DMC Classifications—Contributions to Theory

Why the classification of DMCs makes a theoretical contribution: The emergent classifications that were discovered here make an important theoretical contribution in that DMCs have not been classified previously. Studies have tended toward what DCs are as opposed to how they are used. By classifying DMCs, the research results showed what DMCs managers used in practice in regimes of rapid change in generating competitive advantage. Specifically, managers used LBDMC, IBDMC, PL, ABDMC, and RC as a portfolio of competitive intangibles. The DMC classifications have common features, although the capabilities (individually and collectively) are unique to specific managers who used them in different ways. Certain behavioral capacities (i.e., IBDMC, LBDMC, and PL) are considered essential, and transformational (Gannon et al., 2010) in the process of generating competitive advantage, as shown in the survey study in the previous chapter. Each of the important classifications is considered next.

6.2.2.1 Theory and LBDMC

LBDMC builds on the literature stream of organizational learning, as it involved making sense of experiences (Dewey, 1933, 1938; Lewin et al., 1939) and experiential learning (Kolb, 1984), and learning cycles that involve experiencing, reflecting, thinking, and acting (Kolb & Kolb, 2008), such as when managers sense and seize opportunities and manage threats. LBDMC includes tacit knowledge (Polanyi, 1966;

Nonaka & Takeuchi, 1995) and intuition (Dörfler & Ackermann, 2012), which interacts with explicit knowledge in creating new knowledge (Nonaka & von Krogh, 2009), that can sometimes be captured in communities of practice (Goffin & Koners, 2011).

LBDMC also incorporates theoretical notions of single-, and double-loop learning (Argyris & Schön, 1974, 1978), as it can impact on ordinary capabilities (as well as dynamic ones) and can change the system, as it exists. This illustrates double-loop learning. Single- and double-loop learning are often described by using an analogy with a thermostat: “[F]or example, a thermostat is defined as a single-loop learner. The thermostat is programmed to detect states of ‘too cold’ or ‘too hot,’ and to correct the situation by turning the heat on or off. If the thermostat asked itself such questions as why it was set at 68 degrees, or why it was programmed as it was, then it would be a double-loop learner” (Argyris, 1996, p. 8).

The classification of LBDMC further reflects and builds on studies from the extant DC literature, including the intellectual core. It reflects studies that have conceptualized

the importance of learning in the creation of, and development of DCs (Zollo & Winter, 2000), and those conceptualizing learning as micro-foundational (Teece, 2007), and as a

“component factor” which reflects common features of DCs (Wang & Ahmed, 2007).

LBDMC, by definition, includes aspects that are considered common features (e.g., experiential learning), although LBDMC is heterogeneous and unique to the manager.

This supports earlier conceptualizations in the DC literature, which posit that, although a firm’s DCs exhibit commonalities, they are idiosyncratic in detail (Eisenhardt &

Martin, 2000). LBDMC is further reflective of studies expressing the relevance of learning and experience in how DCs evolve (Pisano, 1994; Eisenhardt & Martin, 2000;

Winter, 2003; Malik & Kotabe, 2009), and builds on them, as well as studies showing the importance of assimilating, transforming, and exploiting knowledge (Zahra &

George, 2002, p. 186) and experience (Zollo & Winter, 2002, p. 339).

Given that the DC (and DMC) literature has tended toward the organization (Adner

& Helfat, 2003), articles have traditionally referred to organizational learning. The research conducted here is in agreement with Simon (1991, p. 126, emphasis original) who offered that, although it is possible that “phenomena are more conveniently described in terms of organizations” that “we must be careful about reifying the organization and talking about it as ‘knowing’ something or ‘learning’ something. It is usually important to specify where in the organization particular knowledge is stored, or who has learned it.” The contribution made here is therefore one that addresses specifically “where” and “who” and also “how.”

The literature tying DMCs to managerial learning is almost nonexistent, although the originators of the concept, Adner and Helfat (2003, p. 1022), discussed the importance of “managerial cognition” and “managerial human capital.” Cognition involves the “beliefs and mental models that serve as a basis for decision-making”

(citing March & Simon 1958; Cyert & March, 1963). Managerial human capital involves “learned skills that require some investment in education, training, or learning more generally” (citing Becker, 1964), and where “managers acquire knowledge, develop expertise, and perfect their abilities,” which also includes (citing Mintzberg, 1973) “learning-by-doing” (p. 1020), and this is reflective of LBDMC as developed here and as discussed in the literature review chapter. LBDMC builds on these ideas.

The construct as developed in this thesis shows where it is used with other capabilities

and impacts on organizational resources (i.e., RCs) in generating advantage, for example.

Martin’s (2011, p. 121, emphasis original) study of executive leadership groups referred to learning in the context of “[o]perational capabilities” that are the “capacity of an organization to exploit its resource base through learning and refining the processes, procedures, skills and incentive systems necessary to repeat, leverage, and sustain past successes” (citing Collis, 1994; Winter, 2003). The research conducted here agrees with this, and the importance of learning vis-à-vis operational capabilities.

