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IT-ENABLED DYNAMIC CAPABILITIES IN NEW PRODUCT DEVELOPMENT:
BUILDING A COMPETITIVE ADVANTAGE IN TURBULENT ENVIRONMENTS
by
Pavlos A. Pavlou
A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment o f the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
(BUSINESS ADMINISTRATION)
May 2004
Copyright 2004 Pavlos A. Pavlou
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UMI Number: 3140534
Copyright 2004 by
Pavlou, Pavlos A.
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ACKNOWLEDGEMENTS
This dissertation study is partially sponsored by the SAP America annual dissertation
competition award, administered by the e-Business Research Center (eBRC) at Penn State University. I
would like to thank my dissertation advisor Omar El Sawy and the members of my dissertation
committee - Delores Conway, Janet Fulk, Christoph Schlueter-Langdon, and David W. Stewart - for
their valuable help and guidance. The comments and suggestions of Cynthia Beath, Anandhi Bharadwaj,
Kathleen Eisenhardt, Wynne Chin, Blake Ives, Bill Kettinger, V. Sambamurthy, Burt Swanson, and N.
Venkatraman were particularly valuable. The dissertation was substantially benefited from presentations
at Indiana University, New York University, University of British Columbia, University of Houston,
UCLA, University of California at Riverside, University of South Carolina, among others. I would also
like to thank the organizers and participants of the 2002 Product Development and Management
Association (PDMA) and 2003 Roundtable Management (RTM) Collaborative Development (CoDev)
Conferences for their support and participation in the dissertations two empirical studies. Last but not
least, I would like to thank Angelika Dimoka for her encouragement and assistance during all stages of
this dissertation study.
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ii i
TABLE OF CONTENTS
ACKNOWLEDGMENTS ii
List of Tables vi
List of Figures vii
ABSTRACT viii
CHAPTER 1: RESEARCH MOTIVATION 1
1. Overview of Conceptual Foundations 2
1.1 Dynamic Capabilities 2
1.2 Resource Reconfigurability and Competitive Advantage 4
1.3 IT Competence and Dynamic Capabilities 5
1.4 Environmental Turbulence 6
2. Research Context 7
2.1 New Product Development 7
2.2 New Product Development Work Units 8
3. Interorganizational and Intra-organizational Relationships 9
4. Dissertation Contribution 10
4.1 Theoretical Contribution 104.2 Empirical Contribution 12
4.3 Managerial Contribution 13
5. Dissertation Overview 13
CHAPTER 2: RESOURCE RECONFIGURABILITY 14
1. Overview of Resource Reconfigurability 14
2. Literature Review 152.1 The Resource-Based View 15
2.2 The Knowledge-based view 16
2.3 Dynamic Capabilities 17
3. Resource Reconfigurability 22
3.1 Resource Reconfigurability Defined 22
3.2 Theoretical Domain of Resource Reconfigurability 243.3 Resource Reconfigurability: A Higher-Order Construct 34
3.4 Relationship Among Lower-Order Capabilities 39
3.5 Resource Reconfigurability as a Formative Structure 44
4. Dynamic Capabilities in New Product Development 45
4.1 The New Product Development Context 45
4.3 Resource Reconfigurability in New Product Development 465. Interorganizational Dynamic Capabilities 48
5.1 Relational View 485.2 Interorganizational Dynamic Capabilities 50
5.3 Interorganizational NPD 52
5.4 Summary 53
CHAPTER 3: DEVELOPMENT OF RESEARCH MODEL 54
1. Overview of the Research Model 542. Building a Competitive Advantage 55
2.1 Competitive Advantage in New Product Development 55
2.2 Trade-Off in New Product Development 56
3. Resource Reconfigurability and Competitive Advantage 57
3.1 Resource Reconfigurability and Core Rigidities 58
3.2 Competive Potential of Resource Reconfigurability 59
4. Resource Reconfigurability and Strategy-Environment Alignment 60
4.1 Strategy-Environment Alignment 61
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iv
4.2 Strategy- Environment Alignment in NPD 61
4.3 Strategy- Environment Alignment and Competitive Advantage 68
4.4 Resource Reconfigurability and Strategy-environment Alignment 705. IT-Enabled Dynamic Capabilities 71
5.1 IT Competence 72
5.2 IT Competence in NPD 75
5.3 The Nature of IT Competence in NPD 79
5.4 IT Competence in NPD as a Formative Second-Order Factor 81
5.5 IT Competence and Resource Reconfigurability 82
5.6 Mediating Role of Resource Reconfigurability 87
6. Environmental Turbulence 876.1 Environmental Turbulence and Resource Reconfigurability 88
6.2 Environmental Turbulence on Resource Reconfigurability-Competitive Advantage Relationship 89
6.3 Environmental Turbulence on IT Competence-Resource Reconfigurability Relationship 907. Control Variables 92
7.1 Cross-Functional Integration 92
7.2 Functional Diversity 93
7.3 NPD Experience 93
7.4 NPD Knowledge 947.5 Innovation Type 94
7.6 Intra- Vs Inter-Organizational Work Units 95
7.7 Virtuality 95
7.8 Collaborative Development 96
CHAPTER 4: RESEARCH METHODOLOGY 971. The Context for Theory Testing 97
2. Field Interviews 97
3. Measurement Development 99
3.1 Measurement Instrument 99
3.2 Pilot Tests 114
4. Survey Administration 116
4.1 Key Respondents 1164.2 Sampling Frame 116
4.3 Data Collection 117
4.4 Response Characteristics 119
CHAPTER 5: DATA ANALYSIS AND RESULTS 121
1. Respondent Characteristics 1221.1 Demographics 122
1.2 Descriptive Statistics 123
1.3 Aggregate Data from Studies 1&2 123
2. Measurement Validation 123
2.1 Reliability 123
2.2 Discriminant and Convergent Validity 125
3. Second-Order Structures 1273.1 Resou rce Reconfigura bility as a Second-Ord er Structure 129
3.2 IT Competence as a Second-Order Structure 130
3.3 Environmental Turbulence as a Second-Order Structure 132
4. Computation of Strategy-Environment Alignment 132
5. The Structural Model 134
5.1 Mediating Role of Dynamic Capabilities 136
5.2 Dynamic Capabilities in Different Environments 138
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V
CHAPTER 6: DISCUSSION 140
1. Key Findings and Insights 140
2. Theoretical Implications 142
2.1 Implications for Information Systems Research 142
2.2 Implications for Strategic Management 145
2.3 Implications for New Product Development 149
4. Implications for Practice 150
5. Limitations and Suggestions for Future Work 151
6. Conclusion 155
REFERENCES 156
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vi
LIST OF TABLES
Table 1. Definitions of Principal Constructs 91
Table 2. Correlation Matrix among Objective and Subjective Performance Measures 106
Table 3. Steps and Procedures taken for Calculating Environment-Strategy Alignment 108
Table 4. Measurement Items of Principal Constructs 111
Table 5. Respondents Demographic Characteristics 122
Table 6. Descriptive Statistics for Principal Constructs 124
Table 7. Composite Reliabilities for Multi-Item Principal Constructs 124
Table 8. PLS Confirmatory Factor Analysis for Discriminant and Convergent Validity 126
Table 9. Correlation Matrix and Average Variance Extracted for Multi-item Constructs 127
Table 10. Test for Mediation for Resource Reconfigurability 130
Table 11. Test for Mediation for IT Competence 131
Table 12. Cluster Analysis Results and Cluster Validation 133
Table 13. Control Variables on Primary Dependent Variables 135
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vi i
LIST OF FIGURES
Figure 1. The Nature of Resource Reconfigurability 14
Figure 2: Proposed Research Model 54
Figure 3. Environment Strategy Alignment in NPD 62
Figure 4. IT Competence in New Product Development 76
Figure 5. The Formative Nature of Resource Reconfigurability 130
Figure 6. The Formative Nature of IT Competence 131
Figure 7. PLS Results of Structural Model (n=l 80) 134
Figure 8. PLS Results for Studies I and II (Independent Analyses) 136
Figure 9. Test of the Mediating Role of Resource Reconfigurability 137
Figure 10. Model Comparison for High Vs Low Turbulence Environments 138
Figure 11. Competing Theoretical Views 144
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ABSTRACT
This study describes the process by which IT forms the basis for competitive advantage in
todays turbulent environments. Following the dynamic capabilities view, competitive advantage results
from reconfiguring existing resources to shape new functional competencies that align with the
environment. I define the core principle of dynamic capabilities into a multi-dimensional construct
termed resource reconfigurability,conceptualized as a formative second-order structure, formed by four
capabilities - coordination competence, absorptive capacity, collective mind, and market orientation.
