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1. Introduction
A central concern of a firms overall strategy and the management of its own
innovations is to maintain a dynamic fit between what the firm has to offer and what
the environment dictates (Learned et al., 1965; Miles and Snow, 1978). As such, a
firm must possess the essential capabilities so as to constantly reconfigure, renew, and
redeploy its resources and capabilities to better capture and exploit the changing
opportunities (Teece, Pisano, and Shuen, 1997). Given their smallness and newness
of entrepreneurial firms, the need for dynamic capabilities and the leveraging of
resources and capabilities in overcoming challenges and introducing new innovations
within an industry environment can prove to be an extremely daunting task.
As highlighted by Lee and Kelley (2008), the dynamic capabilities perspective can
provide a useful theoretical lens for investigating innovation at the organizational
level. In lack of a common accepted and well-received definition of dynamic
capabilities several scholars have recently come together and define dynamic
capabilities as the capacity of an organization to purposely create, extend, or modify
its resource base (Helfat et al., 2007:4) arguing that this definition is meaningful and
enables others to better understand the nature and origins of dynamic capabilities
through continual research. As also posited by Easterby-Smith et al. (2009), dynamic
determined in a variety of forms, involving a diversity of functions,
The capabilities
Role of are
Microfoundations
in Explicating Dynamic
including product development innovations, process development, as well as idea
generating improvements.Capabilities:
Finally, and one common theme that aligns well with the
nature of of
innovation,
is that dynamic capabilities
are more specically
associated
Case Study
Commercializing
Discontinuous
Innovation
with change (Zollo and Winter, 2002; Winter, 2003; Zahra et al., 2006).
Lene Foss, Tatiana Iakovleva, Jill Kickul, Elin Oftedal and Anne
Solheim
As an emerging area of research, several calls for how to develop a theory of dynamic
capabilities have been issued. First, the concept of dynamic capabilities has been
criticised for being tautological in nature and for not being operational (Mosakowski
and McKelvey 1997; Priem and Butler 2000). Thus, this paper follows recent calls
for enhancing conceptual models of dynamic capabilities (cf., Wang and Ahmed,
2007) by exploring possible antecedents of dynamic capabilities. Second, scholars
agree that the field lacks empirical studies of new firms (Zahra et al., 2006), as new
firms are likely to have fewer initial resources to the development of dynamic
capabilities. We therefore examine early-stage firms where the development of
dynamic capabilities has yet to fully materialize. Third, research needs to frame
micro-questions concerning of how and why managers use dynamic capabilities, what
dynamic capabilities look like in organizations, and how they are deployed
(Ambrosini and Bowman, 2009). Following this call the research question in this
paper requires an empirical study of the experience of managers in entrepreneurial
firms. Fourth, following the call for contextualizing theory building (Zahra, 2007),
this study makes use of the fact that few studies relate dynamic capabilities to a firms
innovation. Thus our framework contains the context of dynamic capabilities in
commercializing a discontinuous innovation.
In following these calls we recognize that while the breadth and variety of dynamic
capabilities can vary across firms, an important question is how fundamental dynamic
capabilities are associated with firm specific processes, the purported
microfoundations of dynamic capabilities (Teece, 2007). This leads us to investigate
possible antecedents of dynamic capabilities and examine the role that a firms
microfoundations have on the process, creation, and evolution of its dynamic
capabilities. We will further explore the unique functions that these microfoundations
might have on the innovation process as firms develop their own capabilities toward
the commercialization of their innovations. In studying firms within a similar
business environment their microfoundations and ensuing innovation may facilitate
the degree and type of dynamic capabilities developed. While dynamic capabilities
can be considered as the resource-based changes that facilitate innovation, we
examine the unique antecedents microfoundations - that lead to the development of
these capabilities within early-stage entrepreneurial firms. The research question to be
answered in this paper is: How do entrepreneurs and their firms build the essential
microfoundations that underlie the dynamic capabilities needed to commercialize
discontinuous innovations?