Nevertheless, a distinction is made in that LBDMC differs from what are referred to as operational capabilities. Specifically, the classification of LBDMC impacts operational or “ordinary” capabilities (Winter, 2000; 2003) that are technically fit, and helps develop them in an evolutionary way—to adapt to the changing environment.

6.2.2.2 Theory and IBDMC

The classification of IBDMC builds on earlier theory regarding the entrepreneur. The entrepreneur has been defined as one who is able to transfer resources from lower to higher productivity and yield (Say, 1803), and as one who is able to convert a new idea into a successful innovation (Schumpeter, 1942), and also as the risk taker who harmonizes the factors of production (scarce resources), and, when faced with rapidly changing environments, risk and uncertainty (Knight, 1957), must decide which paths to take in converting inputs to outputs.

IBDMC includes the notion that innovation is a specific tool of an entrepreneur used to convert a source into a resource (Drucker, 1964), and builds on earlier conceptualizations in the intellectual core DC literature with respect to Teece et al.’s (1997, p. 509) reference to the “Schumpeterian world of innovation-based competition”

and the “creative destruction” of existing competences given regimes of rapid change. It includes the adaptive aspects of Helfat et al.’s (2007) notions on evolutionary fitness, and embodies Augier and Teece’s (2009, p. 411) assertion that a firm’s success

“requires entrepreneurial management” which involves innovation coupled with the

“building, maintenance and employment” of DCs in orchestrating responses to change.

The studies in the extant literature with respect to DMCs have not focused specifically on the area of managerial innovation, although Martin (2011, p. 120) referenced the importance of it, and related it with resource configuration during regimes of rapid market change, and found managers “are likely to play an increasingly

essential role in discovery, renewal and innovation in firm resource configurations as the extent of market dynamism increases (citing Brown & Eisenhardt, 1998; Eisenhardt

& Galunic, 2000),” in agreement with the findings of the research here, which build on this research by empirically showing where IBDMC is critical in the orchestration process.

6.2.2.3 Theory and PL

The classification PL contributes to the theory of DCs by discussing the role of leadership because the DMC literature has not provided studies on this. Leadership is defined as the “ability to influence a group toward the achievement of a vision or set of goals” the source of this influence may be formal (e.g., provided by managerial rank), or informal (e.g., she is the “go to” person on important matter), although not all managers are necessarily leaders (Robbins & Judge, 2013, p. 368).

The managers in the multi-case study were leaders who practiced PL, allowing employees to be engaged in the critical processes of the firm involving strategy formulation and implementation, and to be involved in the decision-making it entails.

The managers took more of a democratic, as opposed to autocratic approach to leadership (Lewin et al., 1939), and they valued their employees as a part of the team.

The idea of PL has its origins in the strategic management literature in what are referred to as The Ohio State University studies conducted in the 1940s and the University of Michigan studies in the 1950s. The Ohio State studies showed how leaders could satisfy common group needs, and the University of Michigan studies found that effective leaders had certain common characteristics that included demonstrating PL.

PL also reflects aspects of the Theory Y managerial approach (McGregor, 1960) that views employees as more self-motivated, in contrast to Theory X, which takes the view employees must be controlled in order to perform. The managerial approach to the former is considered to be more democratic, and the organizational structure, more organic (Burns & Stalker, 1961). The latter views the manager as more autocratic, with a greater degree of hierarchy.

Theory Y has also been integrated with Maslow’s (1943, 1954) needs hierarchy regarding employees’ self-actualization and esteem needs. And Theory Z (Maslow, 1969; Ouchi, 1981) incorporates effective leadership with employee self-fulfillment.

(Thus, PL includes elements of both Theory Y and Z—recall PL allows that employees

can participate in the managerial process, and also that, in so doing, they can help realize personal and firm goals.)

In this respect, PL contains elements of transformational leadership (Burns, 1978).

By definition, transformational leadership changes the status quo, and is analogous to DMC, as opposed to transactional leadership, which is analogous to ordinary capacities.

Transformational leadership (Bass, 1985; Seltzer & Bass 1990) involves intellectual stimulation (fostering creativity and innovation in employees), and consideration for individual employees, is motivational, and includes idealized influence based on trust.

6.2.2.4 Theory and RCs

RCs include such things as joint ventures, alliances, and formal and informal partnerships. They also include acquisition-based DMC (ABDMC), which is considered an RC. The studies representing the extant DC literature have not referred to RCs and/or ABDMC, and so the research contributes to this area too. The importance of alliances (an RC) relative to a firm’s DCs, has been discussed in a few studies, including Døving and Gooderham (2008), who showed DCs as antecedents of scope of related diversification alliances, and Anand et al. (2010), who showed the relevance of firm capabilities in forming alliances and overcoming technology gaps. The construct also reflects Kale and Singh’s (2007) results that showed a positive relation exists between learning capabilities and overall success in alliances. Where the research conducted for this thesis builds on this theory involves the notions of individual managerial capacities impacting on organizational processes, positions and paths toward competitive advantage (i.e., LBDMC effecting RCs, as discussed in the results and conclusions section 7.4. below).