizational process

alignment; (2) establishing a conceptual model of the relationship among organizational

process alignment and organizational performance using the dynamic capability approach;

(3) testing the proposed model based on empirical data in a Taiwanese context.

This study aims to develop and empirically test a model for examining the relationship

among organizational process alignment and organizational performance from a dynamic

capability perspective. This study has implications for both management theory and prac-

tice. Based on a dynamic capability perspective, this research significantly contributes to

the current knowledge on organizational process alignment and organizational perform-

ance. This study benefits management practice by demonstrating how organizations can

adopt better methods of improving their performance and profitability via organizational

process alignment based on the dynamic capability approach.

Literature Review and Hypotheses

This section first reviews the literatures concerning Dynamic capability, then Organiz-

ational Process Alignment is examined.

Dynamic Capability

Carpenter et al. (2001) argued that the firm resource-based view (RBV) stresses that firm

growth and competitive advantage are functions of the unique bundle of resources pos-

sessed and deployed by individual firms (Barney, 1991). More recently, this perspective

has been extended to consider dynamic capabilities, the unique ability of firms ‘to

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integrate, build and reconfigure internal and external competences to address rapidly chan-

ging environments’ (Teece et al., 1997: 516). However, from the economic perspective,

Carpenter et al. (2001) noted that the resource-based view stresses rents arising from scar-

city (Ricardian rents) while the capabilities perspective emphasizes rents resulting from

market discontinuities (Schumpeterian rents).

Teece et al. (1997) posited that firm dynamic capabilities focus on the specifics of how

organizations first develop firm-specific capability and competencies in the changing

business environment. These issues are highly related to the firm’s business process,

market position and expansion path. Managerial and organizational processes refer to

firm methods for decision completion. ‘Position’ refers to the current specific endowments

of an organization in terms of technology, intellectual property, complementary assets,

and so on, while ‘paths’ provide the strategic alternatives available to a firm and the pre-

sence or absence of increasing returns and related path dependencies.

Eisenhardt & Martin (2000: 1107) noted that dynamic capabilities are the ‘organiz-

ational and strategic routines by which firms achieve new resource configurations as

markets emerge, collide, split, evolve, and die.’ Increasingly, the dynamic capabilities

of an organization to maintain competitive advantage are measured based on organization

innovation (Voelpel et al., 2004). Accordingly, this study concludes that dynamic capa-

bility should include organizational strategic capability, R&D innovative capability, and

organizational management capability.

Many studies demonstrated a positive relationship between dynamic capabilities and

organizational performance. For example, Danneels (2002) conducted a field study

using interview, observations, and documents as data sources from five high-tech firms.

He concluded that product innovation capabilities improve firm competencies and

renewal performance. Zott’s (2003) study explored how the dynamic capabilities of

firms may affect different firm performance within an industry. He found that even a

small initial difference between firms’ dynamic capabilities can generate significant

firm performance. Luo (2000) articulated a dynamic capability perspective on inter-

national business. He suggested that with superior dynamic capability exploitation, an

international business firm will have a high probability of succeeding in international

expansion and firm performance. Based on these definitions, the first hypothesis (H1) is

that dynamic capability is positively associated with organizational performance.

Organizational Process Alignment

Organizational process alignment is designed to arrange the various parts of a company so

that they work together harmoniously to pursue common organizational goals, to enhance

performance and sustain competitive advantage (Weiser, 2000). Organizational theory

states that organizations must design their structures and systems to align the contingen-

cies of the environment, strategy, technology, and so on for survival and success (Daft,

1998; Lewin, 1999). Numerous previous studies have empirically shown that alignment

positively affects organizational performance (Gresov, 1989; Roth et al., 1991).

On the other hand, alignment theory (Semler, 1997) indicated that employee behavior

was consonant with organizational goals through structural change, strategy usage and

culture transformation. Weiser (2000) stated that to link all areas of an organization and

provide an informational lifeline throughout the change and alignment process, organiz-

ational structure must be redesigned to be cross-functional. Hall (2002) observed that

Organizational Process Alignment and Dynamic Capabilities 1025

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alignment requires continually focusing on customers and their constantly changing

requirements, and should also consider strategic direction. Grover et al. (1997) noted

that IT as a transformational subsystem is imperative in cultural transformation. Therefore,

when an organization is appropriately aligned, organizational structure, strategic planning

and IT correspond to organizational core processes and objectives, ensuring better per-

formance. To summarize, organizational process alignment can be interpreted as the

organizational effort required to make processes the platform for organizational structure,

strategic planning, and information technology (Hammer, 2001; Spector, 1999). Thus, in

this study, the construct of organizational process alignment included structural alignment,

strategic alignment and IT alignment.