In answering this question this study contributes to the literature by relating micro
foundations and dynamic capabilities to the context of innovation. Because
innovation and entrepreneurial performance is a consequence of the strategic fit
between organizational capabilities, resources, and the environment (Helfat and
Lieberman, 2002), we align the microfoundations investigated within a framework of
discontinuous innovation. We adopt a framework and offer propositions based on the
innovation research advanced by Francis and Bessant (2005). They describe
processes of innovation changes within a firm that are similar to the central processes
that underlie the creation of dynamic capabilities. By drawing on the analysis of data
from two innovative firms operating within drilling and exploration activities in the
Norwegian petroleum industry, we uncover specific microfoundations that are closely
aligned with models that describe the innovation process. Thus this study also
contributes to the perspective that capabilities are embedded and processual of nature
(Henderson 1994; Lee 1999; Eisenhardt and Martin 2000). Following this, the
methodological contribution of the study is its aims for gaining a deeper
understanding of the antecedents of dynamic capabilities by getting rich data from
those experiencing it (cf. Shah and Corley, 2006). Hence, this case study is carried
out in close interaction with practitioners who deal with real management situations, a
strategy suited for creating managerially relevant knowledge (Amabile et al., 2001,
Leonard-Barton, 1990; Gibbert, Ruigrok and Wicki, 2008).
The paper proceeds as follows. First, we introduce and discuss the development of a
firms microfoundations of dynamic capabilities within the context of
commercializing discontinuous innovations. Second, we apply the innovation
framework of Francis and Bessant (2005) and discuss the relationship between their
four processes of innovation and the creation of the microfoundations of dynamic
capabilities and develop propositions. Next, we describe our case study approach
that focus on the types and breadth of microfoundations as well as our findings that
reveal specific subindices of our firms microfoundations. We conclude by discussing
the theoretical and practical implications of our research.
Innovative Capabilities
Innovative capability refers to a firms ability to develop new products and (or)
markets, through aligning strategic innovative orientation with innovative behaviours
and processes (Wang and Ahmed, 2004). This is quite close to the firms
entrepreneurial orientation construct. This encompasses several dimensions, such as
developing new products and services, developing new methods of production,
identifying new markets, seeking unusual and novel solutions (Schumpeter, 1934;
Miller and Friesen, 1983). Capon et al. (1992) study three dimensions of
organizational innovativeness which are relevant for innovative capability: market
innovativeness, strategic tendency to pioneer and technological sophistication. While
the majority of studies on dynamic capabilities have primarily focused on large and
established firms, the context of newly established firms created to take innovation to
market is different. In this context firms are created to develop and bring to market
new products so they exhibit innovative capability. The concept of innovative
capability therefore, applies well to how established companies manages to produce
new products and processes, however for companies established around an innovation
one could argue that all capabilities are innovative. On the other hand, this would
neglect certain important elements of what occurs in the process of commercializing
continuous innovations. Therefore, innovative capabilities in this study points to more
underlying structural processes that promote development, change and innovation in
the company.
2.3 Developing the Microfoundations of a Firms Dynamic Capabilities
Easterby-Smith and Peteraf (2009) argues that the problem to identify dynamic
capabilities lies in the inherently intertemporal nature of the phenomena and their
association with tacit organizational elements and intangibles (routines, processes,
managerial cognition and knowledge). These tacit elements are what Teece (2007)
call the micro foundations of dynamic capabilities; distinct skills, processes,
procedures, organizational structures, decision rules, and disciplines. According to
Teece (2007) these micro foundations undergird enterprise-level sensing, seizing, and
reconfiguring capacities and are difficult to develop and deploy. For example,
dynamic capabilities are sometimes argued to include search, or ability to sense
changing customer needs, technological opportunities and competitive developments
(Teece, 2007). According to Ambrosini and Bowman (2009), these factors are not
dynamic capabilities in and of themselves, rather their microfoundations.
Thus, microfoundations of dynamic capabilities can be defined as managerial and
organizational processes that underpin and enable the deployment of dynamic
capabilities. Teece (2007) argue that these firm specific micro foundations of dynamic
capabilities are necessarily incomplete, inchoate and opaque. As claimed by Helfat et
al. (2007), prior literature has placed less emphasis on the underlying processes that
an organization requires in order to move from its starting position to a new or
adjusted path. Answering for this call our study will focus on exploring micro
foundation of dynamic capabilities and their role in facilitating three types of
dynamic capabilities adaptive, absorptive and innovative.