Resource reconfigurability is proposed to influence competitive advantage, applied into a new product
development (NPD) context. The proposed role of resource reconfigurability on competitive advantage is
mediated by the alignment of functional NPD competencies with the environment (termed strategy-
environment alignment), and it is moderated by environmental turbulence.
IT competence is posited as an antecedent of resource reconfigurability. IT competence in NPD
is conceptualized as a second-order formative structure, formed by the effective use of (a) project and
resource management systems, (b) knowledge management systems, and (c) cooperative work systems.
Environmental turbulence influences resource reconfigurability, while moderating the relationship
between IT competence and resource reconfigurability.
Data from 180 NPD managers support the proposed structural model, validating the proposed
indirect role of IT on competitive advantage through the mediating effects of resource reconfigurability
and strategy-environment alignment. The results also support the proposed second-order formative
structures of resource reconfigurability and IT competence, while supporting the proposed direct and
moderating roles of environmental turbulence. Most interestingly, the results suggest that IT-enabled
resource reconfigurability is valuable in both high and low turbulent environments.
This study contributes to the strategic role of IT in rapidly changing environments, delineating
the process by which IT influences competitive advantage through resource reconfigurability and
strategy-environment alignment. I discuss the studys implications for Information Systems research,
strategic management and the dynamic capabilities view, and the study of NPD, stressing the need for
reconceptualizing the role of IT as an enabler of dynamic processes.
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CHAPTER 1: RESEARCH MOTIVATION
Rapid technological developments, frequent changes in customer preferences, new product
introductions with short product cycles, and hyper-competition have increased the degree of change or
clockspeed of the business environment (Mendelson, 2000; Mendelson & Pillai, 1998; Sampler, 2000;
Segars & Dean, 2000; Segars & Grover, 1999; Wind & Mahajan, 1997). Changing environments destroy
the value of existing competencies (Leonard-Barton, 1992; Tushman & Anderson, 1986), dismpting
existing means o f competition (D'Aveni, 1994; Sambamurthy, 2000). In todays turbulent environments,
organizations need to diversify, adapt, and even reinvent themselves to match evolving market and
technological conditions to survive and thrive (Eisenhardt & Brown, 1999; Madhok & Tallman, 1998).
An important means of differentiating in turbulent environments is innovative moves, agility,
and strategic flexibility (Barney, 1991; Sambamurthy, Bharadwaj, & Grover, 2003). Therefore, a basic
premise o f this study is that a competitive advantage arises from the ability to continuously improve,
innovate, and reconfigure existing resources to develop valuable functional competencies that match
changing environmental needs (Eisenhardt & Tabrizi, 1995; Feeny & Willcocks, 1998; Hamel &
Prahalad, 1994). This ability has been formally described in the dynamic capabilities perspective (Teece,
Pisano, & Shuen, 1997). Broadly defined, dynamic capabilities are the strategic processes by which
organizations manipulate resources into new configurations of functional competencies in turbulent
environments (Galunic & Eisenhardt, 2001). This paper defines the core principle of dynamic capabilities
into a multi-dimensional construct termed resource reconfigurability. I describe, operationalize and test
its proposed higher-order nature and underlying dimensions, and hypothesize its impact on competitive
advantage. I then study the extent to which the value potential of resource reconfigurability on
competitive advantage is moderated by environmental turbulence.
Despite the importance of dynamic capabilities in rapidly changing environments, we know little
whether, how, and why IT helps manage change and facilitate resource reconfiguration, especially in
turbulent environments. Thus, the second fundamental question in this study is the role of IT as the basis
for competitive advantage in turbulent environments (Chatteijee, Richardson, & Zmud, 2001;
Sambamurthy et al., 2003).
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An emerging literature on the strategic view of IT suggests that the role of IT has evolved from
traditional support of day-to-day operations towards a strategic and transformation role (Bharadwaj,
2000; Sambamurthy, 2000; Sampler, 2000; Santhanam & Hartono, 2003; Segars & Dean, 2000;
Venkatraman & Henderson, 1999). Practitioners also tout that IT could become the driving force behind
strategic competitive advantage in turbulent environments (D'Aveni, 1994). In the Information Systems
(IS) literature, IT-enabled responsiveness and agility have been viewed as sources of competitive
advantage (Lengnick-Hall & Wolff, 1999; Sambamurthy, 2000; Sambamurthy et al., 2003; Stalk & Hout,
1990). Information economics also emphasize IT-enabled dynamic strategies to leverage new market
opportunities (Shapiro & Varian, 1999). This study proposes IT competence as a multi-dimensional
construct that indirectly affects competitive advantage by enhancing resource reconfigurability. I define
and operationalize IT competence and its core dimensions, and test its impact on dynamic capabilities and
its indirect effect on competitive advantage. I also study whether the impact of IT competence is
moderated by the degree of environmental turbulence. In sum, this study examines the nomological
network by which IT influences differential performance outcomes in rapidly changing environments.
1. Overview of Conceptual Foundations
1.1 Dynamic Capabilities
The dynamic capabilities approach endeavors to identify sources of value creation in rapidly
changing environments (Eisenhardt & Martin, 2000; Teece et al., 1997). This approach draws from
Schumpeterian competition (Schumpeter, 1934, 1942), where competitive advantage is based on creative
destruction of existing functional competencies and creation of new ones that better match the emerging
environment. First, it is important to differentiate dynamic capabilities from functional or static
competencies. Functional competencies perform basic operational activities, such as logistics, marketing
campaigns, and manufacturing processes (Amit & Schoemaker, 1993; Madhok & Tallman, 1998;
Prahalad & Hamel, 1990). Dynamic capabilities, on the other hand, capture the creative capacity to renew
ineffective functional competencies for dynamic improvement of existing resources in response to
environmental changes (Collis, 1994). Dynamic capabilities thus govern the organizations ability to
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learn, adapt, change, and renew over time (Teece & Pisano, 1994). This is consistent with Henderson and
Cockbum (1994) who distinguish between component competence (managing day-to-day operations)
and architectural competence (developing new competencies). An example of a dynamic capability is in
new product development (NPD) where organizations must adapt to economic conditions and switch
gears rapidly, from rapid product development to efficient practices (Prahalad & Hamel, 1990). Another
NPD example is to recognize technological breakthroughs or changes in customer preferences and
quickly reconfigure resources to satisfy the new demand with new technologies before the competition. It
is not possible to enumerate all types of dynamic capabilities, such as strategic decision-making,
acquisition strategy, and alliance formation (Eisenhardt and Martin 2000). This study focuses on the
challenge of reconfiguring existing resources to build new NPD competencies that better match
environmental contingencies in order to introduce competitive, cost-effective products.
While the existence of dynamic capabilities has been documented at an abstract level using
qualitative case studies, to the best of my knowledge, no study has attempted to theoretically specify,
operationalize, and empirically measure the core principle of dynamic capabilities. Following Eisenhardt
and Martin (2000), dynamic capabilities are embedded in organizational processes necessitating an
empirical organizational lens, rather than an economic or formal modeling one (p. 1106). By taking an
empirical quantitative lens, this study identified a set of specific dynamic capabilities, and operationalized
the underlying factors and item measures that constitute the measurement model of the resource
reconfigurability concept. Resource reconfigurability is described as the complex higher-order dynamic
capability to identify and pursue new opportunities, change rapidly and continuously, and transform
existing resources into new functional competencies to match environmental contingencies.
Drawing from an extensive literature review and field interviews, four interrelated factors were
identified, which cumulatively form the proposed second-order resource reconfigurability construct. First,
to enable coordination of existing resources, coordination competence is described as the dynamic
process of managing knowledge resources to achieve synchronization, resource allocation, and task
assignment (Crowston, 1997; Malone & Crowston, 1994). Second, to enable expansion and improvement
of existing knowledge resources, absorptive capacity (Cohen & Levinthal, 1990; Zahra & George,
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2002a) is described as the dynamic learning process of acquiring, assimilating, transforming, and
exploiting knowledge resources. Third, since effective reconfiguration occurs in a collective fashion
(Brown and Eisenhardt 1997; Orlikowski 2002), collective mind is conceptualized as the dynamic
ability to heedfully contribute to the group outcome, represent the collective input, and interrelate
activities to adapt to situational demands and rapidly-evolving conditions (Weick & Roberts, 1993).