Numerous studies have confirmed that organizational process alignment positively

influences performance (Gresov, 1989; Roth et al., 1991). Specifically, Ostroff (1999) pro-

posed that the effectiveness of organizational performance increases with the degree of

horizontalness of organizational structure. Strategic alignment is also positively related

to organizational performance (Hinterhuber, 1995; Lee & Dale, 1998; Zairi, 1997).

Although IT is an important influence on organizational performance, Powell and Dent-

Michallef (1997) observed that IT should be used along with other business processes

to enhance organizational performance. From the dynamic capability perspective,

process alignment and organizational performance are positively related, especially in

situations of environmental turbulence (Lee & Dale, 1998; Zairi, 1997). Thus, the

second hypothesis (H2) is organizational process alignment is positively related to organ-

izational performance, and the third hypothesis (H3) is organizational process alignment is

positively associated with dynamic capability.

Figure 1 summarizes the three research hypotheses tested in this study. The figure out-

lines the conceptual framework of the subject being examined. The proposed model posits

that organizational process alignment is the antecedents of organizational performance. It

implies that organization dynamic capability mediates the influence of organizational

process alignment on performance.

Methods

This study used a survey research method to examine the relationships among organiz-

ational process alignment, dynamic capability, and organizational performance. A self-

administered survey was employed to sample Taiwanese high-tech industry companies.

Sample and Procedure

The sampling frame consisted of the Taiwanese top 1139 companies in high-tech indus-

tries, provided by China Credit Information Service database (CCIS, 2004), according

to their market capitalization. Since the top administrators are widely believed to

provide reliable information regarding the basic environmental and organizational

Figure 1. Conceptual framework

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characteristics of their organizations (Mintzberg & Waters, 1985), senior managers or firm

presidents represent the most appropriate informants for this study. A questionnaire plus

cover letter were mailed to the managing director or chief executive officer of each

company. Various efforts, for example follow-up telephone calls and faxes as well as per-

sonal connections were employed to encourage respondents to complete and return the

questionnaires. A total of 188 responses were obtained during the six-week period follow-

ing the distribution of the questionnaires. Twelve of the responses were not useable

because of incomplete data. The responses are analyzed in the following section. Dis-

counting the number of unusable mails, it yielded 176 surveys that were used for the

final analysis in this study, representing a response rate of 15.5%.

Measures

This subsection outlines the measure used in this study. It provides the initial selection of

measurement items and the process used to identify final measures through item analysis.

Internal consistency reliability estimates are also provided in the following text.

Organizational Process Alignment. This study assessed organizational process align-

ment using 11 measures developed by Hung (2001). The assessment scale measures the

integration between business core operational processes and organizational strategic

goals. Specifically, the measurement items regarding organizational process alignment

measures three construct dimensions of organizational process alignment: structure align-

ment, IT alignment, and strategic alignment using three, four, and four items for each

dimension, respectively. Respondents were asked to indicate their levels of agreement

with the description of measurement items using a five-point Likert-type scale (1 ¼

strongly disagree to 5 ¼ strongly agree). The reliability coefficients for the three dimen-

sions were 0.63, 0.86, and 0.79 respectively. Furthermore, the overall reliability estimate

for the scale is 0.84 in the current investigation. Confirmatory Factor Analysis (CFA)

showed a reasonable fit between the three-dimension factor structure of process alignment

and the current data (x 2(27) ¼ 81.49, p , 0.01; RMR ¼ 0.05, GFI ¼ 0.91, NNFI ¼ 0.90,

CFI ¼ 0.94).