Following the conceptual distinctions made above, the theoretical scope of dynamic
capabilities needs to be narrowed down to issues that will contribute with new
Since our focus is on the processes and development of the different types of
microfoundations and how they are created through the process of commercializing
discontinuous innovations, the emphasis on capability development makes the four p
framework excellent proxies for microfoundations in our investigation and case study
approach. This study therefore will look at the role of each of the four dimensions of
innovation in the commercialization process. In this study role is associated with the
focus or importance that each of the dimensions receives in the companies pursuit to
commercialize their innovation.
Product role
That a new product or service (or an improvement of such) is a prerequisite for
innovation can be traced back to Schumpeters (1934) types ways of innovation. Here
we relate the product role to improvements or radical changes in the product and
services that the organization offers. We argue that developing firm specific
competencies in changing the product according to the needs of customers constitute
10
self-reflection and continual development. Francis and Bessant (2005) describes the
paradigm as twofold: Firstly it targets firm values and human resource management
policies. This is called inner-directed paradigms. Secondly, it refers to business
models a system of coherent, comprehensive, explicit and/or implicit constructs
used by managers to understand their rm and shape its development which is
called the outer-directed paradigms. (Francis and Bessant (2005: 177). The paradigm
may develop and change during the commercialization process, hence we propose:
Proposition 4: The paradigm role will be a key microfoundation underlying
dynamic capabilities.
3. Research Method
3. 1 A Comparative Case Study Design
With regard to empirical setting the increasing need and interest for research and
development within the offshore petroleum industry in Norway makes a powerful and
compelling context for examining discontinuous innovations. As the offshore
industry moves toward deeper sea, field development solutions change innovate from
fixed to floating production units and smaller installations on the seabed. As
exploration drilling takes place in increasingly more challenging environments,
existing technological solutions approach their technical or cost limits, creating a
need for new technologies and innovation. Hence, research and development within
subsea drilling and exploration technologies constitute a natural laboratory for
investigating discontinuous innovations.
In order to contribute to theory development a case study design was chosen to enable
answers on how (cf. Bacharach, 1989). Thus, the embedded, processual and
contextual nature of the microfoundations of dynamic capabilities can be revealed. In
meeting the criticisms of case study research in the field of dynamic capabilities
(Wang and Ahmed, 2007), we demonstrate the potential of case studies for inspiring
new ideas and approaches (Siggelkow 2007) by producing rich data to inform theory.
According to the taxonomy scheme of Colquitt and Zapata-Phelan (2007), our
research design is similar to archetype builders, being relatively high in theory
building and relatively low in theory testing. Following the theoretical sampling of
cases, we build on the suggestive arguments that multiple cases create more robust
theory grounded in varied empirical evidence (Eisenhardt and Graebner, 2007). We
controlled for industry, type of company and type of innovation. Hence, both
companies are within the exploration and drilling segment of the Norwegian
petroleum industry and they are in the early stages of commercializing their product.
The cases vary in organizational size, somewhat in technology and market niche. This
leaves ample opportunities for use to observe variation among our firms.
In choosing an interpretive paradigm (Burell and Morgan, 1979; Gioia and Pitre,
1990), we aim to gain a deeper understanding of a phenomenon through
understanding the interpretations of that phenomenon from those experiencing it
(Shah and Corley, 2006). This study encompasses in-depth individual, semistructured interviews with the CEOs, and members of management teams in the
11
Fall
08
selected firms. The informants were selected to provide a balance of opinions from
different professional areas, and different levels of responsibility and seniority in an
attempt to gather and integrate a variety of perspectives. Semi-structured interviews
were chosen as the method of gathering information since they leave room for
adjustments during the interview.
12
13
Beta
Yes
Industry driven
Integrating existing
cutting edge technologies
with robot technology.
Develop new technical
solutions and technology
where none exists.
New knowledge
The technology
development gives new
knowledge about subsea
robot operations.
The technology
development has given
results that contests the
established knowledge
Yes
Yes
14
The background was that we had a network, the four entrepreneurs, focusing on
technology gaps in drilling and well technology. We got some funding from
Norwegian Oil Company to make a report about which technologies could be
interesting. And then we presented 7 technologies and ranked them, and Alpha was
one of the projects, and its a bit funny because it wasnt given that this would take us
further. But Norwegian Oil Company put their head up and said that it could be very
exciting to start on something like that. (CEO, Alpha)
The idea of Alpha came from mapping technology gaps, combined with a signaled
customer need. Thus we see that the ability to identify a technology gap can be a
microfoundation for developing dynamic capabilities.