Finally, given the need to comprehend the environment, market orientation is proposed as the dynamic
ability to discover new opportunities in the environment and be oriented to market conditions (Brown &
Eisenhardt, 1997; Kirzner, 1973; Kohli & Jaworski, 1990; Weick, 1995). These four distinct, yet related,
mutually reinforcing capabilities are conceptualized as best practices in reconfiguring resources to adapt
to rapidly changing environments. In sum, the higher-order resource reconfigurability construct involves
identifying market opportunities (market orientation), learning (absorptive capacity), coordinating diverse
skills (coordination competence), and collectively integrating multiple streams of knowledge (collective
mind). These dynamic capabilities are consistent with the factors proposed to manage hyper-competitive
environments (Prahalad & Hamel, 1990; Sambamurthy, Bharadwaj, & Grover, 2002; Sambamurthy et al.,
2003; Segars & Dean, 2000; Teece et al., 1997). While this set is not exhaustive, I maintain that these
four capabilities are representative in forming the resource reconfigurability concept.
1.2 Resource Reconfigurability and Competitive Advantage
Resource reconfigurability is difficult to substitute and imitate because of its complexity that
creates causal ambiguity (Lippman & Rumelt, 1982). Given its complexity and the evolutionary way it
develops, resource reconfigurability is difficult to describe, explain, transfer, or replicate. Following
Barney (1991), these attributes make it a potential source of competitive advantage. This is consistent
with Henderson and his colleagues who show that dynamic capabilities can be important sources of
enduring competitive advantage (Henderson & Clark, 1990; Henderson & Cockbum, 1994).
This study focuses on an economic reasoning toward optimizing the technical fit between the
environment and functional competencies toward a competitive advantage. Following Schumpeterian
innovation (Schumpeter, 1934, 1942), resource reconfigurability is proposed to result in a competitive
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advantage by creating better matches between functional competencies and evolving environmental
contingencies. Failure to align functional competencies with external needs may transform valuable
proficiencies into rigidities (Leonard-Barton, 1992). Resource reconfigurability is expected to shape,
deepen, and configure resources to increase their alignment with changing product-market areas (Teece et
al., 1997), thus influencing competitive advantage (Doty, Glick, & Huber, 1993; Venkatraman, 1989).
1.3 IT Competence and Dynamic Capabilities
Drawing upon the resource-based view (Lippman & Rumelt, 1982; Penrose, 1959; Peteraf,
1993), the literature has long advocated tight linkages between IT and strategy (Bakos & Treacy, 1986;
Grant, 1991; Mata, Fuerst, & Barney, 1995; Powell & Dent-Micallef, 1997; Sabherwal & Chan, 2001). IT
is at the forefront of strategy formulation, preceding or driving business initiatives by creating new
opportunities and value propositions and enhancing organizational agility (Sambamurthy et al. 2003). In
fact, IT can enable organizations to do things they could not do before and thus develop superior new
abilities (Cash & Konsynski, 1985; Ching, Holsapple, & Whinston, 1996; Clemons & Row, 1992; Day,
1994; Dewett & Jones, 2001; Porter & Millar, 1985).
A particular emphasis is paid on the role of IT in enhancing strategic flexibility in rapidly
changing environments (Sambamurthy, 2000; Sambamurthy et al., 2002, 2003; Sampler, 2000;
Venkatraman & Henderson, 1998; Wheeler, 2002; Zahra & George, 2002b), coupled by managerial
intuition (DAveni, 1994; Goldman, Nagel, & Preiss, 1995). For example, (Sambamurthy et al., 2003)
argue that IT serves as the enabling platform on which agility is built. Drawing upon this view, this study
examines the role of IT on dynamic capabilities.
Despite the immense work in the IS discipline, the IT artifact is still not well-defined or
described (Orlikowski & Iacono, 2001). In order to better understand the role of IT and its impact on
dynamic capabilities, this study proposes the concept of IT competence, which is broadly described as
the ability to acquire, deploy, and leverage IT functionality in combination or co presence with other
resources to shape and support business processes (Bharadwaj, 2000; Sambamurthy & Zmud, 2000). It is
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important to note that IT competence is different than IT investments because competencecaptures the
effective utilization of investments in IT functionality, not merely IT expenditures.
While the potential benefits of IT may be intuitive, the exact process by which IT competence
results in differential performance outcomes is still not well understood. Even if there is evidence that IT
leads to higher performance (Bharadwaj, 2000; Bharadwaj, Bharadwaj, & Konsynski, 1999), this study
aims to delineate the exact process by which organizations can leverage IT to support resource
reconfigurability, build effective new functional competencies, achieve strategy-environment alignment,
and generate a competitive advantages in turbulent environments.
There are at least four theoretical perspectives that explain the impact of IT competence on
dynamic capabilities. First, resource reconfigurability is essentially an information processing routine
(Galbraith, 1977), creating the opportunity for IT competence to enhance the actors ability to process
information (Mendelson, 2000). In other words, IT competence extends the limits of bounded rationality
(Bakos & Treacy, 1986), and reduces its negative effects on decision making. Second, (Sambamurthy et
al., 2003) draw upon digital economics to suggest that IT competence creates digital options that help
intertwine IT with organizational processes to leverage digital economics (Shapiro & Varian, 1999).
Third, the ability to reconfigure resources is enhanced if resources are modular (Galunic & Eisenhardt,
2001). IT competence increases resource modularization, thus resource reconfigurability. Finally, the
proposed resource reconfigurability is essentially a knowledge management process, and it is likely to be
significantly supported by IT. The knowledge-based view suggests that knowledge driven capabilities can
enhance through efficiency, scope, and flexibility (Grant, 1995, 1996b). There is much evidence to
suggest that IT competence can enhance all three attributes. In sum, the knowledge sharing and
information processing capabilities of IT enable rapid information flows and resource reconfiguration and
facilitate organizations to successfully keep up with rapidly changing environments.
1.4 Environmental Turbulence
Dynamic capabilities are particularly valuable in high-velocity environments where firms need
to continuously adapt to rapidly changing conditions (Brown & Eisenhardt, 1997). Environmental
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turbulence reduces the value potential of existing competencies and competitive positions (Sambamurthy,
2000; Tushman & Anderson, 1986). Therefore, turbulent environments cause organizations to engage in
frequent resource reconfigurations to replace rigid configurations of functional competencies that no
longer match the new environments. In sum, Ipropose a positive relationship between environmental
turbulence and resource reconfigurability. In this study, environmental turbulence is proposed as a higher-
order formative construct formed by frequent technological breakthroughs and changes in customer
demand and competition.
Environmental turbulence also intensifies the competitive landscape and increases the intensity
of business processes (Mendelson, 2000), escalating the importance on knowledge resources (Hitt, Keats,
& DeMarie, 1998). Thus, the impact of resource reconfigurability on competitive advantage is contingent
on environmental turbulence. Higher turbulence is likely to facilitate the positive impact o f resource
reconfigurability on competitive advantage. Using the same logic, environmental turbulence reinforces
the positive impact of IT competence on resource reconfigurability.
2. Research Context
NPD is the context in which the proposed model of IT-enabled dynamic capabilities is applied.
2.1 New Product Development
NPD has long been touted as a domain that organizations can develop a strategic advantage
(Leonard-Barton, 1992; Verona, 1999; Wheelwright & Clark, 1992). The NPD is a prime example of a
knowledge-intensive, problem-solving process where disparate knowledge resources (e.g., technical and
marketing) need to be coordinated, expanded, and leveraged to quickly build cost-effective products. In
NPD, environmental turbulence (changing market needs and technological breakthroughs) calls for
continuously different new products to match changing customer needs and increased technical
sophistication. Since existing resources need to be recombined to maintain efficiency, yet achieve high
product quality and innovation, dynamic capabilities are much relevant to NPD (Eisenhardt & Martin,
2000; Marsh & Stock, 2002). Achieving process efficiency (development cost and time to market) and
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product effectiveness (quality and innovation) represents a trade-off (Sobrero & Roberts, 2001); thus the
simultaneous achievement of both factors is proposed as a measure of competitive advantage in NPD.