Organizational Dynamic Capability. This study employed seven items for assessing

organizational dynamic capability. These measurement items were taken from previous

studies (Bierly & Chakrabarti, 1996; Danneels, 2002). Four items were employed to

assess R&D innovative capability and achieved a reliability estimate of 0.82; three

items were used to measure organizational strategic capability and achieved a reliability

estimate of 0.78; and the overall reliability estimate was 0.85. CFA results identified a

moderate fit between the three-dimensional model of organizational dynamic capability

and the current data (x 2(13) ¼ 38.13, p , 0.01; RMR ¼ 0.04, GFI ¼ 0.94,

NNFI ¼ 0.93, CFI ¼ 0.96).

Organizational Performance. The organizational performance construct was measured

using six items adapted from Baker & Sinkula (1999), Lawler et al. (1998) and Powell

(1995). The organizational performance construct includes the change in the company’s

(1) competitive advantage; (2) market share; (3) profit; (4) cost; (5) sales revenue, and

(6) customer satisfaction to their largest competitor. Performance was measured at the

organizational level. Because companies may specialize in different field/industries and

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have different strategic priorities, performance data needed to be adjusted to evaluate each

company (Gupta & Govindarajan, 1984). To do so, the organizational performance dimen-

sion was designed to ask respondents to answer the questions by comparing with their

major competitor. While different companies may have different objectives for measuring

organizational performance (some may focus on gaining share, other on profit), the

measurement of this study does not focus on particular market efforts. Therefore, the

scale includes both sales and profit information, it can be interpreted to measure the effec-

tiveness as well as the efficiency dimensions of performance, respectively (Walker &

Ruekert, 1987). Also, given that all elements of the measure are taken relative to the organ-

ization’s major competitor, one might also interpret it to reflect a company’s relative

advantage. Each item used a five-point response scale that ranged from 1 (strongly dis-

agree) to 5 (strongly agree). The six items were: (1) ‘During the past three years, the com-

petitive advantage relative to your largest competitor has markedly improved’; (2) ‘During

the past three years, change in market share relative to your largest competitor has mark-

edly improved’; (3) ‘During the past three years, change in profit relative to your largest

competitor has markedly improved’; (4) ‘During the past three years, change in cost

(product or service) relative to your largest competitor has reduced’; (5) ‘During the

past three years, change in sales revenue relative to your largest competitor have

greatly increased’; and (6) ‘During the past three years, change in customer satisfaction

relative to your largest competitor has greatly increased’. The coefficient alpha for the

scale was 0.84. CFA results confirmed the unidimensional structure of six measures for

organizational performance (x 2(8) ¼ 29.08, p , 0.01; RMR ¼ 0.04, GFI ¼ 0.95,

NNFI ¼ 0.92, CFI ¼ 0.96).

Data Analysis

This study used structural equation modeling (SEM) to explore the relationships among

the subject variables. SEM is a multivariate statistical analysis technique that provides

researchers with a method for thoroughly studying proposed theories (Joreskog &

Sorbom, 1996a). SEM permits researchers to explicitly test research hypotheses regarding

the relationships among concerned constructs while considering measurement errors. Both

endogenous variables (that is, underlying dependent variables) and exogenous variables

(that is, external predictors) can be explored. Numerous measures or indices are used to

determine the fit of the model under examination. The results from the data analysis are

compared with established standards for fit estimation to determine the strength of the

findings compared with the proposed model being tested. A solid SEM model can

explain the observed covariance structure.

This study estimated the hypothesized structural equation model (see Figure 1) using

Joreskog & Sorbom’s (1996a) LISREL 8 program. The input for the LISREL program

comprised an 11 � 11 covariance matrix generated by PRELIS 2 (Joreskog & Sorbom,

1996b). The latent variables used in the analysis included organizational process align-

ment, dynamic capability, and organizational performance.

To assess the overall fit of the data to the model, this study reports chi-square statistics

along with several other different types of fit indices. This study chose three incremental fit

indices: the Tucker–Lewis Index (TLI) (Tucker & Lewis, 1973), Incremental Fit Index

(IFI) (Bollen, 1989), and Comparative Fit Index (CFI) (Bentler, 1980). Two other residual

types of fit indices were also assessed: the Root Mean Squared Residuals (RMR) of

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Joreskog & Sorbom (1996a) and the Root Mean Square Error of Approximation (RMSEA)

of Steiger (1990). All three incremental indices are based on a fit comparison of the

hypothesized model to that of the null baseline model. Furthermore, each of the incremen-

tal fit indices ranges from zero to 1.0, with values exceeding 0.90, indicating an adequate

model-data fit. The Tucker–Lewis index differs from the other two fit indices in that it is

rarely influenced by sample size and model complexity. The RMR measures the average

of the fitted residuals, and the RMSEA indicates the closeness of the fit between the model

and population. These two indices describe the degree to which the covariance matrix

implied by the model matches the observed covariance matrix, and a value of zero indi-

cates an optimal fit. Values of such indices below 0.08 reflect reasonably well fitting

models (Browne & Cudeck, 1993).