What happened was that Venture Company took the idea and established Beta in
2003. To apply for this type of funding from the Research council it has to be
company based, and in connection with this the ownership of the patent which was
filed at the research institute was transferred to the company. (CEO, Beta)
The product idea for Beta was patented by a research institute, but no steps had been
taken to commercialize it until the venture fund took initiative. The ability to act on
ideas seems to be an important microfoundation in this venture. As Alpha and Beta
are entrepreneurial companies the product idea has been the starting point for
building the organization and the developing the product. As such the product idea is
a basic microfoundation for developing all capabilities in the firms.
As entrepreneurial firms with unfinished products the main priority is to get the
product to work. The following quotes illustrate that developing the technology
constitute the core processes in the firms.
When we are at work, we work with just one thing and very goal oriented, and I see
at least for my part and for the people involved in the work that effectiveness is much
higher. And I dont think it would been possible to develop.that component we used
one year from we started drawing until the prototype was ready. This would not have
been possible in an ordinary manufacturing firm. Im certain of it! (CTO, Alpha)
The strength in it (the organizational model) is that it is a technology course. It is a
focused technology course, which implies that our project team have one point and
that is technology development. (CEO, Beta)
To summarize; the quotes support the notion that the product role in the firms is
essential to develop dynamic capabilities. More specifically our data suggests that the
product role seems to be an important microfoundation for innovative capabilities.
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16
17
Their sales argument is to make the technology as flexible as possible. This enables
the firm to fit their product to all existing technologies within drilling technology and
in operations from other suppliers. Thus, making the product integrative with existing
technology seems to be a vital microfoundation for the ability to adapt the product to
the market, i.e. adaptive capability. Thus, we may say that technical integration is a
microfoundation of dynamic capabilities.
The data from Beta do not support similar processes with integrating their technology
with existing solutions. This is because their product intend to replace existing
technology, hence they do not need to focus on this adaptability. We may conclude
that Alpha demonstrates a microfoundation for adaptive capability here, which Beta
does not need. This clearly shows that the need for developing dynamic capabilities
varies between firms. Our data indicates that firm specific microfoundations work as
antecedents for this need.
18
19
Norwegian Oil Company we are working with, and also other resource persons and
former employees. We use them to find the best way entry the right people. (CEO,
Alpha)
Beta has hired people who know the industry from inside, which enables them to
build reciprocal dialog with potential customers:
So I think the competence I have was a bit attractive because I had knowledge of oil
companies way of thinking and doing business. So you easily enter a good dialogue,
get mutual respect. .. and that means a lot, since they are our super customers. I think
this has been of great value. (CEO, Alpha)
The ability to negotiate with large petroleum companies is based on the knowledge of
the system and concrete people. Our companies use their network either personal or
through third parties, to find their way in these negotiation processes. Therefore,
networking is one of the important micro-foundations of adaptive capability.
Gaining legitimacy: The art of being visible
Legitimacy is essential to the survival of new firms (Zimmerman and Zeitz, 2002).
20
technology is still openly discussed with the technology partners, as a way of building
trust, but also to exchange technological know-how. This company has a relatively
high profile, and seem to have a successful image so far. It has been presented as a
good example in different forums. They also try to create enthusiasm for their
innovation.
In general two people speak for the company externally, the CEO and the CFO. And
since we are a joint stock company it has to be that way. But relating to customers we
are very concerned that they have as good a knowledge of the technology as possible.
That they are familiar with what we are developing, and they talk about our
collaboration partners, except the ones on the steering committee. Were sort of
doing missionary work, and informing in wide forums to create enthusiasm,
rapture and resources. (BM, Beta)
Compared to Alpha this firm is more restrictive, likely due to being publicly listed.
This exemplifies a difference in microfoundations between Alpha and Beta due to
structural differences. Again, we see that this may affect different needs for dynamic
capabilities. Both are dependent on legitimacy, but it proves differently due to
structural constraints in being listed.