The NPD process is also becoming an important area for IS research on its own right. The NPD
process is an information-intensive process that is likely to be facilitated by IT. Despite the existence of
sophisticated IT tools (e.g., project and resource management, knowledge management, and cooperative
work systems) for NPD (Rangaswamy & Lilien, 1997), we know little about whether, how, and why
these systems can be translated into superior new products. Most work in NPD has focused on non-IT
aspects, such as project staffing and structure, external influences, and cross-functional teams; thus, the
nature and role o f IT is relatively under-researched (Marsh & Stock, 2002). Examining how IT influences
dynamic capabilities to achieve NPD success is a promising area for IS research (Nambisan, 2003).
2.2 New Product Development Work Units
The unit of analysis in this study is the NPD work unit, which operates at the project level and
undertakes strategic group-level NPD processes. With the advent of sophisticated IT, work units are
becoming the prim ary vehicle through which productive activity is orchestrated (Moss-Kanter, 1994;
Sambamurthy & Zmud, 2000). In fact, the process level is where all business processes - dynamic
capabilities, functional competencies, and IT competence - are embedded and operate. A process-level
view has also been touted as the most appropriate level for analyzing IT effects (Barua, Kriebel, &
Mukhopadhyay, 1995; El Sawy, 2001; Mooney, Gurbaxani, & Kraemer, 1995). The unit of analysis of in
NPD processes is often the work unit since the focus of much NPD research is the projec t team (Brown
and Eisenhardt 1995). While most research on NPD or dynamic capabilities have focused on firm-level
characteristics, this study draws upon Leonard-Barton (1992) who proposed a focus on enlarging the
boundaries of middle range theory and placing NPD groups under a magnifying glass to examine their
strategic potential (p. 122). In sum, NPD work units may contain several related divisions and product
dimensions, and may be formed by several departments or organizations (Galunic & Eisenhardt, 2001).
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3. Interorganizational and Intra-org anizational Relationsh ips
Similar to firm centric NPD work units, interorganizational NPD partnerships also need to
reconfigure their knowledge resources in response to changing environmental conditions (Stuart, 1998).
While dynamic capabilities have been viewed as firm-centric processes, this study integrates the inter
organizational literature with the dynamic capabilities perspective, under the aegis of the relational view
(Dyer & Singh, 1998) to argue that dynamic capabilities should likewise hold both in both intra- and also
in inter-organizational NPD processes.
From an IT perspective, recent advances in Internet-based IT enable geographically dispersed
work units to collaboratively conduct work, thus blurring traditional firm boundaries. In fact, greater use
of IT favors dispersed groups (DeSanctis & Monge, 1999; Jarvenpaa & Leidner, 1998; Maznevski &
Chudoba, 2000; Zmud, 2000). The primary example is virtual teamsthat accumulate and integrate
knowledge from dispersed locations, irrespective of firm boundaries (Saunders, 2000). The role of IT on
interfirm relationships is increasingly gaining attention (Bensaou, 1997; Liberatore & Stylianou, 1995;
Rayport & Sviokla, 1995), even in traditional intra-organizational areas, such as NPD (Sobrero &
Roberts, 2001). In other words, todays sophisticated IT makes it equally easy to exchange information
and collaborate, despite geographical boundaries (at least as far as IT is concerned).
In terms of non-IT distinctions, there is a growing recognition that interfirm relations offer
significant opportunities for strategic advantages. Organizations are in fact adopting a cooperative logic
and move toward strategic alliances (Bensaou, 1997; Dyer, 1997; Moss-Kanter, 1994). There is also
increased evidence for the value of combining complementary resources that reside outside traditional
firm boundaries (D'Adderio, 2001; Dyer & Singh, 1998). This is particularly hue in highly turbulent
environments where organizations urgently need new knowledge resources, which often reside outside
their firm boundaries (Henderson & Cockbum, 1994). While the resource-based view focuses on firm-
specific capabilities, the relational view focuses on interorganizational relationships as the unit o f analysis
(Dyer& Singh, 1998), examining how firms develop joint capabilities for collaborative advantage
(D'Adderio, 2001; Dyer, 2000; Jap, 2001). Many authors argued that competition occurs among networks
of firms (Dyer, 2000; Dyer & Singh, 1998), supply chain versus supply chain (Segars & Dean, 2000).
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The theoretical extension of dynamic capabilities to an interorganizational level of analysis
directly draws from the relational view (Dyer & Singh, 1998), which posits the relationship as the unit o f
analysis and interfirm processes as the focal activities. This is consistent with (De Boer, Van de Bosch, &
Volberda, 1999) who explain that capabilities can be both of an intra- or interfirm in nature, and (Bakos
& Treacy, 1986) and who argue that the unit of analysis might consist of two or more organizations. The
practical utility o f studying inter-organizational capabilities is supported by managerial empiricism (Grant
& Baden-Fuller, 1995; Konicki, 2002). Also, the literature on interfirm relationships is challenging the
traditional centrality of the organization as the main focus o f research (Koza & Lewin, 1998).
4. Dissertation Contribution
This dissertation aims to make contributions to theory, empirical research, and practice, as
described below:
4.1 Theoretical Contribution
The dynamic capabilities perspective is a fruitful area for combining IS and strategic
management theory since IT can enable a competitive advantage by supporting strategic processes (Zahra
& George, 2002b). This dissertation study theorizes IT as an enabler of strategic flexibility, laying the
groundwork for redefining the role of IT in contemporary organizations that operate in turbulent
environments. Whereas IT has been regarded as a strategic necessity (Clemons, Reddi, & Row, 1993;
Clemons & Row, 1992; Clemons, 1991) or an economic imperative (Benjamin, Rockart, Scott Morton,
& Wyman, 1984), I propose a theory-driven perspective on understanding the role of IT as a platform for
building dynamic capabil ities. This complements existing research on the effects of IT that focused
primarily on supporting operational processes, by stressing the role of IT on dynamic processes.
Similar to the resource-based view, the dynamic capabilities view has also been criticized due to
an alleged tautological relationship with competitive advantage (Eisenhardt & Martin, 2000). To
overcome this issue, a specific mediating variable between resource reconfigurability and competitive
advantage is herein proposed. The proposed strategy-environment alignment mediator captures the
extent to which functional competencies form a favorable configuration with environmental variables. By
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showing this mediating effect, this study empirically validates that dynamic capabilities impact
competitive advantage by creating favorable resource configurations, overcoming tautological criticism.
Resource reconfigurability is posited as a key mediating dynamic capability that enables NPD
work units to reconfigure and leverage their existing resources into new functional competencies that
better match turbulent environments. By proposing a set o f mediating dynamic capabilities and strategy-
environment alignment, this study argues that IT does not have a direct impact on competitive advantage,
but rather an indirect one through both dynamic and also through aligned functional processes. This
finding partially accounts for the infamous IT productivity paradox since there may be multiple
intermediate factors mediating the direct role of IT on performance. The proposed focus should be on
leveraging IT to build dynamic capabilities and align functional competencies with the environment, as
opposed to expecting a direct relationship by ignoring these crucial intermediate factors.
By cobbling together several critical factors (e.g., IT competence, dynamic capabilities,
functional competencies) in a coherent structural model, this study delineates the process by which IT
influences performance by enabling key organizational processes. It also provides empirical support to
Grants (1995) theoretical propositions for different types o f organizational resources, capabilities, and
competencies. This study thus adds granularity to the nomological network and delineates the process by
which IT leads to competitive advantage.
While the proposed model readily applies to rapidly changing environments, the results suggest
that the proposed resource reconfigurability is a key success factor, even in less rapidly changing
situations. This is explained by the fact that effectively reconfiguring resources can create superior
services and earn higher rents (Penrose, 1959), even i f adequate configurations of functional
competencies may exist. In other words, even i f stable environments, there are potentially valuable
opportunities for yet improved resource reconfigurations that may result in even higher performance.
Therefore, the proposed model may be viewed as a generalizable representation of how dynamic
capabilities result in competitive advantages, irrespective of the degree of environmental turbulence.