Besides the fit indices, this study reports the parameter estimates based on their associ-

ated significance levels for the hypothesized model. This is done to identify adequate

measurement items for the study constructs. This study also describes squared multiple

correlations for key endogenous variables to identify the predictive power of the hypoth-

esized conceptual model. The squared multiple correlations for a latent variable indicate

the percentage variations of that construct that can be explained using the proposed model.

Results

Table 1 lists descriptive statistics and correlations among indicator variables. The pattern

of correlations generally supported the proposed hypotheses. All 11 indicators for the con-

structs included in this study exhibited significant correlations, demonstrating moderate to

high correlations among organizational process alignment, dynamic capability, and organ-

izational performance. Direct and indirect influences of organizational process alignment

on performance were tested using the SEM technique, which is discussed below.

SEM results for testing the model shown in Figure 2 demonstrated that the proposed

model generally fits closely with the sample data: x 2(35) ¼ 58.07, p , 0.01;

RMR ¼ 0.03, RMSEA ¼ 0.06, GFI ¼ 0.94, TLI ¼ 0.95, IFI ¼ 0.97, CFI ¼ 0.97. The

overall chi-square for the model was 58.07, with 35 degrees of freedom and a p value

of below 0.01. The value of the three incremental fit indices displayed adequate model

fit to the data (GFI ¼ 0.94, TLI ¼ 0.95, IFI ¼ 0.97, CFI ¼ 0.97), and the hypothesized

model showed a relatively small quantity of residuals (RMR ¼ 0.03, RMSEA ¼ 0.06).

The square of the multiple correlations for the construct of organizational performance

was 0.50, suggesting that the proposed model explained 50.2% of the variations of the con-

struct. Furthermore, all of the structural paths included in the proposed model yielded sig-

nificant parameter estimates. Combined, these analytical results support the proposed

model and Hypotheses 1–3. Additionally, analytical results demonstrated that organiz-

ational dynamic capability mediates between organizational alignment and organizational

performance. Although organizational alignment is positively associated with organiz-

ational performance (as indicated by Hypothesis 2), this relationship diminished when

organizational dynamic capability, a mediating variable, was considered. This study

demonstrated that the relationship between organizational alignment and organizational

performance is direct and significant (r ¼ 0.015, p , 0.05) and that the indirect effect

of organizational alignment on organizational performance through organizational

dynamic capability is also significant (r ¼ 0.585, p , 0.05).

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Table 1. Descriptive statistics and correlations among indicator variables

Variables M SD 1 2 3 4 5 6 7 8 9 10

1. Structural Alignment 3.51 0.61 –2. IT Alignment 3.66 0.61 0.61�� –3. Strategic Alignment 3.84 0.57 0.44�� 0.46�� –4. Organizational Strategic Capability 3.80 0.63 0.24�� 0.32�� 0.56�� –5. R&D Innovative Capability 3.70 0.66 0.40�� 0.46�� 0.50�� 0.57�� –6. Performance (competitive advantage) 3.83 0.65 0.13 0.18� 0.31�� 0.36�� 0.42�� –7. Performance (market share) 3.76 0.69 0.29�� 0.25�� 0.43�� 0.50�� 0.46�� 0.52�� –8. Performance (profit) 3.76 0.76 0.03 0.01 0.26�� 0.44�� 0.19� 0.53�� 0.48�� –9. Performance (cost) 3.59 0.72 0.22�� 0.17� 0.28�� 0.33�� 0.37�� 0.34�� 0.42�� 0.32�� –

10. Performance (total sales) 3.85 0.74 0.13 0.15� 0.35�� 0.44�� 0.22�� 0.47�� 0.51�� 0.73�� 0.34�� –11. Performance (customer satisfaction) 3.63 0.71 0.20�� 0.28�� 0.34�� 0.38�� 0.32�� 0.41�� 0.50�� 0.52�� 0.43�� 0.57��

Note: N ¼ 176. ��denotes p , 0.01, �denotes p , 0.05

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Analytical results of this study also indicated that strategic alignment (lx3 ¼ 0.822) is a

factor crucial to the process of organizational process alignment, followed by IT alignment

(lx2 ¼ 0.571), and structural alignment (lx1 ¼ 0.523). Within dynamic capability vari-

able, organizational strategic capability (ly1 ¼ 0.798) is a factor essential to organiz-

ational dynamic capability and for organizational performance, market share

(lz2 ¼ 0.757) is a key factor for organizational performance.