Organizational transformation for commercializing
Both Beta and Alpha are conscious of how they position themselves in the market. As
the companies first product is getting closer to commercialization, the companies
transform their organizations for meeting this challenge.
The CEO in Alpha describes how they identify key positions in the customer
organization and present the product for them. This represents a tangible step in the
commercialization process.
Now we are going to identify the right people on these platforms that we know will
be the likely first users, and then we will have presentations for them (CEO, Alpha).
The CEO stresses the importance of having contact with both bosses as well as
with the technical personnel because the boss he will say, yeah, it looks really
great, but get the technical people to approve it. And then it will come. I always
think it is better to approach both these groups. (CEO, Alpha)
The company is also transforming their organization by adding a new function in
industrial sales.
In the beginning it will be part time work, by partly new people and partly by
myself, more or less. And then as I said when we are doing the second sale, then it
really starts. The first sale like a pilot, I think we have to use the resources that we
already have and some new resources. We have made an agreement to get some new
part time resources. But when we have done the first sale, we will start building; one
business development manager full time. (CEO, Alpha)
Alpha has engaged one of its board members, who are also a former petroleum
company executive to work part time in industrial sales. Thus, the firm is utilizing
part of the rich resource base which is represented by the board of executives. Using
experienced personnel who are well versed in the industry gives the company a
21
quicker start when setting up new functions, and demonstrates an important step to
reposition the company. Thus it provides a microfoundation for adaptive capability by
changing and extending the mode of organizing (cf. Rindova and Kohta, 2001).
Beta has more capital in their resource base and has chosen a different strategy for
repositioning the organization.
If everything had gone according to the original plan, then we would have been
correctly positioned today. Since we have the capital base, we can allow ourselves to
be ahead of the technology development. Rather that than the other way around. It
would be a disaster if we suddenly arrived at a robust technological solution, and
then we lack the structures supporting it. (CEO, Beta)
Where Alpha develops commercialization capabilities timed with the progress of the
product technology, Beta has already developed several functions necessary for a
supplier firm. However Beta is still in a pre- commercialization stage. Again, the
cases illustrate differences in microfoundations due to structural conditions as capital
base. .
22
labels as lack of capability in Norway to bring high technology companies into the
international arena.
"Our strategy is not to be acquisitioned by others. We are going to have the
production capacity, we're going to have the competence, we're going to have direct
customer relations, we're going to have the services and the organization needed."
(CEO, Beta )
On the basis of the strategic intent, employees are selected and recruited and
structures are formed.
Strategies for human capital
According to Francis and Bessant (2005) the second type of paradigm role for
innovation is the inner directed paradigm, which target the firms values and human
resource practices. Well known from the entrepreneurial literature is the effect of
human capital on resource acquisition, and business performance. In the following we
will show how the two firms use the inner- directed paradigm in building dynamic
capabilities for human resource management.
Alpha has a clear preference related to human capital: the company is conscious of
recruiting people who are open to innovation, if they are too much into traditional
technology it is difficult to get the high degree of innovation needed in the product.
Important in this technology development, is that it is innovation projects. Its
state of the art. Thats why its important to hire innovation people. If they
remain too much in traditional technology, its hard to get high degree of innovation.
The same goes for our collaborative partners. Theyre chosen because they show an
enthusiasm for innovation, new approaches and things like that. (CEO, Alpha)
And were very much based on consultants. Because it takes a long time to build
staff. So you could say we are six employees and in principle six man-years working
as consultants for the company. (CEO, Alpha)
In Alpha the product development is organized in a multi skilled team working
together:
we dont have anyone who is somebody elses boss, here everybody has their
own field of expertise. One engineer is in charge of mechanical engineering, another
one has control systems, one is working on the simulator side and so on. So its really
a multi skilled team working together.(CEO, Alpha)
Organizing product development in a team facilitates open communication and a
relatively flat organizational structure. Consciously focusing on human resource
management for creativity may in turn affect the organization culture, and thus
become a micro foundation for a firms innovative capability.
Beta has a more diversified organization, also in terms of acquiring human capital.
23
The Phd department works very long term with modelling and that kind of thing,
and then there is a more technical group, who work intensively to get this tool to
work. The scope is somewhat different. (CEO, Beta)
Regarding human capital Betas strategy begins with recruiting experienced
personnel.