This study also extends the dynamic capabilities view to an inter-organizational level of analysis
by specifying the NPD work unit (both intra- and inter-organizational) as the unit o f analysis. This
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suggests that inter-organizational relationships can also develop their own dynamic processes to guide
their evolution and transformation over time. While the literature focused on firm-centric dynamic
capabilities (Teece et al., 1997), this study makes a modest argument that inter-organizational
relationships can also reconfigure their resources and transform themselves in response to changing
environments. This finding has implications for the viability of long-term inter-firm partnerships. This
study thus contributes to the relational view (Dyer & Singh, 1998) in the sense that dynamic capabilities
extend beyond traditional firm boundaries.
This study examines strategic process level phenomena, such as the ability o f NPD work units to
build a competitive advantage. While strategy has been viewed as a top management decision-making,
this study calls for examining the strategic implications of group level phenomena, such as effectively
and efficiently managing knowledge resources. After all, Galbraith (1977) argued that perhaps the only
source of sustainable competitive advantage is efficient and effective resource management.
Finally, this study aims to describe the role of IT-enabled dynamic capabilities in a NPD context,
a strategic, yet under-researched area in the IS literature (Nambisan, 2003). It aims to entice future
research on understanding the role of IT and its potential outcomes in NPD. Whereas NPD processes are
becoming heavily supported by NPD-specific IT tools , the IS li terature has done very little to inform
theory and practice as to the potential benefits from effectively using IT in NPD processes.
4.2 Empirical Contribution
The extant literature on dynamic capabilities has focused primarily on purely theoretical or
qualitative, case-study methodology. To the best o f my knowledge, a comprehensive framework that
conceptualizes, operationalizes, and measures dynamic capabilities has not yet been developed, nor has
been empirically examined. The measurement o f resource reconfigurability construct and its underlying
dimensions in the NPD context is perhaps the first attempt to empirically measure dynamic capabilities.
This approach can be used as a blueprint for measuring dynamic capabilities in other contexts. Following
Nambisan (2003), this study also operationalizes and measures a specific set o f IT competencies
specifically for a NPD context, thus providing empirical support to the IT artifact in an NPD context.
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4.3 Managerial Contribution
From a managerial perspective, this study aims to describe specific and identifiable factors that
affect success and performance outcomes in NPD, including interorganizational NPD processes. Since
this study aims to prescribe variables that can be readily influenced by managerial practices, the findings
of this study could provide useful recommendations for building a competitive advantage. The proposed
model that delineates the role of IT toward a competitive advantage provides a useful guide to managerial
thinking in terms of where to focus their attention. More important, it aims to prescribe how IT
functionality can be effectively utilized to support dynamic processes, particularly in an NPD context.
This study suggests that there is a need for a fundamental change in managerial thinking about the
enabling role of IT, not simply on operational processes, but on transformation processes and strategic
flexibility (Henderson & Venkatraman, 1993).
5. Dissertation Overview
This dissertation study is divided into six chapters. The second chapter describes the conceptual
underpinnings of resource reconfigurability and its underlying dimensions. The third chapter describes
the conceptual model and proposes a set of testable hypotheses that link resource reconfigurability with
competitive advantage and IT competence, moderated by environmental turbulence. The fourth chapter
describes the research methodology of two empirical studies, measure operationalization, and pilot
studies. The fifth chapter shows the results of the two empirical studies and tests the research hypotheses.
The last chapter discusses the studys findings and insights, its implications for theory and practice, and
its limitations and suggestions for future research.
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CHAPTER 2: RESOURCE RECONFIGURABILITY
1. Overview of Resource Reconfigurability
Dynamic capabilities characterize the ability to address changing environments by reconfiguring
existing internal and external resources into new functional competencies (Teece et al., 1997). This study
draws upon the Information Systems (IS), strategic management, and NPD literatures to propose the
construct of resource reconfigurability,which captures the core principle of dynamic capabilities.
Resource reconfigurability is a multi-dimensional set of dynamic capabilities that is proposed to influence
competitive advantage. The underlying dimensions o f resource reconfigurability are shown in Figure 1.
Figure 1. The N ature of Reso urce Reconfigurability
Competitive
AdvantageResource
Reconfigurability
Coordination
Competence
Absorptive
Capacity
Collective
Mind
Market
Orientation
DYNAMIC CAPABILITIES
The conceptualization of resource reconfigurability primarily draws upon the dynamic
capabilities view (Teece & Pisano, 1994; Teece et al., 1997), and it also informed by the resource-based
view (Penrose, 1959; Rumelt, 1984), the knowledge-base view (Grant, 1996b; Kogut & Zander, 1992;
Leonard-Barton, 1992; Nelson & Winter, 1982). These views offer useful insights regarding the nature of
dynamic capabilities (Kale, Dyer, & Singh, 2002). The application, operationalization, and test of the
resource reconfigurability construct takes place in a new product development (NPD) context. Finally,
resource reconfigurability is proposed to apply both to intra- and inter-organizational NPD work units,
drawing upon the relational view (Dyer & Singh, 1998).
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2. Literature Review
The basic theories reviewed in this preparatory section are (1) the resource-based view, (2) the
knowledge-based view, and (3) the dynamic capabilities view.
2.1 The Resource-Based View
Organizational resources and capabilities have received great interest multiple disciplines, such
as the strategic management (Grant, 1991; Madhok & Tallman, 1998; Makadok, 2001; Priem & Butler,
2001), IS (Bharadwaj, 2000; Kettinger, Grover, Suha, & Segars, 1994; Mata et al., 1995; Powell & Dent-
Micallef, 1997), and marketing literatures (Day, 1994; Jap, 2001; Vorhies & Harker, 2000). The resource-
based view posits firm-specific resources as the determinants of competitive advantage (Penrose, 1959;
Rumelt, 1984). Capabilities and competencies are complex bundles o f resources (Amit & Schoemaker,
1993; Grant, 1996a) that are deeply embedded in organizational processes to help undertake business
activities (Day, 1994; Prahalad & Hamel, 1990; Zollo, 1998). While both capabilities and competencies
are essentially complex bundles o f resources, I reserve the term capabilities for dynamicprocesses, and
the term competencies for functional or operational activities.
According to the resource-based view, organizations must accumulate synergistic combinations
of resources to produce competencies that are valuable, scarce, heterogeneous, imperfectly mobile, and
inimitable in order to build a competitive advantage (Barney, 1991; Lippman & Rumelt, 1982; Peteraf,
1993). Ample evidence links competencies to competitive advantage (Kale & Singh, 1999; Kusunoki,
Nonaka, & Nagata, 1998; Madhok & Tallman, 1998; Moorman & Slotegraaf, 1999).
It is important to clearly distinguish between resources and competencies. Competencies, routed
in organizational processes (Prahalad & Hamel, 1990), generally refer to a firms capacity to undertake
business activities by bringing together bundles of resources (Day, 1994; Grant, 1995; McGrath, 2001;
Winter, 2000). Competencies also differ from resources as they cannot be easily identified, described, or
traded (Hamel & Prahalad, 1991). In fact, Day (1994) argues that competencies and capabilities are so
deeply embedded in organizational processes that even the management finds it difficult to identify,
describe, and apply them to other contexts. Miller and Shamsie (1996) distinguish between resources and
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capabilities as discrete versus systemic resources; Black and Boal (1994) refer to resources and
capabilities as traits and configurations, respectively.
2.2 The Knowledge-based view
The notion of the firm as a bundle of knowledge resources has recently attracted considerable
attention. Following the resource-based view, knowledge has been widely touted as a primary strategic
resource for organizations (Grant, 1996a; Grant & Baden-Fuller, 1995; Kogut & Zander, 1992). The
knowledge-based view argues that the organizations primary function (and reason for existence) is to
leverage knowledge into productive outcomes (Kogut & Zander, 1996; Nahapiet & Ghoshal, 1998;
Nonaka, 1994; Zander & Kogut, 1995a). The basic idea behind the knowledge-based view is that
knowledge resources, skills, and expertise are the basis for competitive advantage. The evolutionary
economics perspective (Nelson & Winter, 1982) and the knowledge-based theory (Grant, 1996b) have
also stressed the importance of knowledge resources as the basis for differential performance. Many
authors even claimed that knowledge could become the primary source of sustainable competitive
advantage in todays knowledge-intensive environments (Glazer, 1999; Grover & Davenport, 2001).