Structural equation models generally apply ellipses to represent constructs (latent vari-

ables), and a line with one arrow between two constructs signifies the influence of one con-

struct on another. The number contiguous to the line is the statistic denoting standardized

path coefficients (SPC), and can be considered a standardized regression coefficient for

one latent variable in relation to another when the effects of all other variables are elimi-

nated. This study suggests that organizational process alignment significantly and posi-

tively contributes to organizational dynamic capability (SPC ¼ 0.841, p , 0.01).

Furthermore, the organizational process alignment considerably and positively influences

organizational performance (SPC ¼ 0.015, p , 0.05). Finally, organizational dynamic

capability significantly contributed to organizational performance (SPC ¼ 0.696,

p , 0.01). In summary, the results of structural equation analysis indicate that organiz-

ational process alignment is a strong predictor of organizational dynamic capability and

organizational performance. Furthermore, analytical results also demonstrate that organ-

izational dynamic capability plays a key meditating role in transforming the contributions

of organizational process alignment into organizational performance.

Discussion and Conclusion

Previous studies typically examined organizational process alignment and organizational

dynamic capability individually. This study is the first to investigate how firms’ process

alignment influences organizational performance through organizational dynamic capa-

bility. Analytical results of this investigation demonstrate that the proposed structural

model closely fits sample data. The hypotheses tested were fully supported by empirical

data. The analytical results obtained by this study are consistent with those in current

Figure 2. Structural equation model for Organization Performance

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literature that demonstrated that organizational process alignment significantly and

positively contributes to organizational dynamic capability (Lee & Dale, 1998; Zairi,

1997). Study findings are also consistent with those in the literature which state that organ-

izational dynamic capability positively and significantly contributes to organizational

performance (Danneels, 2002; Luo, 2000; Zott, 2003). Although organizational process

alignment positively affected organizational performance in this study, its influence was

mediated by organizational dynamic capability. Restated, organizational process align-

ment in firms does not appear to deliver or create value directly. This phenomenon may

indicate why few empirical studies have examined alignment-related concepts, despite

such concepts having received considerable attention in the literature. Nevertheless, this

study demonstrated that organizational process alignment matters since this variable influ-

enced organizational dynamic capability and performance. Consequently, the role of

aligning organizational process with a core business mission and thus boosting organiz-

ational capability should not be overlooked. Organizational process alignment tends to

be embedded in the process of improving organizational dynamic capability. Ultimately,

organizational process alignment significantly influences organizational performance.

Based on analytical results, organizational dynamic capability is strongly associated

with organizational process alignment and organizational performance, and indicated

that although organizational process alignment and organizational dynamic capability

shared some basic principles, organizational dynamic capability possesses more crucial

factors than organizational process alignment. Therefore, organizational dynamic capa-

bility is easily a mediator for organizational process alignment to improve organizational

performance.

While this study assesses the impact of organizational process alignment on the

dynamic capabilities and organizational performance of high-tech companies in

Taiwan, this study itself was not completely free from limitations. Because the study

sample comprised homogeneous high-tech firms, which ruled out extraneous factors

associated with different organizations in different industries, care must be taken when

generalizing results to other business sectors. Another limitation is that this study did

not objectively measure innovation performance. Future studies, which use a broad

sample of companies from other industries to objectively assess innovation performance,

are required. The final limitation is that all of the measures were obtained using the same

method (self-reporting); therefore, relationships among variables may be inflated by

common method variance.

In addition to research and theoretical implications, this study provides practical impli-

cations for businesses by highlighting management processes centered on organizational

process alignment, suggesting that organizational dynamic capability can be a means for

organizational process alignment to improve organizational performance.

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