The starting point is that we recruit senior people with experience first. They build
these two different parts of our organization. Then they handpick people they have
experience or worked with. In addition, we recruit some young people who havent
made all these experiences. Sometimes, you need to have somebody asking stupid
questions. You have to challenge established practice. Young people are good in
doing this because they dont take anything for given. There has to be a mix between
these two groups. To have the experienced people get in place first and have them let
them shape things has turned out very well in our firm. (BM, Beta)
Furthermore, their first priority is hiring, second using external expertise:
In some cases there is competence you really would have liked to have in the
organization. Because these persons already are in a favourable situation (they will
soon be retired, or need to work in a network to keep up their competence) you are
not able to employ them. But we want link them to the company as tight as possible
so that all the know-how will be shared and remain in the firm. (BM, Beta)
It can be concluded that acquiring human capital with innovative skills is an
important micro-foundation for innovative capability. Furthermore, the ability to
access competencies outside the organization itself, through consultants (another way
of acquiring human capital) seems also important. Our two firms seem to have a
similar perception of this, though they have developed different team sizes and have
different strategies in terms of hiring and using consultants.
Structuring for innovation
Managers shape and develop their organization. In small entrepreneurial companies,
managers have more influence of the course of the organization development. Both
Alpha and Beta are established around an innovative idea and thus building
infrastructure that might support the development of the idea is of crucial importance.
Both Alpha and Beta raise the topic of the importance of permitting the technology
developer to work freely and protected from pressures of the market situation.
For example Beta has completely separated the project development process from the
commercialization in order to face the challenge of meeting the deadlines and
continuing the technological progress:
We are in a business world, since we are a joint stock company. Then we have the
technology world. To us its very important to shield the technology world, so that
they can focus on their stuff. There is a mutual respect between those two worlds:
The technology group in our company understands that its the company management
and the commercial world that decides at the end of the day. And as long as we have
24
progress, according to a plan, they run their course and we do what we can to shield
them. (CFO, Beta)
Beta has been through reorganization of the organizational structure during our study.
The main aim was to focus the technology development even more, and to shield it
from the commercial parts of the organization. The motivation for this was also led
by the fact that they were using more time to develop the technology than foreseen in
their project plans. This put more strains on the organization, also financially, and
forced them to focus their activities. This is an example of reconfiguration of
resources and protection of the technological development process from market
pressure to facilitate innovative dynamic capability.
Also Alpha is aware of the importance of shielding the different processes in the firm
in able to have focus on technical solution and product development. The company
has a relatively flat structure where each person is responsible for a separate technical
field and reports to the CEO. However, while technical problems are openly
discussed, more strategic issues are decided by the management and the board of
directors. It seems that this firm has developed a separating capability to deal with the
commercialization issue as well, as described above.
these kinds of things I normally discuss with the board of directors. In that forum
we agree how we do the big lines. So thats really how we make these decisions. The
strategic decisions I make together with the board of directors. (CEO, Alpha)
The strategy of separating the development from other processes in the firm gives
results according to employees at Alpha:
No matter how you twist and turn it, the largest obstacle in all development projects
is to be allowed to focus on the project and be able to control the resources. When I
started in Alpha, the pace that we developed the product in was new to me. I have
never seen it happen before. But it is because we just work on one thing here. This is
development! We have no customers, nothing like that! We are allowed to have focus.
Its a different agenda. (CTO, Alpha)
Both companies have separated the strategic decision making from the technological
development process. Beta it may be argued that protecting the technological
development from market pressures is an important component for focusing the
technological development and thus enhancing the innovative capability of the firm.
Open exchanges with the potential first customers also gives input to the innovation
process. For Alpha it may be argued that the relatively open process with inputs from
suppliers, research institutes and customers, makes a richer resource base of
knowledge and know how to enhance the innovation process.
25
Alpha
Beta
Challenges in size:
Collaborating with large
organizations.