In general, the knowledge-based view understands resources and capabilities as multi-layered
knowledge sets (Leonard-Barton, 1992). Grant (1995) argues that there is a hierarchy of organizational
capabilities from local knowledge resources to functional and cross-functional capabilities. Kusunoki et
al. (1998) view knowledge resources as local capabilities or distinctive knowledge units, described as
human resources, patents, and know-how. Functional competencies are generated through an ongoing
process of absorbing information, converting it into knowledge, and utilizing knowledge to effectively
undertake functional activities. According to Alavi (2000), such knowledge is created when individuals
work together in tightly-knit groups, known as communities o f practice (Brown & Duguid, 1998).
Increased representation of individuals and functions creates a diversity of knowledge resources, which
can create enormous value if properly managed (Blankenburg Holm, Eriksson, & Johnson, 1999; Helper
& MacDuffie, 2001; Moss-Kanter, 1994; Zajac & Olsen, 1993). A fundamental activity of cross
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functional groups, such as NPD work units is to integrate functional knowledge into collective knowledge
capabilities of greater value (Okhuysen & Eisenhardt, 2002).
2.2.1 What is Knowledge?
Knowledge is the stock of intellectual assets accumulated through experience, learning, and
ongoing practices (Sambamurthy, 2000). Knowledge broadly encompasses facts, data, symbols, files,
documents, discussions, workflows, tasks, reports, and whiteboard sessions, human expertise, and
scientific understanding (Becerra-Femandez & Sabherwal, 2001).
In order to fully understand what is knowledge, it is important to first distinguish between
knowledge and information by proposing two distinct categories - (a) information or explicit, codifiable
knowledge and (b) know-how or tacit, sticky knowledge (Alavi & Leidner, 2001; Grant, 1996a; Kogut &
Zander, 1992; Nonaka, 1991). Information or codifiable knowledge can be easily exchanged, shared,
stored, and retrieved without much loss. On the other hand, knowledge is the information that has been
processed in the minds o f individuals through deliberation, learning, and thought (Alavi, 2000). Thus,
tacit knowledge and know-how are complex, sticky, and difficult to codify, transfer, use, and imitate
(Nelson & Winter, 1982). From a conceptual standpoint, compared to codifiable knowledge, tacit
knowledge is more likely to result in competitive advantage.
Despite this distinction, it is important to clarify that these two categories are not dichotomous,
but they are mutually-dependent and reinforcing facets of knowledge (Polanyi, 1975). As Tsoukas (1996)
suggested, tacit and explicit knowledge are inseparable and mutually constituted. Nonaka and Takeuchi
(1995) further proposed that knowledge is created through interactions among different combinations of
tacit and explicit knowledge.
2.3 Dynamic Capabilities
Rapidly changing environments force organizations to regularly change their mix of resources
(Penrose, 1959) since they require ongoing modification to adapt to new environments (Madhok &
Tallman, 1998). Dynamic capabilities are the strategic processes by which organizations combine,
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integrate, expand, and reconfigure their existing resources to address rapidly changing environments
(Teece & Pisano, 1994; Teece et al., 1997). Broadly described, dynamic capabilities are the processes by
which managers manipulate resources into new productive competencies (Galunic & Eisenhardt, 2001).
2.3.1 Resource Picking Vs Dynamic Capabilities
There are at least two distinct mechanisms by which firms build a strategic advantage - (a)
resource picking and (b) competence building (Makadok, 2001). First, based upon the resource-based
view, resource pickingsuggests that organizations can select and acquire resources that will gain a
greater value than expected by the market, or when used in combination with other complementary
resources (Barney, 1991). On the other hand, competence buildingrefers to the ability to integrate, build,
and reconfigure existing resources to build new functional competencies in conditions of rapid change
(Grant, 1995; Teece et al., 1997). Competence building or dynamic capabi lity isa distinct process that
describes how to deploy or exploit existing resources, as opposed to selecting or combining
resources (Hamel & Prahalad, 1994). In Schumpetarian theory (Schumpeter, 1934, 1942) where
innovation is the source of value creation, there is emphasis on the creation of novel combination of
resources through creative destruction of existing resources. Henderson and Clark (1990) also argue
that innovation is linking together existing resources in new ways. In e-business, value creation often
results from new innovative configurations of knowledge resources (Amit & Zott, 2001).
Dynamic capabilities have emerged in response to the inadequacy of the resource-based view to
account for how and why certain firms have a competitive advantage in rapidly changing environments
(without picking new resources). Nonetheless, the dynamic capabilities view is still consistent with the
resource-based view. It actually extends the resource-based view to address rapidly changing
environments by reconfiguring existing resources. In fact, the resource-based view admits that existing
resources enable value-creating strategies. Dynamic capabilities enhance resource deployment through
collecting, building, and transforming existing resources to create new competencies (Helfat, 1997). In
sum, resource picking defines whether knowledge resources can be obtained and integrated; competence
building defines how knowledge resources are leveraged to address new opportunities.
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2.3.2 Dynamic Capabilities Vs Functional Competencies
It is also important to differentiate between dynamic capabilities and functional competencies.
Functional competencies or proficiencies are those processes that perform basic operational activities,
such as logistics, marketing campaigns, and manufacturing processes (Amit & Schoemaker, 1993;
Madhok & Tallman, 1998; Prahalad & Hamel, 1990). Functional competencies are defined as purposive
combinations of resources that enable accomplishing a given task.
Dynamic capabilities, on the other hand, is the creative capacity for improvement and renewal of
functional competencies in response to environmental changes (Collis, 1994). Dynamic capabilities are
essentially the subset of organizational processes that are directed toward enabling change and evolution
of functional competencies. King and Tucci (2002) view dynamic capabilities as transformational
processes (p. 172), also distinguishing them from static or functional competencies. This is consistent
with Henderson and Cockbum (1994) who discriminate between component competence (managing
day-to-day operations) and architectural competence (building new competencies).
2.3.3 Related Work on Dynamic Capabilities
The spirit of dynamic capabilities has been described with different terms. They have been
termed combinative capabilities (Kogut & Zander, 1992), architectural competence (Henderson &
Cockbum, 1994), integrative capabilities (Lawrence & Lorsch, 1967), organizational architecture
(Nelson & Winter, 1982), invisible assets (Itami, 1987), or broadly capabilities (Amit & Schoemaker,
1993). Van den Bosch, Volberda, and De Boer (1999) and Kogut and Zander (1992) used the term
combinative capabilities to describe the processes by which firms synthesize and extend knowledge
resources to generate new applications from those resources. Grant (1996) used the term integration
while Henderson and Clark (1990) used the term configuration. Dynamic capabilities have also been
described as key capabilities (Grant, 1996b), or meta-capabilities (Henderson & Cockbum, 1994). A
related term, co evolution describes how competencies are shaped to match evolving environments
(Helfat & Raubitschek, 2000).
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Dynamic capabilities are specific set of processes within the broad domain of strategic flexibility
(Volberda, 1996). While strategic flexibility describes a variety o f managerial capabilities to increase the
organizations controllability (p. 36), dynamic capabilities are specific to resource reconfiguration.
2.3.4 Nature of Dynamic Capabilities
Changing conditions drive organizations to reinvent their existing competencies and develop
new ones (Fowler, King, Marsh, & Victor, 2000; Marsh & Stock, 2002). Dynamic capabilities are
essential for shifting and altering existing resources to accommodate changing environmental conditions.
Following Teece et al. (1997) and Galunic and Eisenhardt (2001), dynamic capabilities are defined as the
ability to integrate, build, and reconfigure existing resources to renew competencies that adapt to rapidly
changing environments. In turn, these new competencies will become the resource pool on which yet
newer functional competencies will develop to help match new environmental changes (Iansiti & Clark,
1994; Kogut & Zander, 1992). In brief, dynamic capabilities recurrently bring forward existing
knowledge resources to create new configurations of functional competencies.
Perhaps the most interesting notion of dynamic capabilities is the term dynamic, which refers
to the creative capacity to renew functional competencies. Dynamic capabilities design and construct
new, more valuable competencies to enhance the productivity of existing resources (Makadok, 2001).
Dynamic capabilities are essentially the processes by which managers alter their resource base by
recombining resources. In other words, dynamic capabilities are the drivers behind the creation,
evolution, and recombination of existing resources into new sources of value.
Dynamic capabilities exhibit common features that are associated with effective processes, or
simply best practices in managing change (Eisenhardt & Martin, 2000). While dynamic capabilities may
exhibit significant commonalities across firms, they are still idiosyncratic, specific, and distinct in terms
of how they operate. This is because the development of new competencies essentially starts from
different starting points (Eisenhardt & Martin, 2000). This inhomogeneity is one o f the reasons dynamic
capabilities can become the basis of competitive advantage. Finally, value potential of dynamic
capabilities is also a matter of degree (Winter, 2000).
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2.3.5 Dynamic Capabilities and Knowledge-Based View
While dynamic capabilities can draw upon and reconfigure virtually any organizational resource,
it is important to stress the role of knowledge as a key resource (Glazer, 1991). Knowledge is crucial in
todays organizations that operate based on knowledge-intensive processes. Competition has become
increasingly knowledge-based, and organizations strive to develop knowledge-intensive competencies
faster than the competition (Lane & Lubatkin, 1998). In fact, knowledge is often regarded as the only
source of sustainable competitive advantage (Alavi, 2000). Nonetheless, even if the necessary knowledge,
expertise, and skills are present, the true ability is to access and integrate the vast range of knowledge
resources to continuously support productive activity as the environment changes. The importance of
reconfiguring existing knowledge into new set of knowledge has been widely touted (De Boer et al.,
1999). In fact, integrating knowledge, skills, and expertise from multiple sources into valuable processes
is the cornerstone of dynamic capabilities (Eisenhardt & Martin, 2000).
Two critical issues arise from the knowledge-based view - knowledge utilization and
knowledge creation (Alavi, 2000). Dynamic capabilities address both issues by absorbing knowledge,
transforming it into superior knowledge representations, and utilizing it to effectively to drive
organizational processes. They first deal with collecting, coordinating, and integrating knowledge-based
resources to match market needs. Second, they also deal with the development, transformation, and
reconfiguration of existing knowledge. Dynamic capabilities describe how organizations create new
combinations of resources to create value, implying an iterative loop that allows exploitation o f new
opportunities (Helfat & Raubitschek, 2000). Dynamic capabilities are essentially knowledge management
processes that deal with the coordination, assimilation, creation, and exploitation of knowledge. Moran
and Ghoshal (1996) also argue that exchanging and combining existing knowledge resources can create
new knowledge-based competencies. NPD examples are the creation of new products by knowledge
brokering from previous designs (Hargadon & Sutton, 1997). In sum, drawing from a knowledge-based
view perspective, knowledge is the key strategic resource that dynamic capabilities recurrently
reconfigure into new sets of knowledge-intensive competencies (D'Adderio, 2001).
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2.3.6 Path Dependent Nature of Dynamic Capabilities
At any given time, functional competencies partly reflect prior investments in resource
allocation. Dynamic capabilities emerge from path-dependent histories (Teece et al., 1997) since the role
of dynamic capabilities lies in integrating existingresources (Helfat & Raubitschek, 2000). Therefore, the
development of new competencies is constrained by past processes and previous experience (Zahra &
George, 2002a). After all, organizations tend to search for opportunities in areas where they have had past
successes, essentially constraining their knowledge search. In other words, where a firm can go is a
function of its current position (Schumpeter, 1934). Even i f dynamic capabilities define the evolutionary
path of organizations (Nelson & Winter, 1982), they still follow a path dependent history since existing
resources are the basis for future ones (Kale et al., 2002).
3. Resource Reconfigurability
Because o f their tacit and dispersed knowledge, dynamic capabilities are generally difficult to
describe (Day, 1994). Therefore, they have been predominantly studied ex-post, usually referring to them
as an empty box measure of improved performance (D'Adderio, 2001). They have also been referred to
as hidden or invisible processes, completely unstructured or organic abstract processes. In fact,
Andrews (1987) pointed out much of what is intuitive in this process is yet to be identified. (p. 46).
Therefore, there is an urgent need to overcome this lack of specificity and capture the black box of
dynamic capabilities. This study proposes a set of specific, identifiable, and empirically measurable set of
capabilities that together capture the nature of dynamic capabilities. Resource reconfigurability'is thus
formally proposed as a multi-dimensional construct to capture the core principles of dynamic capabilities.
3.1 Resource Reconfigurability Defined
Resource reconfigurability is defined as the ability to recombine existing internal and external
resources in innovative ways to renew functional competencies that match environmental contingencies.
First, the term resource reconfiguration or recombination of resources in innovative ways is most
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consistent with Galunic and Eisenhardt's (2001) notion of architectural innovation. It also corresponds
to creating new architectural knowledge (De Boer et al., 1999), described as the combination of
different types of knowledge into new configurations for generating effective product market
combinations (p. 380). Second, to match environmental contingencies denotes the ability to quickly
match the renewed functional competencies with changing environmental conditions. Finally, while
mergers and acquisitions have also been proposed as means to reconfigure external resources (Karim &
Mitchell, 2000), the proposed resource reconfigurability focuses solely on existing internal and external
resources. In sum, resource reconfigurability is essentially a dynamic adaptation or transformation
process that involves the advancement o f existing resources to align with environmental contingencies.
While resource reconfigurability is proposed at a general level to reflect the ability to
reconfigure virtually all types o f resources, it is important to mention that different types o f resources
may have different degrees of malleabilityor amenability to change. Leonard-Barton (1992) argues that
as resources become less tangible, less visible, and less explicitly codified, they will be easier to
reconfigure and change (p. 121). For example, intangible knowledge resources may have the highest
degree of reconfigurability or malleability, and they could easily used to build new functional
competencies. On the contrary, tangible resources, such as manufacturing plants and equipment may
exhibit great difficulty in being reconfigured.
Finally, resource reconfigurability is a collective capability and does not reside in any single
individual (Brown & Eisenhardt, 1997). Even if some individuals may influence this dynamic capability
(Verona, 1999), it is by definition collective (Orlikowski, 2002). This is consistent with Weick and
Roberts (1993) who view the integration of disparate inputs as the magical transformation that creates
higher-order collective competencies that no individual can single-handedly produce.
3.1.1 Resource Reconfigurability and Related Concepts
Resource reconfigurability relates to the concept of organizational IQ (Mendelson, 2000;
Mendelson & Pillai, 1998), which was shown to influence performance outcomes, especially in fast
moving environments. Whereas organizational IQ describes the firms information processing capacity to
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handle information, resource reconfigurability captures the capacity to transform existing resources into
new and improved competencies to achieve competitive advantage in response to changing environments.
Therefore, resource reconfigurability is distinct construct that focuses on a specific capability, not a
general capacity to process information.
Resource reconfigurability also relates to the concept of improvement in competencies
proposed by Venkatraman and Ramanujam (1987) and expanded by Segars and Grover (1998). These
authors describe this concept as the ability to improve functional competencies over time in order to
support organizational objectives. According to the authors, this includes planning and learning processes
that result in improved competencies, such as anticipating relevant events and issues within the
competitive environment, and adapting to unexpected changes.
Resource reconfigurability finally relates to the concept of co-evolution where webs of
collaborations from different areas are recombined to generate new synergistic combinations (Eisenhardt
& Galunic, 2000). "Patchingis a related dynamic routine that aims to realign the match-up of functional
competencies to changing market opportunities (Eisenhardt & Brown, 1999). Finally, reconfigurability is
similar to related diversification as knowledge is acquired, augmented, and reconfigured to match
market needs (Helfat & Raubitschek, 2000).
3.2 Theoretical Domain of Resource Reconfigurability
Higher-level capabilities do not reflect any certain domain of knowledge or skill, but they
reflect the ability to leam new domains (Danneels, 2000) (p. 1112). Dynamic capabilities are the multi
dimensional, higher-order processes that undertake organizational transformation (Collis, 1994; Kogut &
Zander, 1996; Pisano, 1996; Sambamurthy et al., 2003; Segars & Dean, 2000) (Teece et al., 1997;
Wheeler, 2002). Drawing upon this logic, resource reconfigurability is herein viewed as a complex,
higher-order combination of simpler, or lower-order routines that are foundational to the overall dynamic
capability. This view is consistent with Mendelson (2000) and Wheeler (2002) who describe a set of
interrelated capabilities into an aggregate set. Hence, a multi-dimensional model with multiple indicators
is likely to better capture the essence of resource reconfigurability.