Organizational transformation
for commercializing
Strategic Intent
Product
Focused technological
development
Process
Position
Paradigm
26
5. Discussion
The perspective and approach of our research taken is based on the need to better
understand for the origins and development of dynamic capabilities in the context of
commercialising discontinuous innovations in new entrepreneurial firms. We narrow
our scope of study to investigate the essential microfoundations of dynamic
capabilities. Hence, this involves how a new firms microfoundations play a pivotal
role in developing discontinuous innovation. We differ from previous research that
examines capabilities within entrerpreneurial firms (e.g., McKelvie and Davidsson,
2009) by examining the origins and microfoundations of dynamic capabilities within
early-stage firms where the development of capabilities have yet to fully materialize.
Empirical studies so far have focused on the processes established firms are
struggling with. Established firms already have a product or service, already have
customers, employees and an established organization structure. Thus, the focus has
been on how they change to fit with the changing environment rather than on how
they are initially developed.
Recently, Ambrosini and Bowman (2009) have argued that additional research should
be conducted to better understand the underlying antecedents and consequences of
dynamic capabilities. Additionally, Helfat et al. (2007) assert that prior literature has
placed less emphasis on the underlying processes that an organization requires in
order to move from its starting position to a new or adjusted path. This means that in
addition to identifying dynamic capabilities, research must also focus on how and
when they develop. The present perspective explored how managers and their teams
develop dynamic capabilities conditioned by the microfoundations they are engaged
in. Additionally, we align the microfoundations investigated within a framework of
discontinuous innovation. We adopted a framework and offer propositions based on
the innovation research advanced by Francis and Bessant (2005) that is similar to the
central processes that underlie the creation of dynamic capabilities. Thus, research
on how capabilities are developed based on the context of discontinuous innovation
was needed.
In our interviews, we found evidence that four different types of microfoundations
product, process, position, and paradigm were present in each of our firms. Each of
these microfoundations were concrete activities in the firms. More specifically, they
described how they, among other things, conduct technology searches and incorporate
technology from other industries into their products, work with universities and
research institutes (nationally, regionally, and internationally), gain knowledge from
customers, use customers to open doors to enable them to learn from existing players,
acquire funding, and recruit personnel with the right background. While both firms
are developing innovative and technically advanced products, they did differ in the
manner in which they participated in each of the four microfoundational roles (as
shown in Table 3). In order to succeed, they differ somewhat in how they absorb
knowledge from other industries, involve creative and innovatively orient partners or
suppliers, and recruit innovative-oriented people, to name a few.
Common for both firms were the search for new technology; however due to Betas
innovation being more research based, their search is explicitly on research-based
knowledge. Alpha seems to exhibit a wider range of partnership involvement,
including those with suppliers and potential customers in addition to research
27
institutes and university. Our data also reveals a rich picture of the firm-specific
microfoundations associated with the roles of position and paradigm. With regard to
the position, we found that the microfoundations are related to both involving
potential customers in the development of the product, collaborating with large
organizations, gaining legitimacy through being visible and repositioning their
organization for commercialization. With regard to paradigm the Alpha and Beta
differed in their strategic intent, their strategies for acquiring human capital and how
they structured their organization for innovation.
Our data also indicates that the transformation of the organization through employees,
the reconfiguration of the board, being visible and networking are essential process
and position microfoundations for how the firms respond to the market and external
resources. The organization becomes visible because it makes use of the knowledge
that external actors posit and integrates into the organization. These microfoundation
are strengthened by the firms active role in search for employees, board members
and information through their network and being visible. Our findings clearly showed
how the firms used their adaptive capabilities differently in response to differences in
their situation.
We have also shown how creating an imbalance between the progress of the
product and the progress in building the organization (paradigm) can contribute to
further strain on the organization as in Beta. Because such innovations are marked
with a high technical and market uncertainty it becomes essential that the building
firm legitimacy and reputation can reduce this uncertainty. Clearly, the issue of
legitimacy building in commercializing discontinuous innovation deserves more
research attention. We may conclude that this study in several ways add to existing
research on shedding light on the complex processes of adaptation when firms face
change in technological and market conditions (Verona and Ravasi, 2003). Our
findings reveal that the microfoundations seem to foster various dynamic capabilities
such as absorptive, adaptive and innovative. We also see that in the case of emerging
firms often elements that are important to facilitate absorptive and adaptive
capabilities are enhancing the innovative capabilities as well. We can also modify our
propositions to include the following:
Proposition 1: The product role will be a key microfoundation underlying
innovative dynamic capability
Proposition 2: The process role will be a key microfoundation underlying
absorptive dynamic capability
Proposition 3: The position role will be a key microfoundation underlying
adaptive dynamic capability
Proposition 4: The paradigm role will be a key microfoundation underlying
innovative dynamic capability
These findings extend prior research and provide empirical evidence for the role of
micofoundations for building dynamic capabilities in new emerging firms.