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Following Churchill (1979), Segars and Grover (1998), and Segars and Dean (2000), I
undertook an extensive literature review in conjunction with personal interviews to provide a sound
foundation for the theoretical domain of the resource reconfigurability construct. These reviews aimed at
identifying inter-related, lower-order factors with a transformational potential that contribute to the ability
to effectively reconfigure resources. My goal was to draw upon existing constructs from the literature, as
opposed to coming up with brand new terms, even if some reconceptualization was required to better
capture their adaptation potential and relationship to resource reconfigurability.
This procedure yielded a set of four factors, termed (a) coordination competence, (b) absorptive
capacity, (c) collective mind,and (d) market orientation.It is important to clarify that the proposed
variables may not exhaust the domain of resource reconfigurability; yet, they are merely posited as a
representative set of factors. Given the complexity of the proposed construct of resource reconfigurability
and its four underlying dimensions, there is a high degree of abstraction because of the tacitness of its
knowledge component. Following Okhuysen and Eisenhardt (2002), the usefulness of the dynamic
capabilities view relies on sharply defined constructs to describe their boundaries and relationships and
yield precise measurement. Therefore, it is important to be specific on such knowledge-related concepts
and avoid relying on loose definitions. The following section attempts to clearly distinguish, define, and
place all these factors under a magnifying glass to describe their nature, inter-relationships, and
relationship to resource reconfigurability.
3.2.1 Coordination Competence
Organizations often do not know what they know or have (Day, 1994), or where their knowledge
resources reside since they may exist across functional, departmental, or geographical levels. For
example, Hinds and Mortensen (2002) report that the greatest coordination problem in R&D teams was
differences in knowledge held by team members and incomplete or inaccurate knowledge about the
team s activities. These common problems result in resources not being fully utilized (Davis, 1984).
However, for these resources to become useful, they must be effectively coordinated. Knowledge may
reside across functional areas; hence, it must be collected to become useful. In knowledge-intensive
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environments, coordinating knowledge and expertise becomes prominent (Faraj & Sproull, 2000). In fact,
coordination has a prominent role both in the knowledge-based view (Levina, 1999) and also in the
dynamic capabilities perspective (Teece et al., 1997).
3.2.1.1 What is Coordination?
Coordination has been described as means for integrating knowledge (Dyer, 1997) by linking
different groups to accomplish a collective set of tasks (Van de Ven, Delbecq, & Koenig, 1976).
Mintzberg (1979) describes coordination as the management of dispersed knowledge resources. The
fundamental role of coordination has been widely documented (Adler, 1995; D'Adderio, 2001; Hoegl &
Gemuenden, 2001; Nidumolu, 1996; Sobek II, Liker, & Ward, 1998).
Following March and Simon (1958), there are two types of coordination: (a) by programming,
and (b) by feedback.These two types of coordination correspond respectively to the centralized and
decentralized control of interdependence (Sikora & Shaw, 1998), and organic and mechanistic
coordination strategies (Andres & Zmud, 2002). Coordination by programming typically involves
planning and routines, such as rules, codes, procedures, directives, and group routines (Grant, 1996a,
1996b; Nelson & Winter, 1982). Coordination by feedback requires intense information flow, rich
communication and collaboration, group decision making, socialization, and mutual adjustments (De
Boer et al., 1999; Grant, 1996b; Thompson, 1967).
Coordination mechanisms also depend on the type (e.g., tacit or explicit) of knowledge that must
be coordinated. Explicit knowledge can be coordinated by programming (Argyres, 1999); tacit
knowledge requires feedback (Sanchez & Mahoney, 1996). It is beyond the scope of this study to test
which coordination type is superior. In addition, while the importance of selecting proper coordination
mechanisms is recognized (Malone et al., 1999), Clark and Fujimoto (1991) indicated that there is no
single formula for achieving effective coordination. Coordination patterns are dynamic based on the
firms needs (Grant, 1991). It is thus beyond the purpose of this study to identify the most appropriate
coordination mechanism, which has been described elsewhere (Malone et al., 1999).
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Brown and Eisenhardt (1997) argue that neither coordination by programming or by feedback is
superior since successful groups balance both. This is consistent with Okhuysen and Eisenhardt (2002)
who argue that too little structure makes coordination difficult, while too much structure makes it hard to
move (p. 383). In this study, coordination refers to the notion o f workflow coordination (Tan & Elarker,
1999). Finally, it is important to differentiate between contractual and workflow (procedural)
coordination (Sobrero & Roberts, 2001). Contractual coordination refers to the exchange of rights among
parties, while workflow coordination deals with the structure o f information and knowledge flows. This
study focuses on workflow or procedural coordination.
Coordination theory provides a theoretical basis for studying coordination (Malone & Crowston,
1994). According to the theory, coordination routines include gathering and processing information,
linking requirements with tasks, coordinating tasks, allocating resources, and managing dependencies
(Crowston, 1997; Malone & Crowston, 1994). The theory suggests that dependencies must first be
identified, and then alternative coordination mechanisms should be chosen to effectively manage them.
This is consistent with Faraj and Sproull (2000) who argue that effective coordination assumes
recognizing the need for knowledge and bringing it to bear. Following Crowston and Kammerer (1998),
there are three types of dependencies: (1) task-task dependencies (usability and transfer constraints), (2)
task-resource dependencies, and (3) shared resource dependencies.
3.2.1.2 Dimensions of Coordination Competence
Drawing upon coordination theory (Malone & Crowston, 1994), coordination competence is
described as the capacity to effectively and efficiently manage dependencies. Following Crowston and
Kammerer (1998), I propose three dimensions of coordination competence - (a) task synchronization (the
ability to coordinate task-task dependencies), (b) resource allocation (the ability to coordinate resource-
resource dependencies), and (c) task assignment (the ability to coordinate task-resource dependencies).
First, task synchronizationis the ability to specify and execute roles with minimal redundancy, referring
to the extent to which group members function according to the groups requirements (Mohr & Spekman,
1994). Second, resource allocationdeals with achieving the best allocation of resources, such as dealing
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with accumulating and assigning scarce resources (Grant, 1995). Finally, task assignmentis the ability to
appoint suitable tasks to the right group members. These three abilities are combinative in nature and
build upon each other to produce an overall competence. Coordination competence is defined as the
ability to effectively synchronize tasks, allocate knowledge resources, and assign tasks.
3.2.13 Coordination Competence as a Dynamic Capability
The conceptualization of coordination competence as a dynamic capability is suggested by
several researchers. Day (1994) describes coordination as the ability to harmonize an array o f skills and
knowledge. The ability to coordinate knowledge has also been viewed as a key capability by De Boer et
al. (1999), and it has been referred to as the ability to combine skills and knowledge (Kogut & Zander,
1992; Zollo & Winter, 2002). In their seminal work on dynamic capabilities, Teece et al. (1997) argue
that the notion that competence/capability is embedded in distinct ways of coordinating and combining
helps to explain how and why seemingly minor technological changes can have devastating impacts on
incumbent firms abilities to compete in a market (p. 519).
3.2.2 Absorptive Capacity
Absorptive capacity is the ability to accumulate, integrate, and transform knowledge resources
(Grant, 1995; Kusunoki et al., 1998). The acquisition, accumulation, and expansion of knowledge are
important elements of virtually all organizations (Hamel, 1991). Knowledge-creation routines build new
thinking and create effective strategy and performance (Eisenhardt & Martin, 2000). According to
Gartner (www.gartner.com). the ability to capture and share knowledge, to reinvent, reuse, and innovate
with this knowledge is a key determinant of value.
3.2.2.1 W hat is Absorptive Capacity?
Absorptive capacity has been described as the ability to achieve organizational learning. In their
seminal work, Cohen and Levinthal (1990) described absorptive capacity as the firms ability to identify,
value, assimilate, and exploit knowledge from the environment. Absorptive capacity determines the
capacity to assess, appropriate, and integrate explicit and tacit knowledge (Kumar & Nti, 1998). Research
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has also viewed absorptive capacity as the ability to use and modify both external (Koza & Lewin, 1998)
and internal knowledge (Cummings, 2001). In fact, both internal and external knowledge has been related
to group performance (Ancona & Caldwell, 1992; Eisenhardt & Tabrizi, 1995; Gran
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