28
6. Conclusion
Entrepreneurial Firm and Managerial Implications
As this research concerns with what managers in new firms actually do and how
dynamic capabilities in practice are created and developed, a strategy-as-practice lens
(Jarzabkowski et al., 2007; Johnson et al., 2003) was employed in this study. The
interview material provide rich narrative quotes revealing managerial experience in
how the role of product, process, position and paradigm serve as assets for developing
dynamic capabilities in the process of commercializing their innovations. This is
important in order to research how dynamic capabilities must be well targeted and
deployed towards achieving strategic goals (cf. Zahra et. al., 2006). In our interview
and findings, the idea of new technologies and new ways of doing things can be
found in each of our four microfoundations of the product, process, position, and
paradigm functions that serve as the origins of the creation of dynamic capabilities for
discontinous innovation. At the very basic role of the product, our firms use a
number of novel approaches that can be adopted and employed by other firms as they
adapt their technology, price/value their innovation, and minimize the risk for their
customers.
As for the other microfoundation roles, both position and process become important,
particularly as the firm begins to test the market with its initial product technology.
The importance of building legitimacy with several of their approaches along with
ensuring a power balance with future customers and suppliers should also be
considered in the early stages of an entrepreneurial organizations development and
future growth. Equally important is the microfoundation concerning process,
particularly as the business identifies new partners in furthering their technology and
finding new markets. Internal processes related to organizational development,
culture, recruitment and selection that can foster commitment and buy-in for those
responsible for implementing and extending the firms innovation over time.
The managerial take-away of this paper is that entrepreneurial firms may take
deliberate steps in developing strong capabilities through carefully paying attention to
their firm specific foundations. The findings in this study support the notion that the
positioning plays an important role in developing adaptive capabilities. By involving
potential customers to participate in development of the new product, collaborating
with larger organizations, gaining legitimacy by being visible and reposition the
organization for commercialization, managers adapt more quickly to the demanding
external environment and align their internal resources to handle the challenges of
commercialization. To develop an awareness of a firms internal resources or lack
thereof may prove to be an important managerial task in developing specific
strategies for how to develop the organization towards commercializing the product.
This study points to that networking skills, customer orientation, building of human
capital are important microfoundations in this process. Thus this study is our first step
to give a contribution to how entrepreneurial firms must manage capabilities to gain
performance- related benefits (cf. Zahra et al., 2006).
29
30
Researchers should also recognize that firms vary significantly in their origins,
strategy, and goals. Different founding conditions may cause ventures to evolve
differently and, as a result, to develop different types of learning capabilities at
various stages of their evolution (Vohora et al., 2004). Many of these variables are
likely to shape how these ventures create and reconfigure their microfoundations and
build different dynamic capabilities at different stages of their evolution. Mahoney
(2005) stresses the importance of differences in teams in their firm-specific
experiences as a key source of innovation, especially in transforming capabilities and
resources to a key source of innovation that fosters organizational growth.
As the research continues, our work has the opportunity for an engaged scholarship
approach that crosses multiple disciplines in business and science and adopts a
reciprocal, collaborative relationship with industry to inform, disseminate, and share
many of the leading and emerging practices on the commercialization of innovation.
As such, our own research approach becomes dynamic and in multiple ways is
characteristic of how our own firms integrate and leverage their own learning to
assess and build the microfoundations that underlie organizational capabilities to
deliver measureable results and market innovations.
31
APPENDIX
Table 1: Characteristics of the firms
Alpha
Beta
Founded
2005
2003
Idea
Industry
based
(from Research based
technology foresight)
Technology
Patented
Patented
Competence in firm
Market niche
Number
employees
Drilling and
technology
of 6 employees, 6 consultants
17
Founder
Ownership structure
32
company
Prototype made
of Minimizes
cost
increases
safety,
environmental damage
End of 2010
and Minimizes
cost,
less environmental damage.
less
33
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